Risk Management Technologies within the System of State Financial Control

TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

      Risk Management Technologies within the
          System of State Financial Control
                                         Andrey Gennadievich Lukin
               Korolev Samara National Research University, 34 Moscow shosse, Samara, Russia

   Abstract The paper analyses international risk           sector is most regulated in terms of accounting,
management models and identifies possibilities of their     assessment and analysis of various risks. Many
application within Russian state financial control. The     researchers recognise that risk management
legislative acts regulating the organisation and            technologies should be applied at the state level: in
implementation of state financial control will need to
                                                            particular, within the system of state financial
be changed. Based upon the studies and analysis, a
conclusion was drawn as to the application of risk
                                                            management. The application of these technologies is
management technology in the system of state financial      especially important in connection with the concept
control. The results can be used for improving risk         introduced in Russia on sustainable economic
management technologies within the state financial          development. Utilising general scientific methods
control in the conditions of digitization of economy.       were studied, namely: a systematic approach, logical
  Keywords – State financial management, risk-
                                                            generalisation and analysis, the main international
oriented management technologies, risk-based decision       models of risk management.
making; risk assessment.                                       According to the State standard “R 31000-2010”,
                                                            in Russia, risk management is understood as
                                                            coordinated actions to manage the organisation
1. Introduction                                             taking into account the risk. Also, "the risk
                                                            management infrastructure is built into the entire
   The identification of risks utilising risk assessment,   strategic and operational policies and practices of
accounting and analysis in the last decade, have            organisation". The standard risk management process
become very relevant for practical management in            is systematic application of management policies,
general, and financial management in particular.            procedures and practices to the activities of
Publications in the field of risk management affect         information exchange (context) and identification,
risk management techniques in the banking and               analysis, assessment, impact on risk, monitoring and
financial spheres. This is understandable, since these      risk revision.
industries are controlled by the regulator and define a
system for managing financial flows, therefore,
guarantees of stability through limiting risks in them      2. Materials and methods
are particularly important. For these reasons, this
                                                                Risk is an undefined event or condition that has a
                                                            positive or negative impact on the objectives of the
                                                            Cagliano project [1]. At present, two conceptual
DOI: 10.18421/TEM82-18                                      models of risk management are widespread in the
https://dx.doi.org/10.18421/TEM82-18                        world, namely: COSO (2004) and FERMA (2003).
                                                              The first model is "Risk management of
Corresponding author: Andrey Gennadievich Lukin,
                                                            organisations. The integrated model COSO, 2004",
Korolev Samara National Research University,
Samara, Russia
                                                            was developed by the specialists of Price water house
Email: a.economylukin@rambler.ru                            Coopers, i.e. by the auditors for the internal auditors
                                                            [2]. The main emphasis in it is on increasing the
Received: 12 February 2019.                                 reliability and informative reporting of public
Accepted: 16 April 2019.                                    enterprises through assessing the risks of the internal
Published: 27 May 2019.                                     control system of an economic entity. At the same
                                                            time, risk management is a process that is carried out
             © 2019 Andrey Gennadievich Lukin;
                                                            by the board of directors, managers and other
published by UIKTEN. This work is licensed under the
                                                            employees and begins when developing a strategy
Creative Commons Attribution-NonCommercial-NoDerivs
                                                            which affects the whole activity of the organisation.
3.0 License.
                                                            The risk management in this model is aimed to
The article is published          with    Open     Access   identify events that can affect the organisation, to
at www.temjournal.com                                       manage the risks associated with these events, to

444                                                                   TEM Journal – Volume 8 / Number 2 / 2019
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

