Effective financial planning and management are vital for the successful generation, safekeeping, and use of funds to achieve program objectives.
Many government budgeting and accounting systems operate on a cash basis, recording a transaction only when cash is involved. Private-sector or semi-autonomous government programs, including many revolving drug funds (RDFs), use an accrual system, which also records non cash transactions such as medicines issued. Public-sector managers can complement government accounting systems with elements of an accrual system to support more effective and efficient program management.
Long-range financial plans include projections of funding and expenditures over several years and thus facilitate long-range planning for health services. For an RDF, a long-range plan can project the point in the future when revenues from medicine sales will be sufficient to cover medicine program expenses. The realization of projected revenues depends on the development and implementation of detailed pricing strategies for medicines.
The first-year figures from a "rolling" long-range plan provide the basis for an annual budget, which is used to plan and control spending for the current year. Whereas government budgets may be based on fixed funding, an RDF budget is flexible, with the level of expenditure dependent on sales revenue. A cash flow forecast helps ensure the availability of sufficient cash to cover anticipated obligations each month. Cost analysis is used to measure program efficiency and to help set prices.
Principles for effective financial control include -
- Dividing duties among different individuals
- Regulating transactions through the use of written procedures, budgets, and purchase-request systems
- Recording and monitoring all transactions
- Instituting both random and scheduled third-party auditing
The accounting system should produce the following standard reports on a monthly and annual basis -
- Budget performance report
- Income and expense statement
- Cost-center expense reports
- Balance sheet
- Summary of accounts payable and receivable