Financial Risks Management in Public Sector Organisations

Abstract

Effectiveness of financial risk management predicts the successful implementation of different government projects and programmes. Empirical facts, however, indicate the existing financial risk management framework is not that effective for enhancing effective identification and mitigation of financial risks in the contemporary complex South African public sector organisations. Using a qualitative research method, this study provides a meta-synthesis of theories and empirical studies on financial risk management in the South African public sector. The motive was to identify the major inhibitors and appropriate financial risk management framework that can be suggested. Despite highlighting the existence of essential regulatory frameworks, findings revealed the effectiveness of financial risk management in the contemporary South African public sector is still constrained by poor culture of financial risk avoidance, poor commitment of managers and political leaders, limited integration of financial risk management measures at municipal levels, weak internal audit systems, and technical loopholes in the existing regulatory frameworks. In addition to relying on the existing regulatory frameworks, it is suggested that public sector risk managers must adopt a comprehensive financial risk management framework coherently integrating essential key success factors encompassing a culture of risk avoidance, risk management structures, training and development, good governance and ethics. Other postulated strategies included the allocation of sufficient resources, integration of risk management in outsourcing, monitoring and evaluation, and the establishment of the financial risk information system. With appropriate environment created after the integration of these key success factors, it is posited that it becomes possible for public sector financial risk managers to successfully apply a six steps’ (step 1: identification of risks, step 2: analysis of the causing factors, step 3: analysis of the likelihood of occurrence, step 4: prioritisation of the identified risks, step 5: formulation and implementation of risk response, and step 6: continuous evaluation of the effectiveness of risk response undertaken) approach for risk identification and management.

Keywords: financial risk management; public sector organisations; performance; risk management