Enterprise Risk Management (Erm) In Local Government

Thantaswa Nobubele Mpetsheni
Manager Enterprise Risk at iLembe District Municipality, with 6 years Risk Management experience and 15 years public service experience in Auditing and finance

It is the process whereby the Municipalities both methodically and intuitively addresses the risks attached to the strategic objectives and activities of the Municipality and entities in local government. The goal is to ensure the achievement of strategic objectives as well as the sustained benefit within each activity and across the portfolio of activities. Enterprise Risk Management is therefore recognised as an integral part of sound organisational management and is being promoted internationally and in South Africa as a good practice applicable to the public and private sectors.
Effective risk management directly impacts on improved service delivery. Thus, all within the Municipal structure has a responsibility for risk management and this responsibility should therefore be an explicit or implicit part of everyone’s job description noting that key performance areas on risk management can be included in the SDBIP for Senior Management and Individual Performance Management System for all employees
Virtually all personnel produce information used in risk management or take other actions needed to manage risks. Employees are responsible for communicating risks such as problems in operations, non-compliance with the code of conduct, other policy violations or illegal actions.
Councillors as well as the Board (entities ) from Local government are responsible to set objectives in the Integrated Development Plan(IDP) which are aligned to Provincial and National goals. Once Objectives are set they are cascaded to the Service Delivery Budget Implementation Plan to be implemented by administration in support of the IDP objectives. Strategic Risk assessment process is done by management to identify possible risks that may hinder the Municipality in achieving the objectives and the Risk Register is developed.

Mandate for Risk Management in Municipalities

The board should implement a comprehensive system of controls to ensure that risks are mitigated and that the company’s objectives are attained.
The National Treasury has also adopted the Enterprise Risk Management Framework which is guiding Municipalities and its entities in implementing the Enterprise Risk Management Programme. Each Municipality has to develop the Risk Management Strategy and Policy to be adopted by Council.

Risk Management is a requirement that has been set by government in its effort to ensure efficient and effective governance and ultimately quality service delivery to the people.
Section 62 of the Municipal Finance Management Act, 2003 (Act No 56 of 2003) states that the Municipal Manager is responsible for managing the Municipality’s financial administration. For this purpose the Municipal Manager must take all necessary steps to ensure, amongst others that the Municipality has and maintains effective, efficient and transparent systems of financial and risk management and internal control. King Report on Corporate Governance for South Africa, states that;
The National Treasury has also adopted the Enterprise Risk Management Framework which is guiding Municipalities and its entities in implementing the Enterprise Risk Management Programme. Each Municipality has to develop the Risk Management Strategy and Policy to be adopted by Council.

Objectives of Enterprise Risk Management in Local government

The purpose of Enterprise Risk Management in Local Government is to, among others provide the following:
• Advance the development and implementation of modern management practices and to support innovation through Municipalities.
• Contribute in building a risk smart workforce and environment that allows for innovation and responsible risk taking while ensuring legitimate precautions are taken to protect the public interest, maintain public trust, and ensure due diligence.
• Provide a comprehensive approach to better integrate risk management into strategic decision making.
• To provide guidance to Accounting Officer/ Municipal Manager, Executives Authorities, Management and staff when overseeing or implementing the development of processes, systems and techniques for managing risk, which are appropriate to the content of the district.
• To ensure that the risks that may cause the municipalities not to achieve the responsibilities of local government in terms of the Constitution are managed and addressed.
Risk Management is important for Municipalities and entities under them to implement the Enterprise Risk Management programme;
• To support the municipality’s governance responsibilities by ensuring that significant risk areas associated with policies, plans, programs and operations are identified and assessed, and that appropriate measures are in place to address unfavourable impacts;
• To improve results through more informed decision-making, by ensuring that values, competencies, tools and the supportive environment form the foundation for innovation and responsible risk-taking, and by encouraging learning from experience;
• To strengthen accountability by demonstrating that levels of risk associated with policies, plans, programs and operations are explicitly understood and that investment in risk management measures and stakeholder interests are optimally balanced; and
• To enhance stewardship and transparency by strengthening the Municipality’s capacity to safeguard human resources, property and interests.
• The process of risk management requires all participants to explore opportunities and problems deeply by applying a forward thinking approach. Such a process also ensures that there is a greater consideration of risk versus benefit as well as prioritization which allows opportunities and problems to be dealt with in real time.
• It allows for proper planning and alignment with the Integrated Development Plan and the Budgeting Planning process and ensures that there is seamless transition and movement within these strategic processes.
• Risk management in the local government sector also helps in fostering greater cross departmental and organisational communication. During risk assessment sessions bottle necks in a specific departments are exposed as the root cause for failings in other departments. This therefore results in mitigating actions being put in place that are across departmental and organisational structures, hence it helps to create overall improved synergy.
•  The common perception is that Local government is reactive rather than proactive i.e. always putting out the fires. Risk management therefore assists to provide necessary direction.. Issues such as drought, high poverty rates,HIV/Aids etc are not buzz words but are National ills. Risk management allows these national problems to be cascaded down from National and Provincial priorities to the local level and hence helps create a seamless transition from Local – Provincial – National.
• Accountability – though there is existing tools such as performance management that hold Senior Management accountable, Risk Management is a further tool to ensure that people in power are focusing on core issues.
The risk management process is another critical leg in governance and working together with Internal Audit it ensures that leadership take ownership of issues before and as they arise and are then held accountable should they fail to deal with these issues appropriately.
• Risk management is at the forefront of corporate governance in public sector organisations. The structures, processes, corporate values, culture and behavior are all paradigms of a business that need continual risk assessment. It is important for all government organisations to find the perfect fit for managing risk.
• Risk management is as much about identifying opportunities as avoiding or mitigating losses. It is a logical and systematic process of establishing the context, identifying, analysing, evaluating, treating, monitoring and communicating risks associated with any activity, function or process, in a way that enables an organisation to minimise losses and maximise opportunities.
• Risk management is already widely recognised as an integral part of good management practice. To improve effectiveness risk management should also become part of a municipality’s culture, by being integrated into its philosophy, practices and Integrated Development Plan rather than viewed or practiced as a separate program. Risk should be viewed as a performer rather than assessment or evaluation tool.
• Risk management process is one of the key mechanics which if implemented correctly can assist municipalities in achieving clean audits because it enables the strengthening of internal controls, ensures monitoring of compliance with laws and regulations and assists in achievement of targets.
• An effective Risk Management programme/ system will safeguard Councils interest and ensure the best use of limited municipal resources. This will not only achieve compliance but to add value to its oversight and managerial processes.
• It has become necessary to adopt a firm position on how to manage risk of the future and the adverse implication that it may hold and how it can be managed in the most effective, efficient and proactive way possible and to protect the municipality and its stakeholders against any possible future adverse and unforeseen occurrence.
• The risk management programme also focuses on proactively implementing preventative measures like loss prevention, anti-fraud and corruption and business continuity issues.