IRMSA Public Sector Roadshow Summary
Written by: Dr Anushka Bogdanov, Risk Insights (Pty) Ltd
Risk Management is important in the public and private sector. Major governance failures have resulted in various scandals and significant reputational damage in both sectors of the South African economy. Considering the critical role that public sector plays in the South African economy; its recent dysfunction has had major implications for private sector as it has affected credit ratings, confidence of foreign investors and premiums leading to increased cost of doing business in the country.
To recover from the above dilemma and restore investor confidence the public sector needs to ensure that it has stronger than ever risk management function, which is supported by a risk management framework and leadership credible to implement a risk culture within an organisation with a bottom–up and top down approach. It does not mean simply policing an organisation but rather creating an enabling environment where the public fiscus is protected and the mandate of the public sector is fully respected and thoroughly implemented in all government organisations. This will create a strong foundation for investor confidence and economic growth for the country.
Looking back in the recent decades the role of risk management has gained more momentum in the world since the aftermath of the financial crisis in 1998, when people realized that brilliant models may lead to disastrous results if basic risk management principals are ignored. The risk management function prior to the 1998 crisis reported into finance and was only elevated since, after that crisis. Risk management appears to be benchmarked against the banks in the private sector as banking is seen as the heart of any economy and one of the sectors where risk management in its present form has the oldest roots. It took a while for the risk management role to be elevated both globally and in South Africa, in the banking sector as well as in major corporates. 30 years later it still has a long way to go in all sectors of an economy. Recent examples of the banking and corporate failures are an unfortunate confirmation.
As we all witnessed some state owned enterprises in South Africa have failed, and this has been mainly due to poor governance, lack of risk management culture and poor leadership. Risk management has been downplayed and neglected in many entities and to date, have poor skilled chief risk officers lacking education,
experience, credibility in the organisation and poorly trained conflicted Board members. The role of the risk officer is crucial to be able to steer an organisation in the right direction. Good risk management allows for strong implementation of strategy; this entails robust enterprise risk management which provides an account of all risks in the organisation, mitigations and controls that are in place and the residual risks that remain and the clear costs associated with such residual risk. All of the above needs to be clearly identified, documented and reported on a regular basis, but more importantly, clearly explained at various levels of the organisation. For instance, residual risk may result in an expected loss that may be financial or psychological and may have an implication for society or the public institution. Effective risk reporting will assist management to strategically position an organisation to deal with risks in a timely manner managing its impact. However, for the latter to occur a mature risk culture with credible risk leadership is extremely important.
Going forward, South Africa needs a resilient public and private sector which both has strong leadership and boards of directors which recognize and understand the role of risk management within the organisation. The buy-in and support of senior management for a strong risk culture is crucial, moving from a tick-box function into a robust risk function with professionals which have experience in risk management who can provide a full risk tool box for the organisation which includes:
• Risk Management Culture
• Risk Management Policies
• Risk Management Processes
• Risk Management Capacity
• Risk Management Reporting
• Risk Management Models
IRMSA Public Sector Roadshow Summary