INTERNAL CONTROL AND RISK MANAGEMENT IN PUBLIC FINANCE - Copy.pptx

Leveraging Internal Control and Risk Management tools for Public Financial Management Excellence

1. INTERNAL CONTROL AND RISK MANAGEMENT: THE PUBLIC SECTOR PERSPECTIVE   BY OGBU, Godwin Otseme MNIM, FCNA, ACTI MBA, Ms C [phone] princeogbu2007 @gmail.com BEING A PAPER DELIVERED AT THE TUGAR/CIFCFIN PUBLIC FINANCIAL MANAGEMENT TRAINING FOR KATSINA STATE GOVERNMENT SENIOR FINANCE OFFICERS 2025

2. outline Introduction 1 Internal control and Risk management principles and concepts Public financial control structure Identifying and assessing risks Monitoring and evaluating internal control effectiveness. Internal controls and fraud management Conclusion

3. ObjectiveS of this module Participants are expected to; Understand the concept of Internal Control and Risk Management in PFM Appreciate the components and relevance of Internal Control and Risk Management Understand how Internal Control and risk management mitigate fraud in public sector Appreciate the inter-relatedness of the Internal Control functions and the Internal Audit in Public sector. Leverage Internal Control Best practices to improve their role as government auditors

4. INTRODUCTION Public Finance as a tool for government raising and spending its resources, and effects of these activities on the economy. Allocative, Distribution and Stabilization function of Public Finance Internal control defined Internal Control in Public Financial Management Allocation Function: budget implementation, preventing misallocation and wastage of public resources. ensuring funds are used for intended purpose Distribution Function: Fairness and accountability in public expenditure and revenue collection, preventing leakages and ensuring that public funds reach their intended beneficiaries Stabilization Function (Indirectly): it enhances fiscal discipline, prevents financial mismanagement, and promotes confidence in public financial management, which can contribute to overall economic stability

5. INTRODUCTION Contd Risk Management in Public Finance – Identifying, assessing, and mitigating financial losses to enhance fiscal stability. Challenges in Financial Governance – Procurement fraud, weak audit compliance, and limited stakeholder engagement. Reforms in Nigeria’s Public Sector – Implementation of TSA, G IFMIS, and IPSAS to strengthen financial oversight Leveraging technology, enhancing audit frameworks, and enforcing compliance to strengthen internal control Effective Financial Oversight via Internal Control – Improved resource allocation, reduced corruption risks, and increased public confidence

6. PRINCIPLES AND CONCEPTS OF INTERNAL CONTROL IN PUBLIC FINANCIAL MANAGEMENT Internal Control as a Value-Added Function – Enhancing efficiency, transparency, and resource optimization in Public Financial Management (PFM). Evolving Expectations of Internal Control & Audit – Shifting from traditional compliance to providing strategic assurance and risk mitigation. Adapting to Emerging Risks – Aligning internal controls with technological advancements and evolving stakeholder demands.

7. PRINCIPLES AND CONCEPTS OF INTERNAL CONTROL IN PUBLIC FINANCIAL MANAGEMENT

8. OBJECTIVES OF INTERNAL CONTROL IN PFM Efficient Use of Public Resources – Ensures that government resources are used effectively and e ffectively . Accuracy and Reliability of Financial Reporting – Prevents errors and misstatements in financial statements. Compliance with Laws and Regulations – Ensures adherence to financial and procurement laws, reducing legal risks. Prevention and Detection of Fraud and Corruption – Strengthens accountability and mitigates financial misconduct. Improved Decision-Making – Provides reliable financial information for policy formulation and governance.

9. COMPONENTS OF internal control Control Environment Risk Assessment Control Activities Information and Communication Monitoring

10. RISK MANAGEMENT PRINCIPLES AND CONCEPTS Risk Management – A systematic process of identifying, assessing, and mitigating risks (likelihood of occurrence of events) to achieve sustained benefits (Hopkin, 2018). Risk Management in Public Finance F ocuses on minimizing uncertainties affecting government revenues, expenditures, and fiscal stability. Strategic Importance – Integrating risk management enhances decision-making, resource allocation, and economic stability (Enrico et al., 2020). Proactive Risk Management – Helps public organizations anticipate challenges, improve efficiency, and strengthen service delivery. Embedding in Core Processes – Aligning risk management with strategic planning ensures resilience and long-term organizational success (Bracci, Lippi, & Vannoni , 2020).

