African Health Research Paper

Running head: AFRICAN HEALTH RESEARCH PAPER 1

African Health Research Paper

Sabrina Flemming

Ashford University

Public Financial Management

MWH1526A

Dr. Morgan

August 2, 2015

AFRICAN HEALTH RESEARCH PAPER 2

Abstract

The following report will outline an expenditure plan to assess

fund accounting and financial controls. A physical audit is

unavailable so analyzing budgets and financial statements are

essential to ensuring appropriate administrative decisions are

made. The following report will also display the importance of

conduction bank reconciliation and the relevance of a budget as a

punitive process for successful financial management. Interest

charges and loss of opportunity can happen if the financial

manager is not effective in clearing cost implications. These can

also have negative implications that can affect a company’s

goodwill or business relationships. This report will also show

the effectiveness of the bank reconciliation methods that can

help prevent losses from staff oversights of either a sponsor or

the receiving organization. There are specific fund accounting

practices and budgets used by organizations, and they must be

clear and concise.


African Health Research Paper

The African Medical and Research Foundation (AMRF) have been

relentless in its pursuit of much needed health relief in

underdeveloped parts of the world. The AMRF is one of the largest

non-governmental, non-profit organizations in the United States

providing free healthcare and medication. The organization has

faced many obstacles in the past because of inadequate financial

practices leading to problems with banks and fund situations

(Anthony & Young, 2009). Many countries have benefited from AMRF

help, and Eritrea, Africa is one of those countries (Morais,

2014).


It is the responsibility of the chief administrative officer

to notify the board of challenges and issues facing Humanity for

Africa. The AMRF operates on limited funds making it essential

that all the business strategies are utilized to their fullest.

Business strategies of the AMRF include goodwill and effective

credit (Anthony & Young, 2009).

Mission

AMRF works tirelessly to provide free or affordable health

facilities to underdeveloped areas of the world. For more than 10

years the AMRF has been supported by key partners in the United

States who have provided essential medication at a subsidy. This

is important to note since this is a not-for-profit organization

and does not have the same financial flexibility that

profit organizations contain. The organization depends on

pharmaceutical companies and research wings of varied government

and non-government entities for funds and recourse, and it is not

an exchange transaction. It is essential the organization

demonstrates caution and effectiveness when distributing

donations from clients and the monetary fund donated must be


allocated for the purpose they were designed (United Nations

Development Programme, 2013).

It is essential that staff members are able to provide

documentation that all money donated was used correctly and as

designated by the sponsor. It was discovered that some previous

financial managers worked projects as profit centers which lead

to credibility issues with external auditors. Fund accounting

systems have become extremely important because of external

financial reports on sponsor restrictions (United Nations

Development Programme, 2013). There are two important procedures

and control measures for the AMRF: budgeting and cash flow

management. It is extremely important to forecast service demands

in upcoming projects, then hold strong with the forecasted

demands. In-depth studies have been conducted in Africa, and it

has been concluded that the strategies developed will allow the

AMRF to stay on track with its budget and cash flow. However, it

is the responsibility of the project managers to ensure expenses

are controlled. The controls are done through monitoring

practices and making sure controls are in place that will allow


the central treasury to oversee project processes (United Nations

Development Programme, 2013).

Eritrea Program

There is a variety of uncertainties in Africa, epidemics and

civil unrest is a constant problem. These uncertainties offer no

guarantee from local political settings. These situations make it

imperative that staff members maintain safe and friendly working

environments. This includes endeavoring to make friends with

local citizens and employ as many local residents as possible

(United Nations Development Programme, 2013).

Healthcare Checkups

Portable clinics offering free health check-ups have been

considered at various urban and rural sites across the nation.

The AMRF’s plan is to have approximately 120 clinics and cover

30% of the population in these regions with the portable clinics.

Sponsors will provide special equipment to screen for the HIV

virus. The USFDA and government loans have been sanctioned to

provide the HIV test kits (Morais, 2014).

