Risk management as a strategy for promoting sound financial management at Sedibeng District Municipality

Abstract

Since the introduction of the Municipal Finance Management Act (MFMA) in 2003 and the Public Sector Risk Management Framework in 2010, Municipalities had to start focusing on proper risk management as part of their management activities. Within the government sector, risk management needs to be implemented in order to prevent financial losses and to improve service delivery. If shortcomings regarding risk management exist within a municipality, it could have a negative effect on sound financial management and the outcome of annual audits. This study was conducted to test the hypothesis, namely if shortcomings regarding risk management exist within a municipality. Should this be the case, it could possible affect sound financial management and the outcome of annual audits. This was to a large extent proven within this case study and it is likely that other municipalities will have similar problems. Information was obtained from two groups of officials of the Sedibeng District Municipality by means of one-on-one interviews and hand delivered questionnaires. Group 1 consisted of 14 officials not in management positions and group 2 of 11 officials in senior management positions. The questionnaire comprised five sections of questions that aimed at determining the extent of knowledge and attitude of the respondent towards monitoring, assessment, identification and response to risk management within their specific departments. Analysis of the results indicated clearly that the overall risk management knowledge differed substantially from group 1 to group 2. The knowledge, monitoring, assessment, identification and response to risk management activities were minimal or unclear to respondents not in management positions. Respondents in senior management positions were more aware of risk management responsibilities. However they admitted that it was not always done as required and in many cases only due to compliance. The results are strengthened by the statement released by the Auditor General in his 2011 audit report on Sedibeng District Municipality stating “the implementation of appropriate risk management activities to ensure risk assessment, were not conducted and the risk strategy to address the risks was not developed and monitored.” Various recommendations are proposed within this article that could improve the overall management and sustainability of risk management within municipalities.