SA St John Ambulance Service Inc (the Ambulance Service), is an incorporated association established pursuant to section 11 of the Ambulance Services Act 1992 (the Act) as a result of a joint venture agreement between the Priory in Australia of the Order of St John and the Minister for Health for the Government of South Australia.
The Ambulance Service provides pre-hospital patient care and ambulance transport as part of the State’s health and emergency services and is controlled by the Ambulance Board established pursuant to section 12 of the Act.
The structure of the Ambulance Service is:
The Ambulance Service recorded a surplus (before reserves transfers) for the year of $7.1 million ($2 million).
The Ambulance Cover Scheme incurred an operating deficit of $3.9 million ($3.4 million).
Revenues from the State Government during 1999-00 amounted to $30.9 million ($22.9 million), an increase of 35 percent over the previous year.
In March 2000, Cabinet approved additional funding of $6.2 million to meet an expected budget shortfall.
Cash and investments held at 30 June 2000 increased to $11.4 million ($3.2 million).
Subsection 14(2) of the Ambulance Services Act 1992 specifically provides for the Auditor-General to audit the accounts of the Ambulance Service in respect of each financial year. Furthermore, subsection 14(3) of the Act provides for the application of Part III of the Public Finance and Audit Act 1987 (ie Audit Provisions) to the Ambulance Service, as if it were a public authority within the meaning of the Act. Subsection 14(4) of the Act provides that Division II (Accounts and Audit of Certain Incorporated Associations) of Part IV of the Associations Incorporation Act 1985 does not apply to the Ambulance Service.
Audit coverage in respect of the Ambulance Service had due regard to the work performed by the Ambulance Service’s internal audit function, which is externally managed. The audit program covered all major financial systems and was directed primarily towards obtaining sufficient evidence to enable an audit opinion to be formed with respect to the financial statements and internal control.
During 1999-2000 specific areas of audit attention included:
ambulance transport revenues
Ambulance Cover Scheme
Call Direct monitored emergency service
expenditure systems, including accounts payable and salaries and wages
general ledger
management reporting and budgetary control
plant and equipment, including the adequacy of asset register maintenance
inventories
computer information systems environment (CIS).
A management letter was forwarded to the Chief Executive Officer during the year identifying various issues for consideration. Among the topics covered within the letter, was the progress the Ambulance Service had made with respect to implementing key elements of the Financial Management Framework (FMF).
Audit assessed the Ambulance Service’s control structure as being satisfactory.
This assessment had regard to not only the issues identified by Audit during the year, but also the responses and action taken by the Ambulance Service to address issues raised by both external and internal audit.
The Board of the Ambulance Service has a Finance and Audit Committee that regularly reviews all aspects of financial management and ensures that appropriate responses and follow up action take place in respect of issues raised by both external audit and internal audit. The Committee plays an important role in the overall set up of public governance.
The principal findings made by Audit were in relation to:
Financial Management Framework (FMF) — Audit sought clarification on what process there was that would support the Chief Executive Officer in certifying that internal controls over financial reporting have been effective throughout the reporting period.
Audit identified that there was an absence of policies and procedures with respect to the payroll system and management and accounting for non-current assets.
Management responded that the responsibility for ensuring the effectiveness of internal controls and the control framework was vested in the Finance and Audit Committee of the Ambulance Board and that with respect to the formulation of specific policies and procedures, it would review the existing practices to ensure compliance with the FMF.
Call Direct Procedures — The audit revealed instances where there was a failure to comply with the established delegations, specifically the authorisation of credit notes, the execution of short term rental and monitoring agreements and the cancellation of memberships and the refund of membership fees.
Audit further noted the need to strengthen controls over access to subscriber credit card details to ensure that only authorised officers were permitted access to that information.
Management agreed with Audit’s findings and indicated all issues raised by Audit would be resolved either by way of policy or system enhancements.
Ambulance Cover Scheme — While considerable progress had been made to ensure that those members of the Ambulance Cover Scheme who received pensioner concessions were indeed entitled to receive such concessions, there remained a significant number of instances where proof of entitlement had not been confirmed.