Staffing the clinics is critical to ensuring proper medical

attention is provided. Each health clinic will employ 2 field


doctors; 1 junior doctor or senior intern, and an accountant. If

a junior doctor is selected, it must be a local person. In

addition, other local personnel to be hired will be 5 qualified

nurses, 2 dispensary employees, 1 secretary, 2 janitors, and 1

driver (Morais, 2014).

It is mandatory that each clinic remain in operation for a

maximum of 2 months in a location. These budget expenses must be

added under a separate heading. The project manager for each

clinic will need to work out a cycle, so there are no overlaps in

coverage. Shifting costs for the clinics will need to be made,

keeping in mind of the relevant costs for each site and not based

on American standards (Morais, 2014).

Inoculation Drive

It is the goal of the AMRF to ensure at least 30% of the

newborns of Eritrea are vaccinated for: malaria, polio, hepatitis

B, and yellow fever. These vaccinations are supplied to the

clinic free by the patrons. Additional stocks will be sold to the

local hospitals at subsidized prices to assist in the running

costs of the clinics. Project managers have informed officials

that inoculation drives may draw interest of additional sponsors


in the second quarter, which will reduce the financial burden on

other programs. Staffing costs will also be distributed with

additional sponsors (Morais, 2014).

Subsidized Drugs

The clinics will be supplied with generic drugs for high

blood pressure, heart problems, and sexually transmitted

diseases. Medicines have been earmarked for these conditions, and

maximum quantities have been acknowledged. Funding management for

these medications must necessary, and some may require cold

storage, so it is important to ensure proper storage facilities

are available, which means there must be effective inventory

management in place. An on-line inventory system has been put

into place; however an issue with continuous power supply

connecting to the server needs to be solved immediately. This

means power generators need to be installed at all the warehouses

so that power to computers is not interrupted and allow constant

connection to the central server (Morais, 2014).

Stem Cell Therapy

AMRF has attracted the expertise of the renowned foreign

biotechnology Conglomerate to assist with beta-level testing of


stem cell therapies to treat diseases like cancer, type 1

diabetes, cardiac failure, muscle damage, and bone marrow

transplantation. This means there will be adequate funding for

key goals; however, field doctors and specialists must put a

detailed methodology in place to determine drug safety because

they are not USDA and generic. Consenting patients can receive

these therapies after careful scrutiny, and all the paperwork has

been submitted. Stem cell therapy is still new in the medical

science field and aside from bone marrow transplants the research

is still in the developmental phase. Special care must be enacted

to ensure humans are not treated as test subjects. It is also

important that there is strict monitoring of the process to

prevent any malpractice issues and hype over these medications

(United Nations Development Programme, 2013).

Fiscal Year 2013-2014

The balance sheet of the last fiscal year is disconcerting.

A project manager in South America handled projects as a profit

center, and the project value had a surplus return of 30%. While

a project manager in Asia went over but by 15%. The financial

reports are open for viewing by all patrons, causing sponsors to


raise questions about the foundations. The auditor has questioned

expenditures, and to make things worse, there is little or no

documentation for those expenditures. A responsibility of the

chief administrator is to identify the discrepancies pointed out

by the auditor and devise a plan eliminate or control them. The

administrator has compiled a separate report to address the

findings and notify the board of urgent transformations that need

to occur. The projects for the next financial year will contain

control measures that should help to control the budgets.

Financial Management

Financial management is the part of the management that

focuses on generating financial information for enhanced and

deliberate decision making (Finkler, 2010). The Comprehensive

Annual Financial Report (CAFR) of AMRF is designed to adhere to

the standards of the Government Accounting Standards Board, which

gives an overall statement and individual fund position report.

AMRF terminology is similar to government what governments use

like surplus and deficit instead of profit and loss. The CAFR is

a consolidation report of the total budget deficit or surplus

versus net operating cost. Revenues generated during activities


and through cautious use of funds by a fund manager are also

taken into consideration (Horngren, George, & Srikant, 1997).

Objective

The financial controls of AMRF will prevent project

spending where less than 50% of the population is serviced. The

updated financial controls now require approval of senior level

officials before certain expenditures happen. The updated

controls are to ensure past experiences do not occur again while

evolving processes (Horngren, George, & Srikant, 1997).

Program undertaking

Every program that AMRF undertakes must have a financial

manager at headquarters.

