A COMPARATIVE STUDY OF EXPENDITURE CONTROL METHODS IN GOVERNMENT AND PRIVATELY OWNED HOSPITALS (A STUDY OF UNIVERSITY OF NIGERIA TEACHING HOSPITAL, ENUGU AND TORONTO HOSPITAL ONITSHA)

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Expenditure control refers to the policies, procedures, and practices that organizations use to manage and regulate their spending to ensure that financial resources are used efficiently, effectively, and in accordance with approved budgets and regulations. In any organization, expenditure control is essential for maintaining financial discipline, preventing waste and fraud, ensuring liquidity, and achieving financial objectives. Key elements of expenditure control include: (a) budget preparation and approval (setting spending limits), (b) authorization procedures (ensuring expenditures are approved by appropriate personnel), (c) procurement controls (competitive bidding, purchase orders, goods receipt verification), (d) payment controls (three-way matching, approval of invoices), (e) segregation of duties (different people authorize, record, and pay for expenditures), (f) monitoring and variance analysis (comparing actual spending to budget), and (g) internal and external audit (verifying compliance). Effective expenditure control is a hallmark of sound financial management in any organization, whether public or private (Premchand, 2019; Horngren, Sundem, and Stratton, 2018).

The healthcare sector has unique expenditure characteristics that make effective expenditure control particularly important. Hospitals face significant and complex expenditure categories: (a) personnel costs (salaries, allowances, benefits for doctors, nurses, technicians, administrative staff), which typically account for 50-70% of operating budgets, (b) pharmaceutical and medical supply costs (drugs, vaccines, surgical supplies, laboratory reagents, consumables), (c) equipment costs (medical equipment purchase, maintenance, repair, depreciation), (d) facility costs (utilities: electricity, water; maintenance; cleaning; security), (e) administrative costs (office supplies, IT, training, travel), (f) contracted services (laundry, catering, waste disposal, security), and (g) capital expenditures (building construction, major equipment purchases). Inefficient expenditure control in hospitals can lead to: drug shortages (if procurement is delayed), expired drugs (if overstocked), equipment breakdowns (if maintenance deferred), staff shortages (if payroll mismanaged), and ultimately, compromised patient care (World Bank, 2018; WHO, 2019).

The Nigerian healthcare system comprises both government-owned (public) hospitals and privately-owned hospitals. Government-owned hospitals include federal tertiary hospitals (teaching hospitals, federal medical centres), state general hospitals, and primary health centres. These hospitals are funded primarily through government budget allocations (from federal or state governments) and internally generated revenue (patient fees, NHIS reimbursements). Expenditure control in government hospitals is governed by public sector financial regulations, including the Financial Regulations, Treasury Circulars, the Public Procurement Act, and the Fiscal Responsibility Act. Controls include: (a) budget approval by the legislature (for federal hospitals) or state executive, (b) use of government procurement processes (tendering, competitive bidding), (c) expenditure authorization limits, (d) integrated financial management information systems (GIFMIS for federal hospitals), (e) internal audit, and (f) external audit by the Office of the Auditor-General. However, government hospitals often face challenges such as bureaucratic delays, political interference, inadequate funding, weak enforcement of controls, and corruption (Adebayo and Oyedokun, 2019; Ogbeifun, 2019).

Privately-owned hospitals are funded primarily through patient fees, health insurance reimbursements (NHIS, private insurers), and owner equity. They are not subject to public sector financial regulations but must comply with general business laws (Companies and Allied Matters Act, tax laws, labour laws). Expenditure control in private hospitals is driven by profit motives and owner oversight. Controls typically include: (a) owner or board approval for major expenditures, (b) management budgets, (c) procurement policies (supplier selection, price negotiation, purchase orders), (d) inventory management systems (for drugs and supplies), (e) segregation of duties, (f) internal controls, (g) management review of financial statements, and (h) external audit (if required by size or lenders). Private hospitals may have more flexible, faster, and more responsive expenditure control systems than government hospitals, but may also have weaker controls in areas where owners trust managers implicitly (Okafor and Udeh, 2020; Eze and Nwafor, 2019).

