Sukkur Institute of Business Administration University

Airport Road Sukkur, Sindh, Pakistan

Red Crescent hospital Sukkur

This case has been written by the students of BS Accounting & Finance, Munir khan and Halar Ali under the
supervision of lecturer Mr. Sajjad Ahmed Mahesar at Sukkur IBA University. This case aims to provide material
exclusively for class discussion. All information contained in this case has been collected from Red Crescent
hospital Sukkur The authors do not intend to illustrate effective or ineffective handling of managerial situations.
The authors may have disguised certain names and other identifying information to protect confidentiality.

Mr. Haleem a young CA working for Ferguson, an audit firm since last three years is doing different audit
assignments, fraud investigations, control related problems and helping to resolve them. Recently, he was
approached by Mr. Noman a young graduate of Sukkur IBA University, currently working as Manager Red Crescent
hospital Sukkur to have a thorough examination of operations and controls of his hospital. Now he is briefing him
about the history of Red Crescent Society.

Introduction:

The International Red Cross and Red Crescent Movement is the world’s largest humanitarian network, with a
presence and activities in almost every country. The Movement incorporates the Geneva-based International
Committee of the Red Cross (ICRC) and the International Federation of Red Cross and Red Crescent Societies (the
International Federation), as well as National Societies in 186 countries. With a vibrant and varied history, from its
birth in the aftermath of battle in 1859 and the vision of founder Henry Dunant and four other men, through two
world wars and up to today, the Movement is widely acknowledged as an unstoppable force for help and
compassion. The International Red Cross and Red Crescent Movement is an international humanitarian movement
with approximately 97 million volunteers, members and staff worldwide which was founded to protect human life
and health.

In Pakistan it is largest humanitarian organization and was formed by an act of parliament in 1947. It has 92
branches in different districts of Pakistan which is working with a mission to be the leading humanitarian
organization of Pakistan. It is providing emergency medical sand relief services across the Country. Red Crescent is
regarded by people of Pakistan for its goodly services of saving lives and strengthening recovery in disasters,
contributing towards healthy living. It has helped millions of Pakistanis to overcome diseases and support by
providing food, clothes, clean water and medical treatment. In 2010 after one of the largest floods in Pakistan’s
history supported native Pakistanis, joined forces in Red Cross in recovery of people and gave $100,000 in aid to
combat with the devastation of flood. In 2014, the Pakistan Red Crescent Society in Sindh, in association with
the JDC Welfare Organization, provided medical aid to some 300 mourners with doctors, paramedical
staff, and volunteers during a two-day medical camp organized in connection with Youm-e-Ashoor at Numaish
Chowrangi Karachi.

Red Crescent established its hospital in Sukkur district in 1989 which was inaugurated by the then prime minister of
Pakistan Mohterma Benazir Bhutto. It is situated on Minera road, Sukkur. Red crescent hospital Sukkur is a two-
story building having laboratory, Emergency room, waiting room and a medical store on their top floor. The second
floor of the building contains 45 precious rooms, which has 10 wards with 80 beds. On the other side of the hospital
there is storeroom and account office. Storeroom is used for keeping inventory and other stocks. However, account
office is used by finance department and procurement department. It has facilities of OPD, X-RAY, EMERGENCY,
ULTRASOUND, NVD, GENERAL SURGERY, C-SECTION and 110 Doctors, paramedics, other staff who on
average do more than 125000 OPDs a year. It is headed by governor of the province and managed by provincial
chairperson Mrs. Shahnaz Hamid and their team. Further moving towards financing, Hospital generate its revenue
from three main sources, from its operations, panels and giving building to tenants on rent. Operations contains
treatment, laboratory, and other services. Red crescent panels in which it invests, have some key names such as
NHA, jubilee insurance, civil aviation and many more. One side of the building is given on rent which generates
three to four million revenue a year. Besides all these it has one indispensable source of financing to run their
operations is funding from different internal and foreign NGO’s. All these operations were supervised by Mr.
Naseeb khan, operational controller of the hospital.

