District health office: year-end medicines bill and a re-appropriation shortfall
The District Health Officer (DHO), Kasur, has a non-salary budget of Rs 120 million for medicines for 20X4-25. At 25 June the office has spent Rs 112 million and has outstanding bills of Rs 6 million. On 28 June a supplier delivers medicines worth Rs 18 million against a purchase order; the goods are received and inspected, and the storekeeper signs the goods received note. The invoice arrives on 10 July. The Finance Officer tells the District Accounts Officer to “hold” the bill until 1 July so it can be charged to next year's budget, because there is no money left and a re-appropriation of Rs 10 million from the repairs head needs the Principal Accounting Officer's approval, which is unlikely before 30 June. Separately, internal audit notes that Rs 4 million of medicines received in March have expired in the store, and that the same supplier won three quotations in a row in the last quarter. The DHO must close the accounts and respond to the audit observations.
1. When should the Rs 18 million be recognised, and what is the correct budget treatment given the cash-basis framework?
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The recognition question and the budget question must not be conflated. Under a cash-basis government accounting framework, expenditure is recorded when payment is made, so the invoice will technically be paid in 20X5-26. But the goods were received and accepted on 28 June, which means the obligation was incurred in 20X4-25. Where the entity prepares accrual-based or modified-accrual statements, a liability and an expense of Rs 18 million must be recognised at 30 June, because the past event (delivery and acceptance) has occurred and the amount is reliably measurable. Under a pure cash framework, the amount must at minimum be recorded as a commitment/outstanding liability in the year-end register and disclosed in the notes, so that the accounts do not present a misleading picture of the year's commitments.
The budget consequence is the real problem. If the Rs 6 million already outstanding and the Rs 18 million are both charged, the medicines head is overspent by Rs 16 million against Rs 120 million. The lawful route is to seek re-appropriation from a head with savings, or a supplementary grant, before 30 June - and the repairs head shows a possible Rs 10 million saving. If approval cannot be obtained in time, the correct response is to report the anticipated excess to the Principal Accounting Officer, obtain written direction, and disclose it; it is not to manipulate the date of the bill.
2. Assess the Finance Officer's instruction to hold the bill until 1 July. What should the DHO do?
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The instruction is irregular and should not be followed. Its purpose is to move expenditure out of the current year to avoid an excess vote, which is not a classification decision but a misstatement of the year's accounts. Under the relevant provincial financial rules, appropriations lapse at the close of the financial year and expenditure must be charged to the year to which it relates; deliberately holding a received bill to shift the charge is a false record. It may also breach the rule against incurring expenditure without provision, which applies to the DHO who placed the order knowing the head was nearly exhausted.
The DHO should direct that the goods received note and the liability be entered in the register immediately, inform the Principal Accounting Officer in writing of the Rs 16 million anticipated excess, and apply for re-appropriation of Rs 10 million from repairs plus a supplementary grant for the balance before the closing date. If the supplier has not been paid by 30 June, the commitment should be disclosed and a plan for payment early in the next year agreed in writing. The DHO should also document that the instruction was refused and why, and copy the internal audit report response. If a senior officer persists after that, the matter should be escalated to the Accountant General or the departmental internal audit, because suppressing it exposes the DHO personally. Backdating the goods received note or splitting the purchase to stay under a threshold would be worse still.
3. What should the internal audit report say about the expired stock and the repeated supplier?
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The two observations are different risks and should be reported separately, with evidence and a recommendation each.
On expired stock: Rs 4 million of medicines received in March have expired. The auditor should establish whether the stock was over-ordered, whether consumption was monitored, whether expiry dates were checked on receipt, and whether any expired items were dispensed. The report should quantify the loss, recommend write-off through the proper authority, fix responsibility for the over-procurement, and recommend a store control such as FIFO issue, minimum stock levels based on consumption data, and monthly expiry reports.
On the repeated supplier: three consecutive quotations is not itself proof of wrongdoing - it may reflect genuine price or quality advantage - but it is a red flag that must be tested. The auditor should check whether the quotations were invited from independent parties, whether the same addresses or handwriting appear, whether purchases were split to stay below the threshold for open tender, and whether the rates are competitive against the market. Evidence should be gathered before any allegation is made. The report should describe the facts, the control weakness in the quotation process, and recommend re-tendering and referral to the procurement committee if collusion is suspected. Both observations should be copied to the Principal Accounting Officer and, where required, included in the report to the Public Accounts Committee.