Financial Management: An Overview and Field Guide for District Management Teams

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2 Financial Management: An Overview and Field Guide for District Management Teams April 2002 by Beth Engelbrecht, Henk Jooste, Gerrit Muller, Tiny Chababa and Debbie Muirhead Printed by The Press Gang

3 A c k n o w l e d g e m e n t s This Field Guide was developed based on to the expertise and inputs from several district management teams and their provincial offices. The inputs by the following people are acknowledged: Peter Barron (Health Systems Trust) Dave Collins (Management Sciences for Health and the Equity project) Mr Shauket Fakie (Auditor General) Gavin Kester (District Manager Namaqualand Health District, Northern Cape) Natalie Leon (Health Systems Trust) Bupendra Makan (Management Sciences for Health and the Equity project) About the authors Beth Engelbrecht: Henk Jooste: Gerrit Muller: Tiny Chababa: Debbie Muirhead: Facilitator: Operational Efficiency, Health Systems Trust Senior Lecturer, Technikon Pretoria, Nelspruit Campus Chief Finance Officer, National Department of Health Director of Finance, Department of Health, North West Province Centre for Health Policy, University of the Witwatersrand This field guide was edited by Annette Wozniak Layout by Gill McDowell Acronyms AG AO ASB CFC CFO CHC DHER DHS DMT FM FMC IPD MEC MTEF OPD PDE PFMA REAL MFMB QI S&T Auditor General Accounting Officer Accounting Standards Board Cash Flow Committee Chief Financial Officer Community Health Centre District Health Expenditure Review District Health System District Management Team Financial Management Financial Management Committee In Patient Day Member of Executive Council Medium Term Expenditure Framework Out-Patient Department Patient Day Equivalent Public Finance Management Act (Act 1 of 1999 as amended) Revenue, Expenditure, Assets, Liabilities Municipal Finance Management Bill Quality Improvement Subsistence and Travel This is a publication of the Health Systems Trust Financially supported by the Kaiser Family Foundation and the European Union via the National Department of Health

4 C o n t e n t s Section 1: Introduction Page 1 Section 2: Understanding the Regulatory Framework 3 Section 3: District Health Management 9 Section 4: Financial Management 17 Section 5: Financial Planning 20 Section 6: Allocating the Budget 25 Section 7: In-year Management: Operating, Monitoring and Safeguarding 29 Section 8: Evaluation and Reporting: Accounting for Performance 35 References 41 Addendums 43

5 List of figures Page Figure 1: The systems approach to management of an immunisation campaign 4 Figure 2: Balancing needs, demands and resources 10 Figure 3: The District Health Management Cycle 11 Figure 4: The Financial Management Cycle 18 Figure 5: The importance of evaluation 35 List of tables Table 1: The Situation Analysis 13 Table 2: Financial Management Processes 17 Table 3: Allocating the budget 27 Table 4: Fingertip information for managing expenditure 31

6 T he District Health Systems (DHS) across South Africa are the decentralised building blocks of the National Health System. The aim of the DHS is to have decisions made locally about services and resources. When this happens properly, communities can enjoy good access to services and resources, with ultimately an improved health status. South Africa has now reached the stage where Local Government demarcation and transformation is in the final stage of completion. The boundaries of Health Districts are finalised and District H e a l t h Management Teams are building muscle to manage the district resources and services. This document aims to contribute to the strengthening of district management c a p a c i t y, with emphasis on financial management. The starting point in district service delivery is to have a district health plan. The district health plan shows how services are organised as well as how resources (such as finances and personnel) are combined to render the service. As public resource management is guided by several acts, the way services and finances are managed should allow for accounting according to this regulatory framework. Background to the Field Guide S E C T I O N 1 I n t r o d u c t i o n The idea to develop an Overview and Guide for District Health Managers on Financial Management arose after a range of capacity building initiatives had been conducted in several districts across South Africa. During these initiatives it became clear that districts had common problems with regard to financial management. For example: There was no comprehensive and strategic approach to financial management. There was very little linking of service and financial management. There was a lack of good organisational processes for managing finances. There was a shortage of technical skills. Financial management was often seen as a difficult skill that only a few people have. This document aims to do the following: 1. It aims to make concepts of financial management clear and accessible in order to help District Health Managers in their task. 2. It gives an overview of financial management concepts, processes and techniques that can be used in the financial management of a district. 3. It aims to make clear the different steps in the financial management cycle, analyses the task of district management and takes the manager step by step through the financial management cycle. 1

7 Purpose This Guide is not intended as a how-to-do-it document. It aims to provide a framework for approaching the financial management cycle and to operate within the regulatory framework. 2

8 S E C T I O N 2 Understanding the Regulatory F r a m e w o r k About this section This section provides a brief overview of the Public Finance Management Act (and similarly the Municipal Finance Management Act), the Treasury Regulations and the key role-players in the Financial Management arena. H ealth Districts operate within certain rules and regulations that guide financial management. The most important pieces of legislation are: 1. The new Public Finance Management Act (PFM Acts 1 and 29 of 1999) 2. The Treasury Regulations of June 2000 (as amended in 2001) 3. The Municipal Finance Management Act of 2001 These regulations and acts as well as directives and circulars about managing public resources or money, make up the regulatory framework. This regulatory framework aims to make sure that districts manage their own finances in ways that are efficient, effective and economical. 2.1 The Public Finance Management ACT (PMFA) The PMFA sets the scene for government to get good value for money. It is all about good management and performing well. Performance in financial management is evaluated according to the following criteria: Effectiveness: Have we done the right things? Efficiency: Have we done them the right way? Equity: How fairly do we distribute and provide our services? Economy: Did we get good value for our health rands? The criteria of good performance can best be explained using an example based on the systems approach to management as shown below. 3

9 Figure 1: The systems approach to management of an immunisation campaign Inputs Nurses, fuel and vaccines Processes Planning, implementing and monitoring an immunisation campaign Outputs Number of fully immunised children Impact / outcomes Decreased number of new cases of measles Where outputs lead to the required outcomes, the service is effective. When the outcomes reflect fairness, the service is equitable. The way in which inputs are used to produce outputs is a measure of efficiency. The quality and mix of inputs reflect economy. The Es are interrelated: - Effectiveness is about output and outcome - Efficiency is related to inputs and outputs - Equity is about the distribution of inputs and outcomes - Economy is about inputs What is the aim of the PFMA? The PFMA applies to national and provincial government, whilst the Municipal Finance Management Act is applicable to local government. These acts have similar requirements and introduce the same treasury norms and standards for the whole public sector in South Africa. This means that all health districts, whether local government-driven or provincially driven, will operate within the same financial framework. The PFMA adopts an approach that focuses on responsibilities and outcomes. The underlying principles of the Act are: Let managers manage, but hold them accountable. Introduce a broad view of financial management including the management of revenue, expenditure, assets and liabilities. Focus on outputs that relate to policy priorities. Establish good systems for financial control. 2.2 Treasury Regulations 1 The Treasury Regulations provide details about what the Act specifies and must be implemented by 1 April When this happens, health districts will have greater flexibility and accountability for managing their own finances. 1 The Treasury Regulations came into effect on 1 June 2000, as amended in April Each province might develop their own TR. 4

