Managing financial resources Essay
Managing financial resources
This report is going to be base on a case study of Silloth Nursing and Residential Care Home audited financial statement for the year ended 31 March, 2008 which deals with principles of costing and cost control systems, it will also details how systems are used to manage financial resources in health and social care, the systems and processes for managing financial resources, monitoring budget and expenditure and planning in the management of health and social care.
1.1 The principles of costing and business control systems
In relating to the case study, cost control is the means by which the costs incurred by an organisation are identified, quantified, grouped together in an appropriate manner, and compared with planned limits. This comparison gives management the information they need to know the effects of their operations, and to help them to reach decisions. The amounts incurred in the provision of goods and services is known as costs. An organisation will want to know how much they have spent on goods and services, but first the organisation need to calculate the costs of other things which help to provide for its goods and services, this will help the organisation to know if they are making profit or losing money by calculating the cash inflow. There are different types of cost, the type of cost incurred will vary according to the goods and services being produced/acquired by the organisation. Cost can be classified as either direct or in direct. In relating to the case study, the organisation decided to choose direct and indirect cost. Direct costs are costs which can be traced in full to the product, direct costs are usually identified with goods or services e.g. staff cost, establishment cost, maintenance of patients, domestic etc.
Indirect costs are those costs which cannot be directly identified with a particular product e.g. budgeting, purchasing, preparing of payroll etc. Business control systems is the system for monitoring business activities, performance and environmental factors, comparing them with plans, targets, assumptions about environment, analysing causes of deviation detected, and taking action to improve unsatisfactory performance or to change plans and target e.g. by benchmarking, calculating the expenditure, the staff levels, the cost of resources and how much materials is needed and the actual cost and compare them with the standard and budgeted cost. Financial statements are written report which describes the financial health of an organisation.
This includes an income statement and a balance sheet, and often also includes a cash-flow statement. Financial statements are compiled yearly. Cash-flow statements provide a look at the movement of cash in and out of an organisation. The cash-flow statement can be important in checking whether or not an organisation has enough cash to pay its bills, handle expenses, and acquire assets. At the bottom of a cash-flow statement, the net cash increase or decrease can be found (Dixon, 1993). 1.2 Information needed to manage financial resources
Performance measures of strategic goals are essential information needed in the context of managing financial resources. Measures include market share, cash flow, profitability and market position. Objectives laid down are achieved by improving customer satisfaction, organisational flexibility and productivity. Customer demands need to be managed and satisfied; changes in customer demands need to be identified and met efficiently and productivity must be effective. In order to manage financial resources in an organisation, organisation need to know where the main source of income (inflows) is coming from or where it is going to come from, and organisation need to know the employees levels, make sure the organisation is benefiting from the services that are being provided by the employees, if not you reorganise the staff levels. Know the information about capital expenditure; know how much wages and salaries is paid to employees, and how much is spend on feeding, transportation, fuel, and also look at the allocation of resource that will bring money to the organisation (Parkinson, 1997).
1.3 The regulatory requirements for managing financial resources An organisation need to register its business with company house under a business name to comply with government legislations and policies and to ensure proper management and fairness of the organisation. One person business does not involve any formal registration, but need to inform HM Revenue & Customs. All limited company are constrained by law (The Company Act 1985 Amended 1989) to publish annual financial statements. The objectives of financial statement is to provide information about the financial position, performance and changes in financial position of an organisation. It is the requirement of HM Revenue & Customs and regulators such as company house, to require financial statements in order to ascertain the accuracy of taxes and other duties disclosed and paid by an organisation. Every organisation must audit their financial statements, which comprise of the statement of financial activities, the Balance Sheet and related notes as it was done in the case study (Weaver, 1998).
1.4 Systems for managing financial resources in health or care organisation Financial system is the process and procedures that track financial activities of an organisation. There are different elements making up the financial system of different levels; within an organisation. The financial system surround all aspect of finances, for example, it would include accounting measures, revenue and expense schedules, wages and balance sheet verification. Regional financial systems would include banks and other financial institutions, financial markets, financial service in a global view would include the International Monetary Fund, central banks, World Bank and major banks that practice overseas lending. In order to manage financial systems, organisation need to track all transaction made by the organisation to ensure that records are not lost or misfiled.
