Hello,The Questions are under case requirements 1-6. Thank you

ISSUES IN ACCOUNTING EDUCATION Vol. 32, No. 3 August 2017 pp. 103-116 American Accounting Association DOI: 10.2308/iace-51588 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement Gillian Vesty RMIT University Albie Brooks The University of Melbourne ABSTRACT: This case deals with funding, budgeting, and performance measurement in public hospitals. Data from the Orthopedic Unit at St George Hospital is used to examine efficiency and effectiveness of management in meeting budgeted targets. The Orthopedic Unit provides treatment for two common diagnosis-related group (DRG) treatments: hip replacement surgery, commonly performed on older patients with arthritic pain or hip fractures; and arthroscopy surgery for soft tissue knee injuries, commonly a result of sporting injuries in the younger population. As a business consultant, you will help Vera Jones, a newly graduated accountant, to develop a flexible budget, and calculate price, cost, and patient volume variances. You will then review the results in conjunction with St George Hospital's balanced scorecard to determine the quality of public sector service delivery and the ability to meet patient demands within the bounds of budgetary constraints. Keywords: public hospital budgeting; flexible budgets; volume variances; balanced scorecard performance evaluation; DRG accounting; activity-based funding. INTRODUCTION T he St George Hospital1 is one of the oldest metropolitan hospitals in the region. It is a leading teaching hospital with three main campuses. In addition to pediatrics (babies and children) and obstetrics (childbirth), St George Hospital offers a broad range of comprehensive medical and surgical care to nearly 120,000 patients per quarter. Patient volumes include patients who are treated in the emergency department, admitted to the hospital, given same-day care, and those who are treated in outpatient clinics. Funding for public hospitals like St George comes primarily from taxpayers. Because of the need to preserve and demonstrate proper stewardship of the tax money, it is vitally important to track the performance of entities receiving this type of funding. The government treats hospitals, like St George, as engineered cost centersmeaning that the standard input volumes and prices for the treatment of patients are directly linked to the output activity (payment for that treatment). The hospital receives funds from the government funding agency for an agreed-upon level of patient throughput. Payments are capped to prevent over-servicing (over-treatment of patients) and budgetary blowouts. The government has the discretion of offering additional funds for treatment if waiting lists for certain patient conditions increase, or if there is capacity in their budget to pay for additional care. However, for individual hospitals like St George, funding is based on standard costs, even if their own actual costs go up during the contracted period. We thank the clinicians who were extremely helpful during the conceptual stage of this case study. We are extremely grateful to the two anonymous referees for their insightful comments, as well as the comments and feedback from the editor and associate editor. We also thank Naomi Soderstrom, at The University of Melbourne, who provided advice on the international use of this case. Finally, we thank our students who trialed our case study at varying stages throughout its development. Editor's note: Accepted by Lori Holder-Webb. Submitted: October 2014 Accepted: June 2016 Published Online: September 2016 1 The hospital highlighted in this case is fictitious but relies, to the extent possible, on publicly available data from a typical public hospital in Australia. The activity-based funding model, developed according to diagnosis-related group (DRG) costs, is a widely adopted model used in many countries throughout the world. 103 Vesty and Brooks 104 If St George Hospital costs increase, then this means either fewer patients can be treated for the same standard of care or that the hospital can treat the same number of patients but go into a budgetary deficit, which will ultimately be paid by the taxpayers. To help avoid this problem, hospitals use an Activity-Based Funding (ABF) approach whereby the individual managers of public hospitals are held strictly accountable for their financial management as well as patient activity performance.2 Public hospitals compete for the same pool of funds and when additional funds are available, the hospitals with the best performance are rewarded. Thus, efficiency and effectiveness of public hospitals is regularly measured and reported, via key financial and