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Presented by:

Erike Young, MPPA, CSP, ARM-E

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Public Sector

Risk Management Administration

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Study of risk management in public sector requires understanding of public entities ◦ How they are administered

◦ How they are structured

◦ How risk management fits into structure

Big Picture ◦ Elected officials set public policy, administrators are

responsible for carrying out policy, and day-to-day operations

◦ Public administration is a combination of management, politics, and laws

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Public Policy is created and implemented using 5-step process ◦ Setting the agenda

◦ Policy decision made

◦ Implement decision

◦ Evaluation of decision

◦ Gather feedback

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Local governments derive their authority from the 10th Amendment ◦ “The powers not delegated to the US Constitution,

nor prohibited by it to the states, are reserved to the States respectively, or to the people.”

In 1990, there were 86,743 government entities in the US

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Types of entities ◦ State governments

Parallels federal government structure

◦ County governments

Governed by elected board of supervisors

◦ City governments

◦ Towns

Municipalities that are structured similar to cities, but have not met minimum population requirements

◦ Schools

Specific form of special district

◦ Special Purpose Districts

An entity that performs a single function such as to provide water, electricity, transportation, fire protection, etc..

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City Governments ◦ Cities are municipal corporations that meet state

requirements to qualify for a city charter

◦ City council is legislative branch

◦ Chief executive is determined by structure

Strong Mayor

Mayor serves as chief executive carrying out both policymaking and administrative activities

Weak Mayor

Most common in small towns, where council has most authority

Council-Manager

Council-manager is the fastest growing model in which city manager has authority to appoint and dismiss department heads

Mayor presides over council meetings 8

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City Governments ◦ Cities are municipal corporations that meet state

requirements to qualify for a city charter

◦ City council is legislative branch

◦ Chief executive is determined by structure

Strong Mayor

Mayor serves as chief executive carrying out both policymaking and administrative activities

Weak Mayor

Most common in small towns, where council has most authority

Council-Manager

Council-manager is the fastest growing model in which city manager has authority to appoint and dismiss department heads

Mayor presides over council meetings 9

The Public Administration Environment ◦ Management

◦ Politics

◦ Law

Within this environment, Risk managers walk a tightrope between public opinion and competing political pressures from elected officials

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Management ◦ Public administration is the practice of organization

and management as applied to the public sector

◦ Seven functions to successful administration (POSDCORB) p.48

Planning

Organizing

Staffing

Directing

Coordinating

Reporting

Budgeting

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Implementation of public policy draws political fire for public administrators in two ways ◦ Citizens tend to blame public administrators for

unpopular laws/policies/regulations, but do not blame the policy makers (elected officials)

◦ Most citizens do not understand how local governments operate

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Societal Culture ◦ Societal culture consists of the values, beliefs,

assumptions, and perceptions that are broadly shared by people living in close geographic or philosophical juxtaposition.

◦ Political culture is part of the overall societal culture that dictates and is dictated by the attitudes of the community.

◦ Organizational culture exists within an organization and influences all aspects of the organization

Viewed as belief and attitudes that govern the behavior of members

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Primary business of local government is to regulate actions of its citizens ◦ Building codes

◦ Zoning requirements

◦ Food and water standards

Local governments cannot take any action or institute a program unless a law (enabling legislation) allows them to do so

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Any decision a public entity makes becomes public policy ◦ Decisions to undertake or not to undertake an activity,

creates public policy

◦ Decisions often require the creation of agencies or departments that create more policies to guide public employees in following the overall public policy

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Setting an agenda

◦ Public decision making process begins with agendas set by various sources, mostly elected officials

◦ Agendas can also be set by administrative agencies or departments that generate proposals for executive and legislative bodies

◦ General public can also demand action

Vocal minority

◦ Not in the textbook, but major events/disasters and media attention help set the agenda

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Making Decisions – Three key areas must be evaluated in making decisions ◦ Cost-effectiveness