10 2.2.1 What do the T reasury Regulations do? These regulations outline the need for the following: Strong internal control which includes risk management (focusing on areas of risk such as drug supply) and fraud management. Financial planning. In-year (throughout the financial year) management and monitoring. Reporting and accountability How can the Regulations help districts to account for public r e s o u rc e s? These regulations set out the various reports that are necessary so that health districts can be accountable for the resources they receive. The reports are outlined below: A. STRATEGIC PLAN (The District Health Plan) Districts must submit a strategic plan for the next financial year before June of each year. Districts must report every quarter on their progress towards meeting their goals. Information on performance must be included in the annual report. (See Section 8 for more detail about the Annual Report.) B. FINANCIAL PERFORMANCE REPORTS Every month a health district must report on financial performance and must include information about the following: - Cash management performance - Expenditure against budget - Revenue against target - Projected expenditure and revenue - Variances between planned and real targets and actions - Uncleared items (items not allocated to the correct cost centre). Every quarter (every three months), the district must report on all transfer payments done. Annually or once a year the following documents are needed: - Annual financial statements of expenditure and revenue (within two months of the closing of the financial year). These must be audited by the Auditor General s office. 2 - Information on efficiency, equity, effectiveness and economy. - Transfer payments and compliance to transfer agreements. 2 Equity is of particular importance in health although not a prerequisite in the PFMA. 5

11 - Report on write-offs and losses. - Report on expenditure that is unauthorised, irregular or fruitless and wasteful. - Report on disciplinary actions related to misconduct and fraud. In addition, the annual report should comment on the effectiveness of internal control, as well as the quality of in-year management. G L O S S A RY Transfer payments: Money that is transferred between different spheres of government or from government to organisations such as non-governmental organisations according to certain legislation and agreements. Annual financial statements: A statement that explains all revenue and expenditure as prescribed in the Treasury Regulations. Compliance: Write-offs: Losses: Unauthorised expenditure: Irregular expenditure: To adhere to prescribed methods and agreements. Monies not collected even though an effort was made to collect them, and Treasury approved it to be uncollectable. Theft of any government property or accidents with govern m e n t vehicles. E x p e n d i t u re that was not properly authorised, overspending or spending of money on things that the money was not intended for. Expenditure that contravenes or goes against the PFMA or the State Tender Board. Fruitless and wasteful expenditure: Expenditure that could have been avoided if reasonable care had been exercised. Transactions: Events that are identified as making up the financial activity of an organisation. 6

12 2.3 The Role Players in the Financial Management Arena Who are the main role players? Auditor General The Auditor General (AG) audits and reports on all financial accounts of national, provincial and local government, as well as any other person who deals with public money. The annual financ i a l statement of a department must be audited first before it can be included in the annual r e p o r t. Provincial Treasuries The Member of Executive Council (MEC) for Finance and the provincial department responsible for financial matters in the province make up the Provincial Treasury. The role of the Provincial Treasury is to prepare and implement the budget, make sure that finances are managed well and make sure that there is no breach of the PFM Act. Councillor responsible for Financial Matters In municipalities, the responsibility for financial matters is assigned to a councillor, the executive mayor or the mayor depending on the governance system. Accounting Officer (AO) The role of an AO is to make sure that there is no financial mismanagement. The AO must appoint a Chief Financial Officer (CFO) who will set up systems, procedures, processes and training to ensure good financial management. A number of programme managers e.g. managers who are responsible for district health services, support the AO and the CFO. Other officials The role of all other officials is to support the AO. They implement systems and take effective and appropriate steps to prevent any unauthorised, irregular and wasteful expenditure. They must a l s o prevent any shortfall in the collection of revenue. 7

13 2.3.2 The health district and the role players Role players involved in health districts are as follows: Local Government-led health districts Provincial-led health districts Auditor General Auditor General Provincial and National Treasury Provincial Treasury Councillor responsible for financial matters Member of the Executive Council Accounting Officer (Municipal Manager) Accounting Officer (Head of Department) Chief Finance Officer Chief Finance Officer Other officials Other officials I N F O R M AT I O N B O X The following documents are important for districts to keep and update r e g u l a r l y : Financial handbook that includes the PFM Act / Municipal Finance Management Act and its amendments. Best Practice Guidelines from Treasury/Treasury Regulations/Manual of the Financial Planning and Budgeting System of the State. Delegations (financial administration, personnel administration, procurement administration, tender board). Circulars, directives and instructions. Relevant procedure manuals such as for stores and transport management. 8

14 S E C T I O N 3 District Health Management About this section This section describes the responsibilities of district management teams and outlines the district health management cycle. Special emphasis is placed on the District Health Plan as the starting point of the cycle. This section is the basis for further sections on financial management. T he health district is the decentralised unit, and building block, of the National Health System. 3 The District Health System (DHS) encourages managers to take charge and make decisions about health services and the allocated resources. The role of the District Management Team (DMT) is to: - Mix and allocate the available resources in the best possible way to meet the basic health needs of the community they serve. - Ultimately the aim is to improve the health status of the community they serve. In order to do this, the DMT has to manage resources and services according to a District Health Plan, the strategic plan for the district. The District Health Plan outlines what the district would like to achieve, what for and how it will assess achievement. Only when district health budgets are managed at the district level, will South Africa be able to say that it has a District Health System. 3.1 District Health Management In the public sector there is a huge demand for scarce resources. For this reason, Management Teams (MTs) need to find the best way to balance needs with the resources available. MTs need to understand public resources management. Public Resource Management is about managing the level, quality and quantity of services re n d e re d. 3 Managers referred to include managers at the various levels in the District Health System (DHS), be it a facility or at a district office level, a municipality or decentralised provincial office. 9

15 Figure 2: Balancing needs, demands and r e s o u rc e s The figure below shows how limited resources should be used in order that community needs and demands are met in the best possible way. Resources Needs and demands in the community Range of service, quality and quantity Need These are the ought-to-be service priorities identified in a community by determining the gaps in the health status, the disease profile in a community as well as back-logs in services. Demand This refers to the way that people utilise the health service. The fulcrum (triangle) shows the type of management decisions required in combining resources. These decisions are about the following: Range of services This means that different facilities might render different services. For example not all facilities will render a non-core service such as x-ray services. Quality of service The most appropriate level of quality needs to be determined. For example not every patient at a community health centre will see a doctor or be x-rayed. The professional nurse will screen patients first and patient care will be according to certain protocols. Level of service Not all facilities will render the same level of service. It depends on factors such as services at surrounding facilities and affordability. A clinic doing deliveries, for example, may only cater for basic uncomplicated obsteric care and not include vacuum or forceps extraction. 10