11. TYPES OF RISK IN PUBLIC FINANCE Fiscal Risks –. eg revenue shortfall, excessive public debt Macroeconomic Risks – eg inflation, exchange rate volatility Operational Risks – eg inefficiencies, fraud or mismanagement Political and Governance Risks – eg policy uncertainties, corruption, political instability. Environmental and Social Risks eg natural disasters, pandemic, social unrest etc

12. Principles of Risk Management in Public Finance Risk Identification – Systematically recognizing risks affecting fiscal policies, investments, and service delivery. Risk Assessment and Analysis – Evaluating risk likelihood and impact using qualitative and quantitative methods. Risk Mitigation Strategies – Implementing fiscal buffers, revenue diversification, and governance frameworks to reduce risks. Risk Monitoring and Reporting – Continuously tracking financial risks and ensuring transparency through regular reporting. Review and Tracking – Updating risk policies to address emerging threats and maintain economic stability. Stakeholder Engagement and Communication – Collaborating with institutions and the public to enhance risk awareness and response

13. Risk mitigation

14. Public financial control structure According to Mainoma and Aruwa (2022), Public Financial Management Control refers to the legal and administrative systems and processes that will ensure the effective economic and efficient utilization of public resources in accordance with defined standards. Purpose of Financial Control – Maintains accountability, transparency, and efficiency in managing public funds. Public Finance Control Structure – Comprises checks, balances, and regulatory mechanisms for financial oversight. Includes internal controls, policies, procedures, and institutional arrangements. Impact on Governance – Strengthens fiscal discipline, prevents misuse of funds, and enhances public trust.

15. Key Institutions Involved In The Public Financial Management Structure In Nigeria Federal Ministry of Finance Office of the Accountant General of the Federation (OAGF) Central Bank of Nigeria (CBN) Budget Office of the Federation (BOF) Debt Management Office (DMO) National Assembly (particularly the Public Accounts Committee) 7. Office of the Auditor General of the Federation 8. Anti-Corruption Agencies (e.g., Economic and Financial Crimes Commission - EFCC, Independent Corrupt Practices Commission - ICPC) 9. Federal Inland Revenue Service (FIRS) 10.Financial Reporting Council of Nigeria (FRCN

16. Public finance control TOOLS Budgeting Process – Guides resource allocation and expenditure planning to achieve fiscal objectives. Public Procurement Act – Regulates transparent and efficient public sector procurement processes. Internal Control Systems – Prevents fraud, ensures compliance, and enhances financial discipline. Audit and Oversight Mechanisms – Provides independent financial review and accountability enforcement. Treasury Single Account (TSA) – Centralizes government revenues to enhance cash management and transparency. Debt Management and Reporting – Monitors public debt sustainability and ensures responsible borrowing. Anti-Corruption and Accountability Agencies – Enforces financial integrity and prevents misuse of public funds. Financial Reporting Framework – Standardizes financial disclosures to improve transparency and comparability. Revenue Collection and Monitoring Tools – Enhances efficiency in tax collection and public revenue tracking. Legal and Regulatory Framework – Establishes laws and policies governing public financial management. Judiciary: Ensures that legal disputes relating to public finance are resolved according to the law.

17. RISK IDENTIFICATION IN Public finance Revenue Generation Risks – Economic downturns, tax evasion, and dependency on volatile income sources. Expenditure Risks – Overspending, fund misallocation, and inefficiencies in public service delivery. Debt Management Risks – High public debt levels, interest rate volatility, and exchange rate risks. Financial Reporting Risks – Errors, non-compliance, and fraud in financial statements. Operational Risks – Weak internal controls, governance failures, and cybersecurity threats. Legal and Regulatory Risks – Policy changes and non-compliance with financial regulations .

