Guidelines and Strategies for

Improvement

VOLUME 1
Contents
u Foreword 5

u Executive Summary 6

u Risk Management and Internal

Control Guidelines 8
• What is internal control? 8
• Why do I need to be concerned about
internal control? 8
• What is the risk management and
internal control assessment process? 8
• How can risk management and internal
control assessment help me? 9
• Why self-assessment? 10
• What are the elements covered in the
risk management and internal control
assessment process? 10
• Using the self-assessment matrix 12
• A step-by-step approach to using the
13
self-assessment matrix and tools

u Strategies for Improvement 17

• Outputs of the self-assessment process 17
• Leadership 19
• HR mechanisms used to reinforce risk
management and internal control 21
• Accountability for risk management
and internal control 22
• Business and control process supports 23

u Appendix: Survey of internal

control practices in NSW agencies 27
 Foreword

Foreword
The NSW Government is committed to a three part financial reform strategy comprising:

u fiscal reform;

u competition reform; and

u service quality.

Successful implementation of this strategy requires all NSW Government agencies to focus on continuous
improvement in the efficiency and effectiveness of their service provision. An integral part of this is the
adoption of a risk management framework that is responsive to an agency's changing environment and is
supported by an effective system of internal controls.

To assist agencies in developing a responsive and cutting edge approach to financial management, NSW
Treasury has developed a suite of risk management and internal control implementation tools with the
assistance of Coopers & Lybrand. These are designed to provide a robust methodology for risk assessment
together with practical strategies to assist agencies implement change.

Further, NSW Treasury is committed to partnering agencies in the change process. The involvement to date
of a number of agencies in the development of this toolkit is a testament to the benefits achieved by this
consultative approach.

Our thanks are extended to the NSW Technical and Further Education Commission, Energy Australia,
Totalizator Agency Board of NSW, Department of Housing, Workcover Authority, Tourism NSW and the
Attorney-General's Department. Also, the contributions made by representatives of the Premiers Department,
the Cabinet Office, the Audit Office of NSW and the former Public Employment Office to the Steering
Committee were invaluable.

1 endorse the adoption of this risk management and internal control framework by agencies as a fundamental
step towards an outward looking, internationally competitive and innovative State Public Sector.

The Hon Michael Egan MLC

Treasurer

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 Risk Management
Internal Control
Executive
Summary
Introduction
In response to a renewed international focus on the
importance of risk management and internal control,
NSW Treasury has developed a Risk Management
and Internal Control Toolkit designed to assist
agencies in implementation of an efficient and
effective risk management and internal control
framework. This initiative is part of an increased
commitment by NSW Treasury to provide practical
assistance to agencies in the implementation of
financial management reform initiatives.
The Project
The constantly changing environment within which
an agency operates together with increasing
demands on resources places an added emphasis to
the importance of risk identification and
management. Effective internal controls are an
integral part of this management process. This is
reflected in the increased profile given to risk and
internal control at the international level. The United
States of America, the United Kingdom and South
Africa have developed integrated risk management
and internal control frameworks currently being
adopted successfully in both the public and private
sectors.
Concerns expressed by the NSW Public Accounts
Committee, the Audit Office of NSW and the
Independent Commission Against Corruption further
underline the need for NSW Government agencies to
address risk management and internal control as a
matter of priority.
NSW Treasury's initial response was the
development of a Statement of Best Practice for
Internal Control and Internal Audit (the BPS) issued
in June 1995. This publication adopted the
internationally accepted definition of internal control
as being "a process, effected by an organisation's
Board of Directors, Chief Executive Officer, senior
management and other employees, designed to
provide reasonable assurance regarding the
achievement of the organisation's objectives". This
definition emphasises that internal controls permeate
all aspects of an organisation's operations and that
NSW TREASURY TPP97 - 3
Executive Summary
internal controls are the responsibility of everyone
within the organisation.
In recognition of the importance of this initiative,
NSW Treasury commissioned a survey of NSW
Public Sector agencies to assess attitudes to risk and
'Internal control, the extent of adoption of best
practice principles and implementation impediments.
The results of the survey indicated that, whilst risk
management and internal control were seen as
essential to the achievement of agency objectives, a
majority of respondents were concerned that a lack
of understanding of risk management and effective
internal control was impeding implementation.
Although respondents were firm in the belief that
internal controls can address management
objectives, less than 27% of respondents believed
that their organisation's approach did so. In
summary, the survey indicated that:
u internal control is in a preliminary stage as a
management tool;
u increased understanding of the application of
risk management principles and effective
internal controls is needed; and
u leadership from the top is essential for
successful implementation of a responsive and
comprehensive risk management and internal
control framework.
The Toolkit
The toolkit has been developed as a practical
implementation methodology addressing improved
risk management and internal control in the NSW
public sector context.
The kit consists of:
u Risk Management and Internal Control
Assessment Guidelines;
u Risk Management and Internal Control
u Risk Management and Internal Control
Assessment Matrix;
u Implementation Strategies.
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 Risk Management
Internal Control Executive Summary

Supported by:

u Results of the Survey of Internal Control

Practices in NSW Agencies;

u NSW Public Sector Case Studies.

The Risk Management and Internal Control

Assessment Guidelines outline the importance and
benefits to the organisation of the approach and
explain how to use the toolkit. The implementation
methodology developed is based on a self-
assessment approach. The Assessment Matrix
consists of a series of questions covering elements of
risk management and internal control covered by
NSW Treasury's Best Practice Statement together
with additional elements derived from ongoing
research in Australia and overseas. The questions are
designed to enable an agency to assess its status on
the scale of basic to best practice for each element.
This enables an agency to compare its operations
against best practice and identify those areas where
improvement is needed.

Once an agency has assessed its status in relation to

best practice and where it wishes to be,
consideration may be given to the generic
implementation strategies which suggest practical
ways in which an agency can move toward its
desired position. The strategies necessarily will need
to be tailored to the agency's specific objective and
risk environment.

The framework developed is consistent with and

supports the quality initiatives of the NSW
Government (refer Premier's memorandum 95/49).

Summary
A comprehensive yet responsive framework of risk
management and effective internal control is
essential to the achievement of an agency's
objectives. The Risk Management and Internal
Control Toolkit is designed to enable agencies to
self-assess their position in relation to current best
practice and assist agencies in moving toward best
practice through the provision of generic
improvement strategies.

NSW Treasury is committed to assisting agencies in

the implementation of this approach.

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