UNIVERSITY OF LUSAKA

SCHOOL OF GRADUATE STUDIES

AN EVALUATION OF THE PRUDENCE OF PUBLIC MANAGEMENT

SYSTEMS IN THE HEALTH SECTOR IN ZAMBIA – A CASE STUDY OF
CHAINAMA HILLS COLLEG HOSPITAL

BY

JOSEPH LUBEMBA

A Research Report Presented to University of Lusaka

In Partial Fulfilment of the

Requirements

For the Award of

Master’s Degree in Business Administration in Finance

Supervisor: Dr.…………………………………

i
An Evaluation of the Prudence of Public Financial Management Systems in the
Health Sector in Zambia – A Case Study of Chainama Hills College College Hospital

by

Joseph Lubemba

Dissertation Submitted to

UNILUS.

ZAMBIA

In Partial Fulfilment of the Requirements for the Award of the

Master’s Degree in Business Administration in Finance

Supervisor: Dr……………………………

(2020)

ii
 DECLARATION

I, Joseph Lubemba, do hereby declare that this dissertation is the results of my own
investigation and research and that this has not been submitted in part of full for any other
degree to any other University.

Student’s Signature: ………………………………..

Date: ……/....../ …………..

Project Supervisor: ………………………………….

Dr…………………………

Date: ……../…../…………..

iii
 APPROVAL

The Undersigned hereby certify that they (he/she) have read and recommend the
dissertation to be accepted by UNILUS in partial fulfilment of the requirements for
the award of the Master’s Degree in Business Administration in Finance.

Dr/Mr/Ms: …………………………………………………………………..

(Supervisor 1)

Date: ………………………………………………………………………..

Dr/Mrs/Ms…………………………………………………………………

(Supervisor 2)

Date: ………………………………………………………………………

iv
 DEDICATION

This dissertation is dedicated to my loving wife Annie Chiluba and the entire family. Indeed,
their constant support and encouragement brought me this far. My family’s sacrifice meant
that their much needed social needs were at times denied but for a cause. To them I dedicate
this work.

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 ACKNOWLEDGEMENT

For this research work. I owe much to the various authors of literature on Financial
Management Systems in the Public Sector. Special thanks go to Chainama Hills College
Hospital Board of Management and Staff for their input by providing the much needed data
for this research work. Many thanks also go to my project supervisor Dr. ………………..for
his ideas and suggestions which smoothly guided this project to its completion.

Additional thanks go to the School of Graduate Studies at UNILUS for the academic
guidance. Above all, this acknowledgement would be incomplete if I don’t recognize the
Almighty God as the source of my strength in all that I do. Lastly but not the least, I am
grateful to my entire family, my Masters in Business Administration in Finance classmate and
lecturers, friends and colleagues at work who were tolerable and accommodative as I
soldiered on with this journey.
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ABSTRACT

This research was carried to evaluate the prudence of Public Financial Management Systems
in the heath sector – A Case Study of Chainama Hills College Hospital – Lusaka. The
objective of the study was to identify possible areas of weaknesses in internal control systems
in the health sector and how management can enhance the internal control environment in
safeguarding public financial resources against abuse and fraud, particularly in major
hospitals. It was conducted to appraise the existing internal control system and identify areas
of internal control deficiencies and recommend for improvement. Data were collected from 32
employees who were purposefully selected at the hospital. The study adopted a descriptive
design and targeted accounting, finance, procurement and administrative staff.
Questionnaires were used to gather data regarding financial controls at the hospital. Data
analysis and presentation were done with the aid of Microsoft Excel but carefully executed to
give the researcher a hands-on experience in carrying out such an exercise. It was discovered
from the findings that management at Chainama Hills College put in place internal controls in
conformity with Financial Regulations such as the Public Financial Management Act (2008);
and the newly revise Public Finance Act of (2018), Public Procurement Act (2008) and Public
Audit Act (2008).