The University of Nigeria Teaching Hospital (UNTH), Enugu, is a federal government-owned tertiary hospital located in Enugu State. It is one of the major teaching hospitals in Nigeria, serving as a training centre for medical students from the University of Nigeria, Nsukka. UNTH receives funding from the Federal Government (budget allocations through the Federal Ministry of Health), internally generated revenue from patient services, and grants from development partners. As a federal government parastatal, UNTH is subject to public sector financial regulations, including the Public Procurement Act, the Financial Regulations, and oversight by the Office of the Auditor-General of the Federation. Expenditure control at UNTH involves: (a) annual budget preparation and approval by the Federal Ministry of Health and the National Assembly, (b) procurement through the Bureau of Public Procurement (BPP) thresholds, (c) use of the Government Integrated Financial Management Information System (GIFMIS) for budgeting, accounting, and reporting, (d) internal audit department, (e) expenditure approval limits (Medical Director, Heads of Departments), and (f) annual audit by the Auditor-General. However, UNTH faces challenges common to government hospitals: bureaucratic procurement processes, delayed budget releases, inadequate funding, and occasional political interference (UNTH, 2022; Nwankwo and Okeke, 2020).

Toronto Hospital, Onitsha, is a privately-owned hospital located in Onitsha, Anambra State. As a private healthcare facility, Toronto Hospital is funded primarily through patient fees (consultation fees, procedure fees, hospitalization charges), health insurance reimbursements, and owner investment. The hospital operates as a profit-oriented or not-for-profit private entity (depending on its registration status). Expenditure control at Toronto Hospital is driven by the owner’s or board’s oversight, with emphasis on cost containment to maintain profitability and competitiveness. Controls typically include: (a) budget preparation by management, approved by owner/board, (b) procurement policies (supplier selection, price negotiation, purchase orders), (c) inventory management systems for drugs and supplies, (d) electronic health records and billing systems integrated with inventory, (e) segregation of duties (different staff for procurement, receipt, payment), (f) regular financial reporting to the owner/board, (g) internal audits, and (h) external audits (if required). Private hospitals may have more flexible and responsive expenditure controls, but may also be vulnerable to weak controls in areas where the owner delegates too much authority to managers (Toronto Hospital, 2022; Okafor and Udeh, 2021).

The comparative study of expenditure control methods between government and privately-owned hospitals is important for several reasons. First, the healthcare sector consumes a significant portion of government budgets and household incomes; inefficiencies in expenditure control lead to waste of scarce resources. Second, understanding differences in control methods can inform policy: government hospitals may learn from private sector practices (e.g., inventory management, procurement efficiency), while private hospitals may learn from public sector controls (e.g., segregation of duties, audit requirements). Third, as Nigeria pursues universal health coverage, efficient use of resources in both public and private hospitals becomes more important. Fourth, the ongoing health sector reforms (e.g., National Health Act, Basic Health Care Provision Fund) require strong expenditure controls to ensure funds reach intended beneficiaries. This comparative study will generate evidence to inform policy and practice (World Bank, 2018; Adebayo and Oyedokun, 2020).

Key expenditure control methods that will be compared include: (a) budgeting and planning – how budgets are prepared, approved, and monitored; (b) procurement controls – how goods and services are purchased (competitive bidding vs. negotiated contracts, purchase orders vs. direct purchases); (c) inventory management – how drugs and medical supplies are tracked to prevent theft, expiration, and stock-outs; (d) authorization and approval – who can approve expenditures and at what limits; (e) payment processing – how invoices are verified and payments made; (f) segregation of duties – whether different people handle authorization, recording, custody, and reconciliation; (g) internal audit – whether internal auditors review expenditure controls; (h) external audit – whether external auditors verify compliance; (i) information systems – whether computerized systems support expenditure control; and (j) management oversight – how management monitors and reviews spending (Premchand, 2019; Horngren et al., 2018).