Employees should be able to know the location of every transaction record or file, and It will also deterred unauthorised access. An audit trail is required to ensure that transactions can be traced from creation, through processing, to the final statements with appropriate evidence. Employees should be trained frequently to improve their financial skills and they should be trained in the field of how to use and operate current computer software in the area of accounting procedures and practices, records keeping, etc (EDEXCEL, 2010).
2.1 The divert source of income that may be encountered in health and social care Based on the case study, Silloth nursing and residential care home and their audited financial statements for year ended 31 March, 2008. The general source of income that may be available to the organisation as a charitable care home will therefore come from fund raising event e.g. selling tea, strawberry, chocolate for may be one pound each. Christmas sales e.g. selling of cups and spoons. By organising old mama and old papa dance, and people visit them and give them money. Another source of income that may be available to the charitable organisation will come from the money the organisation has invested in a project that will eventually generate income for the organisation. Other source of income may come from donation, lottery, voluntary, payroll payment, sponsors or subscriptions and money paid for care (Broadbent and Cullen, 1993).
2.2 The factor that may influence the availability of financial resources in health and social care organisation Based on the case study Silloth nursing and residential care home and their audited financial statements for year ending 31 March, 2008. The factor that may influence the availability of fund to the organisation will be lack of creativities and awareness; when the charitable organisation did not give enough information to people, for example like advertising the event on television to let people what they want to do.
Another factor will be inappropriate use of financial resources given to the organisation and when the organisation have bad reputation; when people donate money to the organisation and the money is not use for the purpose it is meant for. Lack of individual interest or religious barrier will be another factor that may influence the availability of fund to the organisation e.g. when the charitable organisation organising the event are from Catholic church, people who are Muslims will not want to associate themselves with the Catholic fundraising event (EDEXCEL, 2010).
2.3 The different types of budget and expenditure in health and social care organisation A budget is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and/or expenditure to be incurred during that period and the capital to be employed to attain a given objective. There are three main element in the budgeting process in an organisation, these being objective, planning and control. A budget is prepared by budget officer and the accountant help to make it into frame work. The budget control process therefore requires a comparison between budgeted and actual costs in an organisation by identifying the cost centres and the products. There are different types of budget in an organisation e.g. sales budget, resources budget, capital budget, production and direct budget, materials and direct labour budget, budget for overhead etc.
The sales budget is the master operating budget, if the sales in an organisation is not good, everything become standstill, and is the most important part of the organisation. If the sales department in an organisation fail to achieve result, the organisation will not gain. The sales budget consists of three parts: break even; which means the organisation is not gaining or losing money, target; is the amount of sales expected and the projected sales; which is the sales put forward. A capital expenditure is an outlay of cash for a project that is expected to produce a cash flow over a period of time exceeding one year in an organisation e.g. property equipment, large advertising campaigns etc (EDEXCEL, 2001).
2.4 How decisions about expenditure are made within health and social care organisation An organisation will make decisions about expenditure based on project selection e.g. properties, plant, equipment, research and development. The organisation have to take decision based on the project that require capital expenditure that will generate future cash flow. There are different criteria for selecting a project a project, some organisation will select a project that will generate immediate cash flow, and others will select the one that will bring long-term growth, the decision will be based on capital expenditure. Therefore the organisation will first looked at the net present value (NPV) when making decisions, the net present value of cash the organisation want to spend at present based on project selection.
The growth rate of the instant cash flow will be another area the organisation will looked at, they have to time the growth rate; the short-term or the long-term growth, so the growth rate of the income cash flow is very important in organisation. The organisation will also looked at the availability of fund, because without money the organisation can not start a business, the organisation have to consider the availability of fund when making capital expenditure, and also the availability of skilled personnel involved (Parkinson, 1997).
3.1 How financial shortfalls can be managed
An organisation can manage financial shortfalls by investing money on businesses that will generate dividend to overcome financial short fall, and to delay payment to their suppliers by approaching their suppliers to extend the date of its payment, to give the organisation the opportunity to sell the goods first before paying. Another area the organisation can manage shortfall is by discussing with their customers if they will be willing to pay by bank credit card instead of using the account facility they have with the organisation. For example, if the customers pay for their goods by using their bank card, the organisation will get the cash as soon as they send the voucher to the bank. The organisation can also sell off little-used assets e.g. by selling off some vehicles and lease instead ( Weaver, 1998).
