04 November 2020
The third webinar on Funding and Accountability in the Victorian health system was held on 7 October and was again facilitated by Dr Joanna Flynn, Chair of the Boards Ministerial Advisory Committee. Presentations were made by Mr Scott O’Keeffe, Director, Budget Management & Funding (Health Programs), DHHS, Mr Tim Austin, Hospital Funding and Budgets, DHHS, and Mr Lance Wallace, Chairperson, Health Purchasing Victoria.
Good afternoon everybody and welcome to this board induction for board members in Victoria’s public health system. I'm Dr Jo Flynn and I'm chair of the Board Ministerial Advisory Committee that advises the Minister on board appointments and I'm facilitating your session today. So welcome to you, as I open the session I'd like to acknowledge the traditional custodians of the lands on which all of us are presently sitting or standing and the land where I am is the Wurundjeri of the Kulin nations and pay respects to their Elders, past, present and emerging. As I said, this is the third in our series. The first 2 webinars, the first was on director responsibilities, the role of the Department of Health and Human Services and on our responsibilities in clinical governance and quality and safety and the facilitators or presenters for that webinar were Terry Symonds, the Deputy Secretary in the department and Euan Wallace, who is the CEO of Safer Care Victoria.
The second session focused on legal issues and the third session today is on financial responsibilities and accounting. The slides from this session and the video recording will be posted on the DHHS website and you'll get a link for it and for any of you who missed the two earlier sessions and are interested in them, the slides and webinars, the video recordings of those two presentations. As we run, this session will run, we will have three presenters whom I will introduce shortly will run one after the other, but we have a question and answer line and we encourage you to post questions as we go along, and then I'll direct the questions to the appropriate person and you can ‘like’ questions that you are particularly interested hearing discussed and we'll do our best to deal with the ones that have the greatest amount of interest.
So our three presenters today are Scott O'Keeffe and Tim Austin from the Department of Health and Human Services and I'll tell you their roles in a minute and Lance Wallace, who is the chairperson of Health Purchasing Victoria in the chair of the Finance Committee for Eastern health.
Each presentation will be about 15 minutes and then we'll have about half an hour for discussion at the end of that time, so I hope you find this session interesting. As I said, please post questions as we go along and we will send you a link to the slides and the video recording after the session. So I'd first like to introduce Scott O'Keeffe, whose role is in budget management and funding of health programs in the Department of Health and Human Services.
Welcome, Scott. Over to you.
Thank you, Jo.
As a Jo said, my name is Scott O’Keeffe, I work within DHHS Finance as Director of budget management and funding, my role is a bit of everything so we've got a bit of Governance, a bit of compliance, a bit of business partnering and a a bit of regulation my budget's team is the face of finance, so from a budget perspective we are the conjuit between the overarching finance functions in the department and the policy teams and decision makers within department.
Headed by our joint CFO's, Beth Governs and Jenny Zahara, the finance team sits within corporate services other departments and leads all financial matters from budgets, governance, accounting and commercial operations and compliance. Today I will cover off and a few of those key areas on behalf of my colleagues and the finance branch. I'll focus on the state budget process, process specific governance and compliance topics, and of course the Financial Management Act and the interaction between the Department of Treasury and Finance. DTF and portfolio agencies. I guess that's where you come into the equation as Directors of Health Services and other organisations and I'll be looking to answer questions or provide you with information that should Portfolio agencies such as health services know about government, the FMA and DTF expectations and requirements.
So the first slide I've got up there is the annual state budget process overview, so it's got up on the slides which as Jo said, will be available later on. The state budget is usually handed down in May each year, the planning process is continuous or all year long or the along with the final Draft. Submissions for next year's budget due in the November prior. So this is around the time that we would start finalizing and preparing those ideas and those thoughts are budget decisions.
As an extension to that once those budget decisions come through a handed down by parliament by the treasure in parliaments, then work starts developing model budgets to health agencies which is usually done about June. Health service budgets are usually developed and modeled with the health, more being division and will hear later on from Tim Austin who's one of the key players in the Health and Wellbeing Division that model budgets for health Services and establish the parameters of what those budgets are for the financial year. And those model budget some as I've said, so they need to be approved by the Minister of Health which you, who's the coordinating minister for the department and all of the health related outputs an published in the policy and funding guidelines. So the policy and funding guidelines. I guess from a budget perspective and from a health service perspective, are the is the Bible where we go through all of the numbers as well as the policy's and price decisions that are there.
And just for other key bits and pieces to the budget, so the budget comes down in five separate budget papers. Budget paper one is the Treasurer Speech Budget Paper two is strategy and outlook budget three which from a DHHS perspective and from a finance perspective is our budgeting Bible. It's service delivery that includes all of the Outputs as well as the performance measures that need to be delivered. Budget paper four, which is the state capital program. So what buildings and things that we're going to is government going to invest in and of course budget paper five is the finance is already the accounting piece the government, so that's included in there as well.
On financial governance, so on screen at the moment is a, I guess a financial framework hierarchy that's included in online in the director's toolkits. What this is showing is just some of the overarching legislative requirements and things that we need to consider, both from a departmental and a portfolio agency perspective. So the hierarchy shows the enabling acts, including the Financial Management Act, the standing directions of the minister for Finance, and the financial reporting directions and orders by the Victorian Auditor General’s Office or VAGO.