16 Figure 3: The District Health Management Cycle District Health Management works in a cyclical way. It starts with planning, then implementation with continuous monitoring, until eventually evaluation, which in turn informs planning. The diagram below demonstrates the district health management cycle. Planning and Budgeting P l a n n i n g involves designing the district health plan and getting a clear picture of the range of inputs (personnel, vehicles and equipment) needed, as well as how these will be combined to achieve priority goals. Design the District Health Plan in the following way: Analyse the current services, resources and health trends Prioritise and plan the activities that would form the best option to improve the situation Quantify the inputs required to carry out the activities Cost the amount of money required to pay for these inputs Prepare budget (all activities together) Negotiate a proper district allocation Refine plan and prepare final budget Evaluation E v a l u a t i o n is about looking back at the complete picture, the good and the not-sogood and being able to account for these. Evaluation lays the foundation for the next planning cycle. How have we performed? How much did we spend overall? What has the impact been? Could we have achieved a better result with a different strategy? Did our services address the basic health needs and future health needs? How efficient were we? Did the community enjoy equal access for equal need? What were the pitfalls and constraints? Implementation (The process of doing the activity or intervention.) Implementation is about using the resources to have uninterrupted service delivery. Things to consider: Will the way we organise our services bring about the most health re t u rn s? Should we improve our support s y s t e m sto improve delivery? What capacities are lacking? A re the mechanisms in place to m o n i t o r the implementation and the outcomes? Monitoring Monitoring is about checking progress against the District Health Plan. It is also about keeping a close eye on expenditure, making sure revenue is collected, and watching the quality of care. How much have we completed? Is this in line with our district health plan? Is it taking longer than we thought? Why? Checking of total money spent to date against the budget Is there anything we need to change in the remainder of the activity? 11

17 3.2 Developing a District Health Plan Districts should begin by developing a District Health Plan, also called a Strategic Plan. The District Health Plan lays the foundation for implementing services and spending money. In Local Government-led health districts, the District Health Plan forms part of the Integrated Development Planning process. The District Health Plan needs to be population-based, meaning that it clearly needs to unpack the target population it serves and plan according to that population. Strategic planning involves planning with the end in sight. The performance of a service will be assessed according to what is set out in the Strategic Plan. The District Health Plan has three main components. A situation analysis. A strategic direction. An operational plan The situation analysis The situation analysis aims to answer three main questions: 1. Are the services addressing the (current and future) health needs? 2. Are the current services efficient, equitable and sustainable? 3. How suitable are the organisational arrangements for service provision? The following table will guide the district to obtain answers to these questions. 12

18 Table 1: The Situation Analysis 4 Question Information needed What it tells How it helps Are the services addressing the (current and future) health needs? Demographic and socio-economic profile of the various communities in the district. It shows which communities would benefit the most from the resources and services. To allocate resources and render services. Gaps in health status and main health problems amongst the communities. Disease profiles and trends in the communities. Gaps in achieving previous targets. It shows which health programmes re q u i re stre n g t h e n i n g. It shows future demands on health resources. It also shows which services to monitor closely. To strengthen service programmes. To re-allocate resources towards needs. Are the current services efficient, equitable and sustainable? How the communities access and use the services (e.g. utilisation figures). Information on how efficient service delivery happens. (See later sections for detail.) It shows where access needs to be improved, as well as in what areas the distribution and use of resources need to change. It highlights areas where the quality of c a re could be inferior. To improve the allocation and management of resources. To focus investigation for the improvement of delivery. Information that shows whether the service is sustainable, for example, expenditure patterns and spending versus budget. (See later sections for detail.) It shows whether the present trend in spending, and therefore service provision, is sustainable. To re-plan the way services are organised and delivered. To re-allocate resources to ensure sustainable services. How suitable are the organisational arrangements of service provision? Define obstacles to uninterrupted service delivery. Capacities required to improve service delivery. Strengths and weaknesses in organisational structures and support systems such as information or drug distribution systems. It shows what capacities are needed, as well as what changes are necessary to ensure management structures and systems will bring about a well-run service. It also shows where the provincial/ municipal office should provide support to unlock delivery. To design capacity building and support programmes. To improve support systems. To strengthen management. 4 See How to conduct a rapid situation analysis: A guide for Health Districts in South Africa by McCoy, D. et al, Health Systems Trust,

19 The information captured in the situation analysis needs to be analysed according to the column What it tells, whilst strategies are designed according to the column How it helps Strategic dir e c t i o n This is made up of a vision, mission and a strategy and gives a focus for what will happen for the next few years. It flows from the situation analysis and is designed by top and middle managers, but all staff should be involved if they are to feel that they are part of it. The vision and mission This vision is like an ideal or a dream and draws on the vision of the Department or Municipality. The mission describes the core business, its reason for existence, and gives an idea of how the district aims to realise the vision. The strategy This gives a broad idea of what will be done to achieve the mission. E X A M P L E Vision: Satisfied patients through service excellence. Mission: To be a well-resourced health district rendering comprehensive, affordable health care of a high standard to the community of the Namaqualand, through friendly and professional health workers and well-maintained facilities. Strategies to achieve the mission: 1. Establish quality improvement strategies in each section. 2. Treat patients at appropriate levels of care. 3. Strengthen management and management support systems Operational Plan The Operational Plan outlines in detail what will happen for the current year and gives a broad idea of what will happen for the next two years. It uses the situation analysis to prioritise and appraise which actions would be most suitable to bring about improvement in the current situation. The Operational Plan outlines the following: The Service Plan (captured as service goals and a plan of how services are to be organised). Inputs, such as nurses and vehicles, required to fulfill that plan and how these inputs will be distributed. Monitoring and evaluation of targets to check progress and achievement. The Service Plan To develop service goals, the management team would need to do the following: - Make sure that the goals reflect the steps needed to work towards the mission. Each goal should have a specific focus and an outcome or impact that can be measured. 14