nonfinancial performance indicators. The hospital's management accountants play an important role in helping to prepare the performance reports. Because of this, internal management control systems are relatively advanced and developed in a way that provides transparency in utilization and management of the activity-based funds. St George's performance, in terms of its ability to meet clinical performance targets, is disclosed to clinicians and managers on a daily basis. Referred to as the CEO Daily Scorecard, reported measures include the ability to meet performance targets based on emergency, elective, quality, and financial indicators. Key performance indicators and targets, reported to the overseeing government agency, are presented in Table 1. The CEO Daily Scorecard is also accessible to the public because of the role of tax revenues in financing the hospital's operations. As part of the CEO's remuneration, bonuses are awarded for achievement of these performance targets, thus providing a strong incentive for achieving them. Performance is tracked on both a daily and annual basis, and input data are provided by a team of accountants and other health economics experts working alongside Vera in St George Hospital's Performance Unit. A more comprehensive set of key performance indicators (KPIs) is provided in Appendix A, which is used by the government funding agency to benchmark and incentivize individual hospital performance. THE PERFORMANCE UNIT There are two accounting departments at St George Hospital: the Conformance Unit, in which the main function is the preparation of statutory reports; and the Performance Unit, in which the main function is performance measurement in addition to providing budgetary performance support to each of the clinical units. Actual volumes and hospital costs are monitored against the budget. In addition to monitoring financial performance, the Performance Unit is also in charge of providing up-todate nonfinancial performance data for the CEO Daily Scorecard. Vera Jones, a bright, enthusiastic accounting graduate, was very excited to obtain an accounting position at St George's Performance Unit. Although Vera had completed an undergraduate accounting degree, she was concerned that she knew very little about the intricacies of public hospital funding mechanisms because accounting for public hospitals was not taught at her university. She wondered how long it normally took before management accountants working at the hospital became familiar with clinical terminology and the complex activity-based funding system. Because Vera started in the department at a very busy timemost of the other accountants were occupied with preparing the monthly and annual performance data for the Board of Directorsshe did not get a lot of personal attention. However, the Director of Management Accounting and Head of the Performance Unit provided some background reading and assured her that it would not be long before she developed competence and confidence. Vera reviewed the materials to better understand how the activity-based funding mechanism worked before she started the detailed hospital budgeting. Vera's background reading can be found in Appendix B. ST GEORGE HOSPITAL'S ORTHOPEDIC UNIT After a few weeks of getting familiar with her new management accounting role, Vera Jones was assigned to the Orthopedic Unit. The Orthopedic Unit treats bone diseases and injuries, including fractures and associated bone ligament and tendon damage. This unit currently has 40 hospital beds available for patients who are being treated for both medical and surgical conditions. It also is a major unit, and treats road, domestic, and workplace trauma. Patients are admitted directly from the emergency department or from home as elective orthopedic patients. This year the orthopedic unit had been allocated 15 percent of St George Hospital's 92,770 total budgeted weighted activity cost units (WACUs). Of the different procedures treated in the orthopedic unit, a common surgical procedure for knee injury is an arthroscopy (generally to repair anterior cruciate ligament damage, mostly from soccer, football, or basketball injuries). The other common orthopedic procedure is a hip replacement for older people (mostly from fractures associated with falls and/or wear and tear from chronic arthritis). These 2 Hospitals are paid according to the volume and mix of patients they treat. In Activity-Based Funding (ABF), standard activity costs are calculated for a broad range of patient conditions, referred to as diagnosis-related groups (DRG). Originally developed in the United States, DRGs and ABF models have been refined over the last few decades and adapted by many countries for