The financial managers will monitor the progress of all programs,

generate cash flow statements, regularly monitor inventory

reports, and ensure non-routine expenses are approved by senior

staff. Each office will employ an accountant who will remain

inconstant contact with the manager for fund requirements.

Payments


The central treasury account will monitor all fund flow. The

central bank account will receive all payments directly. In

addition, any disbursement will be made directly to the

beneficiary account through electronic transfers. This will

transfer cash handling at local levels to senior levels.

Expenditures

Program heads will have a specific amount allotted for

routine expenses, which will be monitored and audited each month.

Expense limits are set and divided between each head. Each

location will have an allotment of money that can be spent on

unexpected expenses.

Inventory

All medicine must be stored in their designated area. Field

doctors are responsible for inventory control and submit monthly

reports.

Bank reconciliation

Bank reconciliations will be done monthly by the chapter

manager. All banking information will be submitted to

headquarters no later than the first week of the preceding month.


Audits will be conducted on the submitted information, and any

discrepancies must be handled immediately.

Unrestricted funds

Is money given by donors to non-profit organizations such as

AMRF will be separated in the budget; these funds will be used

for the daily project expenses. The funds provided will be

reconciled each month and entered as daily operational expenses

on the cash flow statement.

Restricted funds

These funds are designated for vaccinations and other

subsidized medicines. The funds used for these purchases are to

be clearly identified on expense reports and represent a specific

job scope. Reports will be also be submitted monthly for audit.

Agreements

Project manager agreements must be given to higher

management for prior approval. All original documents will be

held at the headquarters with copies kept at each location. This

includes checks, bank guarantees, securities, and any other

legally binding document.

Fund Accounting


Profitability is important, but to fund accounting it is

more about accountability. However, it still cost money to start-

up each location and to cover project costs. Each fund manager

will have to make the appropriate accountability decision wisely.

Net asset or fund balance must be segregated on the financial

statements as unrestricted or restricted net assets as per the

job scope and limitations enforced by the sponsor. The AMRF fund

accounting system is supported and followed by cumulative annual

and internal audits. This will verify all money spent was used

for its intended purpose (Horngren, George, & Srikant, 1997).

Reports of liabilities and total asset reporting are essential

for in-house reports, however internal transactions connecting

funds must not be included. External reporting purses require

fund balance and divided between more than one net assets

(Morais, 2014).

Unrestricted funds

Funds for stem cell medicines fall under unrestricted funds.

Once there has been successful completion of the activity the

funds will be credited to the appropriate account. This will

ensure project managers disperse the medications as designated by


the sponsor. In addition, the medication is not USDA approved, so

data complete collection is extremely important.

Operating funds. Specific funds are governed by boards that

have the ultimate decision making authority. Operating funds are

in place to ensure day-to-day activities are properly funded.

Loan funds. Sponsors in Africa have provided loans for

initial assets. Infrastructure set up for the first year has been

secured by bank loans. Net assets available for lending are

represented by fund balances of loan funds, and because they may

contain restrictions by sponsors parts have been deemed

classified as temporarily. Any government loan is designated as a

refundable advance noted as a liability on financial documents.

Restricted funds

Funds donated by AMRF sponsors and used for pre-determined

purposes are restricted. These funds represent net assets

maintained for specific future operating activities. Each sponsor

has outlined specific use for the restricted funds: sponsor 1

allocates funds for free health check-up clinic diagnostic

equipment; sponsor 2 allocates funds toward inoculation drive

vaccinations; and sponsor 3 has allocated the funds for


subsidized medicine. The expenses directly connected to these

sponsor activities are to be used as expense calculations. Any

expense connected to more than one fund is to be distributed

equally.

Custodian funds

AMRF is considered an agent for its sponsors. Custodian

funds are designed as a source of accountability for the medicine

and equipment in AMRF’s custody until these items are transferred

to third-party recipients. Transfer of these items is designated

by specific project guidelines, and AMRF has little authority

over these resource uses.

