The regulatory framework for enterprise risk management in South African local government

Abstract

Background: Enterprise risk management (ERM) entails the processes and procedures applied to mitigate uncertainties that could impact the achievement of objectives. New public management introduced business practices such as ERM to the public sector, which was adopted by the South African government across all three spheres of government including municipalities. Local government is obliged to implement ERM because of legislative requirements, National Treasury prescripts and the adoption of the King IV Code of Corporate Governance.Aim: To discuss ERM within the public sector and provides the contextualisation of ERM. It sets out the ERM structure, roles and responsibilities required by legislation and good corporate governance. Recommendations to improve ERM are provided.Setting: Within the South African local government.Methods: This study adopted a qualitative research approach and applied a research method based on desktop analysis of literature and secondary data sources using unobtrusive research techniques.Results: Reference is only made to risk in relation to financial management in municipal legislation. National Treasury has guided ERM through the Public Sector Risk Management Framework. The King IV Code provides guidance to local government councils regarding risk governance.Conclusion: The current legislative framework does not provide adequate guidance for effective ERM. Focus is placed on controls and compliance, which undermines ERM’s potential contribution to value creation. ERM within local government has little predictive value and has limited contribution in ensuring objectives are achieved.