monitor the organisation’s "risk appetite" and to           objectives and compliance objectives, which are
provide a reasonable guarantee of achieving its goals.      operational, because they are functions of individual
  The second model, the FERMA model, was                    units. These goals are emphasised due to their
developed by several highly specialised organisations       importance.
(mainly from Europe) dealing with issues of risk                Further, taking into account the Russian
management (2003). The European FERMA model                 accounting standards – Regulations on Accounting
defines risk management as a process, ensuring that         7/98 and 8/01, a list of events that may have a
an organisation systematically analyses risks in order      negative impact on the achievement of these
to maximise the effectiveness of both individual            objectives (a list of risks) is drawn up. The most
decisions and all activities in general. At the same        complete list can be obtained on the basis of
time, the aim of risk management is to achieve the          classification of threats by some indications.
highest possible value of the organisation, which can           The evaluation of each risk is determined to
be regarded as the development of the natural goal of       compare them with each other. For the convenience
any commercial organisation – to obtain the                 of making decisions, manager needs a description
maximum possible profit. In this model, the process         and systematisation of risks. on how to respond to
of setting up a risk management system is more              them. Measures for risk management are developed
clearly     presented      and     more       specific      and implemented in practice.
recommendations are given (FERMA, 2011).                        A risk monitoring system is established to
  When examining risks in Russia, we used other             determine such parameters of risk management as
conceptual documents developed by international             efficiency (the positive effect of this process),
and Russian professional organizations.                     timeliness and capacity of the system. A system of
                                                            internal control of risk management is being
                                                            developed. A system for monitoring fraud risks and
3. Results
                                                            reporting distortions is being established.
   The process of risk management in an organisation            Periodic reviews of risk management are
based on widely recognised international approaches         conducted to ensure that they meet the requirements
can be presented in the form of a specific model            of standards or procedures [3].
(Figure 1.), which gives the following idea of how a            Thus, the definition of the organisation’s goals is
risk management system should operate in any                the starting point of the risk management process.
organization.                                               Therefore, the completeness of control over the entire
                                                            risk management system depends on how fully the
                                                            company's goals are allocated at this stage.
                                                                In the first stage, the company's risk management
                                                            team and the current management team initiates the
                                                            process by obtaining information. In future, at the
                                                            decision-making stage on risk management options,
                                                            the impact on the processes of the current
                                                            management system comes from the side of risk
                                                            management, which is fully integrated into the
                                                            operating processes of the economic entity [4].
                                                                At the stage of risk assessment, a full description
                                                            of the risks is drawn up, that is, events that may have
                                                            a negative impact on the achievement of the
                                                            objectives of the enterprise. At this stage companies
                                                            often use the method of SWOT-analysis. First of all
                                                            however, it is necessary to classify the risks.
                                                            Although the completeness of the identified risks of
 Figure 1. The process model of risk management within      the economic entity is determined by the latitude of
         an organisation (author’s development)             classification characteristics, it is desirable that this
                                                            grouping is compact and understandable for persons
    It is necessary to determine the goals of the           who will be involved in risk management.
economic entity, for example, by analysing the                  We have presented classification options that
statutory registration and bank documents and the           quite successfully combine both of these features:
organisation’s strategy. It is important to note that the   they cover all the functional elements of the
goals are to be measurable, that is, there should be an     management system with the division of risk factors
opportunity to determine whether the organisation’s         into internal and external and, at the same time, are
goals have reached or are moving towards achieving          not excessive.
them. The goal grouping includes reporting

TEM Journal – Volume 8 / Number 2 / 2019.                                                                      445
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

   The next element of risk assessment is risk              Functions of the     According to the provisions on units
identification, which is the process of identifying         unit (official) at   (job descriptions or other
events that potentially have a negative impact on the       risk                 documents)
organization's operations. For this, the methods            Interested people    Specific officials or their group
recommended in the FERMA model can be used:                                      according to the organisational and
                                                                                 staff structure and their expectations
 • compilation of questionnaires. Experts from
   among officials are invited to choose from the list
   of the risks they face, or to propose their own          Risk factors         Description of the prerequisites for
   option and assess the magnitude of the impact of         (causes)             the occurrence of risks
   these threats;
 • study of business processes with the definition of           The next step is to measure the risks. In world
   a number of internal and external factors and the        practice, a combination is made of the assessment of
   extent of their impact on the enterprise. This           the probability of occurrence of a negative event and
   method is suitable for compiling a list of risks,        the magnitude of possible damage, usually in the
   which is then proposed for consideration by              range from zero to one. The measurement of risk can
   experts;                                                 be: quantitative (in determining the probability and
 • analysis of emergency events, which can be used          damage using numerical values obtained as a result
   to compile a list of risks;                              of the application of mathematical methods and
 • the method of spontaneous detection of possible          models); qualitative (non-numerical values used, as a
   risks (brainstorming), which can also be used to         rule, from experts in the field of knowledge); mixed
   compile the list [2].                                    (both numerical and non-numeric values are used for
    Thus, the identification of risks can be carried out         Quantitative methods of analysis are more often
in two stages: at the first stage, by preparing a list of   more expensive (usually an order of magnitude),
possible risks, then during the analysis of this list by    since they require the collection of a large amount of
the experts who may develop their own version. It           statistical information and the use of specialised
should be noted that this approach makes it possible        software. During the time spent on obtaining
to increase the likelihood that the maximum number          quantitative risk assessment, a negative event may
of major risks will be identified.                          occur before the analysis is received.
    The next element of the stage under study                   According to the data and the results of a study
includes a description of risks, the main purpose of        conducted by the Marsh & McLennan group of
which is to present possible threats in a specific          companies (one of the world's recognised lighthouses
format, enabling their comparative analysis and             in the field of risk management consulting), the
allocation of the most significant threats. Most often,     practice of risk management in enterprises and
the method of expert assessment is used as a method         organisations registered in the Russian Federation, a
of describing risks.                                        qualitative risk assessment prevails at present.
    The format of the FERMA model can be taken as           According to the researchers, this is due to the fact
a basis for the description of risks, which, in this        that companies are experiencing a shortage of
article, has been adapted for better perceptions,           methods for quantifying risks [5].
taking into account changes in international risk               Also, attention should be paid to the fact that
management models (Table 1.).                               there is not always sufficient statistical data, on the
                                                            basis of which it is possible to obtain quantitative
Table 1. Description of risks in the FERMA assessment       estimates with a low level of variance (spread). In the
(based on Steinberg et al, 2004)                            practice of risk management for approximately 50%
Criterion of risk   Verbal description                      of the risks, it is simply impossible to obtain
Relation to         External or internal.                   quantitative estimates.
classification      Strategic or operational.                   As for qualitative methods of risk assessment, it
features            Risk of distortion of a particular      should be noted that an important condition for
                    reporting item                          obtaining acceptable results is the high qualification
The objectives of   Strategic.                              of the expert in the subject area. This can be achieved
the activities      Operating, including:                   by attracting key leaders as experts. After all the risks
associated with     - reliability of reporting;             are measured, it is necessary to identify the most
the risk            - completeness of compliance with       significant of them, those that need to be reduced in
                    legislation                             the first place. To do this, you first need to compare
A unit (officer)    According to the organisational and
                                                            the estimates with each other, and then determine the
that faces a risk   staff structure                         level of risk tolerance. The risk report refers to the
                                                            stages that require special attention. It is accepted to