The findings revealed that the level of compliance was just beginning to improve and this is
commendable and must be encouraged. However, it was discovered that the hospital has not
been taking corrective action in response to Auditor General’s findings which rendered the
appraisal activity of internal financial controls performance weak. It is recommended that
management of the hospital should now take action on the irregularities cited by government
audits in order for the hospital to improve its Financial Management Systems to save tax
payers money. Besides, management should routinely review the operation of internal control
systems at the hospital in order to find ways on how to improve on discovered weaknesses. It
would help to change weak conventions of the system. This would help to enhance and
improve the internal control to achieve effectiveness and efficiency. On Financial
Management, the study concludes that the prudential use of financial resources at the hospital
is not up to date although there is an improved asset use and classification of revenues and
expenditure. The study recommends competence of staff profiling, establishment of
information systems within the departments and improved use of finances for the operations
of the hospital.
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TABLE OF CONTENTS
Contents Page No.
Cover Page i
Title Page ii
Declaration iii
Approval iv
Dedication v
Acknowledgement vi
Abstract vii
Table of Contents viii
List of Acronyms xi
List of Figures xii
List of Tables xiii
Operational Definition of Key Terms xiv

CHAPTER ONE: INTRODUCTION

1.1 Background to the study 1
1.2 Statement of the Problem 3
1.3 Research Objectives 4
1.3.1 General Objectives 4
1.3.2 Specific Objectives 4
1.4 Research Questions 5
1.4.1 Main Research Question 5
1.4.4 Specific Research Questions 5
1.5 Scope of Study 5
1.6 Significance of the Study 6
1.7 Organization of Study 6

CHAPTER TWO: LITERATUR REVIEW

2.1 Introduction 7
2.2 Health Reforms in Zambia 7
2.3 Financial Controls in Perspective 8
2.4 Role of Financial Management in Healthcare Delivery 9
2.5 Concept of Public Financial Management 10
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2.6 Hospital Management and Performance 13
2.7 Factors that Influence Hospital Financial Performance 15
2.8 Empirical Review 16
2.9 Chapter Summary 19

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction 21
3.2 Research Design 21
3.3 Target Population 21
3.4 Sample Size 22
3.5 Sampling Technique 22
3.6 Research Instrument 23
3.7 Data Collection Methods 23
3.7.1 Sources of Data 24
3.7.2 Sources of Secondary Data 24
3.8 Data Analysis 24
3.9 Ethical Considerations 25
3.10 Limitations of Study 25

CHAPTER FOUR: DATA PRESENTATION AND INTERPRETATION

4.1 Introduction 27
4.2 Characteristics of Respondents and Enterprises 27
4.2.1 Age Distribution of Respondents 27
4.2.2 Gender Distribution of Respondents 28
4.2.3 Educational Background of Respondents 29
4.2.4 Job Grading of Respondents 31
4.2.5 Length of Service of Respondents 32
4.2.6 Job Type of Respondents 33
4.3 Control Environment and Procedures 34
4.3.1 Segregation of Duties at the Hospital 35
4.3.2 Supervision of Accounts Employees 36
4.3.3 Documentation of Hospital’s Financial Management Objectives 37
4.3.4 Factors Limiting Hospital from Following Market Price of Medical Fees 38
4.3.5 Authorization and Approval before Payments 39
4.3.6 Bank Reconciliations at Chainama Hills College Hospital 39
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4.4 Internal Audit Function 40
4.4.1 Availability of Internal Audit Committee at the Hospital 42
4.4.2 Regular Internal Audit Activities at the Hospital 43
4.4.3 Management Discusses Audit Report and Pursues Recommendations 45
4.5 Procurement Management 46
4.5.1 Availability of an Internal Procurement Committee at the Hospital 46
4.5.2 Availability of a Procurement Section at the Hospital 47
4.6 Financial Management System Practice 49
4.7 Hospital Asset Management 53

