Assessing the Financial Performance of a Public Service

European Journal of Economics, Law and Social Sciences IIPCCL Publishing, Graz-Austria

Vol. 5 No. 3October, 2021

ISSN 2519-1284Acces online at www.iipccl.org

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Assessing the Financial Performance of a Public Service Entity in South Africa – The Western Cape Department of Health

BJ Lekay University of KwaZulu Natal, South Africa

KK GovenderUniversity of KwaZulu Natal, South Africa

Abstract

This paper reports on a study conducted through analysis of the audited annual Financial Statements of the Western Cape Department of Health (WCDoH), reports of the Auditor General of South Africa (AGSA) and the Standard Committee on Public Accounts’ (SCOPA) for the 10 year period 2009-2019. Overall, it was ascertained that the WCDoH had an adequate level of liquidity attributed to operational efficiencies in the department. The cost management and cost reduction measures contributed to the positive operating surplus ratio. The cash flow ratio was also positive, which offset the low self-income ratio, giving the WCDoH some level financial independence. It was concluded that although the WCDoH’s financially stability and performance had improved over the 10- year period, the Department needs to improve internal controls, better manage patient fees, minimise negligence claims and improve asset management.

Keywords: financial position, state health department, South Africa.

Introduction

The public service mandate serves as the strategic guidelines which a public service institution such as the Western Cape Department of Health (WCDoH) needs to follow to carry out its key tasks and responsibilities. To fulfil this mandate, public sector organisations have been allocated certain authority, rights and responsibilities, including the authority to formulate and implement policies. Various governance mechanisms have been developed to ensure the implementation of public policies, including the creation and regulation of governmental organisations. Effective, efficient and cost-effective management of any department’s finances is important as this will affect the service delivery to the clients of a particular service. The South African National Treasury explains the importance of consolidated annual financial statements for providing a summary of the financial resources of the government and the use of these resources to benefit South African citizens (National Treasury, 2014:2).Many developing countries have poor and often dysfunctional governance systems, including mismanagement, inadequate resource allocation, inefficient income systems and poor provision of vital public services (Shah, 2007: 13). Such poor governance leads to poor access to public services for disadvantaged members of society, such as women, children and minorities.




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The Institute of Internal Auditors (2012:16) notes that “in many cases, managers and public sector officials have undergone forensic audits due to inadequate management of funds through misappropriation, fraud, theft and improper control of financial documents.”Although the South African health system has undergone fundamental changes in the last decade, the transformation is far from complete and the financial management of the health departments is one aspect, that needs to be urgently addressed. The most serious problems relate to budgeting, revenue collection and monitoring, monitoring of expenditure, raising additional funds to improve the quality of health care and the purchase of medical equipment and consumables. During the 10-year review period (2009-2019), the WCDoH reported under- and over-expenditure in its annual budget plans. In addition, the Auditor General of South Africa’s (AGSA) has also repeatedly reported to the parliamentary Special Committee on Public Accounts (SCOPA), of irregular, fruitless and wasteful expenditure in the WCDoH. Hence, the aim of this study is to analyse the annual financial statements of the WCDoH in order to determine be able to critique and comment on the financial situation for the period under review. The research aim will be achieved by reviewing the financial management and reporting literature and developing a theoretical framework for the analysis of the annual financial statements.

Literature Review

Ospina et al., (2004:231) assert that performance information used by internal and external stakeholders is critical for successful internal management. Such a framework might be used to determine whether assigned duties are being performed as expected and to hold the leadership of organizations accountable for their performance. Since the public sector of South Africa has a legal obligation to report its financials accurately and transparently, it is critical that the literature that illustrates the following principles: governance, transparency, management of finances, financial reporting, financial statements, annual financial statements, audits, accounting and financial ratios.Johnstone, Gramling and Rittenberg (2016:74) argue that the organization has reasonable assurances that its plan meet its financial reporting targets when internal control is effective. The Audit Committee of the WCDoH ensures that the Department adheres to the principles and the required risk management frameworks in the areas of improved governance, accounting and auditing practices. The Audit Committee also checks whether the financial data provided by all users are appropriate and accurate (Burton, 2017:2).Financial governance requires handling an organization’s financial position to ensure clear and error-free relationships with the stakeholders’ overall expectations. The importance of planning and budgeting is crucial in the financial management process, particularly in view of the scarcity of public funds. The WCDoH reports on its financial situation to the Legislature quarterly or monthly.Knechel et al. (2007: 274) note that poor reporting results in a lack of accountability within the department through the department’s practice of collecting and divulging




