Strengths of Financial Management at CareTech PLC - Case Study Example

Contents Contents 1 Introduction: 2 1.1The principles of costing and business control systems that may be adopted in CareTech Holdings PLC 2 1.2 Information needed for managing financial resources for CareTech 3 1.3 The regulatory requirements needed to be satisfied while managing financial resources in CareThech Holding PLC 4 1.4 The systems for managing financial resources in CareTech Holdings PLC 5 2.1The diverse sources of income availableto CareTech PLC in the financial year 2013 6 2.2 The factors that may influence the availability of financial resources in CareTech PLC include; 7 2.3 Different types of budget expenditure in CareTech PLC 7 2.4 How decisions about expenditure could be made in CareTech PLC 8 3.1How CareTech would manage financial shortfall 9 3.2 The action I would take if I suspected occurrence of financial fraud in my organization 9 3.3 The budget monitoring arrangements at CareTech PLC 10 4.1 Information required making financial decisions relating to CareTech PLC 11 4.2 The relationship between care service delivered and ‘Costs and expenditure’ 11 4.4 The following are some ways through which CareTech PLC could improve the health and social care services through changes in its financial systems and processes 13 Conclusion: 13 References: 15 Introduction: Health and care organization could either be publicly or privately owned. Depending on the form of ownership, the organizations may attract revenue from various sources. While publicly owned health and care institutions may attract funding from the government, the privately owned organizations mainly attract funding from the services they offer to the patients or customers. Regardless of the source of income, prudent financial management is vital for these organizations in a bid to ensure they are able to run effectively and efficiently without having to run into financial difficulties. This would ensure they continue to give quality services to their customers at all times. In addition, where there is prudential management of financial resources, the organization can quickly recover from any financial shortfalls it may be encountering. This call for putting in place various financial management plicies including auditing and internal controls that will help the organization better manage its resources. In addition, this will prevent fraud from occurring. This paper looks at financial management at CareTech PLC within an aim of analyzing its strengths while suggesting areas of improvement. CareTech Holdings PLC 1.1The principles of costing and business control systems that may be adopted in CareTech Holdings PLC CareTech ought to use the approved guidance which recommends the costing approaches to be used by health and care service providers. Thus, in their costing processes, CareTech ought to employ the following principles; Engagement of stakeholders- in its costing processes, CareTech should involve all the concerned stakeholders including those in the finance department and other non –finance departments in a bid to ensure all input factors are considered in determining cost (Monitor (2013). i) The costing approach that CareTech chooses to adopt should be applied consistently within and across the organization to ensure consistency. ii) The costing system at CareTech should ensure high level of data accuracy as accurate costing will depend on the quality of the underlying input data. iii) There should be materiality in CareTech costing system implying that its costing efforts ought to focus on material costs and activity (Scott, S2014). iv) CareTech ought to observe causality and objectivity in their costing activities. This would be for the purpose of eliminating or minimizing subjectivity in costing. v) CareTech ought to observe transparency in their costing activities. Furthermore, they should adhere to relevant accounting principles to ensure their costing is auditable. CareTech should also ensure it adopts business control systems that enable it carry out its strategy through efficiency obtainment and allocation of resources while minimizing chances of error and fraud. In this regard, CareTech should put in place the following business control systems; i) Budgetary controls with annual budgets that have realistic estimates of income and expenditure in a bid to ensure expenditures stick to the planed limits ii) There should be bank and cash controls ensuring all money receipts are recorded and safeguard against theft or loss and appropriately banked iii) Adopt expenditure and purchasing controls with procedures for authorization and related controls for ensuring that only the required goods are ordered while purchases are sought at the best prices and all relevant transactions recorded to ensure transparency (Kevin, 2014) iv) There should be payroll and personnel controls to ensure proper authorization of salary and related statutory payments including PAYE to safeguard against theft or fraud. 1.2 Information needed for managing financial resources for CareTech Good decision making depends on the use of relevant information. In this regard, CareTech ought to gather the relevant information in a bid to ensure efficient management of financial resources. Such information includes the following; i) CareTech should have information about business cost. Such cost include staff cost including pension cost, wages and salaries, medical equipment and appliances costs, Building costs that may include leasing or purchasing costs, costs related to consumable items such as toiletries and food as well as administrative and professional fees for healthcare workers (Forder and Fernandez, 2009). ii) CareTech should have information on its income streams. These could include income from normal business activities such as provision of medical care, Rents and service charges from social housing lettings and leasehold management, revenue grant, tax support and related contributions. iii) CareTech should have information relating to government legislation and policies that may affect the operations of the facility. These may include health and social care act 2012, care policies and procedure and NHS constitution. Care policies and procedures may include information relating to access to records and files, business contingency, data protection, environmental management of business premises, handling residents’ money, gifts and legacies, investigation of financial irregularities as well as monitoring and accountability. 