446                                                                     TEM Journal – Volume 8 / Number 2 / 2019
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

highlight internal and external reports. Internal risk      of possible damage from risks or increase in
reports are intended for use at different levels of         additional benefits in the following ways:
organisation management:
                                                               − avoidance of risk. In practice, aversion is
−   at the level of the founders and the board of                expressed in the rejection of activities that entail
    directors (supervisory board). The report should             the occurrence of this risk;
    describe the most significant risks of the                 − reduction of risk. The essence of this technology
    economic entity, as well as measures to reduce               lies in the steps: risk insurance (transfer to
    them. The report should be prepared by top                   insurance companies for a fee); diversifying the
    managers;                                                    risk (reducing the likelihood of a negative event,
−   at the level of top management, trade unions of              for example, by increasing the number of
    workers of the organisation. The report should               suppliers); in the localisation of the risk
    describe all the risks of the organisation and               (decrease in the magnitude of the expected
    present measures to reduce them to such an extent            damage from the onset of a negative event, for
    that representatives of the management can                   example, by setting the maximum limit on the
    publicly state the information on the risk                   amount of debt to work with each counterparty);
    management system. The report should be                      compensation of risk (for example, by
    prepared by the units (officials) responsible for            increasing the additional capacity of the
    risk management;                                             organisation in carrying out a risky activity);
    at the level of structural units. The report should       − in the redistribution of risk, that is, transferring
    reflect the risks for which the unit is responsible,           it to outsourcing (to other organisations);
    how to manage them, and the monitoring                    − acceptance of risk, that is the absence of any
    mechanism. In addition, it is advisable to indicate            action to reduce it.
    the possible actions of the unit, which affect the
    risks of other units. The report should be prepared        The process of risk management should include
    by the structural unit in coordination with the         three stages: inclusion of risk management functions
    department (official) responsible for risk              in the organisational structure of the organisation,
    management;                                             that is, the decision of the question of who is
−   at the level of employees. Individual reports are       responsible for the risk management process;
    not compiled. It is important that each employee        development of a risk management strategy
    understands his contribution to the risk                (approaches to identification, risk assessment, ways
    management process, which is achieved by                of responding to it, etc.), that is, a description of the
    developing a risk management system (officer)           main ways of implementing each of the risk
    responsible     for    risk    management,      and     management steps (see Figure 1.); description of the
    familiarising all employees of the organisation         functions of risk management for specific officials.
    with its provisions.                                    [7].
                                                                Thus, at all stages it is useful to remember the
    It is advisable to include the external report in the   recommendation: in specific cases, the choice of
explanations to the annual financial statements for         means for reducing the risk depends on the
the possibility of acquaintance with the risk               possibilities of its prediction [8]. The issues of risk
management system of the enterprise of any                  management must be reflected in the organisation’s
interested persons. It is useful to include in this         strategy, employee training programs, departmental
document the information from the report prepared           regulations and job descriptions, so that the entire
for the founder and the board of directors.                 economic entity permeates the risk management
    The next stage is the risk management activities,       process, otherwise, implementing an effective risk
to which important element is an internal audit.            management system is unlikely.
Internal audit carries out the audit and evaluation of          The next stage we should consider is risk
the risk management system within the framework of          monitoring, which is a source of information for
its current activities or at the special request of         monitoring the process of risk management. It is on
managers responsible for specific areas of work [6].        the basis of the data received from the monitoring
    Any financial and economic activity is                  system that decisions are taken in the internal control
characterised by uncertainty, which combines                system. Within the framework of monitoring, risk
negative consequences (risks) and positive                  factors are identified and evaluated in the
(opportunities). Therefore, the risk management             interrelation of all functions and actions in the
process of an enterprise is the search for an               process of enterprise management.
acceptable compromise between the expected costs                Thus, the main requirement for a risk monitoring
of risk management and the reduction in the amount          system is the reflection of such parameters of the risk
                                                            management process as efficiency and timeliness,