◦ Control

Ability to direct, document, and administer the process

Control does not mean being inflexible, flexibility is good if you can control and make changes to be responsive

◦ Customer service

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Implementing Decisions ◦ Public administrators are responsible for putting programs

into effect

◦ Generally, managers have the authority to make administrative decisions

◦ Issues that border on policy should be referred to general counsel for public entity

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Evaluating Programs – ◦ Criteria for evaluating public programs should include the

following:

Efficiency

Effectiveness

Compliance

◦ Programs should meet all three criteria, as programs can be

efficient and effective, but may not meet OSHA requirements

Gathering Feedback ◦ Information gathered in evaluation process creates new

agenda items and starts process over again

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Privatization is the shifting to a private sector of functions that public entities previously performed ◦ Takes three common forms

Sales of government assets

Private funding for public facilities

Private performance of services (trash collection)

Contracted services – entity retains control and ultimately responsibility for a program that is outsourced

See pages 60-63 25

Primary function of public finance administration is to manage how public entities generate and spend funds

Must meet for objectives for the economy as a whole ◦ Allocate financial resources to the programs that

need them

◦ Ensure resources are distributed to all economic and geographic groups within the community

◦ Stabilize the economy

◦ Ensure economic growth in the community

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Most crucial component is the public entity’s annual budget

Budget forms the financial framework for all of the entity’s activities ◦ Establishes the entity’s policy, direction, and

priority

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Objectives for the General Economy

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Goals for Local Government Financial Administration ◦ Accountability

◦ Equity

◦ Efficiency

◦ Availability of Funds

◦ Productivity

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For most public entities the budgeting process involves the following six aspects: ◦ Policy development

◦ Financial planning

◦ Operational planning and management

◦ Resulting economic development

◦ Communications

◦ Accountability

Two types of budgets ◦ Operational budgets –

fund day-to-day programs

◦ Capital budgets –

fund long-term assets such as buildings, roads, dams

Typically funded through bonds or other borrowing 30

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Fund accounting allows organizations to segregate money into special funds that are devoted for a specific purpose. Generally seven types of funds ◦ General fund

◦ Special revenue funds

◦ Capital project fund

◦ Debt service funds

◦ Enterprise funds

◦ Internal service funds

◦ Trust and agency funds

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GASB Reporting Standards ◦ Standards concerned with how public entities

report and measure assets, liabilities, revenues, and expenses

◦ Local governments are not required to follow GASB standards, but an entity cannot receive an “unqualified” audit report without GASB compliance.

This can effect credit rating of entity

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GASB Reporting Standards ◦ GASB 10 – Accounting and Financial Reporting for Risk

Financing and Related insurance issues

Intended to address underreporting and lack of financial reporting of risk management activities

Essentially reserves and estimates of losses must be treated as a liability, also includes IBNR

◦ GASB 11 – required entities to move from cash-based accounting to accrual-based accounting

◦ GASB 17 – intended to raise public level of financial responsibility and accountability closer to private sector

◦ GASB 30 – Mainly addresses intergovernmental risk pools

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Local governments were not involved in risk management until priced out of commercial insurance

Understanding that less claims meant more resources available for productive uses

Risk management has expanded to go beyond just the purchase of insurance and is now seen as a management tool

Even though a small public entity may not require a full-time risk manager, it still has full-time risks

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External considerations ◦ Citizens exert pressure on elected officials which creates

external pressures

◦ Small number of citizens can change policy by exercising influence with elected officials

◦ Risk managers must consider these external pressures in decision-making process

Internal considerations ◦ Risk managers job is also to convince other departments

that managing risks is in their best interest

◦ Best approach is to offer help and not mandating solutions

◦ Risk management is also change management

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Risk Management Organization ◦ Operational locations

One person should be assigned to coordinate all risk management functions

Usually part of finance department

◦ Risk Management Committee

Should include managers and key staff members

◦ Risk Management Policy Statements

◦ Standard Operating Procedures

◦ Employee cooperation

Main goal is to ensure compliance with safety and loss control policies

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