Presentation on the Key Challenges Experienced in the Provincial Health Sector – Finance Presented by Dr Benjamin Malakoane Member of Executive Council: Department of Health Free State Province

ANNEXURE A: FINANCIAL REVIEW 2015/16

Actual Spending vs. Budget CoE / Goods & Services conflict CoE has been increasing from 63% in 2011/12 to 65% in 2016/17, leading to crowding out of Goods & Services. Due to fiscal discipline initiated during 2014/15, CoE decreased by 1%. This resulted in service delivery pressures emanating from lack of appointment of personnel. In the current financial year the department was instructed by Provincial Treasury to reduce CoE by 0.05%. This is creating a further pressures on the Employees benefits of the previous financial years.

Budget Allocation Goods & Services from 2011/12 to 2019/20 Whilst the budget has been nominally increasing, the inflation has impacted negatively on the purchasing power. The increase in accruals is demonstrative of the inadequate budget allocation. Accruals have a negative ripple effect on the Cash flow of the ensuing years. The department reduced the accruals as from 2014/15 as compared to the previous years, however in the 2015/16 FY they further increased by 2 percent.

Conditional Grants

AUDIT OUTCOMES 2015/2016

QUALIFICATION AREAS The department got a qualified audit opinion on the following areas 2014/15 Areas Qualification Progress Irregular Expenditure The department made payment in contravention of the supply chain management requirements in the current and prior years, but failed to investigate the full extent of the irregular expenditure. 20% progress made Assets Management The department did not account for all receivable for departmental revenue as required. As a result of break down in one of the department’s patient administration and debtors system during the year, AG was not able to determine the impact on accrued departmental revenue disclosed Resolved in 2015/16 Employee Benefit The department did not correctly account for all commitment as required and did not maintain an accurate and complete commitment register Resolved in 2015/16

QUALIFICATION AREAS The department got a qualified audit opinion on the following areas 2015/16 Areas Qualification Remedial action Irregular Expenditure The department made payment in contravention of the supply chain management requirements in the current and prior years, but failed to investigate the full extent of the irregular expenditure. 1. Investigate all findings raised by AGSA. 2.Hold monthly expenditure review meetings 3.i) Enforce use of Internal control checklist to ensure that all SCM processes are followed by properly completing and attaching it to all transactions. ii) Provide workshops and in- service training to all institutions to support and enhance skills and capacity Accrued revenue The department did not account for all receivable for departmental revenue as required as a result of break down in one of the department’s patient administration and debtors system during the year, AG was not able to determine the impact on accrued departmental revenue disclosed 1. Replacement of Uninterruptible Power Supply (UPS) 2. Uploading of patient data back onto the PADS (Prioritise cases where probabilities of debt recovery are certain e.g. Medical Aid debt, government institutions and H3 Category). Commitments The department did not correctly account for all commitment as required and did not maintain an accurate and complete commitment register 3.1 Identify the currently active and inactive projects where there is a contractual obligation. 3.2 Compile a commitment register with the data obtained from point 3.3 Obtain all contractual documentation (initial contracts and variation orders) to determine the cost/value of each project 3.4 Update monthly expenditure of each project to ensure reliable reporting

Emphasis of matters Emphasis of matters if not attended to and becomes material they may results in to qualification areas Areas Qualification Remedial Action Financial sustainability The department had significant accruals, payable and employee benefit, overspending of the department ‘s appropriations, as well inadequate cash resource to surrender unspent funds to the provincial revenue fund. The matters indicate material uncertainties relating to event and conditions that may cast significant doubt on the department’s ability to meet it financial obligations as they fall due. 1. Ensure compliance to cash flow model by all institutions 2. Develop the cash flow mode 3. Pay-off the prior year accruals first Payables Accruals and payable not recognised which exceed the payment term of 30 days as required amounted to R104 179 000.00 exceeded the voted fund to be surrendered of R65 417 000.00 the difference of R38 762 000 would have constituted unauthorised expenditure had the amount due been paid on time.