20 - Design the steps (objectives and activities) required to achieve these goals. A s s e s s i n g these helps the management team to monitor progress. (See Section 8 for details.) - Ensure services are organised to guarantee optimal delivery at best quality and best price. E X A M P L E Goal: Satisfied clients at the Springbok Hospital Objective: Establish one quality improvement (QI) activity in each section of the hospital by end December Activities: 1. Orientate section heads on the principles of quality improvement. 2. Identify a person who will co-ordinate QI projects in the hospital. 3. Each section identifies one QI project and develops a plan accordingly. 4. Monitor the plans of each section. Determining the input Determine the range of inputs, such as personnel and vehicles required to implement the service plan. These inputs represent costs. For example, a staff member represents: a s a l a r y, a housing allowance, and other costs. These inputs are then combined in a budget. (This will be explained in more detail in section 5.) Preparing to monitor and evaluate The District Management Team (DMT) needs to identify what measures will give information about progress in service delivery and in the use of resources. Targets are necessary for services, for expenditure, as well as for revenue. - Setting service targets. Each service goal represents an output. It is important to determine measures that will tell the DMT staff and communities whether they are on track towards the out put as well as how they will know whether they have reached it. The goals must be defined clearly and the data identified that will help the team to assess progress and achievement. It usually helps to design intermediate steps towards the goal, for example: Problem Low TB cure rate of 65% Intermediate outputs 1. Increase the proportion of TB patients that participate in the DOTS pro g r a m m e from 80% to 90%. 2. TB drugs are never out of stock at the clinic. Target Increased TB cure rate of 75% 15

21 - Setting targets for expenditure and revenue. The district needs to stay within budget and that the revenue needs to be collected. (See Section 7 for more details.) Furthermore, from the situation analysis of previous efficiencies, new targets for example, the average cost per visit and average drug cost per visit could be determined and monitored. E X A M P L E Vision: Facilities in the Tshepano Health District to the average measure of indicators of similar facilities. The averages for the district are: Average cost per visit: Fixed clinics: R 48 Mobile clinics: R 57 Community Health Centres: R 57 District Hospital outpatients / casualties: R 171 District Hospital in-patients: R 514 Emergency medical services: R 224 per patient transported Drug expenditure per visit: Fixed clinics: R 5 Mobile clinics: R 12 Community Health Centres: R 6 District hospital casualties: R 6 District hospital in-patients: R 19 Workload (average number of clients seen per nurse per day): Fixed clinics: 38 Mobile clinics: 18 Community Health Centres: 33 District hospital: 3 Good performance in this phase The following measures would indicate good district health management: Develop a district health plan / strategic plan in each district. Distributing re s o u rces and services according to the district health plan / strategic plan. Constantly aiming to balance needs, demands and resources. 16

22 S E C T I O N 4 Financial Management About this section This section explains financial management, and therefore forms the basis for the other sections that follow. F inancial management is an integral part of district health management. It is made up of a number of distinct processes that happen in a cyclical way. Service and district managers receive support from their finance sections to manage the finances. 4.1 Understanding Financial Management The processes that make up financial management are explained in the table below. Note that these approaches are implicit to the district management cycle explained in Section 3. Table 2: Financial Management Pr o c e s s e s Process Financial Planning Budgeting Setting targets for monitoring and evaluation Resource allocation Description Assessing the current resource position, linking resources to service plans and determining a budget. Drawing up a budget which will guide how money is spent in order to achieve the goals set. Setting targets for revenue and expenditure. Setting targets for efficiency and equity. Allocating resources across district services. In-year management: Operating, monitoring, safeguarding Ensuring that funds are spent and revenue collected according to the financial plan and according to the norms and standards set by the Treasury. Making sure that there are good internal control measures and monitor that these are applied. Evaluation: Reviewing and reporting Linking expenditures to service outputs and analysing with respect to equity, efficiency and sustainability. Drawing up an annual report. Identifying key strategic issues for the next District Health Plan. 17

23 In the past the management of services and finances happened separately from each other. This is now changing in an integrated district health management approach as was discussed in Section 2. The Financial Management Cycle The figure below shows the order of the different processes of financial management. T h e s e processes happen within the Medium Term Expenditure Framework (MTEF). The MTEF is a 3-year rolling expenditure showing a detailed present year budget with projected figures for the next two years. The MTEF requires that the Financial Plan must include longer term planning for a further two years. Figure 4: The Financial Management Cycle Planning and Budgeting (Section 5) Evaluation and reporting (Section 8) Resource allocation (Section 6) In-year management: Operating, monitoring and safeguarding (Section 7) The Financial Management Cycle is supported by a financial administration system that is designed to make sure that all transactions are captured, and that management can withdraw data to monitor trends. The financial administration system, such as the Financial Management System (FMS), has a specific structure with identity codes to show the following: Where funds are spent (responsibility area such as a clinic) Why funds are spent (programme such as district health services) What the money is being spent on (the objective, for example environmental health services) What item the money is being spent on. These are called line items and will be explained in more detail in Section 5. 18

24 Good performance in this phase The following measures would indicate good financial management: A clear understanding of the financial management processes. Integrating the management of services and finances. 19

25 S E C T I O N 5 Financial Planning About this section This section covers the first process in the financial management cycle. It explains how to draw up a budget and to set targets to measure achievement. O nce the Service Plan has been designed, the process of drawing up the Financial Plan starts. The Financial Plan shows: How much and what type of inputs are required How the inputs will be managed to get to the required outcome What the targets are for effectiveness, efficiency and equity. 5.1 The Role of a Budget A budget reflects the service priorities. It is the framework for spending money and for assessing financial performance. A budget does the following: Shows how much it costs. Reflects policy choices. Sets in motion implementation. Reflects what monies will be collected (revenue) and what monies will be spent (expenditure). Provides the framework by which the DMT accounts for performance. 5.2 The Items that make up a Budget The budget is made up of line items covering all the input needs to render a service. These 5 are called line items. For each of the cost centres in the district the budget is structured according to line items such as: Personnel - costs for all the staff requirements, such as salaries, overtime, bonuses and employer contributions for medical schemes. Administration - administration costs such as telephones, postage, travel and subsistence, study expenses and transport costs. 5 Cost centres can be defined as units of service delivery for the purposes of this document. 20

26 Stores and Livestock - costs related to the purchase of consumable items such as stationery, drugs, protective clothing and fuel. Equipment - costs to purchase or hire equipment and items such as furniture and hospital equipment. Land and Buildings - costs to hire office space. Professional and Specialised Services - payments for professional type of services such as municipal services, laboratory services and consultancy services. Transfer Payments - payments transferred to people outside government who render goods and services per special agreement as well as subsidies. These line items are further unpacked as minor items. Each minor item also has an identity code that is used for purposes of budgeting and recording transactions. Aminor item in personnel, for example, is medical aid or housing schemes. Minor items for operational costs such as stores will include cleaning materials or drugs. For a detailed list of items applicable to a district, see: Financial Management: Building muscle in Mount Currie, KwaZulu-Natal (Technical Report #12, HST, 2000). 5.3 Preparing to draw up a Budget Budgeting for inputs Budgeting follows some important steps. The inputs required flow from unpacking the Service P l a n. This is demonstrated by working backwards: Service outcomes Service outputs Activities Inputs = Budget STEP 1: List the amount and type of inputs required for each cost centre. Prepare the list according to all the applicable line and minor items. Differentiate between current inputs that require continuation and new inputs that are required. For personnel, therefore, there will be a list for filled posts and one for vacant posts, as shown in the example below. 21