local conditions. Issues in Accounting Education Volume 32, Number 3, 2017 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 105 TABLE 1 CEO Daily Scorecard (4 Months into Financial Year; Actuals Reflect Year/Month-to-Date) Panel A: Emergency Indicators Time Spent in Emergency Department Less than 4 hours (all attendees) Less than 4 hours (to be admitted) Less than 4 hours (not admitted) Greater than 24 hours Triage seen in time Target Actual 81% 70% 90% 0 80% 94% 89% 99% 0 86% Panel B: Elective Indicatorsa Patient Admission Rates Target Actual Category 1 Patients admitted (, 30 days) Category 2 Patients admitted (, 90 days) Category 3 Patients admitted (, 365 days) Hospital Initiated Postponements 100% 88% 97% 8% 100% 82% 98% 2% Panel C: Quality Indicators Target Patient Indicators Patients readmission # (within 30 days) Hospital-acquired infection (annual #) Process Indicators Ambulance handover time % (, 40 minutes) Patient paperwork completed (, 10 days of discharge) 0 0 90% 50% Actual 15 18 80% 5% Panel D: Financial Indicators (Monthly) Target per Month Actual per Month Veterans Private Compensable Public Transport Accidents 34 580 2,600 262 37 518 2,567 229 Total WACUs 3,476 3,351 Activity versus Planned (WACUs)b a Patients are admitted for surgery based on the severity of their condition. Category 1 patients have lower survival rates without medical intervention within a specific time frame. b Weighted Activity Cost Units (WACUs) are standard cost weights used in activity-based funding. The patient treatment activity is expressed as a common unit against which a standard price is paid. The WACU provides a way of valuing and comparing public hospital service provisions and is weighted according to clinical complexity. More details on the calculation of WACUs are provided later in the case. two DRGs, on average, account for 30 percent of the orthopedic unit patient workload and this figure is used by the unit in their budget allocation. Vera was asked to help the Director of Orthopedics (a senior surgeon) with budget analysis. She was told that patient demand for hip replacements had been continually high, and there are long waiting lists. Vera found that the hospital has about 1,500 patients waiting for hip replacements every year. Some patients might die from other causes (particularly the elderly) while on the waiting list. Others might seek private surgery at their own expense. In addition to these patients, the Orthopedic Unit also has emergency fractures to manage and arthroscopies to perform for sports injuries, such as football and snowboarding. The waiting list for arthroscopies is 2,000 every year, with at least 50 estimated emergency treatments each month that potentially displace the non-urgent-treatment patients currently on the list. There have been a growing number of complaints from the community about the waiting times, in particular for hip replacement. The Hospital's CEO is unhappy Issues in Accounting Education Volume 32, Number 3, 2017 Vesty and Brooks 106 TABLE 2 St George Hospital Orthopedic Unit Budget (WACU/$) (in Thousands, except for WACUs Patient Volumes) Budget Income Statement Funds Received Hips Knees Total Funds Received Variable Costs (Hips) Medical Surgical Variable Costs (Knees) Medical Surgical Total Variable Costs Contribution Margin Fixed Costs Hospital & Admin Other Total Fixed Costs Net Income Actual WACUs Patient Volume $ WACUs Patient Volume $ 2,132 2,288 10,645 11,424 2,281 2,425 11,390 12,109 4,420 22,069 4,706 23,499 500 1,525 2,497 7,614 650 1,494 3,245 7,461 1,892 259 3,826 2,206 1,039 257 4,018 2,164 16,143 5,926 16,888 6,611 3,661 1,042 4,703 4,240 2,117 6,357 1,223 254 about these wait times, as they adversely affect some of the key performance indicators shown in Appendix A. The Director of Orthopedics explained that the unit is allocated regular time in the operating room, which enables them to conduct, on average, approximately 10 hip replacements per week and 40 arthroscopies per week. The Director of Orthopedics indicated that while some arthroscopy patients go home the same day, others require a bed overnight. Hip replacement patients stay in the hospital for 3 or 4 days before going to a rehabilitation unit or facility. Vera also spoke with the Director of the Operating Rooms (OR) who told her that they try to run the OR at 90 percent capacity, which allows for additional cases or emergencies. Sometimes it is necessary to operate outside of regular scheduled hours, when funds and clinical capacity allow. Vera was aware that the government could possibly release more funds to reduce hospital waiting lists, but was not sure of the impact this would have on St George Hospital's surgical