And just an extra note, is that letters of comfort are no longer required, but we will discuss that a little bit later on.
So financial governance and the way we would look at financial governance from a department perspective as it underpins the viability of Health Service and director's responsibilities. In this regard and is not only outlier outlined by the enabling acts, but also broader obligations established by Victorian government in the management of Public Monies so in less technical speak it's basically what roles and responsibilities and duties we have on the Department as well as portfolio agencies.
In terms of how we spend funds that have been appropriated by governments and there are four main elements through financial governance and I'll just list them for information. So we've got the obligations under the relevant tax. So there where they outlined what has to be done and what financial targets have been agreed so team will talk about the statement of priorities and service agreements a little bit later. So those types of obligations are under that Act.
There's the obligations outlined in the Financial Management Act of pull out more to say on the FMA as we call it a little bit later on. Standing directions from the minister, which I've also mentioned and of course audits by the Auditor General, which I'm sure you will all become familiar with this part of your rolls on boards of your particular organisations. So that's a good segway into my next slide, which will talk a little bit about the Financial Management Act, And as it says up on the on the slide. The financial management Act is applicable to all Victorian Public sector entities, and it is the it sets the financial management, accountability reporting and financial administration obligations of government and the Victorian public sector It's applicable to all public sector entities.
As I said, an really looks to govern legislation or be the governing legislation for accounting and reporting of public money and public property.
And as I framed earlier on in my opening, it is administered by DTF or the Department of Treasury and Finance. Just a couple of particular items to notice sections for reading. For bedtime reading, we've got keeping proper accounts and records of financial statements which is section 44, providing the Minister of Finance within information requested. Section 44 eight maintaining a register of assets, section 44 B and preparing the annual report of operations and financial statement, Section 45 so.
All of those will be part of the role of boards, and directors to understand the obligations the Financial Management Act requires of them. In particular, I wanted to talk about these directions from the minister for Finance and the standing directions cover financial management, governance and oversight including requirements to implement and maintain financial code or practice in establishing audit committee. So basically they can become they come under two kind of categories which is instructional it's an I can talk about those in shortly, but they're really important to make sure that everyone in portfolio agencies from the CEO, CFO down is and the boards are really clear on what requirements and what instructions they are obliged to follow?
So as on screen there. So the DTF requirements the instructions issued by detail. These are mandatory. Instructions are detailed and they will have particular directions and have a corresponding number that will be referred to as a standing direction number. And there's also guidance which is issued and not mandatory but aim to support organisations and to try and interpreter implement those directions an instructions so whilst not mandatory there will be a bit more prescriptive and give examples of what issues that may come up and what financial information needs to be reported and in what manner so they're really important and from a Departmental perspective we use that quite a bit and we particular will be referencing these guidance material as they repair the reports as they provide providing data. And as they liaising with the department on key financial matters.
So a couple other things that I will mention in particular, the letters of comfort, so those are no longer required by VAGO. So in a previous lifetime, let us have comfort were provided by the departments to health services they no longer required, so that's an interesting and notable change to the way that had been running at all. I've been required in the past.
And so that's a particular note and then I've got a couple other examples on screen. But what types of instructions and standing directions will come out time on my on my last slide which I've got up there and this link and the page that the snapshot of the pages I've got up on screen is just Department of Treasury and finance is Resource Management Framework screen and there's lots of information on this in a lot of it's included in the director's tool kit that will be available, but this in particular is a good one to understand that those requirements and to understand the Resource Management Framework and the roles and responsibilities that underpin that from a Departmental and Health Service perspective. So and the important thing to note, and we will link this through this program is that there's new standing directions from July 1 2020 so this website has the most updated information and really does assist Department and portfolio agencies in understanding the legislative and policy framework for government and public sector planning and budgeting, and again looks to add another layer of accountability to what we do and what information we need to feedback to government in particular.
That was probably my last slide. I just want to jump back to my slide about budget, but one thing I didn't know didn't mention was that whilst the budget is handed down in May, this year is the exception to the rule which I'm sure everyone is acutely aware of why. This year is an exception to the rule the budget is yet to be handed down and we're hoping it will be in mid November. Obviously as you know the Commonwealth budget was last night so, we usually follow the Commonwealth budget so mid November and then we will pretty much get straight into budget development for 2021-2022. So I just wanted to point out that clarification but a busy time and lots going on with the onset of Covid and changes to government in that regard as well. So everything's been pushed out slightly but that's a really high level view on the financial side of things. I think Tim will be able to talk to some of the more of the detail on how that impacts budgets and health service funding and so on that note, I will end there and hand back to Jo to introduce him.
Hello everyone, Tim Austin here, thank you Scott very much for your presentation and bare with me while I put these slides up on the screen.
OK, hopefully this is all working fine. I can only see my self? Rather I can't see myself yet but I will continue on anyway, so look my name is Tim Austin. I am the manager of hospital budgets and funding and my role is primarily focused on the delivery of annual health service budgets to the sector.