TEM Journal – Volume 8 / Number 2 / 2019.                                                                      447
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

that is, the ability of the system at the right time to    economic agents to minimise risks and increase the
prevent possible losses by lower current costs.            profitability of companies.
Indirectly, the effectiveness and timeliness of the risk      In other words, what is the purpose of introducing
management process can be demonstrated by the full         these technologies into the structure of the financial
and timely performance of all the participants in the      control bodies of the Russian Federation?
system of their duties.                                       Until recently, financial risk management was the
    One of the key elements of the risk management         subject of research by the scientific community, and
process model is the control system, which should          its application to entrepreneurs was voluntary.
include internal and external control. The objectives      However, since the early 90's in the 20th century, the
of internal control are:                                   state became interested in the subject. The reason for
                                                           this were recurring corporate scandals, which shook
 − description and organisation of the risk                the national economy. It was recognised that the
   management system for all phases, reflected in          internal control systems in conjunction with the audit
   Fig. 1., bringing its provisions to all employees of    do not provide the necessary protection, primarily
   the organisation;                                       from the actions of hired management, which may
 − continuous analysis of the results of monitoring        act contrary to the mission of the company or
   the risk management system;                             companies.
 − making adjustments to the risk management                  A series of corporate scandals in which the largest
   process based on monitoring results;                    audit companies of the United States were
 − preparing reports for different users;                  implicated, according to scientists, led to the
 − periodic (as a rule, once a year) carrying out the      financial crisis of the early 21st century.
   following activities: identification of new goals          Over the entire history of the state's development,
   set by the enterprise (with the person who is           the search for the most optimal methods of financial
   responsible for the risk management system, it is       management of public financial resources, which the
   advisable to coordinate any changes in job              people entrusted to it in operational management, did
   descriptions, organizational structure and              not stop.
   functions of the units); assessment of new threats         It should be noted that, firstly, the state has the
   faced by the enterprise; developing ways to             ability to influence most of the factors (except
   manage new risks;                                       perhaps the natural phenomena) through coercive
 − participation in the development of the budget          tools permitted in the country's Constitution (the so-
   plan for the following periods in terms of costs for    called administrative resource). And what is
   risk management;                                        uncertain for business, can become planned actions
 − participation in the formation of insurance             for the state. Therefore, the emergence of most of the
   corporate programs;                                     risks that we attributed to the entrepreneurial is only
 − analysis of any new projects for risks, for which       possible for the state if it voluntarily steps down from
   management has not yet been identified as the           administrative regulation of certain processes and
   responsible person [9].                                 passes it to "clean" market relations.
                                                              Suffice it to recall the events of mid-2014, when
   It is worth noting that the rules, procedures and       the Central Bank of Russia abandoned the currency
methods of internal control must correspond to risks       corridor and sent the Russian ruble to free
and change in the interest of improving its quality.       navigation. However, in this case, one can not talk
Risk management is an independent block in the             about public administration. Public administration
overall system of company management. It does not          leads to administrative impact on financial processes
duplicate existing systems, but is their complement.       in the country.
   Thus, risk management technologies help to                 The greatest risks in connection with the least
reduce the impact of various threats on organisation,      possibilities of state influence are contained in the
which allows to develop more systematically and            process of forming public finances, i.e. in the process
avoid the occurrence of negative events.                   of collecting revenues of budgets of the budgetary
                                                           system [10]. Procedures for the use of public
4. Discussion: Approbation risk management                 financial resources are less susceptible to various
   technology in the system of public financial            negative impacts, if there are clear rules for their use
   management                                              that lead to concrete achievable results.
   The major concern is in the adaptation of risk             The greatest uncertainty for public financial
management technologies into the activities of the         management is the internal risks that arise from the
state financial control system, mainly because the         unpredictability of people's behavior. It is clear that
original purpose of these technologies was for free        the most effective methods of financial management,
                                                           allowing minimising a large number of risks, are

448                                                                  TEM Journal – Volume 8 / Number 2 / 2019
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

