Managing Financial Resources

22 min, 35 sec read
INTRODUCTION This report analyse how systems are used to manage financial resource in Caretech Plc. It will also underline the importance of planning and budgeting in health and social care. Following by the value of monitoring budget expenditure within the organisation. Finally, how system and procedure impact on managing financial resource in health care services. Background information Caretech Holding Plc, is a company provider of specialist social care service. Registered and domiciled in England and Wales. The range of service that are offered by the Group are: Adult learning disability, mental health, Young people residential care and Foster care.  All operations of the Group are carried out in the UK.  
  • Principles of costing and business control
Rajasekaran and Lalitha (2010) defined cost as the amount of resource used in exchange for goods or services. The resources used can be money or money’s worth, which is usually expressed in monetary units. The cost are classified in many different ways depending upon the purpose for which the information is to be used. Therefore some cost will be direct means traceable cost (e.g. a care visit or a medical procedure) while others will be indirect like the wages of all employees who do not work on the production but help in the manufacturing operation, some are fixed costs which the firm has to pay, regardless of how much they make or sell. No matter how much you sell or don`t sell, you have to pay your fixed costs or Variable cost that increases with the level of output or sales. For example heating and toiletries, amount of money spend on these cost will vary directly with the number of resident in the Caretech home. There are six costing principles approved that all managers in health and social care should be followed (Monitor 2013): Stakeholder engagement, consistency, data accuracy, materiality, causality and objectivity also transparency. Stakeholders` engagement In order to determine or ascertain the cost of a service, product or medical, the diverse skill of all stakeholders` are needed to ensure that the view of everyone is reflected in the costing process and relevant information are collected. Keeping records of finance activity and providing managers with information and helping to create financial plan and relevant data for decision making, based on prediction of past figure (Finance & accountant staffs). Since the care workers closely work with the service users, they will bring in their experience and the impact these cost have on the services users. Business control system The purpose of business control systems is to safeguard the industry assets, to have a correct check, the exactitude and reliability of financial records; and making sure that resources are obtained and used efficiently (Anthony and Young, 1999). It also provides a framework of processes and activities designed to reduce the risk of error or fraud. For Caretech part of the control is to ensure that all carer are properly inducted and trained on relevant areas (manual handling, patients care, and administration of medication etc.). Also must have a system in place where errors can be quickly detected, corrected and prevented for example: direct cost £ 112.000 could be recorded £ 121.000 make difference of £ 9.000 Others control include forecasting and monitoring, regulatory framework, basic software for monitoring financial information, control over purchase and procurement, control over IT and software infrastructure Caretech could use ERP and cut on hardware costs and maintain greater control over integration. (Acumatica, 2013).   1.2. Information needed to manage financial resources are: Profit & Loss Account, Balance Sheet, Cash Flow Statement, Variance analysis and budget. Profit & Loss or income statement: It is legally required financial statement for a business and contains much vital information for the owners or shareholders. In essence, the profit and loss account simply calculates the total income for the firm and deducts from that its expenses to give a total profit figure. It is important that theses document are always prepared using the same layout and conventions so that a company’s performance can be accurately assessed and compared with other business. For Caretech It is clear that an Income Statement consists of revenue, costs and expenses of the company. When investing, an investor will look at the Income Statement of the company to its performance over the period of time. Balance Sheet A balance sheet will help a company to identify its financial position at a specific point in time. From this one can understand whether the company is strong or weak in the financial point of view. The first section details the fixed assets, such as building, machinery, equipment and vehicles. These are often referred to as tangible fixed asset and are usually listed in order of permanence. (E.g. from Caretech balance sheet, the total non-current asset amounted to £ 256.574.000 at the financial year ending 30 September 2012 while it increase to £ 3000.668.000 in 2013), the total Current asset is the second section and it contains assets that readily available for paying debts (stocks, debtors, money in the bank and cash held…). The third section, current and long term liabilities contains amounts that owed to suppliers or lenders include pending payments to suppliers and creditors, outstanding current and long-term debts, taxes, interest payment, and other unpaid expenses that the company has incurred and the final section shows where the money came from to run the business. Cash Flow Statement This statement holds the record of the total amount of cash that came into the business and the total amount of cash that went out of the business. Cash flow is not the amount invoiced, or amount owed by creditors or debtors. It is the actual payment that are received into the business and the actual payment that go out of the business. A business that can manage its cash will be able to invest, attract investment, pay for its expenses and hopefully make profits. The cash flow disease` can be terminal for many businesses, so treat it early and remember that ` prevention is better than cure `. The bottom line is; cash flow means survival. There are 3 main activities in cash flow statement: Operating Activities, Investing Activities & Financing Activities.   