Following numerous corporate scandals, the reputation of the entire auditing profession and the board’s role as the champion of corporate governance was called into question. There are a large number of ERM frameworks these include:
COSO 2 – the Committee of Sponsoring Organisations of the Treadway Commission. 2004;
FERMA (The Federation of European Risk Management Associations) risk framework;
AS/NZS 4360:2004 – the Australian/New Zealand Standard on Risk Management; and
IIA – The Role of Internal Audit in Enterprise-wide Risk Management.Although these frameworks all relate to ERM, they attempt to explain from a particular perspective, be it management in the case of COSO or AS/NZS 4360:2004, or from an internal audit perspective in the case of the IIA standard on ERM. The author will attempt to integrate the various roles by using the Sobel and Reding (2004:30) model which presents an integrated ERM and governance framework. The model as presented on overleaf.The board is not responsible for risk management; however it does provide management with risk tolerances and direction. Senior management is responsible for risk management and defines risks tolerances to the various risk owners. Internal audit provides assurance to senior management and the board on the effectiveness of risk management and governance.The external auditors also provide assurance to management and the board on the organisation’s financial status. In the sections that follow, the researcher will:
provide a graphical presentation using various models that relate to each other; and provide an overview of the roles and responsibilities of the various stakeholders. In section 3.5 of this report, risk is defined, various classifications of risk are presented and an overview of the role of the Chief Risk Officer (CRO) is presented.
CHAPTER 4: RESEARCH METHODOLOGY
“Research is a systematic process of collecting, analysing and interpreting information (data) in order to increase our understanding of the phenomenon in which we are interested or concerned.” (Leedy, Ellis & Ormond, 2005: 2). As the body of knowledge in the area of ERM framework implementation in the public sector is limited, the research will be exploratory. As the body of knowledge in the area of ERM framework implementation in the public sector is limited, the study uses the body of knowledge that currently focuses on the private sector as a basis, and the applicability of the ERM frameworks within the public sector. The latter is used to develop the items for the research instrument. A study will be undertaken of the relevant literature in this subject, which includes books, legislation, official publications, newspaper, research surveys, theses and dissertations, as well as material from the internet. This chapter is devoted to research design and will provide details concerning the target population, sampling frame, data collection, design and secondary research such a reviewing other similar case studies. These include ….
The study will adopt quantitative research methods in the design of research instrument as it is deemed the most suitable for the study of this nature. Quantitative research is used to answer questions about relationships among measured variables, with the purpose of explaining, predicting, and controlling phenomena. (Leedy, et al., 2005: 94). The nature of study is to answer questions about relationships among variables describes earlier. Qualitative research method in the analysis of literature and legislation forms the basis of the study. This survey is based upon the perceptions of key stakeholders all involved in the implementation of ERM framework. All respondents’ data was captured on a spreadsheet designed by the researcher and approved by the statistician. All analysis was performed using the SPSS Version 14 software and is based on international best practice associated with standards and principles of statistical analysis.
Relationship between ERM and Corporate Governance
The descriptive analysis indicated that 44% of respondents were of the opinion that corporate governance presented the greatest risk to local and provincial government and public sector entities. Concerns around social risk most notably HIV/AIDS ranked second with 28%. There is generally agreement among respondents that the implementation of an ERM framework had positively impacted on corporate governance. This can be seen in the improvement of the understanding of risk faced by the organisation, where the mean score of 4.00 and standard deviation of 0.842 were measured. Similar trends emerged in the assessment of the levels of management accountability; and improvement of governance practices, with mean scores of 3.72 and 3.91 respectively. These results are further supported by analysis presented in table 28 wherein the correlation coefficient between ERM and the Role of the board was measured at .599, which indicates a significant positive correlation. The results of the survey will not be representative of all the South Africa local governments, provincial governments and public entities, as the sampling frame cannot be regarded as being representative of the entire population.
RECOMMENDATIONS FOR FURTHER RESEARCH
Further research could be conducted in the areas discussed below. The first is the development of an integrated model similar to that combines COSO, the Internal Audit Position statement on ERM and King II. This will allow for consistency in implementation across the organisation. Conduct research survey focusing on corporate governance over a five to ten year period, as the impact of various ERM frameworks should become tangible over time. Investigate the benefit experienced by the various stakeholders in the creation of the CRO role or similar in a public or private sector setting Develop an ERM Maturity level framework, based on key indicators, including ERM training, appointment of Chief Risk Officer, ERM, and Balance Scorecard indicators, ERM Communication, Internal Audit’s role. Conduct a study with specific emphasis on the role of the internal audit from the audit perspective as well as from the senior management and risk management perspectives. Investigate the relationship between the implementation of ERM and organisational Strategy within the public sector. The study should also focus on determining the implementation by internal audit of the Internal Audit’s Institute UK and Ireland position statement on ERM or a similar framework. Investigate the relationship between the implementation of an ERM framework and the financial benefits associated with this.
In summary the results confirm a positive association between ERM; corporate governance and communication on risk management. However, in the case of the internal audit the results indicate that they do not associate with their role in ERM. The implementation of an ERM framework offers many potential benefits most notably to communities, stakeholders and civil society at large. The timing thereof could not be better as government continues to role out significant infrastructural projects such as mass housing and electrification projects.
In conclusion Enterprise Risk Management offers a tool to all stakeholders to improve the level of Corporate Governance within public entities.
1. CHAPTER 1- ORIENTATION
1.3. STATEMENT OF THE PROBLEM
1.4. RESEARCH OBJECTIVES
1.5. CONTRIBUTION AND IMPORTANCE OF THE STUDY
1.6. CLARIFICATION OF CONCEPTS
1.7. DELIMITATION OF THE STUDY
1.8. PLAN OF THE STUDY
2. CHAPTER 2: THEORETICAL FOUNDATION OF THE STUDY
2.2. THE SOUTH AFRICAN CONSTITUTION
2.3. PFMA and MFMA
2.4. INTERNAL AUDIT
2.5. AUDIT COMMITTEE
2.6. KING II
2.7. RISK MANAGEMENT
3. CHAPTER 3: LITERATURE REVIEW
3.2. THE BOARD
3.3. THE ROLE OF MANAGEMENT AND THE CEO
3.4. THE ROLE OF THE INTERNAL AUDIT IN ERM
3.5. RISK MANAGEMENT
3.6. THE ROLE OF THE CHIEF RISK OFFICER
4. CHAPTER 4: RESEARCH METHODOLOGY
4.2. TARGET POPULATION
4.3. DATA COLLECTION
4.4. DATA ANALYSIS
4.5. THE INSTRUMENT OF MEASUREMENT
4.6. RESEARCH ETHICS
4.7. RESEARCH PROPOSITIONS
4.9. REPORTING RESULTS
5. CHAPTER 5: RESEARCH RESULTS
5.2. THE SAMPLE
5.3. DESCRIPTIVE STATISTICS
5.4. FACTOR AND RELIABILITY ANALYSIS
6. CHAPTER 6: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
6.2. TERMS OF REFERENCE
6.4. LIMITATIONS OF THE STUDY
6.5. RECOMMENDATIONS FOR FURTHER RESEARCH
7. LIST OF REFERENCES
ANNEXURE 2 – RESEARCH QUESTIONNAIRE
ANNEXURE 3 – RESEARCH RESULTS
GET THE COMPLETE PROJECT
Implementation of Enterprise Risk Management as a Tool for Improving Corporate Governance within the Public Sector.