based on taking into account natural human                    It is understood that the participants in the
aspirations and desires.                                   procedures for planning and using financial resources
   In the state financial management it is necessary to    know what result should be achieved based on the
divide the participants into those who create rules,       needs and requests of the state and society; that they
but do not have the opportunity to directly use            do not seek to use their official powers for personal
financial resources (managers), and those who are          purposes and that they have the appropriate level of
obliged to execute these rules with direct use of          knowledge and skills.
public money, but do not have the opportunity to              However, as practice shows, this is far from the
change them (executors).                                   case, and risks in the management of public financial
   The basis of this scheme is an understanding of         resources are realised with frightening consistency.
human nature, according to which, if a person does         Therefore, additional control tools are becoming
not have the opportunity to use the financial              more urgent, the application of which is especially
resources, but he is able to create rules for using it,    important if the state seeks to avoid administrative
he will practically and intuitively create obstacles to    methods for regulating the use of financial resources.
others who have the opportunity to take advantage of          For example, it is the minimisation of the above-
this benefit in order to minimise the possibility of       mentioned risks that is directed by the risk-oriented
abuse. By using this effect, the technologies of           preliminary control carried out by the newly
mutual control of ISO standards work, in which the         organised State Financial Control Service of the
specialist, trying to confirm the correctness of the       Samara Region. The experience of preliminary
operation by another specialist (if he does not have a     control was reviewed at the end of October 2015 in
preliminary collusion with him), will try to prevent       Samara at the All-Russian Forum on the
his unjustified enrichment. To be effective from a         Implementation of State Financial Control.
risk management standpoint, the specialist must be            Deputy Finance Minister of the Russian Federation
independent and free from the auditor in evaluating        Aleksey Lavrov emphasised that the innovative
accounting reports.                                        experience of the State Financial Control Service of
   As regulatory instruments on the part of the            the Samara region requires implementation in all
manager, the following are used: formulation of            major regions of Russia. He also noted that if
financial policies and the definition of financial         specialists from other subjects worked in the same
performance based on the strategic objectives of the       way as the local Gosfinfinance Service, there would
state planning (not forecasting) and strict control        be fewer problems in the economy of the country
over the execution of plans; standardisation of costs      [11].
and prevention of exceeding the established norms;            What is the innovation in the activities of this
creation of a system of administrative responsibility      service? Judging by the reports, it consists in the
for failure to comply with rules and regulations, etc.     application of the so-called "traffic light" technique,
   If this scheme is broken, then additional               in which unreasonable expenditure obligations
monitoring tools must be applied which risk                correspond to "red light", and a requirement is put
management suggests. When delegating authority to          forward for the provision of additional supporting
create rules and parameters of activity, evaluating the    documents. Expenses for which certain budget risks
performance of the employees, human aspirations            have been identified and taken by the Gosfinfontrol
and desires should be included, namely, the desire to      of the Samara region for control until the time of
justify their shortcomings and mistakes, to adjust the     their development correspond to the "yellow light".
plan for the result "backdated", to assign what is            And, finally, only the expenditure commitments, in
"bad" and etc., and for this there are many                respect of which the effectiveness of their
possibilities. The exercise of control becomes             implementation was confirmed and the validity of
practically impossible, as the rules and plans are         budget expenditures (including the results of
adjusted and brought into line with the real               eliminating violations and observations identified by
indicators.                                                the State Financial Department of the Samara
   Today, the main source of risks in the management       Region, the implementation of recommendations),
of public financial resources is that the requirements     corresponds to the "green light". The main risks
for the content of operations for the planning and use     identified by this service are: planning of budgetary
of funds, as well as the requirements for the results of   expenses without taking into account actually
such use are replaced by the requirements for              incurred or already planned expenses; incorrect
organising the planning and use process. What is the       application of single quotations and norms of pricing
danger of such a replacement? The fact that the            in construction, as well as inclusion of unreasonable
requirements for the process, as well as the ideal         expenses; addition (increase) in the calculation of
models, include many assumptions.                          aggregated indexes, the validity of which is not
                                                           available; insurance at the expense of the budget of

TEM Journal – Volume 8 / Number 2 / 2019.                                                                   449
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

construction works, which, despite the absence of           remain, strengthening the negative effect of such
insured events, significant funds were spent; use in        reforms.
the planning of works of expensive materials and               Therefore, any departure from the above-
fixed assets with excessive properties; lack of proper      mentioned "executor-executor" scheme, even under
justification for the acquisition of various models of      the most seemingly good slogans, entails an increase
vehicles and computer equipment; incorrect                  in the number of risks, the fight against which begins
calculation of the cost of the event, included due to       to take away many forces, resources (including
the presence of arithmetic errors [12].                     financial ones) and the time needed for social
   As can be seen from the above list, a high degree        economic development.
of uncertainty, which can be attributed to real risks,         A vivid example of ignoring the rule "executor –
only has the possibility of arithmetical errors. The        executor", which caused significant damage to the
remaining risks can to a large extent be minimised          domestic state financial management, was the
due to the correct organisation of financial                "system of material incentives for workers in the
management and the application of methods of                budgetary sphere" [14], which, under the slogan
rationing, rigid planning and financial control by the      "granting greater rights for material incentives for
administrator of budget funds without engaging a            workers heads of budgetary organisations" led to the
specially created service.                                  delegation of authority to formulate rules for the
   Another source of uncertainty in state financial         formation of the wage system, at the level of the
control is the error in determining the role of finance     recipient it means budget.
in the economy. It must be remembered that finance             This, in turn, led to the enrichment of leaders and
is an instrument, not the goal of state policy. The         to the actual impoverishment of workers in this very
businessman's result of his activity is expressed in        budgetary sphere. The gap in wages (primarily in
profit. But for the state, profits are not important. For   bonus payments at the end of the year) in budgetary
the state, the social and economic effect of its            and public institutions between managers and
activities is important, which is not always expressed      employees has increased tenfold. The result was a
in money. How, for example, to assess in financial          massive outflow of workers from the necessary, but
terms, the health of the nation, the level of education     now low-paid categories – doctors, nurses, teachers
of the population, the level of defense or the level of     and teachers, etc., that is, a reverse economic effect
law enforcement?                                            was obtained.
   Therefore, making money in recent decades                   In fact, the state because of such reforms, was not
became a fundamental indicator in determining the           able to perform its functions to provide the public
result of socio-economic activity. This generated a         with public goods with high quality. The possibilities
large number of risks and was the most serious              of control without changing this situation are
mistake of public administration.                           negligible.
   So, in the first "composition" of the Russian               Another source of risks for today is the total
Empire on finance, published in 1841, it is stated: in      subordination of modern financial planning and the
the state, there are necessary, substantial costs, the      use of financial resources to the rules of financial
dissatisfaction of which would entail the destruction       accounting. Any financial documents, whether they
of the whole state organism. The frugality with             are plans, reports, estimates of income and expenses,
regard to the maintenance of the troops, sufficient for     requests for expenditure or tender documentation, are
external defense, would be detrimental. Here, small         drawn up according to the rules established by the
calculations and benefits must fall before great            Ministry of Finance of Russia, in accordance with the
popular interests.                                          requirements of the budget classification (with the
   All that we mean at the beginning of thrift is           recently implemented control over purchases and
avoiding unnecessary, useless costs, luxury and             natural indicators, it became possible to control the
extravagance [13]. It also says: how all the useful         validity of the purchase of certain goods).
rules, brought to the extreme, can become harmful,             As a result, the activity of the entire system of state
so the beginning of thrift should not be used for evil.     financial control is aimed at assessing the compliance
Unfortunately, today we are witnessing exactly such         of expenditures with budget classification codes.
a picture when, under the slogan "we learned to             Meanwhile, the budget classification is a grouping of
count money", crushing blows are struck on the              revenues and expenditures used to maintain budget
health care system, education and law enforcement           accounting, compile budget (accounting) and other
activities, etc.                                            financial statements to ensure comparability of the
   At the same time, the most undesirable results of        budget indicators of the budgetary system of the
misuse of financial resources, such as the cost of          Russian Federation [15].
luxury, unnecessary and expensive travel, abuse, etc.          From the total subordination of financial planning
                                                            and the use of financial resources to the rules of