The differences between government and private hospital expenditure controls can be understood through several lenses. Ownership and accountability: Government hospitals are accountable to citizens, the legislature, and the Auditor-General; private hospitals are accountable to owners. Funding sources: Government hospitals rely on budget allocations (subject to political processes); private hospitals rely on patient fees and insurance (subject to market forces). Regulatory environment: Government hospitals are subject to public sector financial regulations (Public Procurement Act, Financial Regulations); private hospitals are subject to general business laws. Incentives: Government hospitals have less pressure to contain costs (since losses may be covered by government); private hospitals have strong profit incentives to control costs. Flexibility: Government hospitals face bureaucratic delays (multiple approvals, tendering processes); private hospitals can make quicker procurement decisions. Capacity: Government hospitals may have weaker internal control systems due to underfunding of audit functions; private hospitals may invest more in controls that improve profitability (Okafor and Udeh, 2020; Eze and Nwafor, 2019).

The challenges of expenditure control in government hospitals are well documented. Bureaucratic procurement: the Public Procurement Act requires competitive bidding for purchases above certain thresholds, which can cause delays of months, leading to drug shortages and equipment breakdowns. Inadequate funding: budgets are often insufficient to meet needs, and fund releases are often delayed, forcing hospitals to rely on credit or emergency procurement at higher costs. Weak internal audit: internal audit departments are often understaffed and underfunded, limiting their ability to test controls. Political interference: political pressures may override controls (e.g., directing purchases to favoured suppliers at inflated prices). Corruption: procurement fraud, inflated invoices, and diversion of funds are risks. Poor record-keeping: manual or outdated systems lead to inaccurate records, making control difficult (Adebayo and Oyedokun, 2019; Nwankwo and Okeke, 2020).

The challenges of expenditure control in private hospitals, while different, also exist. Owner dominance: if the owner approves all expenditures, there may be no independent checks; if the owner is absent, managers may have too much discretion. Weak segregation of duties: in smaller private hospitals, one person may perform multiple functions (e.g., ordering, receiving, paying), increasing fraud risk. Inadequate documentation: private hospitals may use informal documentation (e.g., verbal orders, handwritten receipts), making audit trails weak. Tax avoidance: some private hospitals may underreport income or inflate expenses, affecting the accuracy of financial records used for control. Lack of external audit: unless required by lenders or investors, private hospitals may not have external audits, reducing independent verification. Inventory theft: drugs and supplies are valuable and can be stolen by staff for resale (Okafor and Udeh, 2021; Eze and Nwafor, 2020).

The role of information technology in expenditure control is significant for both government and private hospitals. Computerized inventory management systems: track drug stocks, alert when levels are low, and generate consumption reports, reducing theft and expiration. Electronic procurement systems: automate purchase orders, approvals, and invoice matching, reducing delays and errors. Electronic health records (EHR) integrated with billing: ensure charges are captured, reducing revenue leakage. Financial management information systems: automate budgeting, accounting, and reporting, enabling real-time control. For UNTH, the government has implemented GIFMIS (Government Integrated Financial Management Information System) for financial management, but integration with hospital-specific systems (inventory, patient billing) may be incomplete. For Toronto Hospital, a private hospital may have invested in commercial hospital management software that integrates patient registration, billing, inventory, and financial accounting (Romney and Steinbart, 2018; Hall, 2019).

The role of internal audit in expenditure control is critical in both settings. In government hospitals like UNTH, the internal audit department is required by financial regulations and conducts regular reviews of expenditure controls, procurement processes, and inventory management. However, internal audit may be under-resourced, and findings may not always lead to corrective action. In private hospitals like Toronto Hospital, internal audit may be less formal (e.g., periodic reviews by the owner or external accountants) or may be outsourced. The effectiveness of internal audit depends on independence, competence, and management support. A comparative study will assess how internal audit contributes to expenditure control in both settings (Adebayo and Oyedokun, 2019; Okafor and Udeh, 2020).