1.3 The regulatory requirements needed to be satisfied while managing financial resources in CareThech Holding PLC These include the measures or interventions by the government that are aimed at changing how financial resources in health and care institutions such as CareThech Holdings PLC. Such financial regulation is deemed important as it promotes efficiency while helping the clients get fair deals. In addition, it improves business capability and regulatory effectiveness of the organization’s financial management. In addition; it improves integrity in financial management while reducing related crime (Better Regulation Task Force, 2003). CareThech ought to adhere to the provisions of social care act 2012 that establishes the legislation and code s of practice for management of financial resources. In a bid to ensure financial management regulatory compliance, various bodies have been established by the act. These include; i) Monitor- In this regard, Care Tech ought to adhere to Monitor’s policies on efficient running of running of the organization in a bid to continue providing good quality services for patients while ensuring continued services if the organization gets into financial difficulties. ii) Audit Commission- The organization is charged with the responsibility of safeguarding of public purse by ensuring health care services such as CareTech are audited. As such, CareThech should ensure preparation of financial statements that are auditable and which adhere to the provisions of audit commission. For instance, they should adhere to the value for money model (VFM) implying efficiency, effectiveness and economic use of financial resources (Lamb, 2013). CareTech should also put in place internal control procedures that would improve financial prudence. iii) HMRC – This is the tax authority responsible for ensuring availability of funds to fund public services. In addition, it administers the tax system in a most simple, customer focused and efficient manner. In this regard, CareThech ought to adhere to all its provisions on taxation. iv) Company House- The organization is responsible for regulation of companies including their registration. In this regard, CareThech ought to ensure they adhere to its policy especially as regards to filing of annual returns. v) Financial reporting council –the organization is responsible for promotion of high quality governance and reporting in fostering investment. In this regard, CareThech ought to ensure that all financial information it prepares are in line with its provisions including those of IFRS and GAAP. 1.4 The systems for managing financial resources in CareTech Holdings PLC Health Care Organizations such as CareTech should put in place adequate systems for financial management if they are to continue providing quality care. Such systems that CareTech ought to put in place to ensure its smooth running include; i) Budgeting systems which include how preparation of budget is done, their planning and execution in the organization ii) Reporting and financial accounting systems that ensure accountability in use of financial resources (Canterbury-care.com, 2014). iii) Payment systems that should cover such details as payments, reimbursement, capitation and payment by result iv) Cost and management accounting systems – these systems perform such functions as pricing, performance and service evaluation v) Auditing systems – these should such systems as audit and control systems including internal control systems that are aimed at safeguarding the organization’s assets. 2.1The diverse sources of income availableto CareTech PLC in the financial year 2013 In 2013, CareTech achieved revenues amounting to £ 114.3m in 2013 which was an improvement from $114.1m achieved in 2012. These revenues came from diverse sources as will be explained below. Generally, sources of income for Health Care Services Providers such as CareTech include the following; i) Inpatient routine – these include patient services gross charges generated from room and board ii) Inpatient ancillary – They include gross charges forancillary services provision to inpatients including lab, imaging, pharmacy services and operating room charges. iii) Outpatient ancillary –These include gross charges forancillaryservices provided to outpatients just like for inpatient ancillary (Coombs and Jenkins, 2002). iv) Other revenue- these are revenues that are generated from other sources including gift shop sales, cafeteria sales, charges for release of health information as well as capacitation payments. For the financial year of 2013, CareTech income originated from the above sources as follows i) Adult learning disabilities including adult residential care homes, independent supported learning and community services whose revenue amounted to £73.9 ii) Mental Health services which include a community based hospital, adult residential care homes, independent supported living and community outreach whose revenue amounted to £6.5 million iii) Young people residential services which included children residential care homes for children with learning difficulties and emotional behavior disorders. The segments revenue amounted to $19.6m (Howe, 2013) iv) Foster care which covers both mainstream foster care services and specialist provision including care for children with disabilities and foster care family assessment s in the home. The segment’s revenue amounted to $14.3m 2.2 The factors that may influence the availability of financial resources in CareTech PLC include; i) Types of services and products provided by the organization bearing in mind that nursing services may be fully paid for by the NHS/CCGs while residential and private services may not and hence managers have to formulate strategies for the services ii) The size of the organization as it would affect its eligibility for the government funding for staff development iii) Local agreements including inter agency partnerships such as local authority and care home service contracts iv) Funding priorities which depend on the national framework of the health care systems in the country v) Economic conditions which affect both public and private spending vi) Agency objectives and policies vii) Type of ownership with Care Tech being private and has no funding from the government. viii) Government policies and