capacity. Vera was provided with this year's Orthopedic Unit budget and the recent actual results for performance comparisons associated with their two important DRGs: hips (replacements) and knees (arthroscopies). This information is provided in Table 2. Above-average financial performance means the hospital can treat more than the budgeted patient volume, which would be seen as a benefit to society, but only if quality of care is not compromised. Table 2 highlights that overall budgeted income for the Orthopedic Unit was $1,223, meaning that they anticipate being able to undertake the same activity for less than the average price paid by government. While the actual income is lower than anticipated, actual volumes were higher than anticipated, which requires further investigation to determine whether the hospital received additional funds for these two DRGs, or if they treated more patients to keep waiting lists down. Even though they still earned $254 net income from the two DRGs, Vera and the Orthopedic Unit management team do not know the overall impact of patient volume on the actual income earned. Table 2 provided Vera and the Director of Orthopedics with the data to analyze, in more detail, the efficiency and effectiveness of the unit in meeting patient treatment targets. Vera found out that the actual total patient volume for the combined hips and knees across all major service providers was 47,000 WACUs. She also knew that St George's share of the budgeted patient volume is 12 percent. This market data allowed her to compare St George Hospital's Orthopedic Unit performance with other hospital service providers in the government funded region. Using this data, Vera prepared a flexible budget in which to analyze patient volume, price, and cost variances. The Director wanted this information to confirm whether the Unit is performing better than the average activity costs for the additional volume treated and whether they can potentially treat more patients in the future to meet the continual demand. Vera Jones headed back to her desk and began the detailed performance analysis task. Issues in Accounting Education Volume 32, Number 3, 2017 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 107 CASE REQUIREMENTS 1. Describe the major differences between private hospitals and public hospitals like St George. Explain the role of management accounting and control systems in this setting. 2. Describe Vera Jones' new accounting role. What would she be doing in her daily budgeting and performance monitoring activities? What challenges for Vera do you foresee because of this budgeting process? 3. Consider the current budgeting process at St George Hospital and address the following: a. What amount of funds (revenue) will St George Hospital receive? b. Determine whether the Orthopedic Unit can meet patient demand for arthroscopy and total hip replacement surgery. c. Is the Orthopedic Unit over or under budget for patient activity? Discuss your findings. 4. Using the information provided in the case: a. Prepare a flexible budget for the St George Hospital Orthopedic Unit. b. Identify the following efficiency and effectiveness variances and explain what these results mean for the St George Hospital Orthopedic Unit: i. Total sales variance for funds received; ii. Total variable cost variance; iii. Total fixed cost variance; and iv. Total volume variance. c. Calculate the following effectiveness variances and explain what these results mean for the St George Hospital Orthopedic Unit: i. Market size variance; ii. Market share variance; and iii. Patient mix variance. 5. In addition to the CEO Daily Scorecard, develop a series of performance measures for use within the Orthopedic Unit to ensure that clinical unit managers meet broader effectiveness expectations related to patient access to hospital treatment and quality patient care. Outline some of the key financial and nonfinancial metrics that would be suitable for this performance evaluation. You might want to present your results in a balanced scorecard format. 6. Describe the ethical issues presented in the case. Discuss how these ethical issues impact accounting choices or the fair reporting of accounting information. Highlight the role accounting can play in ethical decision making. REFERENCES Department of Health. 