What that involves is an annual process where we fundamentally are engaging with the sector to deliver budgets an through engagement through data assessment and also then moving to ongoing performance management of those budgets. So hopefully this presentation gives you a little bit of the fuel for the process we go through and we will have time to take on any further questions at the end of this session, so with that or move to my next slide.
So what you see here is a bit of an overview of our process.
And Scott's already touched on some of these aspects already, but effectively where we start is with our operation budget bids. Now that's done, it's been doing. It's already been done, usually in the first half of the year and sometimes into the second half of the financial year. But effectively this is us trying to get an envelope of money too. Or the sector to distribute so that we can meet all the funding needs and priorities that we need to address.
So while this is happening in while we wait for the state budget outcomes to kind of made and actually confirm whether this funding inside is actually going to come out the way we had hoped, and we’re already busy developing budget distributions to health services, or at least modeling those distributions.
So once we finally get to that point of this tight budget announcement in May and is not mentioned, obviously this is a very different year. People are be November, it looks like but in a normal year you would be made and once we get that confirmation of budget outcomes we can then go back to our modeling work, and refinement and actually produce the final model budget and policy and funding guideline that gets released in late June or come to some of these in the next slides and so from the development of a model budget for each health service and the policy inflamed guidelines.
We then start to move into the development of the statement of priorities. Access the statement parties are really critical point because this is where Health services effectively agreeing to a set of strategic priorities, agreeing to a set of specific KPI targets and also we are already establishing whether or not we are providing you with the sufficient funding to achieve those sort of service delivery goals.
Once we establish the standard priorities that release it for your ongoing financial and performance management for the remainder of the year. So it's really pretty cool thing to understand.
So I'll move on to the next slides, so as I mentioned, falling state budget announcements we have a model, budget and policy and funding guidelines that we release now with that.
It's worth mentioning these things, really have to be reviewed hand in hand, so while we're developing the model budget, we are also developing the policy and funding guideline, and I'll join those two things up in a moment.
So following the release of budgets, we give to your CEO and CFO and detailed logical model budget. Now this is a really, really grant by grant sort of analysis, and you probably won't see these so much yourself as directors but you'll get informed about the implications of these things from your CFO and CEO's.
But it covers things like indexation, ABA, changes the commissioning funding to continue services and for demand growth. Now just worth mentioning the capital is managed separately.
So what we focus on is operational funding. So it's just it really key one other thing I would like to talk about this is in the development of these model budgets. It's a quantitative and qualitative approach. Now as you can probably guess by quantitative we're talking about data to inform the kind of decisions around who were getting growth money too where know where the stress points in the sector but qualitative inputs it's really important and feeling now that this really represents the engaging with the sector into in the development of these budget so it's not just a numbers game where we say the datasets this therefore the funding again distribute.
Is as such it's actually more than that? It said to kind of triangulation of data but plus input from health services. Now I think it's just important to note, this model budgets they're not actually public documents, but they do get published in a summarised format in the policy and funding guidelines, but just on the policy employments now.
What this does is provides overarching policies have gotten funding for the hospital programs. It gives technical information about funding models such as you know, data emergency services how we find thoose things, what are the underlying construction of those funding models, talks about the difference between block funding, inactivity funding, so these are important concepts to having your mind and again, it summarizes the budget then associated targets which really didn't leads on to my next slide.
I'll talk if I can leave an 1 min stable priorities so with the policy and funding guidelines released and model budgets released and we're now moving towards the statement priorities and what this is a document that really highlights the key strategic priorities and goals of help service and government and it also establishes all of the performance indicators that you're going to be assessed against in delivery of service.
Now comes the other thing, it does and this is where the policy and finally got line budget comes in, is it builds on that establishes the funding and specific funding targets that will support delivery of an action, outcomes and service delivery generally.
So that is really really important to note about this some other things, just to note, so the outcomes of your performance against these key performance indicators are also tabled in parliament through the annual reports. So we do, sometimes have minor adjustments to budgets as part of this process or tweaks to the budget construction just to better reflect what's needed to support service delivering, and lastly, these things are these documents are signed off by minister or department representative and the board chair and is released in the period between August and November. So the end of October is really a very busy time for the department and helps us electron from that part of this particular document.
So moving on to my next slide, which is about performance monitoring so with the discussion on the statement priorities and that's really established a baseline now that we've all agreed upon for your hospital to then be assessed ongoingly for the remainder of the year. So the focus really turns to performance management and monitoring and risks of not achieving those outcomes were desired outcomes.
And so what the performance monitoring framework does is it effectively.
It takes a big number of KPI, allowing the performance monitoring framework, but also in your statement priorities and what it does is it groups these KPIs up into a lot of different categories and it's at that level that performance and risk assessments are done and your health services then receiving overall score based on these things all these large groupings and so from that point it really allows us to then generate reports and one particular approach should be aware of is the monitor report, so that is our formal reporting mechanism with sector, so we develop it's based on data that you're submitting through to us or your agencies are submitting through to us each month.