regulatory requirements in which case changes in government policies and regulatory environment would influence resource availability. ix) Geographical location which may influence accessibility that in turn may affect other factors including type of service users, staff, staff funding availability etc. 2.3 Different types of budget expenditure in CareTech PLC i) Purchases of supplies ii) Staff costs iii) Leasing iv) Acquisition of assets v) Payment of dividends vi) Payment of exceptional costs vii) Payment of tax viii) Acquisition of software ix) Payment of interest x) Swap break fees xi) Repayment of borrowings 2.4 How decisions about expenditure could be made in CareTech PLC CareTech decisions on expenditure will depend on a number of factors including the types of project it intends to undertake or it is currently undertaking as well as its recurrent expenditure. The following are some of the factors that the organization should consider in making its expenditure decisions. i) The organization ought to carry out its environmental analysis which should include SWOT analysis in a bid to understand its strengths, opportunities, weaknesses and threats involved in the activity to be undertaken. Environmental analysis could also be done using PEST analysis in analyzing the external environment. Thus the organization will understand how the project at hand is affected by its political, economic, social-cultural and technological environment. ii) The expenditure should be focused on the most important areas especially when the available resources are limited. iii) Before deciding on expenditure, the organization ought to eliminate emotionalism. This could be achieved by taking time to consider rationally the best ways of spending the organizations money using numbers and facts (Sleed etal, 2005). iv) Decisions on expenditure should be guided by use of several smaller budgets in such areas as operating expenses, sales, and acquisition of new equipments, marketing, and production among other areas. Focusing on such areas would enable one make wise decisions based on a balanced view of needs of all aspects of the organization. v) There is need for reviewing actual and targeted income and expenditure to enable quality strategic decisions on expenditure. vi) In making decisions on expenditure, the organization needs to consider all its plans both in the short run, medium and long term. 3.1How CareTech would manage financial shortfall A look at the company’s financial statements for 2013 reveals that the company suffered a cash deficit of £168,463. Unless such deficits are properly managed, the company may not be able to achieve its performance targets. Some ways of managing the financial shortfalls are outlined below; i) In making payments, the organization ought to prioritize those payments that are essential be they of suppliers or for investment projects.. For instance, the most needed projects ought to be executed first. ii) CareTech can use virement which enables managers move amounts between budget headings without affecting the bottom line targets. This would enable those departments and projects with surplus to transfer the excess funds to those areas that are in need of financing (World Bank, 2001). iii) CareTech could make use of its reserve funds such as retained earnings to finance the financial shortfalls. iv) CareTech could also negotiate payment dates with suppliers to pay later or in installments. v) CareTech could improve on its assets usage by for instance leasing those assets not currently in use and the cash proceeds thereof be used to clear the shortfall. 3.2 The action I would take if I suspected occurrence of financial fraud in my organization The first step would be to determine whether the fraud has actually taken place. This involves analyzing what has actually happened that makes me believe that fraud has occurred. The impact of the financial loss to the company is then determined, how the loss has happened, the person responsible for it and the evidence that I might have supporting the fraud claim. After this, I would determine whether the fraud has been committed by someone within the organization. If this be the case, I would seekadvice from my professional advisors on how I should proceed. Then I would initiate the process of carrying out full internal investigation (David and Fardon, 2007). Afterwards, I would take a remedial action against those concerned commensurate with the size of the financial fraud. Such actions may involve firing those concerned and forcing them pay or taking legal action against them. If the fraud has been committed by someone external to the organization, I would seek advice from professional advisors and lawyers. If need be, I would report the fraud to relevant organizations for remedial actions. In addition to taking action the case at hand, I would initiate procedures for preventing future fraud including instituting internal control procedures aimed at curbing fraud. 3.3 The budget monitoring arrangements at CareTech PLC Budget monitoring at CareTech Holdings PLC involves measuring actualperformance with the budgeted performance and then investigating the differences. It is important as it helps organizations adhere to budgets while deviations are corrected so that the organization can achieve its planned performance. CareTech can therefore adopt the following budget monitoring arrangements; i) Managers need to be equipped on budget monitoring basic financial skills including basic book keeping and recording skills, skills on how to understand the company’s performance measurement, cost control techniques as well as budget setting (Philipp, 2011). ii) The budget monitoring approach at CareTech should incorporate clear division of responsibilities and appropriate regulations put in place in a bid to avoid confusion while speeding up action iii) CareTech should employ a consistent basis for comparison purposes iv) CareTech ought to employ commitment accounting where financial information system recognizes a transaction and its impact on the budget as soon as a purchased or related financial commitment is entered into. v) CareTech should adopt expenditure profiling 4.1 Information required making financial decisions relating to CareTech PLC i) CareTech should have information about business cost. Such cost include staff cost including pension cost, wages and salaries, medical equipment and appliances costs, Building