450                                                                    TEM Journal – Volume 8 / Number 2 / 2019
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

financial accounting, the principle of transparency        of the privatisation programme of a number of state-
(openness) of the budgets of the budgetary system,         owned enterprises during the rule of M. Thatcher.
declared in the budget code suffers [15]. After all, in    [17].
order to understand where budget money is directed            Some scientists recommend the use of risk
from the budget laws for the corresponding financial       assessment methods in the development of
year, you need not only knowledge of the budget            innovative enterprise development programs in the
classification itself, but also a lot of time for the      public sector of the economy [19]. As the scientists
analysis of articles, sub-items and cost elements. In      of the Polytechnic University "Bari" emphasise in the
this group there is an opportunity to hide any             system of public-private partnership in the transport
expenses from any kind of control.                         sector of the economy, risk management
   Thus, an analysis of the law on the budget of the       technologies can be used to determine the validity of
Samara region for 2014 showed that the costs of            tariffs and identify shadow revenues [20],[21].
maintaining government bodies, considered in the              In China, the evaluation of political risks is of
context of sections / subsections of the classification    particular importance in the system of public-private
of expenditures of the budget classification of the        partnership [17].
Russian Federation, are about 4%, in terms of                 The approbation of risk management technologies
targeted articles – 9.4% and in the context of codes       in the system of state financial management of the
KOSGU already 19% of the total budget                      Russian Federation can, in our opinion, be carried out
expenditures [16].                                         within the framework of the state financial control in
   Abroad, risk management technologies are most           the following key areas.
often used within the framework of the activities of          First, to assess the risks of non-compliance with
public organisations responsible for such services as      budget legislation by institutions and agencies.
the provision of health-care and education, industry       During the risk assessment and analysis phase,
regulation and payment of a social nature.                 threats and weaknesses of possible non-compliance
   An example of the introduction of risk                  of the requirements of the budget legislation of the
management technology in Italy is the introduction         Russian Federation by the subjects of control may be
of ISTAT, a public research organisation founded in        determined, distortion of budgetary reporting with
1926 and engaged in the production of official             the purpose of understating budget expenditures and
statistics in Italy, the ERM (Corporate Risk               misappropriation or waste of funds may be revealed.
Management) model. The implementation process                 Secondly, to assess the risks of non-compliance
included the following phases: the experimental            with legislation in the field of public procurement.
phase, creation of a risk map, quantitative and            Risk management technologies can allow you to
qualitative risk assessmentThe first step of the           assess the likelihood of collusion in the conduct of
ISTAT RM process was the analysis of the internal          auctions and the placement of tenders. At the same
environment. The second phase is the creation of a         time, parallel control technologies can be used
risk map.                                                  actively when risk assessment is carried out by both
   A list of managed risks was established and their       state authorities and internal control services of
impact on the activities of the institute was assessed.    private enterprises in parallel for the same
The third phase is risk assessment with the help of        transactions [22].
quantitative and qualitative methods. The main issues         Third, to monitor and identify the risks of financial
of implementation can be considered: difficulties that     pyramids and prevent illegal banking activities. This
prevented the corresponding risk identification and        sphere of application of risk management is actively
treatment; selection of identification methods that are    studied in the foreign press [23]. The first attempts to
most suitable for attracting internal and external         apply risk management technologies are currently
stakeholders; agreeing on the need to involve staff in     being undertaken by the Bank of Russia Service for
order to communicate without overlapping other             Financial Markets, which implements the automated
organisational structures; identification of the           information system of internal control "Cash Flow"
relationship between risks to actively manage risks,       [24].
especially when these occur in many cases; anticipate         According to this system, on the basis of
emerging risks and risks that never occurred in the        transactions and cash flows in the accounts of
[17].                                                      commercial banks, signs and indicators of fraudulent
   Another specific area of application of risk            actions by organisations and institutions of "financial
management models is the assessment of political           pyramids" and illegal banks operating without
risk. In particular, in the studies of Barrett [18], the   appropriate licenses are identified, and a full
risk of political reforms in Australia was assessed.       assessment of the risk of bankruptcy and illegal
An interesting experience in the application of risk       withdrawal of the assets of these types of financial
management models in the UK is the risk assessment         institutions is possible.