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financial and other data. According to Knechel et al. (2007:274, financial reporting requires department-wide activities to collect and reveal financial and other accountability information. The purpose of the annual reports is to present to the stakeholders for analysis and evaluation the four statements, namely, financial situation, financial results, net asset and cash flow adjustments. Such statements will prove that due diligence was taken by including following the relevant accounting rules, correct and reliable explanations of the statement and that the department statistical review is based on financial statistics from the previous financial years (National Treasury, 2014:6). Financial statements are an important source of information that users base their decisions on government policy, the future requirements for resources and ultimately the delivery of services.The Quality Accounting Standards for the Public Sector (QASPS) control government financial reporting systems, excluding publicly owned public companies (Ijeoma and Oghoghomeh, 2014). There are various types of audit opinions, namely, Unqualified audit opinion, Modified Audit Opinion, Qualified audit view and Adversely affected views.Financial ratios are used to determine if an organization will step into a potential financially troubled situation (Altman and Hotchkiss, 2006). Wells (1997: 475) states that the annual accounts are useful not only to assess an institution’s financial status, but also to identify accounting irregularities. It refers especially to the indexes of liquidity, asset, leverage and profitability and considers that the correlation between specific elements of the financial statements has been assessed by useful indicators. Du Toit (2008:828) summarized that annual budgets are helpful for making choices and forecasting, thus, ratio analysis may be helpful for analyzing the financial situation of a company.The profitability of a firm is determined by its ability to meet its short-term obligations should they fall due (Gitman, 2004). Liquidity is the degree to which a business can satisfy its short-term debt obligations without liquidating the assets. Autonomy is the degree to which local government has control vis-à-vis the national government and how dependent or reliant are provincial departments on national government revenues, as opposed to own-source revenues. This can be calculated by the self-income ratio, which is the own-source benefit ratio divided by total income, that is, the inverse of the dependency ratio. Operating surplus/deficit is the difference between revenue and expenses for the year. A chronic and persistent structural shortfall means that local governments have trouble managing spending on its revenues. One version of this equation is the operating surplus / deficit ratio is divided by total income, which is useful for comparison purposes of results. Sakuma, Tsujimura and Tsujimura (2018) established that value adding and operating surplus is positively correlated.The collections efficiency ratios of the different source of income are measured, including fines and penalties, goods and services other than fixed assets, fines, interest, fixed asset sales, financial transactions with properties and commitments, transfers earned, the costs of hospitalisation and dividends, and land rental. Solvency is the willingness and the interest to be paid back on long-term debt. It is primarily concerned with the long-term financial health and sustainability of the




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company. In general, the higher the solvency rates, the more likely it is that the long-term debt cannot be secured. Generally, there are four metrics for solvency:• Net financial obligations are the net amount that the local authorities owe, or are to be held responsible for (PricewaterhouseCoopers, 2006). • The net financial liabilities ratio calculates to what degree net financial liabilities can be covered by revenues.• The average debt-to-income ratio measures the ability to meet the total income burden. • The debt-to-account ratio is the debt-to-account proportion and determined by total debt-to-account liabilities.There is quite a great deal of literature in the public domain on consolidated private sector balance-sheets, but the literature on the consolidated public sector balance sheets are not covered sufficiently. Cîrstea (2014) argues that while some differences exist between the public and private sectors and between priorities, the private sector procedures can be viewed as a basis for financial information by the public sector. In light of the above ‘’gap’’, in that the literature focuses predominantly on the financial performance of private companies, this research concentrates on the analysis of financial statements to assess the performance and financial strength of a public institution.

