68 Financial Performance
Financial Overview FINANCIAL MANAGEMENT The Victorian Institute of Forensic Mental Health Council and the Department of Human Services approved a $1.309 million deficit budget for <strong>Forensicare</strong> for <strong>2005</strong>-<strong>2006</strong>. To deliver the $1.205 million deficit (outlined below and detailed in the <strong>2005</strong>-<strong>2006</strong> Financial Statements, pages 78-95) was therefore a significant achievement. The budget result included depreciation of $1.235 million which is provided for separately by Government via capital payments in response to submissions by <strong>Forensicare</strong>. No Capital Funds were provided to <strong>Forensicare</strong> by the Department of Human Services for the <strong>2005</strong>-<strong>2006</strong> financial year. To support sound financial management and accountability practices, <strong>Forensicare</strong> has continued to review the organisation’s Financial Management Framework under the Corporate Risk Assessment Review. The Framework restates the various elements of our financial management policies, practices and procedures. It clarifies the way in which our organisation manages its financial activities, and documents the clearer lines of accountability and reporting. Our financial framework is based on the following principles – • support for the increased autonomy and accountability of operational areas of the organisation • integration of systems to enhance information available to meet the diverse and growing needs of management • transparency through standardisation of business reporting templates • quality financial management information that is sourced and reproduced consistently from a common platform • flexible capacity to adapt to meet changing information needs in our environment. The framework encourages strong governance, continuous improvement and compliance with standards to support our organisation strategic directions. During the current and previous reporting periods, <strong>Forensicare</strong> has undertaken a number of internal financial reviews/assessments to assist the Council and Executive manage the financial performance of the organisation over the year. The reviews have consisted of – • Expenditure comparisons by major component • Expenditure patterns • Deficit Management Strategies • Long-Term Financial Budget Management Plan. During the financial year <strong>Forensicare</strong> absorbed two significant unbudgeted costs totalling $0.398 million. To achieve the actual result of $30,000 surplus (excluding depreciation) after a difficult year with both cost pressures (high levels of patient acuity resulted in approximately 116 additional staffing shifts during the months of January to March <strong>2006</strong>) and the unbudgeted costs, demonstrates that the financial strategy of <strong>Forensicare</strong> is sound and sufficiently flexible to counteract unforeseen cost pressures. FINANCIAL SUSTAINABILITY The financial situation of the Institute highlights the need for strong, long term planning and the targeted allocation of resources. A disciplined approach to financial decision making which relies on clear evidence, data analysis, accurate costing and risk management is critical to the financial stability of the Institute. This is achieved through the preparation of the Corporate Plan, and the ongoing development of a Long Term Financial Strategy and 5 year Capital Works Program. The development of a Long Term Budget Financial Model has been completed and will be presented to the Victorian Institute of Forensic Mental Health Council early in the coming financial year. OVERALL FINANCIAL POSITION <strong>Forensicare</strong> continues to be in a good financial position. The Balance Sheet indicates that <strong>Forensicare</strong> has a satisfactory level of Cash Assets. The Institute’s ratios have declined compared to previous years (see graphs, page 70). The Working Capital Ratio assesses the ability of <strong>Forensicare</strong> to meet current commitments and is calculated by measuring the Institute’s Current Assets against Current Liabilities. The Institute’s ratio of 0.83:1 has declined from previous years and is a direct result of the new accounting treatment of calculating employee entitlements. (See note 1(l)). This means that <strong>Forensicare</strong> has Cash and Current Assets of $0.83 for every $1.00 of Current Liabilities. CASH FLOW <strong>Forensicare</strong> has a net overall cash inflow for the year of $0.242m. The most significant variation related to the Operating Activities with an inflow of $0.639m. The increase in Government Grants, Other Revenue and the vigilance in expenditure on Operating Costs (payments and supplies) had a considerable impact on the cash position of <strong>Forensicare</strong>. Investing Activities of <strong>Forensicare</strong> (Capital Works and Asset Acquisition / Replacement Program) had an outflow of $0.397million, related primarily to the purchase of <strong>Forensicare</strong> vehicles and the upgrading of information technology equipment. 05/06 04/05 03/04 02/03 01/02 $’000 $’000 $’000 $’000 $’000 Cash Held $4,131 $3,889 $3,337 $5,148 $3,205 *Cash Held represents unrestricted cash held at the end of the reporting periods. $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 05/06 04/05 03/04 02/03 01/02 69