It's turned into this monitor report reflects the performance monitoring framework is for as well and a result of and it's all articulated in the framework, but there are at minimum quarterly meetings between the department and you'll see on CFO to discuss the outcomes of, or rather, the performance and risk identified in that report in conjunction with the framework. Where hospitals maybe, and automating all of their targets and maybe a bit below the ideal spot and we might be means monthly to try and address some of those issues and try and pick things up to where they need to be.
Now move on to the next slide so with those things in mind about the performance management framework, and I suppose one of the key things that my team focus on is actually financial performance and assessment. So I think it's useful to consider some of the differences that we face in the public sector when we're thinking about financial performance management and assessment an difference between the public sector in the private sector and really boss, there are some similarities about, you know counting in accordance with a training accounting standards and things like that and producing any reports and what not. The sort of start contrast are really around the political environment which we work in and where I said that really impacting things from a financial perspective at least is when as an organization and even as a department as administrators that we're trying to consider how we manage through physically constrained environments and whatnot we have an idea about what we need to do, but sometimes the politics of the day really kind of Railroad. Some of those things in some instances, and that is just a fact of environment which we work and some of the other things to we're working in a fixed budget envelope as is provided by DTF.
And so what this really means is we don't have the kind of revenue leaders that are available in the private sector. What we have to work with is a pretty small percentage of or margin, if you like and usually we're trying to work towards break even result. At the end of the day we're not in the business of making profits, so that is a challenge in itself an notwithstanding there are some small activities hospitals cannot take to generate some of their own revenue by far the biggest bucket of funding that you get income from government and so it is relatively constrained.
Now, when we were assessing your actual performance there's two key metrics that we use are which are also in the monitor report up. I've previously mentioned though the operator operating result is 1 and days available cash is the other, the what the operating result refers to is really revenue you receive from us for operational purposes, 'cause your day-to-day operations any expenditure you incur against that and keep in mind that the goal is normally to achieve a break even result, and that is also a target.
So what we're doing is really tracking your monthly performance towards that end goal, making sure you're not deviating too far from that and so that's constant conversation pace and this is not include capital or depreciation because those things are quite separate from your day-to-day operations.
The other thing, the other metric rather use the guides available cash so this is really how much cash you have and how long would that last you in days and the reason we look at that. It's really because we pay monthly so hospitals receive cash on a monthly basis from the department. We need to ensure that you have sufficient reserves to make it through that entire period before your next pay run and that's really critical. So we're looking at both current month data, but we're also looking at forecast data and again going back to that performance management framework I mentioned that there's these monthly import quarterly meetings that you had with the department. Now those are the times when we are engaging on exactly these things as well as all your other service KPI, but from a financial perspective, this is where we're coming to the table and we're all having chat and we're looking at what we see from through this KP eyes and it's important.
I should go back a step. Just mention there are many, many other KPI's and that we also looking at on the side, but generally these are the two leading indicators that we would use to look at the sector from out from abroad lens and then we would normally dig into those other KPI and analysis when we need to And the way when there are financial issues for any for any given health service, it's usually brought to our attention so normally a fancier, but the first ones there's an issue and that would bring it to the table through these formal meetings, I discuss all that junk on the phone, sender name out, and really that engagement process but sometimes we see, we ask that question too, but that's that's this is quite a robust mechanism in place to engages and try to address it as quickly as possible.
So I'm almost at the end of this and appreciate its quite a lot of information thrown your way but the last thing I would just like to point out is ensuring the consistency between what is reported to the department and what we report back to you. And what I mean by that is we are absolutely reliant on the data that comes from hospitals so all of our reports are effectively generated based on what's been submitted by your hospitals.
And what we do find sometimes is that these monitor reports as an example you will get to say there's yourself you’ll also be receiving other board reports from your CFO and CEO and sometimes there are differences even when I talk about things like the operating result in days available cash and normally there's a very good reason for why it's been presented differently, but sometimes it's not, and so what I would just like to end here is just by saying it's a good thing just to be very aware of it in your sort of fiscal obligations to make sure you understand differences that come to light and
be confident that you can marry the differences are between reports, so ensuring the consistency between those reports.
I'll stop there because I know I'm probably getting close to my time and so I'll hand it back to Jo.
Thanks very much Tim so just a reminder to everyone that the slides will be circulated after the presentation and there will be a video recording of this whole session available online.
And to remind you that we have a QandA Section which people are already putting questions upon which is great and encourage you to have a look at those questions that are already there and to place a vote for the ones that are most important to you.
But now like to introduce our third and final speaker for the evening Lance
Wallace. Lance was the deputy secretary in the Department of Health and Human Services, who was engaged in all of this from departmental perspective, he's now the chair of Health Purchasing Victoria and Chair of the Finance Committee of Eastern Health.
I just need to explain before I hand to Lance that unfortunately we've had a technical problem. So you'll hear Lance’s voice, but not see his face and Jessica from in the department will be operating his slides so over to you Lance.
Tim, there are some questions about the challenges for health services when the amount of money that's provided is less than the health service thinks and believes that they need to offer the services that there signing up for on behalf of their community and I know this is a cause of great stress to many board directors that will come to the issues about responsibilities when in deficit and letters of comfort and so on a bit later.