27 STEP 2: Cost the inputs. The costing process could follow different approaches, as demonstrated below. Personnel Make sure that all the staff working in the cost centre appear on the personnel list. Make sure that staff numbers and staff mix is appropriate for the service activity. Identify key posts that need to be filled if there are any vacant. Make sure at the end that the added cost will fit your expenditure framework. Determine all costs related to personnel as is demonstrated in the example below. (See also A ddendum 2 for a demonstration of a fo rmula to determine the pers o n n e l costs.) E X A M P L E Cost Centre: Simunye Clinic Responsibility: Objective: Line Item: Personnel Total: R Filled posts: Rank Professional nurse Total number of posts Filled posts 3 1 Notch Bonus Housing subsidy Medical aid fund Pension fund TOTAL Clerk Cleaner R Vacant posts: Rank Professional nurse Number of posts vacant Number of vacant posts budgeted for Notch Bonus Housing subsidy Medical aid fund Pension fund TOTAL R Administration Determine the administration costs for the cost centre. These include costs for telephone calls, hiring of telephones and post boxes and transport costs. A critical evaluation of previous expenditure history will assist. If a manager knows that s/he has to attend monthly meetings requiring subsistence and travelling, these can be calculated. 22

28 It is often difficult to budget items such as postage and stationery, and it is useful to have an idea of past expenditure trends. The example below shows how the minor items: travel, accommodation and subsistence can be approached. E X A M P L E Cost Centre: Simunye Clinic Responsibility: Objective: Line Item: Administration Minor items: Travel, subsistence & accommodation Total: R Item Frequency Unit cost Total Travel 10 x 80km = 800km R 3 per km R Subsistence claims 20 R 25 R 500 Accommodation 10 R 250 R Equipment Prepare a list of new equipment required. Number the list. This will ensure that purchases during the financial year are made according to an approved list. Estimate the cost of each piece of equipment. E X A M P L E Cost Centre: Simunye Clinic Responsibility: Objective: Line Item: Equipment Total: R Number Item Amount Unit cost Total 1 Desk chair 1 R 500 R Computer (complete desktop, software, internet cabling) 1 R R Printer 1 R R Other items Follow similar processes for each of the other items and minor items of your financial system. It is important to remember that any capital spending such as building a new clinic has financial implications for running the facility in the future. This document does not deal with capital prioritisation or budgeting. 23

29 A special note about budgeting for pharmaceuticals: pharmaceuticals have a high risk in financial terms, and yet districts have to rely on historic expenditure data to assist them to draw up a budget. This data can only really help when the DMT feels confid e n t about internal control measures. STEP 3: Combine the costs. Once every cost centre has compiled a budget, the District Management Team needs to examine and verify the budget before incorporating all the cost centres budgets into a single district budget. The final district budget needs to reflect district priorities and ensure that more resources are distributed to communities in more need. Not all funds should be locked in fixed costs such as staff, but there should be sufficient funds for operation Budgeting for r e v e n u e Districts need to budget for the revenue they will collect. The revenue could come from subsidies (from the provincial department of health), from other sources such as donor and patient fees or from own revenue, such as from the municipal revenue system. Each cost centre and the district management team need to estimate the expected revenue they plan to generate. Good performance in this phase The following measures would indicate a good budgeting process: Having a picture and understanding of financial performance for the previous year and using this information for financial planning in the forthcoming year. Clearly identifying input items, prioritising them and listing them. Having available equipment inventories to support decisions on maintenance and replacement. Having estimates for each applicable minor and line item. Setting revenue targets. Completing an estimated expenditure and revenue report (the Budget) which is accompanied by supporting documentation. 24

30 S E C T I O N 6 Allocating the Budget About this section O This section explains ways to allocate the received amount of money. Because the amount allocated is usually less than what was estimated, it is important to distribute resources according to set priorities. nce the district receives its budget, the management team needs to allocate the budget to the various services. The allocated budget should reflect the priorities of these services. The general principle is to allocate resources to communities with the biggest potential to benefit from the allocation. The District Management Team can use the process of resource allocation as a tool to bring about transformation in health. 6.1 Allocating limited resources The estimated budget is the estimated expenditure required for implementing service plans. The allocated budget, however, is usually less than the estimated amount. This is because the funds appropriated to the Department / Municipality are usually less than what is requested. For this reason the DMT has to be very creative in order to allocate or distribute the limited resources according to the priorities of the district. A well-applied medium term expenditure framework provides a guideline for future allocations, limiting the need to work with reduced budgets. As in the case of budgeting, resource allocation requires the involvement of managers at all levels in the district Possible approaches to allocating reduced amounts of money Review the service plan The management team needs to revisit the service plan and realise that some tough decisions need to be made. Some new projects may have to be shelved or scaled down. The way that services have been offered in the past may need to be adjusted e.g. home visits by professional nurses may be scaled down in most areas to ensure a more efficient use of this important resource. Some key posts will not be filled and some staff may need to be utilised diff e r e n t l y. 25

31 Review existing programmes and services The management team must review health programmes and services in order to consider altered ways of offering certain services. Some options might be to outsource, postpone and even terminate certain services. New services could be implemented on a smaller scale for later rolling out. Allocate the reduced amount of money according to priorities If the allocated budget is less than what was estimated, two processes could be followed to allocate the reduced amount: 1. Protecting priorities - the estimated amount per cost centre and per service is adjusted by taking into account past trends, future needs and policy priorities. Certain services are protected. This needs to be a very participative process based on sound information. 2. Incremental reduction - take the percentage difference that the allocated budget is to the estimated budget and adjust all the cost centres by the same percentage difference. This is not the preferred route as priority services cannot be properly protected. Table 3: Allocating the budget In the following example, the budget received is 3,22% less than the estimated amount. When applied equally to all services, some services may find it very difficult to cope. A reduction of 3,22% from a large budget could be a manageable decrease, but from a small budget such as environmental health services, the implications are more critical. 26