Research Methodology

This research is a quantitative case study of the WCDoH. The data was obtained from the Annual Financial Statements and the trustworthiness of the data was confirmed by the vetting process imposed on the contents of the 10 years’ financial statements. The unit of analysis in this study is the WCDoH and as advised by Yin (2003), the data had to comply with the following attributes:• it should be part of the WCDoH annual reporting of 2009 to 2019 financial years • it should have been audited by AGSA and reviewed by SCOPA. This research used primary historical data, including the following data sources,

Annual Health Reports; SCOPA’s Annual Resolutions Reports on WCDoH’s Annual Reports; and WCDoH’s Annual AGSA Audit Opinions.

Data was defined in two levels, with the level 1 source documents being the 2009 to 2019 annual reports of the WCDoH, SCOPA reports and STATSSA Census data and the level 2 source documents included AGSA reports, Annual Financial Statements, SCOPA resolutions. The analysis of the data was conducted using the Financial Performance Measurement Framework (Carmeli, 2002) as reflected in Table 1. Carmeli’s (2002) framework was adapted by employing four broad performance measures which are represented by fiscal-year balance, liquidity, solvency and service and departmental advancement. Five tools of evaluation, namely autonomy, liquidity, operating performance, solvency and collection efficiency were assessed, since these measure are considered vital for the analysis of the financial strength and financial performance of government institutions.




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Table 1: Financial performance measurement framework

Measure Financial indicator Formula

Liquidity

Current ratio

Average collection period

x365

Autonomy

Free Cash Ratio

Cash to Revenue Ratio

Self-income ratio

O p e r a t i n g performance

Operating surplus/(deficit) operating income – operating expenditure

Operating surplus/(deficit) per resident

Operating surplus/(deficit) ratio

C o l l e c t i o n efficiency

Hospital patient fees collection efficiency ratio

Rents on land collection efficiency ratioPenalties, Forfeits& Interest charges collection efficiency ratio

Solvency

Net financial liabilitiestotal liabilities – financial assets

Net financial liabilities ratio

(Gross) Debt-to- income ratio

Debt-to-assets ratio

Fixed Asset turnover ratioCapital Asset Expenditure to total revenue

Source: Adapted from Turley et al., (2002:11)




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Although there are a range of analysis methods, trend and ratio analysis techniques were used, as these provide more accurate information. Trend analysis allows for conducting complex analysis by incorporating decrease and increase in certain items on the financial statements and the subjective meaning of this adjustment (Kara, 2012:84). Ratio analysis is the mathematical association that refers to the pointing and evaluation between the two requested financial statements. Kara (2012: 84) states that ratio analysis can be categorized under the following headings: liquidity, cash, operating condition, the financial structure, productivity and market efficiency.

Research FindingsLiquidityA company’s liquidity which is determined using financial ratios, defines its solvency and is often of particular interest to its short-term creditors. Figure 1 depicts the current ratio and the average collection period, both of which allow for interpretation of the liquidity of the Department.

Figure 1 Current Ratio and Average Collection Period

Source: AFS, author’s calculations

Figure 1 reflects that the WCDoH has had consistent working capital from 2009/10 to the 2013/14 financial year. However, there was a regression in the ratio from 1.08 in 2013/14 to 0.98 in 2014/15 and lowest (0.93) being in the 2016/17 financial year. Nevertheless, the current ratio escalated to 1.04 in 2017/18 and continued upwards to 1.08 in 2018/19. Both Swanevelder (2005) and Gitman (2009) agree that an outcome of “2” or greater should be deemed as acceptable current ratio and any outcome of “1” or below indicates that the WCDoH has liquidity challenges and may not be able to meet its financial obligations.A possible reason for the decline in the current ratio between 20113/14 and 2017/18 could be due to the current liabilities increasing by R 22 929 million from the 2013/14 to 2014/15 fiscal years. Furthermore, the staff debt of the Department increased between the 2015/16 and 2016/17 financial years by R11 million (WCDoH, 2017: 247).




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With consecutive increases in the current ratio for 2017/18 and 2018/19, this trend indicates an ideal cash flow situation at the WCDoH. As depicted in Figure 1, the WCDoH improved its average collection period (ACP) from an average of 25.1 days in 2009/10 to 10.62 days , which is very good when compared to Moody’s rating of AA+ for an ACP of 45 days (Ellison, 2020). It is also evident from Figure 1that the total payment collection time decreased from 25 days in 2009 to 10 days in 2019. This compares very favourably with the Department’s billing policy which requires receivables to be collected within 14 days. The average number of days that the Department collects its receivables will help to maintain a high level of liquidity.