1.3. The health and social care Act 2012 provides the basis regulatory requirement for managing financial resource so all managers must be fully aware of the regulatory framework so as to avoid non-compliance (CISI 2011) Principles of financial legislation. Caretech is required to submit tax return to HM revenue & Customs, which governs income tax and national insurance (NI) contribution for tax purposes. Also required by the Companies Act 2006 to register the name of the new directors with Companies Houses. Because Caretech works under the supervision of Monitor, the NHS industry regulator approved the prices for NHS funded services and works in conjunction with CQC stated role is to make sure that hospitals, care homes, dental and general practices and other care services in England provide people with safe, effective and high-quality care, and to encourage them to improve. These regulations ensure the group provide quality service in care industry (national standard 2013). Another reason for Caretech to manage its financial resource effectively is companies in the UK are required according to financial reporting council (FRC) to present their financial statement in line with the relevant accounting standard so that the balance sheet and the profit and loss account must give a true and fair view of the state of affairs of the company as at the end of the financial year. From annual report, Caretech was charge £ 170,000 as tax in the profit and loss statement in year 2012 and £ 3,721,00 as tax charge in year 2013.   1.4. For managing financial resources in health and social care, there are systems put in place by the government, the company directors and regulators to ensure smooth and effective running of the organisation. The aim of financial accounting is to provide a recording system and keep proper books of account to produce financial report that are published in accordance with current legislation and standards, for external users. This is usually done through the use of; Books of account & Information Technology (IT) systems (Sage accounting software, Peachtree, Oracle system that is pre-integrated to reduce the cost while increasing productivity and performance, QuickBooks, MS Excel financial reporting spreadsheets are more efficient and less expensive, IBM lotus). NHS Shared Business Services (NHS SBS) providing an Integrated Single Financial Environment (ISFE) for NHS organisations. In additional the use of accredited accountant and auditors will be beneficial as their expertise will be invaluable. In view of the financial statement Caretech has performed well and provides satisfactory results in this actual economy. 2.1. Income is the amount of money that an individual or business receive in exchange for providing a good or service or through investing capital during an accounting period of time. (Business dictionary 2013). The source of income could either be internal or external. Internal source will therefore be from the company`s internal trading activities for example Caretech (Sale/revenue) come from adult learning difficulties, mental health, young people residential service and foster care which as a total of £ 114.300.000 in year 2013 and was £ 114.100.000 for the year ending 2012. Extra income could be coming from saving, or sales of assets such as property or from interest receives on a bank deposit). External source is any income that is received in form of long term or short term such as loan capital, stock control and trade credit. Cox and Fardon (2007) states that for private company the income comes from shareholders, bank loan, personal saving, charitable & not for profit organisation, family member, well-wishers and sometimes from other care services providers that may have formed partnership. Some organisation such as care homes, hospices and hospitals receive funding from government grants, Clinical commission Group (CCG), local authorities `councils and others health sector such as the NHS. Caretech being an organisation that deals with people`s care, it falls under the NHS and therefore, falls under what is known as the NHS-funded nursing care stream where nursing and care needs services are paid for by Clinical Commissioning Group through the local authority towards the care of the services users. In the UK, care and support services are means-tested and may not be the same for everyone. There are some more different source of income for business that offer health care services. For example national funding (Grants/bursaries) and government funding for staff/workforce development this includes education, training or assessment. 