Bank Reconciliation

Bank reconciliations are a necessary part of a business

because it itemizes cash in and out. In an effort to maintain

transparency and project accountability all reconciliations must

be completed immediately upon receipt. This will allow an

external auditor ample time to verify cash balances for financial

statements. This also enables the auditor to show the amount

reported is realistic and that all the AMRF cash is properly

accounted for (Blazek, 1996). Bank reconciliations are


significant because they give the board an accurate picture of

cash flow which allows for accurate and smooth decision making

processes for potential new programs.

Eritrea Fiscal Year 2014-2015 Budget

Appendix A details the budget necessary in achieving the

goal of ensuring the population of Eritrea receive necessary

healthcare. The fiscal year 2014-2015 budgetary operating plan

has been submitted to the board for review, approval, and

execution. The budget outlines the monetary decisions for

staffing decisions and how AMRF will fulfill its purpose in

Eritrea by using the resources allocated to make sure the

deliverance of the effective programs (John, 2006). The budget

reveals a comprehensive direction for allocating the available

resources and also recognizes any financial issues that may cause

problems in the upcoming year.

Budget planning concerns

Budget complexity can control the size and scope of a

program which in turn also control assets. Even though AMRF works

diligently to build working capital, there have been occasions

where goodwill took precedence. An effective balanced budget will


highlight all program priorities. Some of the services AMRF

provide cost, and sometimes price increases are necessary,

however, because of the customer base it is very difficult to

increase prices immediately. Therefore, the budget needs to

detail incremental price increases.

AMRF is committed to a 5 year agreement in Eritrea; this

means that any submission dates for grant request need to be

observed when preparing the budget. Meaning that grants can take

a while to receive so there should be approximately 2 months’

worth of working capital surplus in each budget cycle. This will

also assist financial mangers gauge performance on a regular

basis (Siefer, 2013). AMRF has divided its budgets into quarterly

and annual income and expense statements for each project.

Revenue projections are segregated by category, for example

contributions, service charges, and trial commissions are a

category.

Individual projects, department, and branch cost center

forecasts are also included. In addition, patient delivery costs

and capital additions like equipment are included. A skilled and

unskilled workforce is significant for AMRF and their hours are


calculated at either the regular or prevailing labor rate. Cash

flows are generated from short and longer term financial

projections. Long-term projections will change over time. Short-

term cash flow is what goes out as quickly as it is received. It

is important to intermittently compare actual figures to what has

been budgeted. This will show if there are any issues that need

to be addressed by either senior management or board members. It

is the responsibility of the AMRF management to provide

leadership and experience if financial conditions change.

Asset Management

AMRF must ensure they have enough liquid funds to maintain

its current operations of finance with the intention of balancing

between assets and investments. Monthly obligations would be

staff payroll, utilities, warehouse rent, and any other recurring

expenses. Once the budget has been created the financial manager

must ensure efficient financing of the operations by effectively

using current or liquid funds (Riley, 2009). Enhancing the return

on capital and other resources is a top priority of the finance

manager. Assets include the medicine and equipment being held by

AMRF. Equipment and machinery lose depreciation as time passes.


However, medicine increases appreciation because of storage costs

and inflation. Nonetheless, some medication will expire, if this

happens it is thrown out leading to a financial loss. It is a

project manager’s responsibility to know when each batch is set

to expire and understand its demand to avoid over orders and

avoid waste (Riley, 2009).

Cash flow planning

Paying bills and maintaining financial viability requires

cash. Accrual basis financial statements are popular and may

reveal positive revenue. However, those revenues may be

unrealized and do not automatically mean there is money in the

bank. Cash flow planning is extremely important because it is not

always clear when and how much will be available at any given

time. AMRF must meet the financial obligations they have agreed

to, meaning cash flow planning is necessary (Staff, 2004).

Once AMRF begin the process on the budgets, they all must be

joining into the budget of cash flow. This will confirmed

resource availabilities and let AMRF know when to expect lower

cash flow periods. This process is very helpful when it is time

to collect year end receivables; it also calculates the normal


invoice or billing receipts and cash receipts. In addition, it

tracks expected expenses of cash according to monthly payments.

Once these steps are completed capital expenditures, debt

repayments, expenditures, and any other financings are included.