Finally, this study focuses on UNTH, Enugu (government) and Toronto Hospital, Onitsha (private) as case studies because they represent typical government and private hospitals in Nigeria. By comparing expenditure control methods in these two hospitals, the study can identify strengths and weaknesses of each system, lessons that can be learned, and recommendations for improving expenditure control in both government and private healthcare settings. The findings will contribute to the literature on healthcare financial management and provide practical guidance for hospital administrators, policymakers, and regulators (Yin, 2018; Creswell and Creswell, 2018).

1.2 Statement of the Problem

The University of Nigeria Teaching Hospital (UNTH), Enugu (government-owned) and Toronto Hospital, Onitsha (privately-owned) both face significant expenditure management challenges, but the nature, causes, and consequences of these challenges may differ due to their different ownership structures, funding sources, regulatory environments, and incentive systems. UNTH (government) faces challenges typical of public sector hospitals: bureaucratic procurement delays, inadequate and delayed budget releases, weak internal audit capacity, political interference, and corruption risks. These problems lead to drug shortages, equipment breakdowns, staff demotivation, and compromised patient care. Toronto Hospital (private) faces different challenges: potential weak segregation of duties in smaller settings, owner dominance or manager discretion issues, inadequate documentation, tax avoidance incentives, and inventory theft risks. Both hospitals seek to control expenditures effectively, but it is unclear which methods work best in each context, what each can learn from the other, and what factors explain differences in expenditure control effectiveness. There is a lack of recent, systematic, empirical research that compares expenditure control methods in government-owned and privately-owned hospitals in Nigeria. Therefore, this study is motivated to conduct a comparative study of expenditure control methods in government and privately owned hospitals, using UNTH, Enugu and Toronto Hospital, Onitsha as case studies.

1.3 Aim of the Study

The aim of this study is to conduct a comparative study of expenditure control methods in government and privately owned hospitals, using the University of Nigeria Teaching Hospital (UNTH), Enugu (government) and Toronto Hospital, Onitsha (private) as case studies.

1.4 Objectives of the Study

The specific objectives of this study are to:

1. Examine the expenditure control methods (budgeting, procurement, inventory management, authorization, payment processing, segregation of duties, internal audit, information systems) used at UNTH, Enugu (government hospital) and Toronto Hospital, Onitsha (private hospital).
2. Assess the effectiveness of expenditure control methods at both hospitals in ensuring cost containment, preventing waste and fraud, and maintaining financial discipline.
3. Compare the expenditure control methods and their effectiveness between the government hospital and the private hospital, identifying similarities, differences, strengths, and weaknesses.
4. Identify the factors (ownership, funding, regulation, incentives, capacity) that influence expenditure control effectiveness in each hospital.
5. Propose recommendations for improving expenditure control methods in both government and private hospitals, including lessons that each can learn from the other.

1.5 Research Questions

The following research questions guide this study:

1. What are the expenditure control methods (budgeting, procurement, inventory management, authorization, payment processing, segregation of duties, internal audit, information systems) used at UNTH, Enugu (government hospital) and Toronto Hospital, Onitsha (private hospital)?
2. How effective are the expenditure control methods at both hospitals in ensuring cost containment, preventing waste and fraud, and maintaining financial discipline?
3. What are the similarities, differences, strengths, and weaknesses in expenditure control methods between the government hospital and the private hospital?
4. What factors (ownership, funding, regulation, incentives, capacity) influence expenditure control effectiveness in each hospital?
5. What recommendations can be made to improve expenditure control methods in both government and private hospitals, including lessons that each can learn from the other?

1.6 Research Hypotheses

The following hypotheses are formulated in null (H₀) and alternative (H₁) forms:

Hypothesis One

• H₀: There is no significant difference in the effectiveness of procurement controls (competitive bidding, purchase orders, goods receipt verification) between UNTH (government) and Toronto Hospital (private).
• H₁: There is a significant difference in the effectiveness of procurement controls (competitive bidding, purchase orders, goods receipt verification) between UNTH (government) and Toronto Hospital (private).