32 Service / Cost centr e Service priority E x p e n d i t u r e of pre v i o u s f i n a n c i a l y e a r E x p e n d i t u r e b u d g e t for new f i n a n c i a l y e a r Appropriated (allocated) budget Budget skewing (Step 1 - determine possible savings) Budget skewing (Step 2 - allocate (d) according to priorities) Re-aligned budget for new financial year ( a ) ( b ) ( c ) ( d ) ( e ) ( c - d + e ) District Office (DO) Medium District Hospital A High District Hospital B Very high Clinic 1 Very high Clinic 2 Very high Clinic 3 High Environmental Health Services Very high TOTAL / average Remember that further allocation of resources happens within cost centres. In a district hospital, for example, funds are further divided into the various units (e.g. pharmacy, maintenance sections) and other line items. 27

33 Good performance in this phase The following measures would indicate good performance in this phase: Key services such as PHC are protected and fairly funded. Resources are allocated within the district according to the resource allocation principles and priorities of that district. 28

34 S E C T I O N 7 In-Year Management: Operating, Monitoring and Safeguarding About this section O This section reflects the activities that happen throughout the financial year of operation. It emphasises the importance of internal controls and covers the management of revenue, expenditure, assets and losses. nce finances are allocated to each cost centre or service unit, the district moves into an operation phase. This continues for the whole financial year. The PFMA refers to this phase as in-year management of resources and includes the following: Creating good administrative procedures Making funds available for operation (implementing service plans) Monitoring the use of funds Managing revenue, expenditure, assets and liabilities (REAL). Monitoring finances depends on good financial data in the form of financial reports. This again draws from good bookkeeping which allows the district to control accounts and keep an accurate record of payments. (See Addendum 1 which lists the tasks of a district finance section.) 7.1 Key principles Operating, monitoring and safeguarding is an important phase in the financial management cycle. It is guided by the following principles: Expenses incurred are authorised and in line with a budget. Expenditure is in line with the service plan. There is adherence to the regulations that guide spending, revenue collection and safeguarding. There is proper reporting on revenue and expenditure. There are good internal controls and fraud prevention. 7.2 Internal controls Appropriate internal control measures are central to the requirements of the PFMA. These measures are needed to safeguard assets, get the best value for money and allow uninterrupted service delivery. 29

35 Internal controls involve having early warning systems in place, especially for risk areas such as drug supply, to ensure compliance to the regulatory framework and to prevent fraud. Some examples include: No purchasing happens without approval. Payments due to creditors are settled within 30 days. Mechanisms to ensure that deposit and income reports correspond with each other. Revenue is collected when it is due. Payments are not made earlier than necessary. All transactions can be trailed (an audit trail). Stock levels meet the service need. 7.3 Managing expenditure Managing expenditure is a key process during the financial year. A team (called a Budget, 6 Cash Flow or Cost Containment Committee ) should meet frequently for this task. There are three basic questions that the team needs to answer: 1. What has happened so far? 2. What will happen to our plan for the rest of the year? 3. What (if any) action do we need to take to achieve our agreed plan? 6 Some facilities, such as hospitals, prefer to have a cash flow committee that meets once a week to consider or approve requisitions. In this case, a financial management committee will take on the other responsibilities listed. 30

36 Table 4: Fingertip information for managing expenditure Information What it tells Where to find it Frequency of obtaining the information Cash flow Cash flow position. The cash flow record Weekly Expenditur e to budget allocation This shows whether expenditure to date is in line with the allocated budget. The cash flow record and the ledger report Monthly Expenditur e patter n The trend of expenditure over the past months will tell whether the present levels of spending are sustainable and whether under-spending is projected. The ledger report Monthly Expenditur e on key items such as drugs, telephones and transport Whether cost containment measures are successful. The ledger report Monthly Revenue collection Targets are met in terms of revenue collection. Revenue collection record or ledger report Monthly Achieving service targets It tells us whether changes are required to improve service outputs. Service achievement records Quarterly Service efficiency, such as unit costs, cost of inputs to achieve outputs If the inputs are used efficiently. Combining service and expenditure records Quarterly Number and value of losses, theft and fraud The appropriateness of the internal control system. If there is adherence to a plan to prevent fraud. Reports on losses and fraud As soon as available Payments to suppliers happen within the limit of 30 days, as well as any audit queries If there is financial administrative efficiency. Audit queries: System to monitor suppliers payment Monthly Out of stock situation If there is efficient stock control and management. Out of stock records Weekly 31

37 7.3.1 Mismatch between budget and expenditure The budget shows how resources should be used. It often happens that there is a mismatch between budget allocation and expenditure. Some explanations are: The budget is poorly prepared and allocated. Reasons for this include: - An inadequate understanding of the resources required. - The amount allocated was inadequate. - The distribution of resources is wrong. Programme implementation is poor. Reasons for this: - Resources were squandered. - Resources were inefficiently used. - Resources were diverted. - Unexpected situations, such as disasters, arose. 7.4 Managing revenue The main sources of revenue in this section include: money payable by s t a ff for private telephone calls, payment for accommodation provided, use of facilities such as a crèche, patient fees for hospital and ambulance services, and monies from other authorities such as t ra n s fe r p ay m e n t s received. The following are measures and indicators to manage revenue: Revenue collection targets To what extent targets are met. Revenue collection rate This is the rate at which the service was able to collect the revenue due. The amount collected is expressed as a percentage (%) of the amount owed. This is a measure of revenue collection efficiency. Revenue as a percentage of total expenditure This is the revenue collected expressed as a percentage of the total expenditure. This is a measure of sustainability. Debtors days This the average time it takes for debtors to pay and is usually expressed as 30, 60, or 90 days brackets. The private sector aims at an average time of 45 days for hospital fees. This is a measure of efficiency, effectiveness and sustainability. 32

38 7.5 Managing assets In order to manage assets, someone must be specifically assigned for this responsibility, which includes the following: Keeping and updating an asset register containing at least a description of the asset, m a n u f a c t u r e, rserial number, date of acquisition, supplier, purchase reference and cost. Ensuring that the number and distribution of assets are as stipulated in the asset register. Making sure that maintenance plans are in place. Ensuring that there are mechanisms to prevent theft, losses, wastage and misuse of assets. Monitoring that stores are managed efficiently and effectively and stock levels are at optimal l e v e l s. 7.6 Managing losses ALoss Control Officer keeps a Loss Register with details of all losses. The Loss Control Off i c e r has to: Obtain details and statements related to claims and losses Follow up and settle these cases Monitor patterns of losses to improve prevention Establish procedures for reporting, recovery and review. Measures and indicators to monitor losses include: The number and value of losses compared to similar periods or similar departments The average value per loss Losses grouped by type and/or possible cause. 33

39 Good performance in this phase The following measures would indicate good performance in this phase: Spending happens according to monthly expenditure projections. Services do not experience out of stocks situations. Purchases are made according to planned activities and equipment lists. Rate of revenue collection is improving and achieving target. Frequent, well-run budget management meetings are held. There is proof of appropriate internal control measures. There is proof of cost containment initiatives. Early warning systems are in place. Regular reporting takes place (see Section 8). 34