18. RISK ASSESMENT IN Public finance Likelihood Assessment – Evaluating the probability of risks using qualitative or quantitative methods. Impact Assessment – Measuring the financial, social, and economic consequences of risks. Risk Rating – Ranking risks based on severity to prioritize action. Scenario Analysis – Exploring how risks interact under different economic conditions. Stress Testing – Simulating extreme conditions to test financial resilience.

19. RISK ASSESMENT TOOLS IN Public finance Risk Registers – Documenting risks, likelihood, impact, and mitigation plans. SWOT Analysis – Evaluating internal and external factors affecting financial stability. Risk Matrices – Mapping risks based on likelihood and impact for prioritization. Eg documentation vs default for contractors! Key Risk Indicators ( KRIs ) – Tracking financial risks in revenue, debt, or expenditure. Stress Tests and Simulations – Assessing responses to worst-case scenarios

20. common risks IN Public finance Fraud and Corruption Risk Procurement and Contract Management Risk Budgetary Risk Compliance and Regulatory Risk

21. INTERNAL CONTROL AND FRAUD MANAGEMENT IN Public finance : FINANCIAL OVERSIGHT MECHANISMS Strict Budgetary Control MTEF – Multi-year budgeting for fiscal discipline. ZBB – Justifies expenditures each period to prevent waste. Expenditure Tracking – Ensures alignment with government priorities. Legislative Oversight – PAC scrutinizes budget implementation. Automation of Financial Transactions GI FMIS – Consolidates financial transactions, reduces errors. GIFMIS – Ensures budget execution and financial reporting. TSA – Consolidates government revenues to reduce leakages. E-Procurement – Ensures compliance in procurement processes . Independent Regulatory Oversight OAuGF – Audits government finances. EFCC /ICPC – Investigates financial crimes & Tackles corruption in public finance. FRC – Enforces the Fiscal Responsibility Act. Real-Time Financial Monitoring Open Treasury Portal – Public access to government transactions. NEITI – Monitors oil and gas revenues. PEFA Framework – Assesses public financial management

22. INTERNAL CONTROL AND FRAUD MANAGEMENT IN Public finance 1. Prevention of Fraud Establishes clear policies, segregation of duties, and staff training to minimize fraud opportunities. Creates an ethical work environment where employees understand the consequences of misconduct. 2. Detection of Fraud Uses internal audits, data analytics, and whistleblower mechanisms for early fraud detection. Enables real-time monitoring of financial transactions to identify irregularities. 3. Correction and Response Facilitates swift investigations and corrective actions when fraud is detected. Strengthens weak controls, enforces disciplinary measures, and revises policies to prevent recurrence. 4. Risk Mitigation Conducts regular risk assessments to identify and address fraud-prone areas. Ensures compliance with financial policies through continuous monitoring.

23. INTERNAL CONTROL AND FRAUD MANAGEMENT IN Public finance 5. Accountability and Transparency Promotes accurate financial reporting and adherence to regulatory requirements. Enhances stakeholder confidence and credibility through ethical corporate culture. 6. Value Addition Improves financial management, decision-making, and operational efficiency. Safeguards assets and optimizes resource allocation, reducing financial losses (Chen et al., 2021). 7. Deterrence of Fraud Reduces fraud risks by enforcing strict monitoring and severe consequences. Encourages ethical behavior as employees and external parties recognize the risk of detection (Albrecht et al., 2020).

24. Re cap Strengthening internal controls, procurement monitoring, and fraud detection mechanisms can reduce financial leakages and improve service delivery in Nigeria’s public financial management. Despite reforms like TSA, GIFMIS, and IPSAS, challenges such as weak audit follow-ups, enforcement gaps, and corruption risks persist, requiring continuous monitoring and stakeholder collaboration. Strengthening internal audits, ensuring compliance with financial regulations, and fostering a culture of accountability will enhance transparency and resilience in the public sector.