2.2. Different factors influence the availability of financial resource for every NHS organisation. Financial resources is the money available to business for spending in form of cash, liquid securities and credit facilities (business dictionary 2013). The way Caretech is providing care to the services users may influence the funding. For example if you are caring only for people with dementia don`t expect more income than Caretech because of different type of services is providing. Through organisation reputation of how they manage financial resource. This requires the management to be more discipline on the way fund are used. Obviously, geographical condition is taken into account as expenses generated by Caretech home situated in London are higher than the one situated in wales. (Coombs and Jenkins 2002). Regulatory requirement and Government policies will always impose certain requirement on the organisation such as Caretech and if these requirement are not duly met, then funding for particular season and organisation may be withheld. For example if today the government policy going to focus on people with learning difficulties , so your organisation is only caring about dementia people means you are not shaping your business to unlined with the government policy. Another factor can be local agreement; it depend on the contract an organisation have agree with the local authorities and the NHS. Economic condition can affect the funding. (Coombs HM and Jenkins (2001). Also the type of business ownership whether the organisation is privately own (may not be able to assess some funding) or voluntary (receive some funding).   2.3. Every business needs to plan its spending on basis of what it expects from sales income; without this tool, you can`t be sure that your business will survive. A budget is a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. (Rachel and G.Rowlands, 2008). In others words we can say budget (derived from old French word bougette, purse) is quantified financial plan for forthcoming accounting period. The major classification of a budget are; master budget, operational budget, cash budget and capital. Planning, controlling and costing are the main function of budget. (Levitt, 1976). By budgeting Powel International Nursing home manager can plan ahead, anticipating obstacles and resolving them before they occur. It also gives him ability to check how the business is doing from week to week, or month to month; as well help to monitor and compare actual result so that modification in operations can be made for better outcomes (Cox and Fardon, 2008). Powel International Nursing home used different types of budget expenditure such as Sales budget (care services given to customer), Resource budget, Production and direct labour budget, Materials and direct labour budget, Budgets for overheads. Finkler, Ward, Baker (2007) The chart shows that purchase cost in February is £ 8000 far greater than the Revenue figure which is £ 5000, as Powel International Nursing home manager, detail inquest will have to be made from the purchase department and review the details of their spending or will need to find a ways to bring costs down. Revenue department will need to look at a ways of increasing the sales figure. If not this may require re-planning for the rest of the month to ensure that target are met. Powel International Nursing home manager, might consider to persuade the NHS to release the fund earlier so as so make cash available for the home earlier and therefore making more cash to be available. 2.4. In order to make a decision about expenditure or considering investment on a particular project, there are various analyses and consideration that are needed to be carried out; such as environment scanning and analysis, focus on priorities, eliminating emotionalism and providing a balance. All short-medium and long-term planning must be included in the budgets. For example if you have plans for expansion and purchases of equipment and property in your budget, you must include growth in your budget. Such budget helps you focus on setting aside money for growing your business, not merely surviving. This focus makes your decisions wiser, because you not only watch your current bottom line, you plan to grow your income for your future bottom line. Prioritization before decision making- Caretech managers should make list of budgets according to priority of their operations. If sales budget is necessary at that time and cash flow budget can be conducted afterwards, then investment will be done just in sales budget. To achieve success in a project, Caretech managers must consider practical, logical and critical thinking before investing in a contract (Malby, Mervyn. and Pirisi, 2013). Also conduct an environment analysis this include political, economic, social and technological issues that may affects business (Drummond-Hay and Bamford, 2009). Others analysis is to identifier the cost and benefit of the project, to do so an evaluation cost needs forecast such as NPV, IRR and payback period. 3.1. Shortfall is the amount by which a financial obligation or liability exceeds the amount of cash that is available (Becker, 2012). Shortfall can be temporary in nature, arising out of a unique set of circumstances or it can be persistent, in which case it may indicate poor financial management practices. Shortfalls may occur in revenues and pre-tax profit or it can also mean that it has not use cost, business and financial control system effectively. As a result the company will not be able to pay their supplier and contractors which sometimes damage the relationship between them where there is lack of trust. A situation of shortfalls can attract penalties and some form of charges against the organisation investment opportunities can be lost. There are several ways by which Caretech can address situation of financial shortfalls: By delaying significant expenditures as well as breaking large sum payment in to smaller one which could be frequently paid, renting or subletting any excess the space available, equity injection, short-term loans, development other systems like credit cards or automatic payments to pay their staff and contractor. Also management have a duty to make decisions upon doing the variance analysis which is part of the budget process. This