C9.44 LO 9.3 9.9 9.10 Program budget: healthcare Grampians Regional Health (GRH) is a state-of-the-art health service in Victoria. GRH provides inpatient/ acute services, aged care residential services and community services, and employs approximately 270 staff across all services and programs. GRH's CEO, John Matthew, is a very keen advocate of sustainable practices and has approached the government funding authority for additional funds to support GRH's sustainability program. Although the master budget for GRH normally includes an overall estimate of funds needed to support this program, the funding authority requires a more detailed program budget to be prepared, for two main reasons: (1) to ensure that requested funds are properly justified up front; and (2) so that expenditure relative to the program budget can be appropriately tracked and scrutinised. Jessica Parker, GRH's CFO, was charged with preparing the program budget. In order to prepare this budget, Jessica needed to obtain more information on the program aims and outcomes. She spoke to Tim Simmons, GRH's sustainability manager, who provided her with the information she needed. Tim explained to Jessica that the aims of the sustainability program at GRH include reducing landfill waste, energy and water consumption, reusing equipment and supplies, incorporating environmental impacts into purchasing decisions and building stronger connections with stakeholders in GRH's industry value chain to help realise these aims. Tim also provided further detailed information about the specific targeted outcomes for the sustainability program, which Jessica summarised into the following points: Reduced building waste. Negotiating with tradespeople to recycle materials as much as possible when GRH commissions any building, refurbishment or other related works on site. Reduced e-waste through landfill. Utilising services that recover and reuse materials from discarded appliances, lighting, computers, medical devices, batteries and other electronic equipment. Reducing paper waste. Initiatives such as improvements in GRH's online document and process management, and monitoring of paper use, designed to reduce paper consumption. Efficient and appropriate management of other waste. GRH has four main waste streams- general landfill, regulated clinical waste, regulated confidential waste and recyclable waste (glass, cans, plastic and paper/cardboard). GRH endeavours to recycle one third of its waste, while also ensuring that it complies with regulations regarding the disposal of clinical and confidential waste.

Efficient energy consumption. GRH seeks to minimise its use of electricity and gas through monitoring usage, installing energy-saving equipment and training staff on efficient energy use. Efficient water consumption. GRH has installed a range of water-saving devices and has a regular maintenance program to fix leaks and drips to minimise water usage and wastage. Further discussions with Tim, and enquiries with other staff, provided further information about the sustainability program, as follows. 1. Tim is paid a total remuneration package of $130000 per annum. Tim has a part-time administrative assistant who is paid a total remuneration package of $40000 per annum. Their time is allocated across the specified outcomes of the sustainability program as follows: Sustainability manager Administrative assistant Monitoring the reduction of paper waste 5% 20% Liaising with building contractors on recycling 20% 5% building materials Monitoring and reducing e-waste 5% 30% Liaising and negotiating with clinical waste, general 50% 20% waste and confidential waste contractors Liaising with electricity retailers and negotiating 10% 10% energy-efficient initiatives Liaising with water authorities, implementing and 10% 15% negotiating water-saving initiatives 100% 100%

2. Information on the amount and cost of waste disposal is as follows: Waste generated per year General waste Clinical waste Amount (kg) 200 000 12 000 Variable cost of disposal ($/kg) 0.50 1.50 2.00 Recycling/confidential waste 70 000 3. There is no cost attached to reducing landfill by recycling e-waste. Staff drop Items off at designated locations and they are removed free of charge. However, the administrative assistant carries the responsibility for monitoring e-waste to ensure it is removed on a timely basis. 4. Recycling building materials often requires extra cost to make the materials suitable for reuse. The cost is dependent on the quantity and the quality of material, and is difficult to estimate. The maintenance manager spends about 10 per cent of his time coordinating this activity, which Jessica has decided to take into account in her program budget. 5. A briefing session is held for newly recruited staff on sustainability every six months, which costs approximately $2000 per briefing. The sustainability manager estimates time in the briefings is apportioned to sustainability management topics in the following way:

(a) reducing paper usage, 10 per cent

(b) recycling office consumables, 10 per cent

(c) recycling building materials, 10 per cent

(d) general waste management practices, 50 per cent; efficient energy consumption, 10 per cent

(e) and efficient water consumption, 10 per cent.

6. Jessica has estimated that she needs to include $5000 for administration charges. This cost is meant to account for the time spent by finance and other staff (other than the sustainability manager and his assistant) involved with administering, accounting for and evaluating the program. Required 1. Prepare the program budget in columnar form for GRH's sustainability program. 2. Explain how the program budget may be used to apply responsibility accounting principles to GRH's sustainability program. 3. Would you recommend that an incentive scheme for the sustainability manager be based on an evaluation of the costs incurred in the sustainability program relative to the program budget? Why, or why not? 4. Assume an incentive for the sustainability manager is being designed to include consideration of costs relative to the program budget. What features would you recommend be included as part of this incentive scheme to mitigate budget game playing and other undesirable behaviours being motivated by the scheme? Justify your recommendations.