CHAPTER FIVE: DISCUSSION OF FINDINGS

5.1 Introduction 58
5.2 Summary of Findings 58
5.2.1 Existence of a Well-Established Financial Management System 58
5.2.2 Effectiveness of the Established Financial Management System 59
5.2.3 Challenges Being Encountered in the Enforcement of the Financial Controls 60

CHAPTER SIX: CONCLUSION AND RECOMMENDATIONS

6.1 Conclusions 62
6.2 Recommendations 62
6.3 Areas of Future Study 63

Bibliography 66
Appendices
Appendix A Cover Letter 73
Appendix B Questionnaire 74

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LIST OF ACRONYMS

BAS Basic Accounting Standard

CBO Community Based Organizations

COSO Committee of Sponsoring Organizations (of the Treadway Commission)

GRZ Government of the Republic of Zambia

SAS Standard Accounting Software

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LIST OF FIGURES

Figure 4.1: Age Distribution of Respondents 28

Figure 4.2; Gender Distribution of Respondents 29

Figure 4.3: Educational Level of Respondents 31

Figure 4.4: Job Grading of Respondents 32

Figure 4.5: Length of Service of Respondents 33

Figure 4.6: Job Type of Respondents 34

Figure 4.7: Availability of Clear Segregation of Duties 36

Figure 4.8: Accounts Employees are Properly Supervised and Monitored 37

Figure 4.9: Hospital Documents Financial Management Objectives 38

Figure 4.10: Responses on Authorization and Approval before Payment 40

Figure 4.11: Responses on the Conducting of Bank Reconciliations at the Hospital 41

Figure 4.12: Responses to Availability of an Internal Audit at the Hospital 42

Figure 4.13: Responses to Regular Internal Audit Activities at the Hospital 44

Figure 4.14: Management Discussion of Audit Reports and Pursuance of Recommendations 45

Figure 4.15: Responses to Availability of Internal Procurement Committees at the Hospital 47

Figure 4.16: Response on Availability of Procurement Section at the Hospital 48

Figure 4.17: Hospital Generates Enough Funds from its own Operations 49

Figure 4.18: Hospital to have other Ventures of Raising of Raising Funds to Beef up the
Current Position. 50

Figure 4.19: Hospital holds Enough Cash for Immediate Operating Cash Requirements 51

Figure 4.20: Hospital is replacing its Existing Assets as quickly as they are being used Up 52

Figure 4.21: Hospital Pays Staff Debt Immediately it become due 55

Figure 4.22: Holding Cash is Necessary for a Hospital that is funded 56

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OPERATIONAL DEFINITIONS OF KEY TERMS

Internal Control – as defined in accounting and auditing is a process for assuring achieving of an
organization’s objectives in operational effectiveness and efficiency reliable financial reporting, and
compliance with laws, regulations and policies.

Prudent Financial Management – refers to the frugal, efficient and effective management of money
(funds) in such a manner as to accomplish the objectives of the organization. It is the specialized
function directly associated with the top management.

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 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

In Zambia the health budget is significantly under resourced and is heavily dependent on
discretionary donor funding that is often ring-fenced for a specific project. This makes the
delivery of equitable, patient-centered health service particularly challenging. Financial
managers, working in partnership with clinicians can help address this challenge by
optimizing the provision of health care within available financial resources. There are
numerous questions that need answering before decisions can be taken on how and where
resources can be most appropriately invested to give best value for money. Financial
Managers, working in partnership with health professionals, can help provide answers to
these questions and, in doing so, will play a key part in helping the Zambian public health
sector meet its objectives of ensuring a more efficient and effective use of resources.