40 S E C T I O N 8 Evaluating and Reporting: Accounting for Performance About this section I This section describes possible ap p ro a ches to account for perfo rmance accord i n g to the key requirements of the Regulatory Framework. n order to be accountable, management teams need to know how well they have managed their resources and services. For this reason District Management Teams need to evaluate and analyse expenditure in relation to services and the needs of the population, as described in the District Health Plan. Whilst monitoring happens throughout the year, evaluation happens at the end of the financial year. The findings lay the foundation of future service and financial planning. Figure 5: The importance of evaluation The figure below outlines some reasons why evaluation is important. To see where our strengths and weaknesses are To help us to make better plans for the future To be able to i m p rove our m o n i t o r i n gmethods To make our work more effective To analyse gaps in performance Why do we e v a l u a t e? To see if our work is costing too much and achieving too little To be able to share our experiences To criticise our own work To help us see where we are going and whether we need to change dire c t i o n To compare with others 35

41 8.1 Accounting for performance Accounting for performance means reporting on performance. There are many ways of achieving t h i s. One way is a report comparing the operational plan with what happened in reality. The information about expenditure forms a crucial part of this reporting, and when linked to service data and population data it shows whether money is being spent on the right things or whether there is room for improvement in the way services are organised. Section 2 explained the measures of performance, which are eff i c i e n c y, effectiveness, economy and equity. Indicators, as explained below, best assess these measures. Efficiency is concerned with relating the outputs to the inputs used. It answers the question: Are services re n d e re d with the best combination and amount of resources? Assessing ef f i c i e n c y In order to make health services efficient the following three goals must be achieved: Goal 1 : Prevent any waste of resources. Goal 2: Produce each output at least cost, maintaining an acceptable standard. Goal 3: Produce the types and amounts of outputs that people value most. The relation between inputs and outputs determines efficiency. Examples of indicators of efficiency are: - Average cost per visit - Average number of clients seen per nurse - Referral rate of patients to higher levels of care - Average length of stay - Bed occupancy rate. 36

42 8.1.2 Assessing ef f e c t i v e n e s s Effectiveness refers to the extent to which targets are met. Some important effectiveness indicators for districts could be: Tuberculosis cure rate Peri-natal mortality rate Rate of malnourished children below the age of 2 years. Assessing service programmes falls outside the scope of this document Assessing equity Equity is about fairness. It is when people with equal need, have equal access to resources and services. There are two measures of equity that districts could assess. These are: Expenditure per capita (that is, the total expenditure divided by the number of people in the target population). This tells about access to resources (supply). Utilisation of services (average number of visits per person per year). The norm that has been set by the National Department of Health is 2.9 visits per person/year. This tells about both access to resources and how the services are used (both supply and demand). Note that utilisation can also be viewed as an indicator of efficiency. 37

43 8.2 Accounting for performance by using a District Health Expenditure Review An approach has been developed to assist DMTs to get a clear picture of the eff e c t i v e n e s s o f resource allocation, of equity, efficiency and sustainability. It is called the District Health Expenditure Review (DHER). It is a situation analysis and is conducted annually. It requires the grouping of all expenditures for public health services in the district and an analysis of these per cost centre. Importantly, the DHER provides management teams with the performance indicators they require to include in their annual report and forms the basis for service and financial planning for following years. (See Addendum 4 which shows the grid that represents the indicators per criteria and per cost centre as is suggested by the Guidelines to conduct District Health Expenditure Reviews.) 38

44 8.3 The Annual Report An annual report p e r f o rms both managerial and political functions. It is also a means of accountability and transparency. The PFMA requires an annual report. The annual report of the district should reach the provincial / municipal office in time to compile a combined report to reach the Treasury within two months of completion of the financial year. The annual report summarises performance in relation to the District Health Plan and is made up of four parts: Part 1 General Information This section is a summary of the district health plan. It therefore covers aspects such as the situation analysis, the strategic direction, priorities and strategies. Part 2 Human Resource Management This section includes a brief outline of the organisational structure and key functions. It also includes a prescribed range of Human Resource information. Part 3 Programme Performance This section outlines the following: Outputs and service delivery trends Transfer payments and compliance to proper financial management principles Indicators of efficiency, effectiveness, equity and economy. Part 4 Financial Information This section includes financial statements and other financial information such as: Annual financial statements consisting of: - A balance sheet - An income statement - A cash flow statement - Applicable notes. Appropriateness of internal control measures and the quality of in-year management. Notes on: - Tariff policies - Free services rendered - Any material losses recovered or written off - Any material losses through criminal conduct, unauthorised, irregular, fruitless and wasteful expenditure - Use of foreign aid assistance. 39

45 Good performance in this phase The following measures would indicate good performance in this phase: Financial performance is evaluated according to indicators of effectiveness, eff i c i e n c y equity, and economy. The expenditure review is done at the closing of the financial year. Findings are reported to the community and the provincial office by means of an annual re p o r t. The findings are used in service and financial planning. The annual report is available within two months of closing the financial year. 40

46 R E F E R E N C E S Abedian, I., Strachan, B. et al. Transformation in action: Budgeting for health service delivery. UCT Press, C reese, A., Parker, D. Cost analysis in primary health care. A training manual for pro g r a m m e managers. WHO, Deloitte and Touche Financial Management for Local Authorities: A handbook for Local Government Councillors. June Department of Finance. Circular 2001 MTEF Budget Guidelines. April Engelbrecht, B. and Makan, B. Can the Management of services be separated from its finances? Kwik Skwiz # 21, Initiative for Sub-district Support, Health Systems Trust. Engelbrecht, B., Conradie, H. et al. Financial Management: Building muscle in Mount Currie, KwaZulu-Natal. Health Systems Trust, Fakie, Shauket The expectation of the office of the Auditor-General and the Treasury Regulations Free State Health. Finance Circular Green, A. An Introduction to Health Planning in Developing Countries. Oxford Medical Publications, Guidelines for Annual Reporting. National Treasury, December Guidelines for Conducting District Health Expenditure Reviews in South Africa. Health Systems Trust, In-year Management, Monitoring and Reporting. National Treasury, July Katzenellenbogen, J., Joubert, G. et al. Introductory manual for epidemiology in Southern Africa, MRC, Manual on the Financial Planning, Budgeting System of the State. Department of State Expenditure, December McIntyre, D. and Nicholson, J. The Budget Process. A Guide for South African Legislators. Health Systems Trust, October Municipal Finance Management Bill. 41