can help to identify and manage shortfalls on time. 3.2. Fraud can be defined as “intentional deceit, trickery or breach of confidence perpetrated for profit or to gain some unfair or dishonest advantage”. The legal definition does vary between different legal authorities but fraud is usually considered to be a crime, punishments such as fines, compensation and even prison. To commit fraud is acting against the law. (Lang. 2001) Human beings are fallible, and even automated and computerised systems are less than perfect so no system can be guaranteed to be entirely free of errors. Fraud can be errors of omission or purposely. For example: direct cost £ 112.000 could be recorded £ 121.000 make difference of £ 9.000 or failure to record warranty - related liabilities. Often, theft of asset also includes manipulation of the accounts as the fraudster may attempt to cover their fraud by altering accounting records. Fraud can easily damage the reputation of the organisation and that can have a negative impact to the funder. Directors, employees, customers and all connected with the organisation can commit fraud at any time. For example the most famous of financial statements fraud was committed by the directors of a company called Enron (one of the big 5 global accountancy firm) by hiding debts so that they did not appear in the financial statement. As a result many of the directors were charged with criminal offences, including the chief executive was sentenced to nearly 25 years in jail. (CIMA, 2013) All investigations must consider what action needs to be taken to prevent a recurrence, or at least limited in their number and effect. Many of these also prevent deliberate fraud. As a Caretech manager action are to be taken: Segregate duties, e.g. one person does not produce all entries for whole transaction from start to finish, horizontally and vertically analysing all financial report, authorisation procedure (transactions should be authorised), documentation should be used to give evidence of transaction, assets should be properly maintained and recorded, comparison with external evidence or carrying out an audit by a team well trained and able to conduct a proper fraud investigation. In case of fraud, inquiry has to be made immediately following by investigation. The result will be reported after consultation with staff. 3.3. A budget is defined as a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows. (CIMA definition) According to the International budget partnership (2010) budget monitoring is a continuous process of measuring how closely a company or organisation closely meets it financial objectives while budget evaluation refers to the final stage of the budget cycle where there is an assessment of whether the funds or resources of the company have been used correctly and successfully. Budget monitoring which is applicable in health & social care setting and particularly in Caretech involves the process of analysing data collected, as the financial year progresses, in order to maintain credible management of financial resource. This could be done on a regular basis every month through cash flow charts, balance sheet, and a statement of comprehensive expenditure. It help to detect issues in budget which need investigation; enables the source of the problem to be located and issues resolved (Penner, 2004). Figure showing budget control cycle process (Google image) 4.1. Making a decision means there are alternatives or choices to be considered. However skills, knowledge and technique are required to make effective financial decision so chairman, directors, managers, and employers can take decision on behalf of their organisation. But board of directors are the main responsible for making financial decision. Here are some tools that involve: Capital investment decisions under this method company can apply different techniques such, Accounting rate of return (ARR), Net present value (NPV), Payback period which is a system where investor prefer to cover their money as soon as possible within a certain period of time or return on capital employed (ROCE) under this technique company`s profitability can measured. ROCE = Average annual accounting PR Average investment Additionally they use another adequate technique to analyse the performance of the company by making decision of profitability ratios and decision about making risk where they predict the worst in case the excepted generated money return , is not responsive which measure should be taken. For example in Caretech consolidated statement of income where the net profit margin = profit before tax x 100   year 2012 was 3,376.000 x 100 = 5.58 % Revenue                                          114.132.000 For year 2013 profit margin was 28.088.000 x 100 = 24.568 % 114.323.000 By comparing the profit margin year 2013 was higher than 2012 despite the same revenue. 4.2. It true that both cost and expenditure are an indication of a cash outflow, but there is a difference in the inflow they brought. According to David and Fandom (2007), cost is an amount paid to receive a product or service and quality health care is easily defined as doing the right thing (getting the health care services you need), at the right time (when you need it), in the right way (using the appropriate procedure), to achieve the best possible results. Caretech management should keep in mind that quality is determined not just by the cost, there are nine domains for performance and good quality care aspect: These are Safety - patients should not be harmed by the care that is intended to help them, Patient-Centred - care should be based on individual needs, Timely - waits and delays in care should be reduced, Effective - care should be evidence-based, Efficient - reduce waste, Equitable - care should be equal for all people, sustainable, continuity of same level of activities, accessible- provided rooms and toilets for disable people. To monitor the quality CQC stated role is to make sure that hospitals, care homes, dental and general practices and other care services in England provide people with safe, effective and high-quality care, and to encourage them to improve. These regulations ensure the group provide quality service in care industry (national standard 2013). For this reason Caretech home must make sure that a writing documentation policy and procedures are in place such as staff training, supervision, internal & external audit, corrective action to confirm everything is going according to rules and regulations.   