But just the issue about how do you manage that tension between the amount of funding that's available and the ask of you in terms of the services you'll contract to deliver.
Sure, thank you very much for the question, but great question, I probably should have had a pre written response for this, because I probably could have anticipated somebody would ask this. Look, I think it's fair to say that we are continually facing financial constraints and it's more and more difficult to find ways to easily navigate these things so we get stresses from prices from you know prices are increasing above indexation and we have into play in it.
There were often just not I handed down in the first instance all the funding we need and so from my experience, this tends to be a bit of an iterative process, so we have a lot of mechanisms. We can utilize initially to kind of make sure where made in cash flow needs and what not at the hospital in the interim, but ultimately what we do is we build a case for funding we need to address any gaps and we go back to DTF too to prosecute on your behalf. So we like to think that the department is usually very well aligned to the needs of hospitals and noting that we're all working within budget constraints, but certainly my experience that we've done a very good job in the past of working through difficult issues notwithstanding, it does create a lot of stress along the way but usually it does play out at very high levels, and I would just say that even though it is becoming increasingly difficult.
Hospitals are very resilient I would say, and found a lot of efficiencies themselves and the department I think is become very good in affective that really batting if you'd like for the funding and financing that's required to make the needs of the sector. Notwithstanding, we get some roller coaster along the way sometimes.
Just to respond to a couple of the other questions that are there, there's a question about whether the monthly monitor report should go to the board each month. It is designed as a report for the board and the management of the health service and I believe that board should be requesting the monitor. Its quarterly, though not monthly.
Tim, that's right, isn't it?
There is accordingly version in a monthly version so it's actually issued every month, but what boards usually see is a quarterly version and that is simply because some of the data constraints mean there is a slightly more wholesome or full report that's generated each quarter, and that's the one that usually given to the board and I think it probably should be monthly myself, and especially around some of the sensitive KPI such as Finances and whatnot, but also ED Performance and elective surgery, etc. I think there's no reason why we couldn't do that on a on a monthly basis. I think some of the reasons why it isn't always done is just around the fact that there is sometimes some missing KPI in those monthly reports. And maybe there's a reluctance to give something that may be perceived to not be giving a full picture that I'm actually graded could be done monthly.
Thanks for that. I think we've got Lance now, so if we could come to him.
Welcome, Lance. I'm sorry it's been a hassle, hopefully you’re here now. We've got you on now, Lance, and I've done the introduction so far away.
Yes, so I can hear you. OK, so we'll have your slides on the screen, so handing over to you.
Alright, thank you, my apologies everybody for some technical issues which we seem to have had so I’ll just throw to my first slide.
The first slide really just deals with the fact that the just liking directors aware that your responsibilities in health services fall under that the Health Services Act and financial management legislation not the corporations act, and the legislation indicates some fairly general requirements for directors, excising care with public funds are compliant with legislation and demonstrating due diligence.
The second slide just indicates to directors that whilst many of their boards will have a specialist committees to deal with some financial matters finance, an Audit and Risk under the legislation for forward, is accountable for financial stewardship and even though the committees take more detail view of these issues, say directly individual directors of the board remain accountable.
The next slide really just deals with I was asked to talk too? What should boards be focused on and so for a good overview of board financial issues and we should focus attention.
I would say look at the Department’s Director’s toolkit. That is quite a good resource. It deals with board governance issues, but in particular it also deals with financial governance issues in Chapter 13. It highlights a range of seeing this directors should be seeing regular financial reports that are consistently prepared. They should be asking questions about any significant changes in those financial reports on budgets and variances out issues about risks and they should have discussions about which tolerances and mitigation as actions that are taken to address financial risks. It's also important that audits are effectively engaged with both internal and external audit revealing findings of orders is an issue during those are followed through.
Onto the next slide. I have very very long period of time almost 20 years in the department with responsibilities for financial matters you see a lot of what can go right, and it can go wrong with hospital finances.
Financial issues are pretty well controlled by management but despite that history has shown that Yes, financial crises occur Health services are offered yet matching very tight financial issues due to the nature of the funding model.
That is, there's no profit within the funding model it is based on cost and that's pretty tight and sort of parameters which where all operating with there are variable demands which need to be met at a range of external financial pressures that issues and kind of it's just the most recent public most extreme example of the pressures that we can all files. This challenging you. These challenges are often exists and provided that there we are on top of the financial challenges Expenditure, precious awful. See out of causes are well understood and issues are being constructively manage between the board, the management team and their charges.
I would never refer this to refer to those issues as a crisis even though they can be challenging. What I call a process? Yeah, particularly reflecting on the past, is unexpected financial position where management and the board are really not that clear about what has caused the immediate problem, and it requires almost an immediate response. Usually a funding response from their churches or Treasury. And that principally makes sense. There is not that many of these that occur, but they do occur within regularity that I thought was worthwhile talking a little bit about what has happened in the past, so financial crosses when occurs reflects poorly on your financial governments health services and can damage the whole service relationship or the relationship wants to climb on funds that you don't have with short notice.