CONTROL ENVIRONMENT

Purchasing of Inventory

The store manager of the organization checks the inventory level of the stock. He orders to the finance department
for required level of inventory in the store. The finance manager named as Assad khan, on order from the store
manager, buy the inventory from the supplier on a reasonable price. On receiving of the inventory from the supplier,
the store manager checks the quantity and quality of the ordered goods and inform the finance department regarding
any issue, if there is. The finance manager, on receiving of the receipt, from the supplier match the receipt with the
purchase order and sign it to confirm the goods. After confirmation from the finance manager, the purchase invoice
or receipt is sent to the account department for recording. The accountant records the quantity and price of the goods
in respective supplier’s account that is maintained in the register and sign the invoice to make sure that entries of the
goods are done. The finance director authorizes the purchase invoice for payment of the goods that is later send to
the cashier for payment. The cashier within a reasonable time pay the payment and send the invoice to the account
department for making adjustment in the respective supplier’s account.

Maintenance and Issuance of inventory :

The inventory is kept in the store of hospital that is part of the building of hospital. The store is
comprised of three rooms, two rooms covering the goods other than laboratory items, involved in daily operations of
the hospital while one is for the goods that are issued at the time of any disaster, happened around the city area and
these goods are given by the head office of the organization to every branch of the province to serve humanity in
catastrophic conditions. The keys of the storerooms are kept by the store manager who supervise the whole process
of inventory manually. Laboratory items are kept within the laboratory in a specific corner and used by the
laboratory workers directly. The store manager of the hospital issues the respective goods other than the lab items to
the respective parts of the hospitals. He is informed by the authorized person for issuance of goods into the required
area of the hospital. The store manager check the required items in the store rooms and issue it to the person if
available in the store rooms, but if not, then he order to the finance department and on receiving of it, he issue to the
needed area of the hospital.

Non-current asset:

Non-current assets include lab equipment, building, furniture and fixture and vehicles. These items are either
purchased by the decision of top management through purchasing committee or funded by the donor. They consider
that proper recording of the asset and its maintenance is too costly and time-consuming viewing to the current
system that they are following while the computerized system requires a very huge amount of financing that is
beyond the capacity of hospital. Depreciation and impairment of the asset are normally based on one’s individual
judgment, but it is reasonable. At the time of receiving asset in the hospital they fix the rate of depreciation for the
asset that would depreciate the asset over its useful life. The useful life of the asset is not defined at the time of
purchasing asset, it goes up to the asset running capacity. but during the asset running time, if there is a need of
repairs and maintenance, they incur the expenditure of it on asset and expense out that cost into the income
statement. According to the finance manager of the hospital, impairment of the asset is not performed on yearly
basis. It is done whenever there is a need of it because yearly basis impairment requires a proper procedure to
perform it and record it that is time consuming and too costly due to which, hospital management is not in favour of
it.

Cash and bank:

The cashier of hospital has the key of cash box to manage the cash flow of the organization while others are
restricted to this access to prevent misappropriation of the money. He counts the cash on daily basis to maintain the
level of cash amount in the ledger. He has the authority to draw the cheque for any payment to the concerned party,
but before this, the cheque required the signature of finance manager to control the process of payment. For any large
amount of cheque, it also required the signature of finance secretary to ensure that the money is extracted only for
authorized purpose from the bank. Paid and unpaid cheques are kept in the same box but separately from each other
to avoid any error. The cash and cheques are carried on to deposit in the bank by an assistant of the accountant
whose one of the duties is to deposit the cheques and cash in bank accounts on weekly basis. The finance manager of
the organization reconciles the bank statements by every two months of the year and respond to the
necessary changes including outstanding items, unpresented cheques and others accordingly. After reconciliation, he
signs the statements for a period and send it to the accountant for making necessary adjustment in the accounts. The
organization has a petty cash amount for a level of Rs/10,000. The cashier pays the amount to concerned party for
daily expenses that comes under the category of petty cash expenses. He sends the records of petty cash vouchers to
the accountant of hospital on daily basis for fast recording of it. On receiving of petty cash vouchers from cashier,
the accountant doesn’t require to create IOUs against the person to whom the payment Is paid for any item because it
is not included in the policy of organization. The cashier also uses the cash in hand sometimes for petty cash
expenses, if there is a need of it so that, process of it goes on fast.

QUSETION 1: Identify internal control weaknesses of red crescent hospital Sukkur?

QUESTION 2: What are possible risks associated with internal control weaknesses?

QUESTION 3: Finance Manager is thinking to move from manual system to Computerized system, what type of
difficulties the organization can face? You are required to help them out of these difficulties.

QUESTION 4: Suggest possible solutions eliminate those internal control weaknesses, explain the implementation
process of those solutions?