AMRF should maintain a minimum amount of cash that is equivalent

to 2 month’s salary to remain sustainable. In the event there is

a surplus of cash, the AMRF financial manager will make the

decision of how to maximize on the cash returns. The board

stipulates that any excess cash is to be kept in the right

account making sure they are federally insures and able to gain

interest. Short-term investments are to be done if access to

invested cash is quickly available (Riley, 2009).

It is the responsibility of AMRF to ensure the gifts received

from sponsor, whether it is monetary, equipment, or service is

handled correctly. Tracking the money donated to AMRF is done

through isolating each sponsors gifts as restricted and matching

the expenses to the resource. Each month the financial manager

will prepare sponsors reports; this details the gift and its

purpose, and then compares the expense to the resource. Even

though the expense statements will differ from month to month,


the financial reporting conducted by the financial manager will

remain consistent (Riley, 2009).

Total endowment return

Total return with respect to endowment management is a

fairly new concept. The current principle is that whenever there

is asset value it is considered as value addition to the

principal, however, this concept says to treat it as income. A

study noted that if adequate gains for maintaining purchase power

are retained and if there is protection against any potential

loss rising inflation could be halted. As with other financial

decisions using the gains must be at the discretion of the

managers and directors (The Ford Foundation, 1969).

There are a lot of states that have taken the (UMIFA) into

consideration. This act states in the expendable income category,

along with interest and dividends, realized and unrealized gains

can be included. The act is also supported by different

associations and business offices. It states, the total return

needs to be included on the activities statement. The AICPA

Auditing Guide has also sanctioned using the not-for-profit

organizations; however, it also states that only a portion can be


used for current use. The appreciation and depreciation of

remaining securities in an investment portfolio must be reported

as temporary restricted funds as stated by the Financial

Accounting Standards 117 (FAS) (Bowman, Tuckman, & Young, 2014).

Conclusion

Two critical areas that AMRF must focus on are budgeting and

cash management. Financial obligations of the organization

dictate this focus because of the funds received from various

patrons and sources to run the organization, and AMRF ultimately

reports to them. The fund accounting system categorizes

transactions along the reporting lines of FAS 117. The process of

tracking the flow of money between funds can be difficult for a

non-profit organization like AMRF because of the time and

restrictions imposed. Management must consider 2 things: all

financial reporting must be done daily and ensure all donated

resources are used effectively.

There are long and short term gains of the AMRF projects are

important, and effective budgets must be in place to ensure goals

are achieved. All financial statements must be properly

translated to ensure all the plans are on track (Staff, 2004).


Analyzing all financial statements and budget ensure that funds

are given to the appropriate fund to ensure goals are met. Bottom

line is that AMRF is not in business to generate a profit, and

they use their resources to provide desperately needed healthcare

to parts of the world in desperate need.

References

Anthony, R. & Young, D. (2009). Management Control in Not-for-profit

Organizations. Richard D. Irwin, Inc., Boston, MA, 5th

Edition.

Blazek, J. (1996). Financial Planning for Not-for-profit Organizations, John

Wiley& Sons, Inc., New York, NY.

Bowman, W., Tuckman, H., & Young, D. (2014, April 1). Issues in

nonprofit finance research surplus, endowment, and endowment portfolios.

Sage Journals. Retrieved from http://nvs.sagepub.com

Finkler, S.A. (2010). Financial management for public, health, and not-for-

profit organizations (3rd ed.).


Finkler, S. A., Purtell, R.M., Calabrese, T.D., & Smith, D.L.

(2013). Financial management for public, health, and not-for-profit

organizations (4th ed.). Upper Saddle River, NJ: Pearson

Prentice Hall. ISBN: 978-0-13-280566-7.

Horngren, C., George, F. & Srikant D. (1997). Cost Accounting: A

Managerial Emphasis. Prentice Hall, Upper Saddle River, NJ,

9th edition. Retrieved from http://search.proquest.com

Morais, R. (2014). The End Fund. Retrieved from http://www.end.org

Siefer, T. (2013, Dec 06). Non-profits seek grants through budget process.

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Throop, J. (2006, July 1). "Fund Accounting making sense of church

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