47 Morar, R.L., Makan, B. et al. Assessing Financial Management Capacity for District Health System Development. A Case study of the Mount Frere District Poluta, M. Healthcare Technology Management. Oliver Tambo Fellowship Programme, University of Cape Town, Department of Community Health, 2000 Public Finance Management Act (Acts 1 and 29 of 1999). Rossow, L., Smit, L. and Engelbrecht, B. District Health Expenditure Review, Tshepano Health District, Free State Province. Health Systems Trust, Treasury Regulations. 31 May Uliana, E. and Correira, C. Financial Management. Juta & Co, Western Cape Provincial Treasury Directives. Treasury: Provincial Government: Western Cape, June Woods, Gavin. A view on the treatment of unauthorised expenditure

48 Addendum 1 District and Institutional level financial responsibilities and functions Function 1. Financial Management System 2. Budgetry Functions 3. Audit and Financial Control Reporting: Auditor General s A p p ropriation and Miscellaneous Account 4. Provisioning and Administration; Tenders and Accounting: Loss Control Functions Specific details i) Authorise expenditure with delegations and Financial and Personnel Norms and Standards: Subsistence and Travel Miscellaneous payment Ordering and payment transactions ii) Handle formal and informal financial batch inquiries iii) Handle payment inquiries from firms iv) Handle all financial system reports v) Clear all balances on ledger accounts vi) Clear all unallocated expenditure vii) Keep and maintain registers for internal controls such as for S&T claims, S&T advances. i) Compile budget estimates based on needs and priorities according to the prescribed procedure. ii) Hold budget management committee meetings to: determine expenditure trends approve requests for spending (purchases) approve the shifting of funds within delegations ensure efficient and economic use and acquisition of resources. iii) Keep and maintain commitment registers. iv) Identify any deviations and report to managers. v) Submit and analyse monthly expenditure statements. vi) Reconcile commitment register with financial management system. i) Submit required information that is needed for completion of the Auditor General s Approbation and Miscellaneous Account in the prescribed format on due dates. ii) Submit answers with regard to all audit and financial control reports with due dates. iii) To rectify all deficiencies identified by the Auditor General and to institute preventative measures. iv) Keep a proper register for all these reports. 4.1 Tenders and Accounting: i) Arrange tenders within delegations and submit correct tender documents and advertisements to Head Office. ii) All tenders to be evaluated at local tender committees according to delegations. iii) Recommend tenders and approve tenders within delegations. iv) Adhere to all norms and standards. v) Keep and maintain tender register. vi) Keep register for sight value forms. vii) Maintain effective and efficient warehouse. viii) Update and safekeeping of ledger files and cards including inventory items and non-inventory items. ix) Determine quarterly budget performance reports. 4.2 Loss control functions: i) Ensure that all losses are immediately registered as prescribed. ii) Process all documentation with regard to loss or damage to state property. iii) Keep and maintain registers for losses registered. iv) Ensure that preventative measures are in place. 5. Training i) Determine training needs in the district or institution. ii) Arrange training where appropriate. 43

49 Addendum 2 Components of a budget for Personnel (The figures and formulas could change over time. This is a demonstration.) Basic salary costs: Basic (carry through) plus increase equivalent to inflation from 1 July each year Service bonus: Notch/12 x 0.93 Pension: Notch x 0.18 District Council levy: Notch x Homeowners allowance: As per latest policy. At the time of publication it was up to a maximum of R566. This increases with the interest rate. Medical aid: As per employee requirements and according to the policy. This increases at the Medical Inflation Index Commuted overtime: Notch x hrs / 30 (Currently applies only to medical officers) Overtime pay: As per the Basic Conditions of Employment Act of Motor Finance schemes or car allowance: Where applicable Other allowances: Such as camping allowance, clothing allowance 44

50 Addendum 3 The skills that district teams need People working in and on the financial system, need to be clear on what they are supposed to be doing, why it is important and how performance will be assessed. Furthermore, they need to have high ethical values. The following is required to provide such a conducive environment: Appropriate policies, structures such as committees, systems, procedures and processes in place. Tools such as: - Guidelines on how to draw budgets. - Guidelines for the budget / cash flow committees. - Internal control systems and audits programmes. - Guidelines on evaluating financial and service performance. Technical skills Technical skills required include the following: Knowledge and understanding the management support systems: - The financial system. - Personnel salary system. - Procurement management system. Specific skills: - Resource allocation techniques. - Designing and monitoring internal control systems. - Asset management. - Contract management. - Ability to read, interpret and analyse financial reports and applying this skill to monitor and evaluate financial performance. - Computer literacy. - Communication skills. - Basic calculation and analytical skills. 45

51 Addendum 4 Key indicators for the District Health Expenditure Review CRITERIA COST CENTRES A: Equity (Do people have equitable access to services?) B: Resour ce Allocation ( A re re s o u rc e s allocated eff e c t i v e l y? ) C: Ef ficiency (Are resources used efficiently?) D: S u s t a i n a b i l i t y (How reliable is the funding?) District A.1 District expenditure per capita A.2 Expenditure per capita per sub-district B.1 Spending on each level of service e.g. proportion of local expenditure analysed by hospitals, primary level facilities, community services D.1 % of funds f ro mdifferent sources D.2 % of allocated funds spent Primary level facilities: Clinics - Fixed - Mobile Community Health Centres (CHC) A.3 Expenditure per capita per facility B.2 Referral rate per facility B.3 Nurse:client ratio B.4 Utilisation rate (visits per capita per facility) B.5 Proportion of re s o u rces to diff e re n t inputs (% expenditure per line item per facility) C.1.1 Cost per visit - S t a ff cost per visit - Drug cost per visit C.1.2 Referral rate to higher levels of c a re Hospitals - In-patient - OPD A.4 Expenditure per capita per hospital for in-patient and out-patient care B.6 Proportion of resources to d i ff e re n tinputs (% expenditure per line item per facility) B.7 Utilisation rate per facility; both in-patient and out-patient care C.2 Cost per visit Cost per IPD/ OPD & per PDE Cost per visit per line item C.3 Efficient use of in-patient care Average length of stay Bed occupancy rate Admissions per capita D.3 Revenue generated as a portion of expenditure Community service programmes B.8 Proportion of re s o u rces to diff e re n t inputs (% expenditure per line item per service pro g r a m m e ) Emergency Medical Services C.4 Cost per km C.5 Cost per patient transported D.4 Revenue generated as a portion of expenditure Key: Per capita - per person Catchment population - the total number of people making use of or potentially may use a facility. The catchment population lives in an identifiable geographical area linked to the facility. S t a n d a rd line item - a category in a budget that re p resents an expense such as personnel, administration, stores (supplies), etc. Inputs - funds or resources that are made available for certain services Utilisation - a measure of how often a service is used Revenue - money received and earned from sales of medicines, contraceptives, services and fees PDE - Patient Day Equivalent where 1 in-patient day = 3 outpatient visits. 46