Management responded that the Ambulance Service was testing a methodology for the effective collection of pension numbers which would be completed by August 2000. Following the completion of this testing, an appropriate process would be adopted and implemented without delay.
Audit undertook a review of the CIS environment during 1989-99 and identified a need for the Ambulance Service to comply with the SA Government IT Security Standards 1994. In particular, there was a need to develop a security policy and plan and to improve the monitoring of systems access and systems backup controls. A follow-up review during 1999-2000, that also included a review of the Ambulance Service’s EDS contract management arrangements, revealed that many of the issues raised in the previous year remained.
Management indicated that its IT branch was in the process of working with EDS to develop a procedure for regularly testing data restoration, recovery and restart procedures. It noted that this function is predominantly an EDS responsibility and function in the event that any recovery of data was required.
The responsibility of the Ambulance Service has been defined as an internal audit process to regularly check the integrity and validity of the restoration, recovery and restart procedures jointly agreed upon by EDS and the Ambulance Service. It is expected that the process will be in place by September 2000.
The Ambulance Service has policies, procedures and systems that are consistent with the prescribed principles set out in the Financial Management Framework (FMF). Audit has assessed that there is a structure and culture within the Ambulance Service that satisfies the requirements of the FMF.
Specific comments made by Audit to the Ambulance Service during the year were directed at further improving these processes and identifying opportunities for development of further policies and procedures, where there was a critical need. While Audit is satisfied with the responses to its findings, there will invariably be opportunities to further improve upon the overall framework of control.
As required by subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987, the audit of the SA St John Ambulance Service included an assessment of the controls exercised in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities. The assessment also considered whether those controls were consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 ‘Financial Management Policies’.
Audit formed the opinion that the controls exercised by the SA St John Ambulance Service Inc in relation to the receipt, expenditure and investment of money; the acquisition and disposal of property; and the incurring of liabilities, were sufficient to provide reasonable assurance that the financial transactions of the organisation were conducted properly and in accordance with the law.
The focus of Audit analysis in prior years has been to comment on emerging trends in funding of Ambulance Service operations and to provide some analysis of cash flows.
The Department of Justice also appointed an external consultant during the year to review options with respect to the future funding of the Ambulance Service. A synopsis of some of the findings arising from the review is included under the heading ‘Further Commentary on Operations’.
Total revenues for the year ended 30 June 2000 were $68.4 million ($57 million) and total expenses were $61.3 million ($55 million), resulting in a surplus before reserve transfers of $7.1 million ($2 million).
Revenues from government totalled $ 30.9 million ($22.9 million).
The accumulated surplus increased by $6.5 million to $8.4 million ($2 million), while reserves increased to $5.4 million (from $4.8 million).
Notwithstanding the improved result on operations, it is difficult to apply conventional financial ratio analysis to the Ambulance Service. As with most government agencies, it is reliant on revenues from government to sustain its level of operations and service, notwithstanding that it charges for certain services and products.
The following chart depicts the major sources of internally generated and externally provided revenues for 1999-2000:
The following diagram depicts the movement in these revenues over the last six years:
The acceleration of government funding over that time is clearly discernible, with revenues from government increasing from $9.4 million in 1994-95 to $30.9 million in 1999-2000, an increase of 228 percent. This compares with an increase of only 16 percent in internally generated revenues over the same period, from $32.4 million to $37.5 million. The increasing reliance on government revenues is clearly evident from these figures.
The Ambulance Cover Scheme has significantly impacted on the operating result since its inception. The cumulative deficit from operating the Scheme is $17 million. There has been an increase in the operating deficit for 1999-2000 to $3.9 million ($3.4 million), with a average annual operating deficit $2.8 million, since 1996.
The diagrams below provide an outline of the application of cash flows over a five year period and reflect the sharp movement in salaries, wages and related payments against other operating cash flows. There is a comparison below of movements in the provisioning for employee entitlements over the corresponding period, together with changes in net assets and capital and reserves.
The increasing cost of salaries, wages and related payments essentially reflects the standards embodied in terms of service provision and response times. However, limitations on flexibility in work practices and increases in rates of pay following enterprise bargaining agreements have also been identified as factors causing these costs to increase.