So this is the kind of wire those crises occurred in the past, and in particular just wanted to focus on two major contributors as previously been discussed one of the major metrics for most commercial organization at Health Services is the operating position, and generally the operating position well managed and monitored by forwards. It has a good focus, and that's a good open you left and attention provided to it.
The issue with very close monitoring of the operating result, while this is absolutely necessary and acquired, and you don't take the operating results into your next financial year. The position that you type into your next financial year is the underlying operating result that is the operating result less once only revenues and expenses.
The underlying operating result has not been consistently monitored and managed by Health Services in all cases so I don't want to get people impression that it that it's never learn language, it's very widely well managed, but there have been cases where it hasn't been well managed so what is implication of that? If you are just only monitoring for headline operating result in HTML without looking at the underlying operating result?
What can happen is your underlying operating position can be deteriorating overtime and it is masked by once only Revenues which can go away. As far as revenue stop in any particular year then a larger than expected deficit. There can arrive at it which is difficult to explain.
Next slide in a similar way, the other trade metric, which was discussed previously is the health services cash position. Kind of similar issue can develop with cash so again the major focus on cash tends to be for liquid, and the liquidity is associated with enough cash to pay bills when they fall due.
But there is a second and very important aspect of cash which is free cash, or uncommitted cash, which is the concept of what cash is available to be friendly spent on your initiatives in the health service. One could put in place.
So the liquidity is certainly assessed through the total cash holdings. That is the total dollar amount or the days of cash that whole service hot holds, and it's generally in my experience, been very well historically monitored and currently monitored the title, the total cash position which is monitored for quality purposes. It is not really sufficient or appropriate to answer the question do we have enough funds to enable a self funded contribution so what said capital project? And there's often issues was come up with boards. You actually made to calculate the free online, uncommitted cash to actually be able to ask answer the question.
Whether you have funds available to sugar Microsoft Undertreatment contribution to their sorts of projects or other projects that you're trying to undertake. What is happened here in the past is the health services have really been mainly monitoring the total cash and the core low quality aspects of cash and they have got into a situation where that partners has been undertaking a major ICT project or capital project and have been looking to for curiously add some local funds to actually facilitate a better outcome for that project. And there's binary looked at the total cash position without fully unpacking their uncommitted cash position.
And that's that decision is then type in the cache is committed and it's not until some year, one year, two years, maybe 3 years later they find a situation where Cash in advance questions answers which are quite often, I think, or cash position of Health Services dry up. And suddenly when those cash in advance sources dry up and all that remains, is their core test requirements, they realized they had. Previously, I thought, emitted their free cash positions and they are in a bit of a crisis situation in that they can't make all their obligations that they have.
So in summary, there are many dimensions to financial stewardship. Again, I encourage you to look at the director's handbook, whereas include general source of information on issues to look at red flags to be mindful of I also just, yeah, encourage you all of understand that you will be probably very into health service that has a fair few financial difficulties, particularly carbon driven financial difficulties at the moment and your financial position might be tight. Yes, sometimes it might not be precarious but provided those financial issues are well understood and the causes of deficits. Other financial issues are well understood. The management plan and why would they actually just send a quick financial? Yeah, you won't be in financial crisis situation. You will be in a tight financial situation but one which is being adequately managed.
I messaged the years that I've had a fairly long history that I've had with health services financial issues. Sometimes yeah, health services have got into some financial difficulties. Yeah surprising, unexplained yeah. Or merging financial difficulties and often those have been amounted to not paying enough attention to the underlying deficit position to headline deficit or surplus position and not paying enough attention to uncommitted cash.
I'll leave you with a point that in most cases these issues are well looked at us, but it is actually worth checking that your health service those two dimensions which had historically tripped up some boards and management overtime, are well looked at. History may not repeat itself but it is still worth a look. Thank you, back to you Jo.
Thanks very much, Lance, and thank you for alerting us to issues in your experience with occasionally he'll services get themselves into trouble, I'd like to direct the first block of questions to you so I just want to check that you can still hear me.
Yep, I'm here.
Okay, great so I'm not sure if you've been able to see the questions on the chat line, but there's a number of questions from directors concerned really about their responsibility to make sure they are exercising their responsibility is directors appropriately in relation to financial management and some concerns about when they find themselves asked to deliver services in a way where they believe they don't have sufficient punch or resource is some of the questions are about the Corporations Act. In that context about trading while insolvent, sand and why not let us have comfort in our longer required. So I'd like you to comment on that. And then what do you think, directors should do in a board where they are seriously worried and management comes back and says we can't make ends?
Sorry Lance here can you address those questions I will yeah tackle those questions. Also look the 1st issue was the opening scenes as I mentioned that was that Directors health services are not covered by corporations at yeah. They covered by the health services at the obligations some other discussions on directors obligations, so that would be at the first part of it might at the second point that said, I would like is that there are just some things in health services that need to be done in for quality and safety and start protection matters, so we're experiencing those now which are very good example. There is expenditure on PPE and other protections to coded.
And that is you, a critical expense you are moving into deficit situations.
