CHAPTER 2 - PURPOSE, APPLICABILITY AND BACKGROUND
(1) This Framework has been developed in terms of the following provisions of the MFMA:
a) sections 62(1)(c)(i) and 95(c)(i) of the MFMA, which require the Accounting Officers to ensure that their municipalities and municipal entities have and maintain effective, efficient and transparent systems of risk management, and
b) section 20(1)(iv), (v) and (vi) of the MFMA, which empowers the Minister of Finance to prescribe uniform norms and standards in terms of this Act.
(2) The Framework aims to support Institutions (municipalities and municipal entities) to leverage effective risk management practices to protect against adverse outcomes and optimise opportunities, thereby improving institutional performance and enhancing value for citizens.
(3) The application of the Framework will enable the Executive, Management and officials to better understand risk and opportunities in the everyday functioning of the Institution and as a critical part of their normal duties, and to manage them more effectively.
(4) The Framework is perceived from the aforementioned MFMA perspective that seeks to enhance the effective, efficient and economical use of public resources. Its principles, tactics and documentation can however be utilised for risk management in the delivery of the municipal objectives set out in section 152 of The Constitution, read with Schedule 4 (Part 4B) thereto, as well as other legislative prescripts applicable to local government.
(1) The Framework applies to municipalities and municipal entities, collectively referred to as "Institutions"
(2) The Framework recognises that Institutions are not homogenous hence it is not possible to produce a blueprint that can be generically replicated across all Institutions.
(3) The Framework is thus principles-based rather than being prescriptive. It aims to provide a high-level frame of good principles, standards, models and practices to help Institutions to address the management of risks in a comprehensive and structured manner.
(4) Appreciating the diverse constitutional authority of Institutions, as well as other dynamics of local government, Institutions are expected to adapt the Framework according to their specific requirements.
(1) Institutions are bound by their Constitutional mandates to provide services or products in an efficient, cost effective and economical way.
(2) No institution functions in a risk-free environment and in fulfilling their mandates public institutions are especially vulnerable to risks while being ripe for opportunities at the same time.
(3) Many of the functions within the scope of the local government mandate pose substantial risk exposures but which cannot be avoided in the interest of the public good. Local government institutions therefore characterise elevated risk profiles. This places an extra duty of care on decision makers and managers to ensure that risks are properly managed and the Institution is able to fulfil its mandate notwithstanding the inherent riskiness.
(4) Risk management is a valuable management tool which increases an institution’s prospects of success through minimising negative outcomes and optimising opportunities.
(5) Local and international trends confirm that risk management is a strategic imperative rather than an option within high performing institutions.
(6) A hallmark of high performing institutions is that they set clear and realistic strategies, develop achievable objectives aligned to the strategies, understand the intrinsic risks associated therewith and direct resources towards managing such risks on the basis of cost-benefit principles.
(7) Recognising the foregoing, sections 62(1)(c)(i) and 95(c)(i) of the MFMA enjoins Institutions to implement and maintain effective, efficient and transparent systems of risk management and internal control.
(8) The intention of 4(7) is that Institutions should leverage the system of risk management to achieve, among other things, the following outcomes to underpin and enhance overall performance:
a) more sustainable and reliable delivery of services;
b) informed decisions through appropriate rigour and analysis;
d) reduced waste;
e) prevention of fraud and corruption;
f) better value for money through more efficient use of resources, and
g) better outputs and outcomes through improved project and programme management.