AutonomyAutonomy which measures the degree of reliance on income from the national government, as opposed to revenue from own sources is reflected in the self-income ratios depicted in Figure 2.

Figure 2: Self-income ratio

Source: Developed by the Researcher

It is evident from Figure 2 that between 2009 and 2019, the autonomy of the WCDoH decreased significantly, with the highest percentage of own income being registered in the 2012/2013 financial year and the lowest being in the 2017/2018 financial year. Considering the WCDoH’s low average of payment collection days, the decreasing self-income ratio appears to be a contradiction. The own income of the WCDoH increased by 63,7% year on year from 20019/10 to 2018/19 and the total revenue increased by 121% year on year from 20019/10 to 2018/19. The decrease in the self-income ratio could therefore be attributed to the growth in the annual appropriation, from R10 463 716 in the 2009/10 financial year to R23 099 979 in 2018/2019. The R12 005 000 could be attributed to an improvement in the self-income ratio from 0,036 in 2010/11 to 0,041 in 2012/13, which is the highest in the 10-year period (WCDoH, 2013).However, 2017/18 has the lowest self- income ratio of 0.026 and the overall picture shows a negative trend, with a slight increase to 0.029 in 2018/19. A 36% increase in Departmental receipts (own revenue) from 2010/11 to 2012/13 compared to an 18%




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increase in annual appropriation for the same period, is noted as further explanation of the 2012/13 self-income ratio.

Free Cash- flow The Free Cash Flow ratio describes the income that can be generated after the total appropriated funds are spent by the WCDOH. As seen in Figure 3, the WCDoH showed a steep and steady increase in the free cash-flow ratio between the 2010/11 and 2015/16. After reaching the 10-year high in 2015/16, the cash flow ratio straddled between highs and lows of 0.5 basis points, ending in 2.5, which was below the moving-average-line of 2.5. However, by looking at the linear trend line it becomes apparent that the WCDoH is on a positive trajectory. During the 2012/13 financial year, the Department undertook savings initiatives, which included a reprioritisation exercise. In order to achieve savings in various sectors, greater efficiencies in procurement of goods and services, elimination in benefits, organization and staff costs were implemented.

Figure 3: Cash to revenue and Free cash flow ratio


Cash to revenueThe revenue-to-income ratio compares the cash flow of the WCDoH with its revenue. As shown in Figure 3 above, the WCDoH reported a deficit of R19 956 million in 2010/2011, which was disabling and preventing the department from recording a positive revenue yield (WCDoH, 2010: 221). From 2011/12 to 2017/18, the WCDoH generated a positive trend peaking at 38.8% in 2016/17. The associated under-spending and consequent rise in the cash-to-revenue ratio could be due to a recruitment and selection campaign which was carried out efficiently, resulting in significant savings.

Operating PerformanceAs shown in Figure 4, although for each financial year the WCDoH showed an




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operating profit, the graph also reveals a net decrease in operating income of R 260 822 million over the period 2015/16 to 2016/17. The most likely contributors to the sharp decrease could be the increased capital expenditure during the period due to neglect of specifications for medical equipment when the budget had been assigned, cost increases (inflation and exchange rate) when the procurement took place and changes in the spending time as a result of the earliest possible changes.

Figure 4: Operating surplus


The Department also recorded an underspent amount of R303 954 million for the 2015/16 financial year. The main reasons for the underspending are as follows: • The Department was forced, by resolution of the SCOPA, to make savings on

personnel costs to compensate for the reduction in real terms of the medium-term expenditure framework budget for fiscal year 2016/17,

• Medical compensation was below budget, • Not all planned capital construction projects were completed in the year under

review and, • Despite the sharp drop in the overall operating result between 2009 and 2010 (a

sign of the beginning of the financial crisis), it was higher than expected. Collection efficiencyFigure 5 which reflects the collection efficiency ratio which implies that the WCDoH has been highly efficient in its collections for the period under review.