There has also been a corresponding increase the provision for employee entitlements (primarily long service leave). While net assets have increased over the last two years, these figures are distorted by advanced government funding, which boosts cash and investments at a point in time. The movement in capital and reserves is more indicative of the Ambulance Service’s movement in equity. While capital and reserves at 30 June 2000 ($11.7 million) were 25 percent greater than those at 30 June 1996 ($9.4 million), there has been a decline in levels from 1998.
During the year a broad ranging external review was conducted of the Ambulance Service. The review was undertaken at the request of the Department of Justice so that it may better assess the financial position of the Ambulance Service.
Specifically, the consultants were requested to review:
the cause(s) for the operating deficits, as occurred in the financial year ended 30 June 1998, the ongoing implications and options to resolve funding issues;
what services should be provided for as a community service obligation (CSO) as to what services should be provided for on a cost recovery basis;
the costs and fees charged for ambulance services;
the effectiveness and validity of ‘call direct’ and ‘non-emergency transport’;
funding options for wage increases;
costs associated with back filling arrangements;
the methods of country and city funding;
capital expenditure for ambulances and stretchers and the country versus city funding of capital items;
the viability of the Ambulance Cover Scheme.
Comment on the key findings of the review follow.
The level of government funding to the Ambulance Service has been increasing by approximately 25 percent per annum since 1995-96 and that the current funding model was not considered to be a ‘… viable option’.
The major causes of the funding shortfall were:
deficits with respect to the Ambulance Cover Scheme;
the increasing gap between revenue and costs, with the major reasons for increasing costs being related to:
benchmarking with international standards (ORCON) in relation to ambulance response time obligations,
the effect of enterprise bargaining agreements that have contributed to an increase in the workforce,
introduction of a paramedic based care model and response time focus, which have resulted in a higher level of care being provided,
increase in marketing costs for such initiatives as the Call Direct product,
an increase in information technology costs and professional fees borne by the Ambulance Service.
a number of externally mandated requirements;
increasing capital needs;
effective cross-subsidisation of country services provided.
The Community Service Obligation (CSO) funding provided by the Government to the Ambulance Service, is the funding the Government provides for the delivery of services or the carrying out of an activity, which it would not otherwise elect to do on a strictly commercial basis, and which is not required of other businesses in the public or private sectors.
Currently as part of the CSO funding the Government has agreed to fund the Ambulance Service for the following:
50 percent of the cost of pensioners carried
100 percent of indigent transports, when the Ambulance Service is unable to collect fees from patients
100 percent for transport of Aborigines, when the Ambulance Service is unable to collect fees from patients
100 percent for drug and alcohol affected transport, when the Ambulance Service is unable to collect fees from patients.
The review found that the funding for CSOs accords with the Government’s policies in this area ‘… and appears appropriate’. It was noted however that there is no specific formal agreement about the amount of funding or the level of services that the Ambulance Service should generally provide. Considerations of what services should be provided as CSOs and what services should be provided on a cost recovery basis, including the consequences of any changes to existing policies, were also addressed by the review. It should be noted that the Ambulance Service has previously sought a formal agreement in relation to the funding of CSOs with the Department of Treasury and Finance, following a consultancy undertaken in the early 1990’s (ie the McKay review), but was unsuccessful.
The review found that the options for funding and solutions available with respect to areas of operation such as the Ambulance Cover Scheme presented complex and difficult decisions for the purchasers and funders of these services. Legislative amendments were seen as a mechanism by which to alter the current funding mix and help alleviate some of the Government’s cost pressures.
In particular, the consultants considered such amendments would facilitate greater control by the Government over the level and cost of services provided by the Ambulance Service. Some of the options outlined were to:
effect a sale and leaseback of fixed assets
defer non-essential capital expenditure
significantly reduce the level of service
significantly increase the level of fees charged.
While the first two options would have little if no impact on the community, the latter two options would represent a fundamental realignment of services and/or costs. Audit understands that the Department of Justice is considering the findings and recommendations arising out of the report.