Government delays in paying An-Najah National University Hospital’s dues harm operations

·        Episode No. (3) Reports on the Economy

·        An-Najah National University Hospital suffers from the government's (Ministry of Health and Military Medical Services) delay in paying its accumulated receivables, which amounted to about 95 million dinars on 30-9-2022, weakening its financial position and forcing it to borrow at high interest rates to ensure continuity. The hospital depends for 90% of its services on government medical referrals, which made it exposed to customer concentration and credit risks!, where the total receivables due to the hospital from government entities amounted to 95,307,273 dinars as of 30-9-2022, i.e., about 91% of the hospital’s receivables!

●       The government's delay in paying the dues, and their accumulation over past years, did not only occur, but there is also a mismatch between the balances of receivables (hospital’s claims) shown in the hospital's financial records and the balances of the hospital’s receivables with the Ministry of Health and the Military Medical Services, as clarified by the audit and examination report of the hospital's financial statements carried out by the State Audit and Administrative Control Bureau (SAACB) on 30-9-2022, which included: items of the statement of financial position, the income statement, related operating procedures, the notes, and explanatory observations attached to the financial statements, in addition to assessing the hospital's ability to meet its obligations, and reviewing risks arising from the company's operations, and customer concentration and credit risks!

●       Below are some of the SAACB's material observations in its report on An-Najah National University Hospital:

1-     Working capital deficit, and weak cash liquidity of the hospital, as a result of the government's delay in paying the obligations due to the hospital, and the liquidity ratio reached 46% at the end of the period on 30-9-2022, which forced the hospital to obtain necessary transfers from banks to settle its due obligations!

2-     The majority, 83%, of the hospital’s net receivables were classified as non-current assets in the amount of 55,576,283 dinars at the end of the financial period on 30-9-2022, due to the government's delay in paying the obligations owed to the hospital, and this is considered a turn far from the course of usual accounting policies and according to international standards.. receivables are properly current assets, not non-current.. and they are the basis of the institution’s liquidity metric, compared with current liabilities!

3-     The hospital issued financial statements for 9 months in 2022, in accordance with the financial system of the university (the parent institution), without processing the disclosure for the remaining three months of 2022 (1-10-2022 until 31-12-2022, which affects the inability to compare the financial statements between 2022 and 2021, as comparative prior-year data, and with the subsequent year 2023!

4-     The hospital issues its statements in dinar currency based on the average exchange rate for revenues and expenses (income statement), despite the possibility of relying on the actual exchange rate on the date of each financial transaction for revenues and expenses, which affected the fair value of revenues and expenses (income statement items) due to reliance on the average dinar exchange rate!

5-     The SAACB was unable to obtain confirmations for the balances of the Palestinian Ministry of Health regarding the balance of receivables due to the hospital, and the balance of receivables disclosed by the hospital amounted to 86,692,734 dinars and 86,466,683 dinars, as at 30-9-2022 and 31-12-2021 respectively

●       As for the SAACB’s recommendations regarding addressing the hospital’s financial situation in order to ensure its continuity as an important healthcare and academic institution for citizens and the academic sector, they included:

1-     The hospital should follow up on the receivables due to it and collect them (the majority of which were classified as non-current assets, 83% of net receivables) in order to reduce dependence on transfers, to provide the liquidity needed to finance the hospital’s operational activities, settle its due obligations and accrued payables, and to put plans to address working capital deficits and the decline in the liquidity ratio in order to ensure the hospital's ability to meet its obligations and dues and to continue operating

2-     The hospital should prepare its financial statements on a basis comparable with the same year or period for the same financial data, in addition to addressing the financial period from 10-2022 until 31-12-2022, for which no financial statements were issued.

3-     The hospital should translate the income statement (expenses and revenues) by relying on the actual exchange rate of the dinar on the date of each expense and revenue transaction entered into the accounting system instead of relying on the average dinar exchange rate

4-     Form an investment committee for the hospital

5-     Follow up on receivables and prepare the necessary reconciliations periodically between the hospital and government entities (the Military Finance Administration) and the Ministry of Health in Palestine, to narrow the gap between the receivable balances recorded with the government (payables) and with the hospital (receivables), and ensure the accuracy of the balances of receivables due to the hospital from the government and disclosed in the financial statements.