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Figure 5: Patient fees collection efficiency ratio

Source: AFS; author’s calculations

SolvencyAs depicted in Figure 6, the WCDoH’s financial assets exceeded its financial liabilities in all the financial years under review.

Figure 6 : Solvency ratios


The net liability which is a measurement of financial liquidity used to calculate a company’s ability to meet its obligations by comparing its total debt with its liquid assets, shows how much debt a company has vis-à-vis its liquid assets, thus




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demonstrating its ability to pay off the debt immediately if called upon. It is evident from Figure 6 above, that the WCDoH has more financial assets than financial obligations.The net ratio of financial liabilities measures how well a business can manage its current obligations and whether it will be able to take on more debt in the future. A ratio above 1.0 would mean that the WCDoH has more debt than current assets. In such a case, if all creditors of the Department called in their debts immediately, the firm could not pay them without selling long-term assets. The WCDoH had a ratio of under one over the 10-year period, which implies that it was not in a healthy state. In the fiscal years 2014/15, 2015/16 and 2016/17, the Department’s liabilities surpassed its current assets. However, the graph also suggests that the WCDoH had high leverage during the other financial years and was able to easily meet its obligations. The reason for the high net liability ratio in the years 2014/15, 2015/16 and 2016/17 could be due to the department recording a R 221 million contingent liabilities in 2015.

Debt-to-income ratioThis ratio calculates the proportion of total assets financed by the company’s creditors and it is the relationship between the claims of the creditors and shareholders on the assets of the company. The debt ratio indicates the percentage of funds provided by investors and the extent to which the company’s assets have been covered by creditors. Lenders prefer a moderate or low debt ratio because the lower the liquidation ratio, the more cautious the liquidation. In other words, a low or moderate debt ratio offers investors greater protection in the event of financial problems in the business. The higher the total debt-to-asset ratio, the higher the level of debt and the higher the leverage of the company. The low debt ratio reflected in Figure 7 indicates that the WCDoH had enough assets to cover its debt.

Figure 7: Debt-to-income ratio and debt-to-asset ratio





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Debt-to-assets ratioThe debt-to-asset ratio indicates the percentage of the creditors’ total assets. When the ratio is high, WCDoH assets are used to produce the department’s revenue. However, the ratio tests the WCDoH’s level of financial vulnerability. Figure 7 above shows that over the 10-year period, the Department continuously lowered its debt-to-revenue ratio and liabilities-to-asset ratio. In the 2010/11 financial year, the AGSA stated that the Accounting Officer of WCDoH did not ensure sufficient manual or electronic processes and procedures for efficient, effective, economic and transparent management and accounting of the department’s tangible movable assets. The Accounting Officer did not ensure that adequate asset control systems were in place to deal with capital risk. The Audit Committee noted that asset registers had not been updated to reflect purchases, disposals and transfers of assets; some hospitals did not have asset registers; and some hospitals lacked a systematic strategy for the maintenance and repair of medical equipment (WCDoH, 2009: 154).In 2009/10, the WCDoH’s assets generated modest revenues (R7 billion), compared to its liabilities. In financial year 2010/11, the budget was balanced and in the financial years 2011/12 to 2013/14, the Department generated a surplus. It was still able to generate a surplus in fiscal year 2014/15, but this was lower than in previous fiscal years (WCDoH, 2015: 270).

Capital Asset Expenditure -to- total revenueDue to financial pressures on the WCDoH and the need to prioritise primary and secondary health care, procurement of goods and services were adversely affected in 2009/10. The 16.7% increase in the Western Cape population from 4,524,335 in 2001 to 5,278,585 in 2009, was reflected in a steady increase in patient numbers of almost 3% per year (WCDoH, 2010). This growth is reflected in an increase in the equitable share

Figure 8: Capital Asset Expenditure -to- total revenueSource: AFS; author’s calculations