The Government of the Republic of Zambia is committed to refining the funds allocation
formula to the public health sector and is looking to the accountancy profession to provide
the necessary support (Ministry of Health, 2011). Financial managers need to gain a much
better understanding of how each health facility operates, including the local demographics,
the types and levels of service provided, and the number of patients treated. They then need
to calculate the costs of these services, which can then be fed into the allocation formula and
use a tool for monitoring and assessing performance. This is a key task for accountants as,
without this data, the Ministry of Health will not be able to achieve its objective of providing
a more equitable quality health service to the population of Zambia.

In addition to providing information for resource allocation and performance monitoring,

accountants have a critical role to play in ensuring sound financial management, an issue that
became paramount I 2009 following reported embezzlement of donor funds at the Ministry o
Health and some district hospitals (The Post, 20210). The allegations highlighted significant
weaknesses in the system, particularly for financial management and procurement. This led to
donor countries like the Netherlands Government withdrawing their aid to Zambia in the
health sector.

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As a result of the past issues with alleged corruption, governance and accountability have
now been enhanced s priority areas at the Ministry of Health. Accountants, with their
professional expertise, have a key role to play in ensuring sound financial management by:
introducing improved governance procedures, strengthening operational procedures, ensuring
that robust systems of financial reporting and budgeting are in place, improving financial
transparency through faster reporting and instilling confidence in the financial system.

Every corporate entity, irrespective of its size maintains financial control systems if it wishes
to survive the turbulent completion in industry and most importantly, uphold the practice of
good corporate governance. The rationale is to ensure effectiveness and efficiency of
operations, reliability of financial information, and compliance with applicable rules and
regulations; since risk management in general and financial control more specifically are
considered as the fundamental elements of organizational governance. According to Ministry
of Health (2012), this has become more necessary in the wake of technology advancements,
increasing risk of financial management failures, and the frauds that emerged at Ministry of
Health headquarters; thereby encouraging health institutions to place more emphasis on their
financial control systems, internal auditing functions and risk management.

Lokko (2008) concedes that financial and administrative problems of the hospital will
increase in the near future. In view of the fact the endowments and gifts may be less plentiful
in the future, one expects an increasing attention to better organize and administer financial
operations. In the recent past, it has been observed that, hospitals were managed by medical
officers and other people who had limited knowledge in efficient public administration
(Ministry of Health, 2012). Since hospital administration entails the application of cost and
benefits principles, financial personnel and financial data are very important in health service
delivery. It is, therefore important to ensure that all transactions find their ways into financial
records and are organized into data, reports and statements. The use of such a plan by
management will enable them become accustomed to relating their decisions to the financial
effect. It is to be stressed that though the basic financial accounting concepts have been
primarily for use by profit making enterprises, they are also equally applicable to health
institutions like Chainama Hills College Hospital (CHCH), the focus of this study, and for
that matter hospital accounting in general.

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1.2 STATEMENT OF THE PROBLEM
The Performance of Public hospitals in Zambia and indeed the entire health sector is a cause
for worry from the perspective of the management knowledge. Bloom et al. (2014) have
stated that management in hospitals is very poor compared to that of other institutions; it is
even worse in the public than private hospitals. In the few months of the 2008/2009 fiscal
year, the performance of the health sector in general and hospitals in particular emerged as an
issue of national concern. The performance of CHCH has equally come under a barrage of
criticisms; particularly, in the area of financial management through inappropriate internal
control systems. Officials have been accused of high level of inefficiency in the discharge of
their duties by the general public. Unfortunately, recent reports (The Post, 2014) have
revealed the deplorable working conditions under which officers perform their duties. Poor
infrastructure, inadequate logistic, laxity in the upholding of ethical conducts, low salaries
and inadequate reward system are hallmarks of the Ministry of Health in general, and CHCH
in particular

