Business Controls Adopted by CareTech Holding PLC: An Overview

The principles of costing and business control that may be adopted in CareTech Holding PLC

The costing scheme that CareTech has adopted is based on the IFRS standard. According to the Companies Act of 2006, under section 408, the company has to present a comprehensive income statement. Following the regulations, the income statement of the company was £14,479,000. The company writes off the investments written in the balance sheet. Some other transactional costs are added to the balance sheet and the amortised costs (net of transaction costs) are comprehensive income over period. Table 1 demonstrates the internal costing that is done by CareTech.

Table 1: Investment Costs (CareTech 2013)

The business controls that are adopted by CareTech Holding PLC (henceforth termed as CareTech) are twofold – internal control and financial controls. Financial reporting is a form of control that helps the company to manage the statutory matters, which publishes the interim financial statements (Borrajo et al. 201). Further, transparency and review of the appointment of senior and key personnel is an area that requires control. The audit committee ensures that the monitoring process ensures internal control and operational efficiency. The Audit Committee is responsible for handling all the accounting and internal controls throughout the organization.

The information needed to manage financial resource for CareTech Holding in 2013 financial ending

In order to setup the financial resources for CareTech for 2013, it was necessary to gather information regarding the business and its performance by financial ending.in case of 2013, the important information that were necessary were – acquisition information, investment, post balance sheet events, cash flow, earnings per share, dividend and taxation (Siano, Kitchen & Confetto 2010). This information was necessary to formulate the costing for the company the financial year-end.

Regulatory requirements that need to be satisfied while managing financial resources in CareTech Holding PLC

The regulatory requirements that needs to be looked after by CareTech are as follows:

1. The first are that the company has to look into is the quality maintenance. The company has to vigorously look into the maintenance of quality, which is dealt by a committee within the company named “Care Quality Commission” and Ofsted.
2. The company has to be aware of the current best practices in salary trends, as this will allow the company to attract new talents. Further, remaining updated with the regulatory requirements for salary structure is essential to frame legally correct salary structure.
3. Other than this, the company has to select the best possible and legal accounting policy and apply to consistently to the financial control tools.
4. Further, following the IFRS rules is important, as European Union has adopted the International Financial Reporting Standards (IFRS), which regulates that the Directors must approve the financial statement and be satisfied with its fair disclosure before it is released.

The systems for managing financial resources in CareTech Holding PLC

The group is headquartered in the UK. Hence, it follows the accosting regulation followed in the UK. The Directors approve the financial statement before it is released. The financial statement is endorsed by IFRS 10, which manages the consolidated financial statement, IFRS 13 looking into the fair value measurement, IAS 19 used for employee benefits, IAS 27 applicable for separate financial statements, and transition guidance that deals with the amendments to IFS 10, 11, and 12.

The financial statements that are prepared by the company are based on the historical cost except in case of derivative financial instrument (Swayne, Duncan & Ginter 2012). The consolidation of the statement is done based on the control is ensured by the Group. The basis for the consolidation followed by the group is done directly or indirectly in order to control the financial policies so that benefits can be gained from the policy.

The diverse sources of income available to CareTech PLC in the financial year in 2013

Table 2 demonstrates the different sources of revenue earned by CareTech. The company earns maximum of its revenue from programs dealing with adult learning disabilities. The revenue of the company was £114.3 million in 2013, which showed a partial increase by £ 0.2 million. This 0.2 percent increase only showed a partial increase in the revenue of the company.

CareTech experienced the highest revenue earning in the Adult Learning Disabilities segment, which reported 92 percent occupancy in 2013 (CareTech 2013). The demand for residential programs for high acuity users is expected in 2104. The revenue related to Adult Learning Disabilities revenue changed from 66.4 percent in 2012 to 64.7 percent in 2103 and the EBITDA reduced from 61.8 percent in 2012 to 59.3 percent in 2013.

Table 2: Sources of Revenue for CareTech (CareTech 2013)

In the Children and Young People learning segment, the revenue has increased by 15.3 per cent (table 2) and that for Foster Care reduced by 6.5 per cent. These are the four sources of income for the Group – Adult Learning Difficulties segment, Mental Health segment, Young People Residential Services segment, and Foster Care segment.