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of WCDoH’s (2010-2011 allocation). The Department’s capital expenditure increased by R270 million from R1036 billion in 2010/11 to R 1,704,758 billion in 2009/10. This increase is related to the increase in the ratio of capital expenditure-to-revenues as shown in Figure 8. Compared to the base year 2009/10, the same ratio shows a steady decline from 0.08 in 2010/11 to 0.03 in 2017/18, a decrease in capital expenditure from R1,036,273 million (2011/12) to R883 million in 2012/13 and further decreases in investments from R838 million to R882 million in 2013/14 and 2014/15, respectively. The challenges related to the safety of goods and services in fiscal year 2012/13, which had a significant impact on the WCDoH in the provision of efficient and effective services. These include the issue of prescription drugs and the supply of drugs to the Cape Medical Depot (WCDoH, 2013: 30-32). The decrease in WCDoH’s expenditure on goods and services during fiscal year 2010/11 is due to the delay in signing the Global Fund Rolling Continuation Channel (RCC-I) agreement, unfinished posts, slowed progress on the hospital revitalisation program, late acceptance of the provincial infrastructure grant, and late acceptance of the grant.

Audit Findings and SCOPA ResolutionsTable 2 reflects some of the important issues which the AGSA raised with SCOPA during the 10 financial years under review.

Table 2: AGSA opinions and SCOPA resolutions- 2009 t0 2019Financial year

Audit out-come

AGSA Opinion SCOPA resolutions

Resolution

2009/10Unqualified with findings

Fruitless and waste-ful expenditure, ir-regular expenditure

(1) The Organisation shall im-plement an appropriate systemmonitoring and control, and increasesupply chain managementacquisition management pro-cesses to prevent irregular fruitless and wasteful expen-diture(2) Related matters should also be investigated andProcedures initiated to either condone or the amount be paid back to the Department

Creditors werenot paid within the prescribed 30 days

All creditor payments should be made within30 days to ensure strict adher-ence to theRegulations.

Unauthorised expen-diture

Stricter budget control is con-tinually beingimplemented. This includes that only fundedvacancies are filled, and a vet-ting process ongoods and services.




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2010/11Unqualified with findings

procurement andcontract management compliance require-ments were not ad-hered to

No recommendations passed

2011/12 Unqualified with findings

fruitlessand wasteful expenditure

The Department must ensure that between SLA and theThe Department of Transport and Public Works, the companies that have received the contracts can execute and complete the work.The Department prepares for the Committee detailed information on the depreciation of hospital assets, including the list, origin and value of the items, as well as the followingmechanisms the Department has put in place to reduce and prevent such cancellations in the future.


The value of assets has been overstated

The department must conduct regular stock takes and provide a plan on automation of asset management processes

2013/14

Material losses/ impairments. Non- compliance with legislation: Annual Financial Statements; expenditure Management; Financial and performance management.

Consequential mechanism be introducing to deal with irregular expenditure.


Impairments: Medico legal claims

The Department develops and implements a mechanism that ensuresthat it addresses and minimises the cases ofcontingent liabilities against the Department.


Impairments: Medico legal claims No resolutions




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ageing medical infrastructure amongst its assets

The Department must brief the Committee on its User Asset Management Plan (UAMP), from the 2016/17 to 2019/20 financial years,

2018/19 Clean audit

Fraud and Corruption investigations by Forensic Investigating unit

The department must submit an action plan to reduce fraud and corruption and to expedite the investigation of cases

Source: Compiled by the Researcher The issues referred to in Table 2 are self-explanatory matters that affect the financial performance of the WCDoH in terms of financial management and its annual liquidity position. In summary, over the 10-year period, the AGSA reports confirm that the Department’s financial statements provided a true and correct view of the economic performance, the financial condition, adjustments in the assets and net cash flows of the WCDoH.