TEM Journal – Volume 8 / Number 2 / 2019.                                                                    451
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

   Fourth, risk management technologies can be             to a digital economy, automation of risk management
tested in the course of countering illegal gambling        technology is necessary. These problems can become
businesses by assessing the risks and developing           key in the process of advancing risk management
measures taken towards professional participants of        technologies in the system of state financial
the securities market involved in the organisation of      management of Russia in the future.
illegal gambling businesses.                                  The application of risk management technologies
   Fifth, for the law enforcement agencies, risk           in the system of state financial control of Russia is an
management technologies can be acquired for                important element of control organization in the
identifying problem areas and assessing the risks of       transition to a new digital economy, which
corruption and preparing a forecast of criminological      determines these technologies as promising and
characteristics of corruption-related crimes.              progressive.
   Thus, risk management technologies and their               Risk management technologies and their elements
elements can first of all be tested in countering          can be tested first of all in countering unscrupulous
unscrupulous practices and crimes in the financial         practices and crimes in the financial market and in
market and in the budgetary sphere, which certainly        the budgetary sphere, which makes them a promising
make them promising in the system of state financial       technology within the system of state financial
control.                                                   control.

5. Conclusion                                              References.
   It is safe to say that at the present time even the     [1]. Cagliano, A.C., Grimaldi S., & Rafele C. (2015).
most advanced control technology or risk                        Choosing project risk management techniques. a
management is not able to correct errors in financial           theoretical framework. Journal of Risk Research,
management. And, in our opinion, the most                       18(2), 232–248. doi: 10.1080/13669877.2014.896398.
important thing: you need a user interested in             [2]. Steinberg R. M., Martene F. M., Everson M. A., &
information, including those provided as a result of            Nottingham L. (2004). The Committee of Sponsoring
risk management activities. If, as is the case today,           Organizations of the Treadway Commission (COSO).
the persons who carry out state financial control,              Risk management of the organization. Integrated
(including the use of risk-oriented technologies) do            model. (COSO ERM). Retrieved from:
not disseminate their information, there will be no             https://www.coso.org/documents/coso_ERM_Executi
                                                                veSummary_Russian.pdf ,
one to implement it in full and the use of even the
                                                                [accessed: 02 Februray 2019].
most advanced technologies will lead to minimal            [3]. Agarkov, G. A., Bessonov, D. A., Sukhikh, V. S.,
effect.                                                         Khanova, A. R., & Yuryeva, L. V. (2016).
   Therefore, before copying from the business of risk          International risk management models: opportunities
management technology, as well as other                         for application and results. International Accounting,
technologies, it is necessary to return to the state            13, 52–68.
control that has been worked out for centuries and to      [4]. Hwang, Y. H. (2014). The proposal for an open
determine the right place for financial resources as an         source financial risk model, Journal of Financial
important instrument of state policy. In other words,           Regulation and Compliance, 22(3), 219–234.
the correct organisation of state financial                     doi: 10.1108/JFRC-08-2013-0027.
                                                           [5]. Marsh Risk Consulting (2008). Report on the Results
management should be placed first.
                                                                of Marsh Risk Consulting in Russia and
   The second stage should be the creation of a                 Commonwealth of Independent States. With the
system of state financial control, rather than a set of         Support of the Russian Society for Risk Management.
controlling bodies, as it is today, as a result of which        April–August 2008.       Retrieved from:
the need for additional monitoring instruments is               http://rrms.ru/upload/common/doc/briefing_issledova
minimised (although for the needs of the state                  niya.pdf , [accessed: 05 February 2019].
financial management it is permissible to use the          [6]. Podchufarov, A.Y., Brundasova, S.Y., and
most advanced techniques from the sphere of risk                Samotskaya, O. I. (2015). Evolution and relevance of
management: methods of documenting identified                   risk management in the Russian economy, Electronic
risks (maintaining a risk matrix), risk management              information systems, 2, 85-92.
                                                           [7]. Edrich C., (2002). Moods of the mind and
                                                                consequences in corporate governance and control:
   An equally important aspect in the adaptation and            part 2. Journal of Financial Regulation and
application of risk management technologies is the              Compliance, 10(4), 355-360.
emphasis of government agencies on the                          doi: 10.1108/13581980210810337.
development of unified quantitative risk assessment        [8]. Serebryakova, T.Y. (2017). Organization risk
techniques and the correct classification of risks for          management: methodological aspect. International
public administration purposes. Also, when moving               Accounting, 5, 294–306.