costs that may include leasing or purchasing costs, costs related to consumable items such as toiletries and food as well as administrative and professional fees for healthcare workers. ii) CareTech should have information on its income streams. These could include income from normal business activities such as provision of medical care, Rents and service charges from social housing lettings and leasehold management, revenue grant, tax support and related contributions (Field, 2007). iii) CareTech should have information relating to government legislation and policies that may affect the operations of the facility. These may include health and social care act 2012, care policies and procedure and NHS constitution. Care policies and procedures may include information relating to access to records and files, business contingency, data protection, environmental management of business premises, handling residents’ money, gifts and legacies, investigation of financial irregularities as well as monitoring and accountability. 4.2 The relationship between care service delivered and ‘Costs and expenditure’ Cost can be defined as the amount paid to receive service or a product. It can also be referred to as the total expenses incurred in producing a good or service to which gross margin is added to arrive at price. In regard to health care services, the price is the fee paid for provision of health or social care. Expenses on the other hand refer to economic costs incurred by a business in its operations to earn revenue including utility bills among other expenses. In normal life circumstances, there is a direct relationship between cost and the quality of goods and services offered. However, this does not seem to be the case in health and social care industry. Spending more money does not necessary imply better quality of health care. Quality of health care is to a large extent determined by how quality is measured which may differ in different circumstances. For instance, is quality of health care determined by the level of happiness, comfort, measuring environmental settings, the time spent one on one or all of these factors? Quality of health care is the extent to which the health care service or products produce desired outcome. According to national health committee, it encompasses accessibility, effectiveness, appropriateness, safety, continuity, capability, sustainability, responsiveness and efficiency. However, increased healthcare spending results in higher wages and hence cost pressures, quicker access and modest increase in activity (Philipp, 2011). However, there is no evidence of increased quality of health care. In other words, quality of health care is not dependent on cost and expenditures but on factors such as; i) Staff commitment and effort ii) Quality of input iii) Better monitoring arrangements iv) Staff supervision and support v) Quality of training for staff in relevant areas vi) User involvement in care package among other factors In conclusion, the quality of health care does not depend on costs and expenditure. However, increased spending can lead to availability of the above factors which may lead to better healthcare in the long run. 4.3 How financial considerations impact on service user Financial consideration greatly impact the kind and quality of service the user gets from a healthcare institution. These include factors which influence the kind of access and support the user receives from the healthcare system. Financial consideration factors are influenced at three levels including by the central government, by the health organization and by the user themselves. Where government provides support for people in certain categories of health care needs, they will be able to get quality care even when they can’t afford. However, a user who cannot afford may not get the services if the government does not provide support (NHS, 2012). The amount of service and support the user will get from the care system will also depend on financial means test. In these regard, three factors including capital, income and expenditure are considered. On the other hand, organizations put financial considerations in mind availability of funds. Where organizations lack funds, the user will not receive quality care since ability to meet expenditure and invest in good facilities to afford quality care is curtailed. On the other hand, though the organization may have funds, an individual’s level of finance may curtail their ability to access quality care. In other words, financial considerations have a great impact on the service user both in terms of access and the quality of services accessed. 4.4 The following are some ways through which CareTech PLC could improve the health and social care services through changes in its financial systems and processes i) Payment by results- in this regard, the organization’s payments would be contingent on the independent verification of results. This would lead to improved service while increasing value for money through aligning incentives to desired outcomes while transferring risks away from the organization to providers. ii) Introducing NHS charges for overseas visitors in areas that are applicable iii) Observing equity and excellence by way of paying drugs in accordance to the value of new medicines, to promote innovation, ensure better access for patients to effective drugs and improve value for money (Bean and Hussey, 1997). This will ensure that money follows the patient through transparent, comprehensive and stable payment systems across the NHS to promote high quality care, drive efficiency and support patient choice. Providers are thus paid in accordance to their performance and thus payments should reflect outcomes as opposed to just activities and hence providing an incentive for better quality. iv) Observing benefit cap which limits the amount of benefits couples and lone parents’ households can receive to $26,000 a year. This is aimed at restoring integrity and fairness to the system hence ensuring customers get value for their money. Conclusion: This paper has analyzed financial management at CareTech Holdings PLC. In this regard, various methods of improving its financial management have been fronted. It is hoped that by applying these principles, the organization can be able to offer better services to its customers while becoming more profitable. 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