The factors that may influence the availability of financial resources in CareTech PLC

The factors that can influence revenue earning of the company are as follows:

1. Human resources who are essential to provide care. Hence, finding the right staff and carers who can provide the right help are essential for providing services to the company. Good, competent, and qualified staff is essential for the business of CareTech to provide good care to adults and children (Dalziel, Gentry & Bowerman 2011).
2. Training is essential to the caregivers. Hence, people who can provide training to the caregivers and manage them are essential to the business (Morellec & Schürhoff 2011). Thus, a good support system is required for the front line caregivers. Thus, management and training are the to other essential areas which need to be looked after in order o have a seamless line of care providers.
3. Real estate is essential or the business. The business requires homes, building, and land in order to accommodate the people who require shelter and support living.
4. Financial stability of the company and the external environment is an essential factor that influences the revenue earned by the company for the Group has to employ the right people and own the right amount of land and buildings in order to remain profitable and provide good service (Morellec & Schürhoff 2011) (Beatty, Liao & Weber 2010).

Different types of budget expenditure in CareTech

The budget expenditures that are included in the financial statement of CareTech are as follows:

1. The payment of financial leases payment, which is appropriated between the financial charges and the liability of outsourcing. Payment of periodic interest for the lease taken is an expense that is included in the budget expenditure for the company as it is a recurring expense (Siano, Kitchen & Confetto 2010).
2. The non-underlying items are put in the budget expenditure if the Director deems. In case of CareTech, the directors feel that these items should be included in the financial statement.
3. The section hat covers the financial costs are added to the budget expenditure. This includes loan payments and interest payments to banks. Further, payment of overdrafts, financial charges, and finance lease are also included (Beatty, Liao & Weber 2010). Further, expenses made during acquisitions and constructions are also included. The depreciation costs and costs of amortisation are also included in this section.
4. Ore-contract costs are also included in the budget expenditure. These include the costs arising out of the contractual period from the time the contract is secured to the time when the closure of finance is achieved.

The ways decisions about expenditure could be made in CareTech

The financial decisions of the organization is made by the broad of directors who entrusts upon the expenditures which they believe are important for the group’s development. The group of finance directors make an estimate of the underlying assumptions, which lead to the expected expenditure over the year. This is then managed according to the IFRS requirements and according to the best judgement of the management team. The investment decisions also require assessment of the recoverability of the return from the investments, which is assessed by the management. The steps that are followed to make any financial decision are as follows:

1. The first step is the evaluation of the project to be undertaken. For instance, in case of starting an adult disability-learning program, the first consideration of the management team will be the feasibility and the demand for the service. In order to understand that, it is necessary to make an opportunity analysis of the project.
2. The second step will be formulating a pro forma balance sheet that will enumerate the cost and cash flow from the project that can be expected. This is necessary step to attract investors.
3. Cost of the project is an important consideration for budgeting a new project. Further, the financial decisions involved in understand the expected cost allows the organizations to make an expected estimation regarding cost of the projects undertaken.
4. Return on investment estimation is an essential step to enumerate the decisions of the budget. Forecasting the return on the investment made is an important financial decision, which will show the efficiency of the project.
5. Understanding the legal issues associated with the financial decisions and implementation of a project plan is essential, as the financial decisions of the organization will be based on the legal issues.

Managing the assumed financial shortfall in CareTech

If the company faces financial difficulty, then the first step will be to consolidate its finances. Financial instability will reduce the company’s financial resources and will curtail their ability to appoint new and better employees who can provide proper care and support (Gatchev, Pulvino & Tarhan 2010). Importance of acquiring the right employee and real estate is paramount for the business of CareTech. However, in case of a financial downfall become imminent, the aim of the company will be to manage its operations with limited financial resources.

Though the process will be tough as the business of caregiving is dependent on employees and trying to acquire employees at a lower wage becomes a challenge (Almeida, Campello & Weisbach 2011). Thus, the aim of the company will be to increase their training cost, thus, increasing the training to novice employees to match up to the quality of the professional caregivers. The aim of the company will be to attract the employees with lesser pay but with a better promise of job satisfaction.

Another impediment will be to acquire real estate. Real estate is an essential requirement for success of business for CareTech. Best possible real estate has to be acquired. However, the real estate needs to be acquired at lower rate when there is financial difficulty (Allen, Bali & Tang 2010). The financial difficulty will constrain the company’s ability to acquire high priced land. Hence, their target will be to acquire less expensive land.

Further, the aim of the company will be generate greater revenue and profit from the business segment that has the highest share in revenue. In case of CareTech, Adult disability learning segment generates greatest amount of revenue and hence more attention should be given to this area. In case of other segments, the aim will be to garner enough revenue to sustain the growth rate.

