Concepts and Principles of Financial Management
PST 06105: HEALTH FINANCING
Session 9: Concepts and Principles of
Financial Management
Learning Tasks
At the end of this session students are expected to be able to:
Describe
financial management concepts
Describe
financial management functions
Outline
financial management weaknesses in the public sector
Explain
principles of financial management
Financial Management Concepts
Finance is
key resource
in any organization and used for acquiring human and
non human resources
Thus
, financial management is a
key management
function in any
organization
Financial
Management is a process of planning, mobilizing, allocating, and using
financial
resources effectively and efficiently to meet the needs or objectives of
an organization
Financial Management Functions and Responsibilities of Manager
The following are the functions of financial management:
Financial planning
Mobilizing
or obtaining financial resources
Disbursing
funds
Financial
reporting and risk management of financial resources
An
effective financial management requires a financial management system that have:
Clear
strategic direction, as indicated by strategic plan
Defined
financial process and procedures
Defined
roles and responsibilities within an organization
Effective
information
base
Financial Management Functions and Responsibilities of Manager
An
effective financial management requires a financial management system that have:
Technical
capacities, as indicated by staff knowledge and skills
Owned
by the organization
Health
managers have the following specific responsibilities in relation to
financial resources
:
Preparing
a sound budget
Monitor
or control expenditure: using line item control method, using activity control
method
or variance analysis technique.
Participate
effectively during auditing process
Activity:
Small group discussion
What
are financial management weaknesses encountered in
public sector?
6
Financial Management Weaknesses in
Public Sector
The public sector experiences a number of weaknesses related financial
management; financial
management weaknesses include the following:
Revenue
management
Missing
revenues earnings receipt books
Failure
to adequate collect revenue from various sources
Failure
to monitor revenue collection
Cash
management
Bank
reconciliation is not done on monthly basis
Surprise
cash survey is not conducted
Financial Management Weaknesses in
Public Sector
Expenditure management
Inadequately
supported expenditures
Missing
payment vouchers
Missing
acknowledgement receipts from recipients of funds
Expenditure
charged to wrong account codes
On
call allowances received but not paid
Payments
not subjected to pre-audit
Lack
of proper authorization of expenditure
Unspent
balances for Community Health Fund
Expenditure
incurred contrary to CHF Operations Guidelines
Outstanding
claims not paid by the National Health Insurance Fund
Financial Management Weaknesses in
Public Sector
Procurement
Procurement
of goods and services without tender board approval
Procurement
of services from unapproved suppliers
Procurements
made without competitive bidding
Stores/goods
not recorded in ledgers
Goods paid for but not delivered
Inadequate documentation of contracts and projects
Financial Management Weaknesses in Public Sector
Weaknesses in the financial management in public organizations are due to failure
of managers
to apply principles of financial management. Failure to apply principles
of financial
management may be due to
poor understanding of these principles
Thus
, the weaknesses in financial management can be addressed by understanding
and applying
principles of financial management in the public sector, including health sector
Principles of Financial Management
Principles of financial management are guidelines or good practices that ensure that
an organization
uses its resources to achieve organizational goals.
Financial
management principles are based on the following financial controls:
Control
environment: consists of the actions, policies, and procedures that
provide overall
guidance to an organization: e.g. financial policies, procedures,
organizational structure
, and audit committees.
Principles of Financial Management
Financial
management principles are based on the following financial controls:
Control
procedures- refer to:
Segregation
of duties (authorization, record keeping, and custody of assets)
Proper
procedures for authorizations: only authorized people should
authorize expenditure
Physical
control over assets and records: physically control access to assets
and records
Adequate
documents and records: keep and maintain records and documents
as evidence
during auditing
Independent
checks on performance: conducting auditing, both internal
and external
auditing
Principles of Financial Management
External auditing
individual (not
employee of the organization to be audited) assigned for auditing purposes
Internal
auditing
Auditors
conduct auditing
to determine independently the performance of organization
on
generation, development, allocation, and use of various resources in organizations
Auditors
give their opinions which has various meaning and implications to
management
and use of resources
Principles of Financial Management
The following are four types of auditors‟ opinions and their related meaning:
Unqualified
opinion:
an unqualified audit opinion is issued when the financial
statements
of an organization has been prepared, in all material respects and in
accordance
with the applicable financial reporting framework.
Qualified opinion:
A qualified audit opinion is issued when there are
material misstatements
in the financial statement due to the disagreements with
management or
limitation of scope which is neither material nor pervasive
Adverse
Opinion:
audit opinion shall be expressed when there evidence
of misstatements
, individually or in the aggregate that are both material and pervasive
to the
financial statements prepared by an organizations.
Disclaimer
Opinion:
given when auditors fail to obtain audit evidence
for/from opinion
on financial statements of organization
Key points
Health
professional, including pharmaceutical personnel, are now playing key role
in financial
management
In
order to play their key role in financial management, health professionals need
to understand
and effectively use principles of financial management in the
health sector
.
Evaluation
What
is financial management?
What
are the functions of financial management?
What
are responsibilities of a health manager on financial management?
State
four principles of financial management
Activity:
Assignment
Download and read the current report of Auditor and Control General of one
of
local governmental Authority (
Organisation
) in the country
Outline
common weaknesses reported by the auditor from that report
17
Reference
Cammack
, J. (2007). Building capacity through financial management: practical guide.
London
: Oxfam.
Creese
AL & Parker D. (1994). Cost analysis in primary health care: A training manual for
programme
managers. Geneva: WHO.
Green
, A.T. (2007). An introduction to health planning for developing health systems. 3rd
Ed
. Oxford: Oxford University
Press.
Green,A
.,Collins
, C. &
Mirzoev,T
.( 2012) Management and planning for global health in:
Merson
, M. H.,. Black, R. E., Mills, A. J( Ed.).(2012).Global health:
diseases, programs
, systems and policies. 3rd ed. Burlington: Jones & Bartlett Learning
Gruen
, R and
Howarth
, A. (2005). Financial management for health services. London: Open
University
.
Law
, J. (2006). Oxford dictionary of business and management. 4th Ed. Oxford: Oxford
University
Press.
Millichamp
, A. (2002). Auditing. 8th Ed. London: Continuum.
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