4.3. The greatest asset of any business, no matter what its size, is the people who work for it, so the common financial consideration and their impact are the cost of staff training. (Rachel and G.Rowlands, 2008). By encouraging necessary employee skill development training, appraisals and meeting. Caretech are playing an important role in fulfilling the company’s long term staffing needs. This can help to secure contracts and attract services users, as well as ensuring compliance with care quality standards, increasing in revenue and bring down the cost of recruitment and advertisement. The “caring” role is critical to the quality of life of older and vulnerable people now and in the future so lack of training is challenging and risky, this is not only raises significant issues of equity in the workforce but has significant consequence for the quality of care. Companies that are committed to providing employees with training opportunities enjoy the benefits of improved employee satisfaction and retention. Keeping highly trained and motivated employees can help the organisational continue to move forward and became increasingly successful over the long term. Common Financial Considerations and their Impacts on Individual’s
Events / Needs Financial Considerations Impact on the organisation Impact on the Individual
Need for Competent Staff Cost of Staff training:-method of training, mode of training i.e. e-learning or workshops Considerations on whether to spend or not to spend on suitable staff training Negative effect: Increase in direct and indirect cost of training,   Positive effect: competent staff, helpful staff who can provide quality car+e. Receipt of quality care if the management invest in good training.   If the management does not invest in good training then the individuals would not receive quality care as the staff are incompetent.
Cost for Strict recruitment process Considerations on amount of expenditure for the recruitment and selection process Negative impact: the recruitment process may take long and may be more expensive.   Positive impact: quality and competent / experienced staff to offer quality care. Strict recruitment would provide staff that are suitable for the role.   The lack of it would endanger the individuals.
Adequate staff wages due to the for an acceptable -Staff ratio to the individuals Considerations on amount of staff wage expenditure and the need for staffing levels according to the individual needs Negative effect: Increase in direct and indirect cost of training,   Positive effect: competent and motivated staff, helpful staff who can provide good quality care. If enough staff are provided; then personal centred approaches can be implemented   Lack of enough staff ratio could lead to institutional abuse and the lack of accessibility of required services
  4.4. Financial system is defined as” a set of complex and closely interconnected financial institutions, markets, instruments, services, practices and transactions” Gurusamy (2008). Individuals accessing care services in health and care social according to (Department of health 2012) may be influenced by two-test: Needs-test to determine whether the level of one`s need merit a specific benefit and financial means-test which fixes one in an eligibility criterion deciding if one qualities for benefit and how much. Some of the factors are the level of the individual`s disability, type of illness, geographic locations, gender, age, belief about medical care and financial circumstance. Some suggested ways to improve the health and social care services are: Payment by result (PbR), results are achieved and improving efficiency and value for money through ultimately only paying for what is achieved. (Appleby, 2012) e.g. Caretech making sure to offer the highest levels of health care to comply with the appropriate regulations. Thomas Powel (2013) report called for a reform into the charging system fallowing the government`s 2012 review, of migrant access to the NHS including overseas visitor to pay for their NHS treatment, benefit cap comes into effect April 2013 which limits the amount of benefit couple and lone parent receive, Equity and excellence: liberating NHS these include paying drugs company to the value of their medicine produced, innovation need to be promoted. As a result these reforms will generate more income for the government to improving the health care sector and increase value for money and will also restore integrity and fairness to the system that is failing the very people it was supposed to help.   Conclusion: this essay empowers me as manager in Care tech home to recognise that many of tomorrow`s workforce are here today much greater priority need to be given to develop the skills and competence of current workforce, and the quality of team working, to better meet of service users today and tomorrow.  
Share this post:

Cite this Page


Essays Stock (2023). MANAGING FINANCIAL RESOURCES. Essays Stock.

Finding it challenging to complete your essay within the given deadlines?