Hypothesis Two

• H₀: The effectiveness of inventory management (drug tracking, expiration control, stock-out prevention) does not differ significantly between UNTH (government) and Toronto Hospital (private).
• H₁: The effectiveness of inventory management (drug tracking, expiration control, stock-out prevention) differs significantly between UNTH (government) and Toronto Hospital (private).

Hypothesis Three

• H₀: There is no significant relationship between the type of hospital ownership (government vs. private) and the incidence of unauthorized expenditures.
• H₁: There is a significant relationship between the type of hospital ownership (government vs. private) and the incidence of unauthorized expenditures.

Hypothesis Four

• H₀: Factors such as regulatory environment, funding sources, and incentive systems do not significantly affect the choice and effectiveness of expenditure control methods in the two hospitals.
• H₁: Factors such as regulatory environment, funding sources, and incentive systems significantly affect the choice and effectiveness of expenditure control methods in the two hospitals.

1.7 Significance of the Study

This study is significant for several stakeholders. First, the management of UNTH, Enugu and Toronto Hospital, Onitsha will benefit from a comparative assessment of expenditure control methods, enabling each hospital to identify strengths to maintain, weaknesses to address, and lessons to learn from the other sector. Second, the Federal Ministry of Health and state ministries of health will gain insights into expenditure control challenges in government hospitals and potential solutions from private sector practices, informing policy and oversight. Third, the Office of the Auditor-General of the Federation and the Fiscal Responsibility Commission will benefit from understanding comparative control effectiveness, informing audit focus areas and recommendations. Fourth, private hospital owners and managers will gain insights into expenditure control methods that could be adapted from public sector practices (e.g., segregation of duties, internal audit). Fifth, the National Health Insurance Scheme (NHIS) and other health financiers will benefit from understanding hospital expenditure controls, informing provider payment and monitoring. Sixth, professional bodies (ICAN, ANAN, CIPFA, healthcare management associations) will find value in the study’s identification of expenditure control challenges and best practices in the healthcare sector. Seventh, academics and researchers in public financial management, healthcare management, and comparative public policy will benefit from the study’s contribution to the literature. Eighth, development partners (World Bank, WHO, DFID/UKAID) will gain insights into healthcare expenditure control challenges in Nigeria, informing technical assistance. Ninth, patients and citizens will benefit indirectly as improved expenditure control in both government and private hospitals leads to better availability of drugs and supplies, lower costs, and improved healthcare quality. Finally, the broader Nigerian health system will benefit as improved expenditure control contributes to more efficient use of scarce health resources.

1.8 Scope of the Study

This study focuses on a comparative study of expenditure control methods in government and privately owned hospitals, using the University of Nigeria Teaching Hospital (UNTH), Enugu (government) and Toronto Hospital, Onitsha (private) as case studies. Geographically, the research is limited to Enugu State (UNTH, Enugu) and Anambra State (Toronto Hospital, Onitsha). UNTH is a federal government-owned tertiary teaching hospital; Toronto Hospital is a privately-owned secondary/tertiary hospital. Content-wise, the study examines the following areas: expenditure control methods (budgeting, procurement, inventory management, authorization, payment processing, segregation of duties, internal audit, information systems); effectiveness of controls (cost containment, waste prevention, fraud prevention, financial discipline); comparison of methods and effectiveness; influencing factors (ownership, funding, regulation, incentives, capacity); and lessons for improvement. The study targets hospital management (Medical Directors, Chief Executive Officers, Administrators), finance staff (Chief Financial Officers, Accountants, Internal Auditors), procurement staff, storekeepers, and relevant oversight officials (for UNTH: Ministry of Health, Auditor-General). The time frame for data collection is the cross-sectional period of 2023–2024. The study does not cover other government or private hospitals (except for comparative context), nor does it cover clinical expenditure (e.g., medical decision-making costs) except as reflected in financial controls, nor does it cover revenue management (except as it relates to expenditure control).