3.2 The action to be taken in the event of suspected fraud
There are different interpretation and understanding of financial fraud, which could be misappropriation of assets, financial reporting or corruption. In the event of this, the organisation should carry out investigation, do brainstorming, gather the necessary information, review the business control system, review the internal and external auditing system, review of the whistleblower report. Organisations should put in place avenues for reporting suspicions of fraud. Staff should be encouraged to report such suspicions either to their line managers, to the organisation’s internal audit to the organisation’s finance function or possibly to a hotline set up for the purpose. Reporting arrangements should be set out in detail in the organisation’s fraud policy statement. Investigations should consider any control failures and make recommendations on systems and procedures to minimise the risk of a recurrence (Mckinney, 2004).
3.3 Budget monitoring arrangements in a health and social care organisation An organisation monitor budget by using cost control; which is the mean by which the costs incurred by an organisation are identified, quantified, grouped together in an appropriate manner, and compared with planned limits. The organisation should have cost control centre to help them monitor and control expenditure, and cost centre should have flexibility in their coding system for analysis of expenditure and income at the cost centre level. Expenditure profiling, commitment accounting and virement are among the basic principles underlying the budgetary control system and monitoring. Virement is when one department is under spending and the other is over spending, the organisation will then transfer money from the under spending to the over spending to balance expenditure in the organisation. Expenditure profiling helps managers to obtain decision, though it may not be 100% correct. At the end of each budget period the manager is able to compare actual with projected and calculate on the variance (Coleman and Anderson, 2000).
4.1 Information required to make financial decisions relating to a health and social care services Financial decision making is very important in setting up a business, and there are various areas to be looked at when making decision. The area to first looked at is the location of the business, which is very important because it will determine the suitability of the business in the best interest of the customers. For example, a noising environment will not be suitable for a residential care home, instead care home should be located in a quiet environment.
The demand for the business is another area to be looked at, if it is the kind of business that people will be interested in. For example, investing in childcare and HIV testing. Childcare is more demanding than HIV testing, because most people would not like to take HIV test. Cost and expenditure will have to be consider, how much is the business going to cost; the cost of buying material and equipment needed for the business (Dixon, 1993).
4.2 The relationship between a health and social care service delivered, costs and expenditure Service users are very important in any organisation and they need to be given quality services. Employers need to know how the system work by using cost-benefit analysis; how much is going to cost to buy equipments, train and pay employees so that they will be able to provide quality services and satisfaction to the service users Service users will also consider factors such as value for money type of services and duration of services. Cost and expenditure will vary according to the service provided, and this is what employers see as key in providing quality care, but are also careful as they look at ways of minimising cost but delivering positive outcome (Parkinson, 1997). 4.3 How Financial considerations impact upon an individual using the For an individual using care services such as the care home that has been provided (Silloth nursing and residential care home), management have to consider their financial position, accessibility and quality outcome of the services.
On the management aspect, they have to consider the type of care, if it is long or short term, the cost involve in taking care of the service user and the resources needed to provide quality services for the service user. Within the health and social care sector, financial considerations could impact on different services, for example, the financial impact on arthritis Patients. Arthritis can have a huge impact on the financial wellbeing of survivors and their families; when the state is not ready to help them, then they need to look for alternative means( EDEXCEL, 2010).
4.4 Suggesting ways to improve the health and social care service through changes to financial systems and processes Suggesting ways to improve financial system in every organisation is very important, especially in relating to the case study (Silloth nursing and residential care home audited financial statement for year ended 31 March, 2008).
One way to improve the financial system in an organisation is by training the staffs in the area of financial skills, so that they can know how to manage financial resources within the organisation. They should also looked at investment options so that they can invest to generate more money into the organisation, and they should restrict access to financial information and give staffs specific task to perform in order to reduce financial short falls and theft (EDEXCEL, 2001).
Broadbent, M. and Cullen, J. (1993) Managing Financial Resources. Third edition. Oxford: Heinemann. Coleman, M. and Anderson, L. (2000) Managing Finance and Resources in Education. London: Sage. Dixon, R. (1993) The Management Task. Third edition. Oxford: Heinemann. EDEXCEL (2001) Business and Management. London: BPP.