Discussion of Key Findings and Conclusion

The study revealed that financial performance is not an isolated matter, since it has to be discussed by taking into consideration various financial management concepts as reflected in the various ratios. Although the Department seems to be transparent and actively monitoring performance indicators, the income and spending trends suggest that the WCDoH can still improve its expenditure and income performance indicators. Knechel et al. (2007: 274) noted that poor financial reporting results is a departmental accountability gap in the collection and disclosure of financial and other data. The WCDoH reports to the Legislature on its financial situation annually or monthly. Knechel et al. (2007: 274) note that inadequate financial reporting leads to a departmental lack of accountability through the department’s collecting and dissemination practice. It was found that the Department diligently reports on its financial affairs to the provincial Treasury and the Department’s Audit Committee. The WCDoH reports on its financial statements to the Legislature quarterly or monthly and in accordance with the Generally Accepted Accounting Practice. Over the 10- year, the WCDoH has successfully defined, registered, classified and disclosed transactional information. The quality and reliability of the information submitted to the AGSA and Provincial Treasury, according to the AGSA, supports senior management in decision making in terms of management assertions pertaining to transactions, accounts, presentation and disclosure.The Department achieved an operating profit over the 10 year period. However, the Department experienced net decrease in operating income of R260,822 million over the period 2015/16 to 2016/17 and the Department’s operating surplus for the years 2011/12 and 2014/15, 2016/17 and 2018/19 show a marked decline. There is a concern




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about the overspending of the Department’s budget in the said financial years. A major concern is the Department’s challenge to curb the increase in medico legal and other claims against the Department.The WCDoH has established the following values: care, accountability, respect, responsiveness, innovation and competency, which values promote the relationship between the principal and the agent. It was apparent that these values impacted on the success of the principal-agent relationship and were critical in combatting self-interest expectations, opportunism, incomplete information and priority differences.It also became evident that ratio analyses is critical in measuring the financial strength of any private or public entity. The ratio of the largest contributor to the overall income shows that the WCDoH was reliant on external funders and therefore demonstrates the department’s financial weakness. Between 2009 and 2019, the autonomy decreased significantly, which implies that if the government withdraws its support, the Department will not survive.Across the six measures of solvency, the general picture is that of an improvement in the solvency of the WCDoH, albeit in some financial years (2014/15, 2015/16, and 2016/17), the Department’s liabilities surpassed its current assets. Liquidity is one of the financial ratios used to determine if an organization will step into a potential financially troubled situation (Altman and Hotchkiss, 2006). The current ratio for the WCDoH was positive for the period under review. Although the overall solvency ratio was I during the period under review, in the fiscal years 2014/15, 2015/16, and 2016/17, the Department’s liabilities surpassed its current assets. The reason for the high net liability ratio in the years 2014/15, 2015/16 and 2016/17 could be due to the department’s challenges in curbing medico legal and other claims instituted against it. Regarding capital expenditure in relation to revenue, the study revealed a negative trend over the 10- year period. This creates a risk for the department to maintain its level of services as well as expand services in relation to the increase in service demand. The Department has over the 10 -year period maintained a stable liquidity the stable liquidity ratios reflect the short-term financial flexibility/ solvency of the Department. The WCDoH was therefore successfully addressing its liquidity issues and was able to maintain this position and meet its obligations when they became due. The study confirmed that the Department had received an unqualified audit for the 2009/109 to 2017/18 financial years. In 2018/19. It became apparent that the WCDoH has strong internal controls which reduce the risk of corporate failure and help to ensure a complete and accurate audit, credible financial statements and accounting activities being carried out in accordance with the laws relevant to the program. It was evident from the Department’s annual report and the AGSA reports, that the Audit Committee of the WCDoH ensures that the Department adheres to the principles of risk management. The following key issues which emanated from some of the reports over the 10 year period need to be given careful consideration, as these may eventually negatively impact the financial status of the Department:• Fruitless and wasteful expenditure• Payments not made to creditors within 30 days




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• Unauthorised expenditure• Lack of internal controls• Claims instituted against the WCDoH• Overstatement of value of assets in AFS• Long outstanding investigations with regard to fraud and corruption cases• Aging Infrastructure• WCDoH not implementing SCOPA resolutionsIt may be concluded that the WCDoH’s financial performance has been rather cautious, which suggests that the financial have improved over the past 10 years and the Department is able to fulfil its mandate. It is critical that the Department continues to develop new strategies to increase revenues to avoid overreliance on one major source, namely government. Notwithstanding the above remarks, the Department needs be cognizant of the remarks and recommendations stemming from the AGSA audit reports and SCOPA resolutions, as failure to do so may negatively impact the financial position of the WCDoH.

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Assessing the Financial Performance of a Public Service