1.9 Definition of Terms

Expenditure Control: The policies, procedures, and practices that organizations use to manage and regulate their spending to ensure that financial resources are used efficiently, effectively, and in accordance with approved budgets and regulations.

Government Hospital (Public Hospital): A hospital owned, funded, and operated by the government (federal, state, or local), funded primarily through budget allocations and patient fees.

Privately Owned Hospital (Private Hospital): A hospital owned by private individuals, corporations, or organizations, funded primarily through patient fees, health insurance reimbursements, and owner equity.

Budget: A quantitative financial plan for a future period, specifying expected revenues and planned expenditures, serving as a benchmark for control.

Procurement Control: Measures to ensure that goods and services are purchased efficiently, cost-effectively, and in compliance with regulations, including competitive bidding, purchase orders, and goods receipt verification.

Inventory Management: The process of overseeing and controlling the ordering, storage, and use of drugs, medical supplies, and other consumables to prevent theft, expiration, and stock-outs.

Segregation of Duties: A control that divides responsibilities for authorizing transactions, recording transactions, and safeguarding assets among different individuals to reduce the risk of error or fraud.

Internal Audit: An independent, objective assurance activity within an organization designed to evaluate and improve the effectiveness of risk management, control, and governance processes, including expenditure controls.

External Audit: An independent examination of an organization’s financial statements and controls by an external auditor (Office of the Auditor-General for government hospitals; external CPA firm for private hospitals).

Authorization: The approval by designated personnel of expenditures before they are incurred, ensuring that spending is within budget and for legitimate purposes.

Payment Processing: The verification and disbursement of funds to suppliers, including invoice matching (purchase order, goods receipt, invoice) and approval of payments.

University of Nigeria Teaching Hospital (UNTH), Enugu: A federal government-owned tertiary teaching hospital located in Enugu State, serving as the government hospital case study.

Toronto Hospital, Onitsha: A privately-owned hospital located in Onitsha, Anambra State, serving as the private hospital case study.

Cost Containment: The practice of controlling or reducing expenses to improve profitability (private) or make more efficient use of public funds (government).

Waste: Expenditures that do not add value or are unnecessary, such as overpriced goods, excess inventory, or inefficient processes.

Fraud: Intentional deception to obtain financial gain, such as inflated invoices, phantom purchases, diversion of funds, or theft of supplies.

Financial Discipline: The adherence to budgets, controls, and regulations in financial management, avoiding unauthorized or excessive spending.

Budget Release (Warrant): The authorization from the government treasury (for government hospitals) to spend a specific amount from an approved budget line.

Tendering (Competitive Bidding): A procurement process where multiple suppliers submit bids for a contract, with award to the lowest evaluated responsive bidder (for government hospitals, required by the Public Procurement Act).

Purchase Order (PO): A formal document issued by a buyer to a supplier authorizing the purchase of specified goods or services at agreed prices and terms.

Goods Receipt Note (GRN): A document confirming that goods have been received, inspected, and accepted, used to verify that payment should be made.

Three-Way Match: Matching the purchase order, goods receipt note, and supplier invoice before processing payment, ensuring that goods ordered were received and billed correctly.

Cash Basis Accounting: An accounting method where revenues and expenditures are recorded when cash is received or paid, rather than when earned or incurred (used in government hospitals).

Accrual Accounting: An accounting method where revenues and expenditures are recorded when earned or incurred, regardless of when cash is received or paid (used in private hospitals under IFRS).

Government Integrated Financial Management Information System (GIFMIS): The Nigerian government’s integrated system for budgeting, accounting, and financial reporting at the federal level, used by UNTH.

Public Procurement Act (PPA): Nigerian legislation governing procurement by government entities, including advertising, tendering, contract award, and dispute resolution.

Fiscal Responsibility Act: Nigerian legislation establishing principles of fiscal discipline for government entities, including expenditure control requirements.