Efficient management of resources, either financial or otherwise is crucial to the development

of any institution. To ensure effective and efficient use of allocation of these resources,
internal controls are normally put in place. In Zambia, to enhance the effectiveness and
efficiency of internal control systems various legislations have been put in place since the
implementation of health reforms in 1992. These legislations are included in the 1996 Second
Republican Constitution, The Criminal Code of 1996 (2008), the Financial Administration
Act 654 (2008), the Zambia Public Procurement Act no. 12 (2008), and the Public Audit Act
(2008) and the National Health Policy of 2012 (GRZ,2013) However, lack of financial
control practices or in many cases non-adherence to the control has led to the
misappropriation and misapplication of resources and all other forms of malfeasances that
have engulfed the entire health sector starting from the 2003-2006 Ministry of Health
Financial scandals. This research, therefore, sought to evaluate the prudence of Public
financial management systems in the health sector in Zambia- A case Study of CHCH. This is
aimed at ensuring efficiency and effectiveness of the financial practices of the hospital
through appropriate and approved mechanisms, to achieve the requisite financial stability of
the health facility.
 -3-
1.3 RESEARCH OBJECTIVES
1.3.1 General Objectives
The General Objective of the study was to evaluate the prudence of Public Financial
management systems in the health sector in Zambia with a special focus on CHCH.

1.3.2 Specific Objectives

Arising from the above main objective, the following specific objectives were considered:
 To determine the existence of a well-established public financial management system
at CHCH;
 To evaluate the effectiveness of the established financial management (if any) at the
hospital; and
 To ascertain the challenges being encountered in the enforcement of the financial
controls of the hospital.

1.4 RESEARCH QUESTIONS

1.4.1 Main Research Question
As per general objective and Specific objectives stated above, this study was conducted to
answer the following main question: how prudent are the public financial management
systems in the Health sector in Zambia, the case of CHCH?

1.4.2 Specific Research Questions

 What are the established public financial management control systems at CHCH?
 How effective are the established public financial management control systems (if
any) at the hospital?
 What are the challenges encountered in the enforcement of the financial controls of
the hospital?

1.5 SCOPE OF STUDY

The study was conducted within the framework of evaluating public financial control systems
in Zambia health sector, particularly at CHCH. The hospital is a semi-autonomous institution
which does not depend solely on government subventions for achieving objectives. For this
reason, the hospital must be viewed as a revenue generating organization rather than a
spending organization. This study, therefore, was limited to the procedures and controls put
in place to ensure efficiency, effectiveness as well as economic use of resources in the
hospital. It was a case study approach of one particular public hospital; hence findings can
cover other public hospitals to reflect the entire industry approach to financial control system
evaluation on the corporate performance. As a result, the results were generalized but its
findings were placed in the relevant context of the individual institution studied.

1.6 SIGNIFICANCE OF THE STUDY

The study was undertaken with the view to avail the decision makers or relevant authorities
with the findings and information that would be used to help them come up with decisions or
measures that would lead to the improvement of financial control systems at CHCH.
Furthermore, the study is important in that it is a partial requirement by UNILUS to award a
Master’s Degree in Business Administration in Finance to the researcher. Though this
research is to partially fulfill an academic requirement for the award of the degree, it is
expected that the recommendations provided would be a complement to regulatory bodies
and government’s efforts in addressing problems of corruption, embezzlement and
misappropriation of funds needed for health delivery.

1.7 ORGANISATION OF THE STUDY

This study has been organized into six chapters. Chapter one is the introduction and
background of the study. The Chapter presents the statement of the Problem, the Objectives
of the study, the research questions, the significance of the study, scope of the study as well
as the organization of the study. Chapter two presents the literature review related to the
study. It begins with the definitions of key concepts. It later provides the theoretical
perspectives, the empirical studies related to the topic under study and finally the conceptual
framework.

Chapter three presents the design and methodology of the study. The chapter explains the
study area, the research design and methodology of the study. The chapter explains the
research design, data collection methods and data analysis technique and interpretation.
Chapter four is the heart of the study. It presents the findings of the study. Chapter five
provides the discussion on the study findings while chapter six summarizes and concludes the
study. The chapter also offers recommendations and suggests further areas for the study.