If you are uncertain about your spending, our funds that are putting you into a more precarious financial situation might my strong encouragement is to ensure that the management team is very, very clear and close. Communication charges added the board, the management team are aligned with their chess or what actions are being, what the implications of those actions are again without going to a lot of formality and this needs to sort of be at less than a mile trial or some sort of trial. I thinking environment that we're in particularly when we go for this. I paid operational at the moment.
Thanks very much, Lance.
If I can now direct questions to Tim. questions about the timeline for publishment of SOPs this year and whether they were still expecting them to be up by November and there are some questions about the strange placed on health services because of Covid and the way in which that's thrown much of the planning and out of step, both in terms of timelines but also it's just changed the whole game entirely and how to direct us it with that when they see the things they've signed up to on the SOP and this is still being developed but when it they feel as though they are not delivering or reasons which are outside their control.
Yes, thank you very much for the questions so look on the your first question around the yes I pay so there's still a little bit of I suppose we're still waiting ourselves to understand exactly how that’s going to work, but yes, I understand there will be an SoP that's required at the timing, though, given that the state budgets likely to come out in early November, there's quite a lot of work, but then has to happen between the department and health services to make sure that we can review your KPI's, review your priorities and see what can be met within that year, which partially goes to the next question so I don't have the exact timing on that when that will happen it will not be Early November, more like December, I would guess at this stage just from a practical perspective of what we've got to go through, turn to actually get to a finalized point, but there will be more communications with your health service on that. This is an active issue right now.
He's going to the second point around coded, it's writing everything out an elective surgery, especially, everything is down and then it's nobody hardware in a completely unprecedented an environment here, so here, so there's nobody that expects hospitals can deliver exactly what they originally signed up to in 1920, let alone carrying that on into the entry. Yet at this stage, so there is a lot of work right now, which is tide into the first question around SOPs in timing, but also how we actually think about what we can deliver that very much depends on what happens with Covid. So we're all praying that the numbers get to 5 or below on a 14 day average, so we can get out of a 5 kilometer radius. Overall, so that means some sort of return to business as normal more broadly, but also for hospitals and picking up elective surgery as well, so tell an there. I don't think anybody should be too hard or themselves other than to say we should just continue to do the best we can in the current situation.
Thank you thanks. Thanks for that, Tim.
I think it's just with my observation that's a lot of we are concerned as directors about our responsibilities in relation to ensuring that we are financially sustainable and viable that we're living within our means and we're delivering the services that we are contracted to deliver. And we've got the money there to pay the staff and pay their staff entitlements and do the other things we're committed to and I'll come back to the issue about what happens when that's in jeopardy. But actually if you look at where health services come into most is credit often. It's a quality and safety issue or a culture issue or behavior issue, then a financial issue.
So I don't want you to feel worse about that, but I want you to keep the financial issues in context financial problems as Lance said very clearly the main responsibility of the board is to know the financial position of the organization to have very good clear communication with your CEO and CFO and ensure that their communicating appropriately with the department but also to create appropriate records when you're concerned about things. If you notice the deteriorating cash position you notice amounting deficit and your first obligation is to make sure that is on the radar of the department, and sometimes it's necessary to make sure it's on the radar of the minister.
It's where things are not recognized in the 1st place and then not appropriately shared and raised in the right forums that unexpected nobody likes surprises and most things can be dealt with if you know how you got there, what you need to get out of it's where something happens. That sort of sneaks up on a board or sneaks up on a health service that real terms of whether the directors are exercising appropriate diligence arise and the point that made about. It's actually not the corporations act, so the issues about going concern not at all. We have a responsibility to make sure that we're doing our best to keep our organisations sustainable.
We don't have the same obligations as under the corporations act, and Scott you were going to go and sort of think a little bit more about the letters of comfort issue. Would you like to respond any further on that?
Yes, Jo, I'm just quickly, I think Lance covered it quite well and describes it quite well, but I guess from a department and a finance perspective, yes they go to audit purposes. Did require letters of comfort and it has been their advice. So my earlier reference to no longer needing letters or comfort was based on the order to gens advice that they are no longer required as part of the audit process. However, you know similar to the comments on the questions about if we don't have those letters, how can we fulfill our duties as director's and I would just like to reiterate what Lance said about talking to the department and making sure that any significant issues are raised an because we can not only work through with Directors and boards an management for those issues, but if for those issues, but if required we can brighten we have done so not so much a letter of comfort but just a letter that clarifies the obligations an confirms that the department is working with a particular health servers to make sure that they can make their current obligations and future obligations so it's not a letter of comfort, but there are other things in other communications or other. I guess assurances whilst working with the department that we can we can do to help with that issue.
Obviously, the sooner both programmer Tim and his colleagues and finance are aware of his issues, the better we can get on top of them. And I think over my observation in particular is over the past couple of years that I've been involved in this space, that communication and that flow of information is getting much better and we're getting on top of the issues, and in particular the cache issues in terms of power, role and being able to be a going concern we've been getting on top of them much better so. That's about it. Just wanted to add my two bobs worth it, but if there's any technical questions that I haven't answered that you want me to go away and get the technical response from our financial accounting team, I can do that and we can include it in the director's toolkit later on if I haven't hit the nail on the head thanks.