2013. Victorian Health Service Performance Monitoring Framework. Available at: http://docs.health.vic.gov.au/ docs/doc/7BA5A82EB127BADDCA257C2D007059DF/$FILE/1309009%20Performance%20Monitoring%20Framework_web. pdf Issues in Accounting Education Volume 32, Number 3, 2017 Vesty and Brooks 108 APPENDIX A Key Performance Indicators Program Finance Performance Finance KPI Operating result Creditors Debtors PP WACU Access Performance Emergency Care Bypass 40 min transfers Triage 1 Triage 1-5 4 hours 24 hours Elective Surgery Cat 1 admit Cat 2 admit Cat 3 admit ESWL HIPs Service Performance Elective Surgery Critical Care Admissions ICU PICU NICU Maternity Postnatal care Newborns Newborn screening KPI Description Target Operating result as a % of total operating revenue Trade creditor days Patient debtor days Public and private WACU activity performance to target % of emergency department operating time on ambulance bypass % of patients transferred to hospital emergency care within 40 mins % of triage 1 patients seen immediately % of triage category 1-5 patients seen within recommended times % of patients leave the ED for admission to hospital, be referred to another hospital for treatment, or be discharged within 4 hours Number of patients remaining in the ED for more than 24 hours % of category 1 elective surgery patients admitted within 30 days % of category 2 elective surgery patients admitted within 90 days % of category 3 elective surgery patients admitted within 365 days Number of patients on the elective surgery waiting list (ESWL) Number of hospital-initiated postponements (HIPs) per 100 scheduled admissions Number of patients admitted from the elective surgery waiting list Number of days adult intensive care unit (ICU) operates below agreed minimum operating capacity Number of days pediatric intensive care unit (PICU) operates below agreed minimum operating capacity Number of days neonatal intensive care unit (NICU) operates below agreed minimum standard operating capacity % of women who have given birth and on discharge have been offered prearranged postnatal care % of eligible newborns screened for hearing deficit before age 1 mth Unit-specific 60 days 60 days 100% 3% 90% 100% 80% 81% 0 100% 88% 97% Unit-specific 8 Unit-specific 0 0 0 100% ! 97% (continued on next page) Issues in Accounting Education Volume 32, Number 3, 2017 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 109 APPENDIX A (continued) Program Quality and Safety KPI Accreditation Resi aged care Cleaning Infection Control Hand hygiene SAB HCWIinfluenza PSM CPI HEMI Clinical complianceemergency Clinical compliancenon-emergency Patient satisfaction Pain reductionadult Pain reductionpediatric Stroke patients transported Cardiac survival to hospital arrival Cardiac survival to hospital discharge Workforce People Matters compliance Mental Health MH28Day Post-discharge Seclusion KPI Description Target Health service accreditation Residential aged care compliance with accreditation standards Compliance with external cleaning audit Submission of infection surveillance data Hand hygiene compliance Staphylococcus aureus bacteraemia (SAB) rate per occupied bed day Healthcare worker immunizationinfluenza Patient Satisfaction Monitor Overall Care Index (OCI) Patient involvement in treatment, care, and wellbeing decisions Participation in the health experience measurement instrument % of audited emergency cases meeting clinical practice standards % of audited non-emergency cases meeting clinical standards % of patients satisfied or very satisfied with quality of care provided % of adult patients experiencing severe cardiac or traumatic pain whose level of pain is reduced significantly % of pediatric patients experiencing severe traumatic pain whose level of pain is reduced significantly % of suspected stroke patients receiving care within 60 minutes % of adult cardiac arrest patients surviving to hospital % of adult cardiac patients surviving to hospital discharge Participation in the survey at least once every two years and response rate of 30% or higher % of adult general acute psychiatric inpatients readmitted within 28 days of separation % of patients with a post-discharge follow-up within seven days (child and adolescent, adult, aged) Rate of total seclusions (child and adolescent, adult, aged) Full accreditation Full compliance Full compliance Full compliance 70% ! 2/10,000 75% OCI 73 Care index 75 Full compliance 95% 94% 95% 90% 90% 80% 45% 20% Full compliance 14% 75% ! 