452                                                                   TEM Journal – Volume 8 / Number 2 / 2019
TEM Journal. Volume 8, Issue 2, Pages 444-453, ISSN 2217-8309, DOI: 10.18421/TEM82-18, May 2019.

[9]. Hwang, Y. H. (2015). Risk quantities: an approach to       [16]. Samara Provincial Duma (2013). Law of the
     understanding modern financial risk. Journal of                 Samara Region of December 4, 2013 № 105-GD On
     Financial Regulation and Compliance, 23(2), 179–                the Regional Budget for 2014 and for the Planning
     195, doi: 10.1108/JFRC-02-2014-0015.                            Period of 2015 and 2016. Retrieved from:
[10]. Yashina, N, I., & Pronchatov-Rubtsova, N. N.                   http://www.samregion.ru/documents/laws/21.05.201
     (2014). Definition of budgetary risks of the Nizhny             3/skip/31/57984/        [accessed: 07 January 2019].
     Novgorod Region on the basis of execution of the           [17]. Ke, Y., Wang, S., & Chan, A. P. (2012). Risk
     revenue and expenditure part of the budget. Bulletin of         management practice in China's Public-Private
     the Nizhny Novgorod University named after N.I.                 Partnership projects. Journal of Civil Engineering
     Lobachevsky. Series: Social Sciences, 14(36), 16–24.            and Management, 18(5), 675-684.
[11]. Experts from all over the country discussed in                 doi: 10.3846/13923730.2012.723380.
     Samara the issues of state financial control, (2015).      [18]. Barrett, P. AO (2014). New Development: Risk
     Volgacommune,          Retrieved from:                          Management – how to Regain Trust and Confidence
     http://www.vkonline.ru/news/archive/156800/ekspert              in Government, Public Money & Management, 34(6),
     y-so-vsej-strany-obsudili-v-samare-voprosy-                     459–464. doi: 10.1080/09540962.2014.962376.
     gosudarstvennogo-finansovogo-kontroly.a                    [19]. Smith D. & Toft B. (1998). Risk and Crisis
     [accessed 03 February 2019].                                    Management in the Public Sector: Issues in Public
[12]. Service of the state Financial Control of Samara               Sector Risk Management, Public Money and
     Region (2016). Report on the activities of state                Management, 18(4), 7-10.
     control of the Samara region for 2012 – 2014 and the            doi: 10.1111/1467-9302.00133.
     expired period of 2015.      Retrieved from:              [20]. Osborne B. & Brown, S. P., (2013). Risk and
     http://gfk.samregion.ru/totals/Itogi2014/                     Innovation, Public Management Review, 15(2), 186–
     [accessed: 03 February 2019].                                 208.      doi: 10.1080/14719037.2012.707681.
[13]. Gorlov, I. (2014) The theory of finance: the             [21]. Carbonara, N., Costantino, N., Gunnigan, L. &
     composition of Ivan Gorlov, Rep. ed. in 2014, the             Pellegrino R. (2015). Risk Management in Motorway
     Publishing House of Kazan university, Kazan.                  PPP projects: Empirical-based Guidelines, Transport
[14]. Government of the Russian Federation (2008).                 Reviews, 35(2), 162–182.
     Decree No. 583 of the Government of the Russian               doi: 10.1080/01441647.2015.1012696.
     Federation of 05.08.2008 "On the Introduction of          [22]. Hefetz, A., Warner, M., & Vigoda-Gadot, E. (2014).
     New Payment Systems for Employees of Federal                  Concurrent sourcing in the public sector: A strategy to
     Budget, Autonomous and State Institutions and                 manage contracting risk. International Public
     Federal State Bodies, as well as Civilian Personnel of        Management Journal, 17(3), 365-386.
     Military Units, Institutions and Units of Federal         [23]. Wacker N.V., & Herrera S. J., (2011). Sarbans Oxly's
     Executive Bodies, and an Equivalent to it Service, the        impact on the investor of significant risk types.
     Payment of which is Currently Carried Out on the              Journal of financial regulation and compliance,
     Basis of the Unified Tariff Scale for Remuneration of         19(3), 254–270. doi: 10.1108/13581981111147883.
     Employees of Federal State Institutions.                  [24]. Bank of Russia (2015). CBR Instruction No. 3624-U
     Retrieved from: http://base.garant.ru/193695/                 of 15.04.2015 ‘On Requirements for the Risk
     [accessed: 04 February 2019].                                 Management System and the Capital of A Credit
[15]. Federal Assembly of Russia (1998). Budget Code of            Organization and a Banking Group. Retrieved from:
     the Russian Federation. Retrieved from:                       http://www.consultant.ru/document/cons_doc_LAW_
     http://www.consultant.ru/popular/budget/                      180268        [accessed: 17 January 2019].
     [accessed: 05 February 2019].

TEM Journal – Volume 8 / Number 2 / 2019.                                                                           453
You can also read
NEXT SLIDES ... Cancel