Financial sustainability Description 2015/16 2014/15 2013/14 R ’000 Unauthorised Expenditure 31 814 11 167 32 776 Accruals 373 799 217 418 657 001

Predetermined Objectives AG have the responsibility to report findings on the reported performance information against predetermined objectives. Areas Audit Outcome Remedial action Programme 2 Qualification: Adequate and reliable corroborating evidence could not be provided for the reported the reported achievement against planned targets for 48% of indicators 1. Implement one folder with all patient files 2. Priorities appointment of clerks 3. Monitor complaint register weekly 4. Move from manual to electronic patient registration system Programme 5 Unqualified: no material findings on the usefulness and reliability of the reported performance information for this programme Not necessary Programme 7 Disclaimer: This was due to limitations placed on the work of AG. AG was unable to obtain the information and explanations they consider necessary to satisfy himself as to the reliability of the reported performance information The matter will be investigated and proper corrective action will be taken

Compliance with legislations AG have the responsibility to report findings on the reported performance information against predetermined objectives. Areas Audit concerns Remedial Action Annual financial statement The financial statement submitted for auditing were not in all respect prepared in accordance with the prescribed reporting framework. Material misstatement of disclosure items identify by the auditors in the submitted financial statement which were submitted. 1. Monthly monitoring of misclassifications, 2. Enforce the signing off of certificate of accuracy by providers of information for financial statements. Budget management Effective steps not taken to prevent unauthorised expenditure amounting to R31 814 000.00 1. Monitor proper functioning of quotation evaluation committees. 2. Monitor effective implementation of the policies, procedures and delegations Procurement and contract management Goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations Provide training on Policies, SOP's and SCM delegations to ensure proper implementation of the framework. 2. Monitor proper functioning of quotation evaluation committees.

Compliance with legislations (cont..) Areas Audit concerns Remedial Action Expenditure management Effective steps not taken to prevent irregular expenditure 1. Monitor effective implementation of the policies, procedures and delegations. Transfers and subsidies Appropriate measures were not maintained to ensure that transfers and subsidies to entities were applied for their intended purposes 1. Ensure approval of SLA. 2. Reviews of NGO's financial and performance report Conditional grant management Grants were not spent in accordance with the applicable grant framework i) Perform monthly sample checking of all Conditional Grant expenditure ii) Ensure monthly reporting by programme managers on compliance with the Grant framework iii) Perform monthly expenditure reconciliations iv) Internal control unit and Internal audit units expenditure verifications on Grant Framework compliance Revenue management Effective and appropriate steps were not taken to collect all money due as required. Interest was not charged on debt as required Appropriate process were not developed and implemented to provide for recording, reconciliation and safeguarding of information about revenue 1. Strengthening of debt collection by appointing debt collectors. 2. Undertake monthly performance meeting with debt collectors.

Contributing factors to Qualification matters Irregular Expenditure – As the department was qualified on irregular expenditure since 2007/2008 and the department was suppose to have checked the entire population after the audit. Through the discussion with AG the only way was then the department to check the whole population from as far back as 2009 (411 432 transaction). The processes were started but could not be complete before the end of the financial year hence completeness of irregular register. Accrued Revenue – Due to system break down and back ups not maintained, the department was unable to account for accrued revenue. The department is in a process of acquiring new patient revenue system. Commitments ( Infrastructure commitments)- The department did not to maintain accurate commitment register. The following were contributing factors: Project managers not competent Lack of proper contract management IRM reporting not accurate

Contributing factors to Non Compliance issues d) 30 day payment- as a result of shrinking budget e) Conditional Grant – spending not for the purpose that it was intended for though not significant.

Way forward Finalisation of Audit Action plan – All facilities audited or not will have to replicate the audit action plan to ensure that current findings will not be repeated in the next financial year. This audit action plan addresses aspect of correction of matters identified by AGSA, detection and prevention. Monthly monitoring of implementation of resolutions Internal Control Unit to do spot checks on the implementation of Audit Action plans As part of consequence management disciplinary action against some of the officials will be instituted as workshops have been held and directives issued during the course of the year

THANK YOU