15/1,000 Source: Adapted from Australia's Department of Health (2013, 9-10). APPENDIX B Overview of Activity-Based Funding Activity-Based Funding (ABF) is a management accounting control tool used by government agencies to monitor, manage, and administer the funding of health care provisions by government hospitals. As well as being used to motivate efficiency, ABF provides increased transparency in the funding of service providers. Use of this tool can help to increase efficiency, improve quality, ensure the fair allocation of resources (or funding) within each healthcare facility and across geographical areas, and improve transparency of hospital funding, activity, and management. It is based on standard costs for patient-related treatment (the ''activity''). Funding models are tailored by governments to ensure that hospital funds are based Issues in Accounting Education Volume 32, Number 3, 2017 Vesty and Brooks 110 on a single unit of service delivery that can be compared across organizations. The challenge for hospitals is to keep their patient treatment costs at the same level, or lower than, the government price. ABF recognizes that some patient treatments are more costly than others, with each of the different condition types funded according to its patient treatment type. There are hundreds of classifications such as appendix removal, heart attack, hip replacement, treatment of football knee injuries (arthroscopy), eye surgery, stroke, or fracture, all classified according to their diagnosis-related group (DRG). Funding for each DRG is determined using standard costing methods. Costs are calculated on the average expected consumption of designated activity resources such as nursing and medical labor, equipment and drugs, meals, bed and operating room costs, and other allocated overheads (support, cleaning, meals, accounts, admin, etc.). As it is more costly to treat some patients than others (for example, it is less costly to set a simple fracture than it is to conduct a liver transplant), an average cost weight for the multiple patient condition types is used. The costs for the weighted average medical treatment activity are determined based on the average cost for patients in a DRG and compared with the average cost for all patients across all DRGs. This is highlighted in the following weighted activity cost unit (WACU) calculation: Weighted Activity Cost Unit WACU Average cost of a patient in a DRG Average cost of all patients across all DRGs Sample DRG weights are shown below. DRG (771 in total) Heart Attack Coronary Bypass Arthroscopy (knee) Tonsillectomy Hip Replacement Appendectomy Headache requiring hospitalization Liver Transplant DRG Cost Weight (WACU) 1.0000 to 11.2000 depending on severity 5.6830 1.1000 0.6701 4.1742 2.1000 0.1500 27.3869 The WACU calculation is effectively a cost index, based on an average patient cost of 1, indicating that a liver transplant is 27.3869 times more expensive than the average cost of all patients. Once the average cost weight per DRG is determined, a standard price for 1 activity unit (WACU) is determined by the government agency. This price is set annually to accommodate overall cost fluctuations (for example, incremental wage rises according to the Consumer Price Index). A thorough revision of any individual underlying cost weight derivations is performed only when significant deviations from standards are reported, possibly as a result of technological or clinical advances. The standard price is also referred to as the efficient price as it is designed to motivate hospitals to match their individual costs to the government's efficiency target. Thus, the funds received by the hospital are calculated as follows: Activity-Based Funding ABF DRG Cost Weight WACU 3 Standard Efficient Price The current-year standard efficient price set by the government to cover the variance and fixed costs of treatment is $4,993 per activity unit. To determine how much the government pays for a given DRG, multiply this figure by the DRG's WACU: 1 3 WACU, where WACU $4,993. Using the information about WACUs above, the government payment rate for a tonsillectomy would be 0.6701 3 $4,993, or $3, 346; the rate for a hip replacement would be 4.1742 3 $4,993, or $20,842; and the rate for a coronary bypass would be 5.6830 3 $4,993, or $28,375. To prevent over-treatment and budget blowouts, each hospital contracts with the government for a specific number of funded activity units. The breakdown of WACUs agreed upon for each of the different service providers is provided in Table 3. In the case of St George Hospital, it was agreed by the central agency that their activity would be capped at 92,770 WACUs for the next financial year. With the standard price of $4,993 this means the total ABF received by St George is $463,200,610 (92,770 3 $4,993). Even though patient demand may be higher, the allocated ABF is limited to (capped at) the government's public healthcare commitment to regulated budget expenditures. The overall mapping of the ABF allocated to St George Hospital is provided in Appendix C. If they do not reach the 92,770 WACU target, then they will be required to return the excess funds deemed not to be earned by St George Hospital. This might mean a reduction in future funding allocations. Every month, the Performance Unit is required to compile