Scott, It's a constant question amongst board shares when they made and director sometimes about how come the timelines work the way they do. Particularly people who come from different sectors coming and can't comprehend that we can't finalize our budget for a financial year until September of the year that's already underway and there's a bit of a request that should. Is there anyway that could be any different? And indeed, is there any way that we could move a sort of three year funding cycle instead of the annual cycle now I realized covered thrown a lot of that out of the water and his team says we're all praying that changes, but let's just leave Covid out of it for a minute, but in a more stable environment, is there any possibility that are more kind of rational plans in timely process?
Thanks, Jo. To Tim who can add a little bit more of a context to the internal workings of those budgets from health service perspective, but I guess from a departmental and government perspective we are at the mercy of the budget cycle on a yearly basis and we do have that process in May that determines the envelope for one of one of the better tone so that from my perspective I can say team. This is what you've got to work with these are the initiatives to programs the capital items that have been approved in this year and this year's budget and putting aside all the bells and whistles of announcements and the political framework, those decisions take a little bit of time to flow through and then to either re calibrate if we don't get everything that the department once for pictures to re calibrate them into allocations or to rework the ongoing budget make sure that we can provide as much as possible to help services.
And that made him a cycle defines that from a decision making from a governmental decision making perspective an then this is a good time to handle the rest of the question to Tim to talk about his when he gets the budget amount. What does he do going forward?
Sure, thank you Scott and thanks again to question so look I this is not the first time that sort of thought about having a trivia budget cycle has come up and there's more than one way we can issue budgets. So when I think about the cycle generally what we're issuing is growth, and so there's a large underlying recurrent aspect budgets, which actually in most cases it's generally rolling over your and yeah there sometimes ambiguous and within your budget style, which is worth mentioning because there are one officer funding mixed in there an lapsing items that we have to take into consideration so one way to make the get earlier budgets out too is to establish a base budget which is really around your current ongoing budget. It doesn't change that much, maybe it's indexed and inflated for the outcome, so there might be a way of there was an appetite spirit together. Kind of budget down and then address the idea of what other groceries needed, which I think realistically. It's going to follow a political cycle at the moment, which is you know making announcement so it will make decisions and then a state budget comes out because government loves to announce things. And that's a fact so but there is no reason why we couldn't establish some sort of answer. Your budget you will lose their it is possible.
Thank you very much for that, Tim and Scott. That brings us to the end of our session.
There isn't any more time, but I just want to make a couple of comment as we wrap up. Firstly, I apologize for not flagging the question from somebody about what was the letter of comfort. So it's essentially a letter from the department that says that the department will ensure that the health service has funds to make their obligations as they fall due and used to be part of the process. When a health service felt itself heading into deficit but as Victorian public entities under the oversight of the Victorian Auditor General’s Office, that essential view is that is no longer necessary. Impact health services can't go broke their public entities but you can have some very difficult conversations if it's perceived that you've not been managing your finances appropriately. The last question I want to refer to briefly is a question about the pressure on executives in our health services and the board's responsibility in ensuring there will be.
At all times, but particularly both with the stress of Covid, the uncertainty about many things and the financial pressures, and I think that it's a really important thing for boards to be aware of and I think the simple answer to that is good communication, an engagement knowledge of the difficulties trying to be realistic about your expectations of the executive team and the health service. And being very honest and transparent in your relationships with the department. But I think also it's important it's easy for us to get into a mentality that says where the health service we're trying to do a good job there department won't give us some up enough money and I'm sure that Tim and Scott could say if the Department of Treasury and finance could give us enough money, everything would be easier and the treasurer would say if the economic conditions were better or if I didn't better or if I didn't have the demands of whether it's education or housing or whatever at we live in. And that we live in and we can we could if we all had a glass of wine and we were meeting afterwards.
Talk about what do we do to change policy and give health priority in funding and have people happy to pay taxes and so on. That's a completely different conversation, but part is the board is to be reasonable about their expectations that we send, but also to take our share in that chain of the bit where responsible for the resource is we've got and doing our best to use them wisely to serve our communities.
So just to finish up, I'd like to thank our three presenters, Tim Austin, Scott O’Keeffe and Lance Wallace and I'd like to thank the Department Team for supporting this event it's great that you're all here. I'm only sorry that we can't, actually you any direct with you and that we don't have the opportunity to gather together afterwards for a cup of tea and also so just to emphasize the importance of networking that it's really good to reach out to other health services to make connections with other people on similar committees to the ones that you're on the chairs to communicate with chairs, chairs of Finance committees that communicate with each other and so on just to get a sense of how other people are dealing with things.
And how they are standing up. And I also think it's very important I mean the work that board directors do is largely very unrecognized and but it's so significant in terms of what we can add to the governance of our health services and therefore the quality of service that is being provided to our community and the collegial aspect of which were all missing to some degree as a very important part of that. So thank you for joining in this webinar albeit it remotely. I hope you find the resource is on the website useful. I apologize for those who had technical difficulties and I'm sure Lance is probably tearing is here but I hope that was valuable and as Scott said we'll have a look at the questions and see if there are any that we haven't addressed that. I've got simple answers that we make sure covered in the toolkit or address separately, so thank you all again and goodnight.