a list of patient treatment activity for dissemination to the management team. This report helps the clinical unit managers to monitor their activity levels to ensure they are competitive with other service providers and to ensure they have the opportunity for additional funds, based on optimal performance. Once the budgeted activity target is met, the hospital will be penalized for going over budget (i.e., they will create a deficit that will Issues in Accounting Education Volume 32, Number 3, 2017 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 111 TABLE 3 Budgeted Weighted Activity Targets (WACUs) for Major Service Providers Major Health Service Provider St George Hospital North-Eastern Hospital Bay Hospital North-Metro Hospital Mercy Public Health Southern Hospital Cancer Hospital Children's Hospital Eye & Ear Hospital Women's Hospital Central-Metro Hospital Service Provider Total WACUs a General Admissionsa Veterans Transport Accidents Total WACUs 85,818 70,678 53,088 282,566 36,329 146,748 15,188 45,373 9,491 29,520 48,071 609,200 1,131 1,518 1,244 30,152 174 813 188 98 11 290 6,040 5,821 804 398 47,221 1 635 451 5 29 99 12,827 92,770 73,000 54,730 359,939 36,504 148,196 15,376 45,824 9,594 29,560 48,460 628,067 Includes elective surgery admissions. need to be subsidized by the taxpayers). Alternatively, the hospital is also penalized if they do not treat enough patients (i.e., they will not receive the same number of WACUs the following year, and another service provider will be allocated the WACUs instead). In addition, patients who require care beyond the budgeted hospital stay are funded at penalty rates (and prevent fully funded patients from being admitted), providing an incentive for hospitals to ensure patients are treated and discharged on a timely basis. That is, if patients stay longer than expected, need to be readmitted because of poor treatment, or if hospital-acquired infections occur, then the hospital is penalized. Thus, monitoring of clinical activities and measures of good care are essential. Finally, given that each WACU is calculated on the average costs of the total patient pool, individual hospital costs will more than likely differ from the standard cost. Hospitals may incur higher/lower costs than the government-calculated ABF, which provides incentives for individual hospitals to improve financial performance. In summary, monitoring efficiency and effectiveness of hospitals is an important priority for the government. The goal is to motivate hospital managers toward achieving costs that match, or are lower than, funds received, without impacting quality of care. Quality of care also relates to timeliness of treatment, patient length of stay, and avoidance of long waiting lists (capacity management). To meet these contractual obligations, a hospital is therefore required to utilize all allocated WACUs. Issues in Accounting Education Volume 32, Number 3, 2017 Vesty and Brooks 112 APPENDIX C Mapping Public Hospital Funding Through ABF APPENDIX D Resource Materials Abernethy, M., M. Horne, A. Lillis, and M. Malina. 2005. Building performance models from expert knowledge. Management Accounting Research 16 (2): 135-155. Aidemark, L. 2001. The meaning of balanced scorecards in the health care organization. Financial Accountability and Management 6 (1): 23-40. Bible, L., S. Kerr, and M. Zanini. 2006. The balanced scorecard: Here and back. Management Accounting Quarterly 7 (4): 18-23. Chan, Y., and S. Ho. 2000. Performance measurement and the use of balanced scorecard in Canadian hospitals. Advances in Management Accounting 9: 145-169. Ittner, C., and D. Larcker. 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review (November): 88-95. Kaplan, R., and D. Norton. 1992. The balanced scorecard measures that drive performance. Harvard Business Review (January-February): 71-79. Issues in Accounting Education Volume 32, Number 3, 2017 St George Hospital: Flexible Budgeting, Volume Variance, and Balanced Scorecard Performance Measurement 113 Kaplan, R., and D. Norton. 2004. The strategy map: Guide to aligning intangible assets. Strategy and Leadership 32 (5): 10-17. Llewellyn, S., and D. Northcott. 2005. The average hospital. Accounting, Organizations and Society 30 (6): 555-583. Maher, M. W., and M. L. Marais. 1998. A field study of the limitations of activity-based costing when resources are provided on a joint and indivisible basis. Journal of Accounting Research 36 (1): 129-142. Simons, R. 2000. Evaluating strategic profit performance. In Performance Measurement and Control Systems for Implementing Strategy, Chapter 6, pp. 110-137. Upper Saddle River, NJ: Prentice Hall. Issues in Accounting Education Volume 32, Number 3, 2017