Action to be taken in case of suspecting occurrence of financial fraud in the organization

Bookkeeping and maintaining records to identify accounting fraud is essential in all organizations. Similar measures are taken in CareTech Holding. However, in case fraudulent activity is suspected in the organization, then it is the responsibility of the directors to comply with the Companies Act 2006. Further, safeguarding the assets of the company becomes a priority and the goodwill in the market, which is adversely affected due to the presence of illegal activity within the organization.

The first step will be identification of the fraud and its source. Then steps should be taken to prevent it. Further, escalation of the issue to the highest authority and identification of the people responsible for such fraudulent activity is important. This will help us identify the wrongdoers and take necessary steps to prevent such situations in future.

Budget outcome monitoring in CareTech

The budget outcome monitoring in CareTech is almost negligible. The directors and management monitor the risk management and the system’s internal control. However, no proper mechanism is in place that monitors the overall financial system outcome. Once the statement is released, it becomes an absolute treaty. This is not evaluating against the real outcomes and hence may create a disparity in what is printed and what is actually experienced by the company. Further, the system assumes that the directors are unbiased, truthful agents who are not corrupt. However, a fraudulent activity may have its source at the top most level. The company does into have a system to detect the fraud in the system that occurs at the top level as the top management is assumed to be perfect and uncorrupted.

Information required to make financial decisions relating to CareTech PLC

The identifying information that is required before making financial decisions regarding CareTech is –

1. The nature of the business of the company. The business segments and the revenue earned by each of the segments. The result will be a wholesome understanding of the organization. This will provide a clear view of the organization and its operations. Understanding what a company does before deciding on its financial performance is necessary.
2. A complete study of the past financial statements of the company will allows us to understand the overall performance of the company.
3. Information regarding the cash flow and the future investment of the company is necessary. This will help us to understand the risk taking behaviour of the company. Further information regarding the taxes paid and other debts of the company must be evaluated properly before taking any financing decision.

The relationship between care service delivered and ‘costs and expenditure’

Table 3 demonstrates the costs and revenue and the client capacity for the year 2013 and 2012. The table demonstrates that in each of the years, the total client capacity remained unaltered. However, the costs of the company increased from 2012 to 2013. Even when the cost increased, there was an increase in Revenue and the EBITDA. The financial expenses however, decreased considerably from £74,57,000 in 2012 to £48,14,000 in 2013. However, the client capacity remained the same. Thus, there is not specific relationship that can be determined by the care service delivered. The costs and expenditure in 2012 and 2013 fluctuated even though the client capacity remained same.

Table 3: Revenue, costs, and expenditure (CareTech 2013)

Financial considerations affects upon a service user

Financial considerations are of paramount importance for someone who wishes to take up a service. However, in case of learning and specifically health care service, people tend to try to attain the best possible facility even at a cost that does not suit them. The primary consideration that the customer will have will be on the quality of service provided. Service quality is of primary importance. Price of attaining the service becomes a secondary consideration in case of health care services.

Further, if the services even in health care services are too high then it will become difficult for the people to attain the services. Hence, the primary concern will be to get the best possible services at the lowest possible cost. Though this is an ideal situation, but in many cases, it is observed that services are evaluated by, customers based on the price tag they have and often people consider less prices services to be of inferior quality. Hence, the most importance consideration for adopting a service is service quality.

Ways to improve the care service provided by CareTech PLC through changes to its financial systems and processes

Financial system of the company has to be more segments oriented. More clear division must be made as to the cost and expenses that in undertaken in each of the segments. This will help in the pricing policy of the company. (Borrajo et al. 201)Each segment must be evaluated separately in the financial statement in order to understand how each segment’s performance affects the operation of the company, which will directly affect the service pricing. Further, this will also allows us to understand cost and revenue earned per client in each of the segment, creating a clear view as to what mark-up can be placed over the cost to create a profitable pricing strategy.

References

Allen, L, Bali, TG & Tang, Y 2010, ‘Does systemic risk in the financial sector predict future economic downturns?’, Review of Financial Studies , vol 25, no. 10, pp. 3000-3036.

Almeida, H, Campello, M & Weisbach, MS 2011, ‘Corporate financial and investment policies when future financing is not frictionless’, Journal of Corporate Finance, vol 17, no. 3, pp. 675-693.

Beatty, A, Liao, S & Weber, J 2010, ‘Financial reporting quality, private information, monitoring, and the lease-versus-buy decision’, The Accounting Review , vol 85, no. 4, pp. 1215-1238.

Borrajo, L, M., Corchado, JM, Corchado, ES, Pellicer, MA & Bajo, J 201, ‘Multi-agent neural business control system’, Information Sciences , vol 180, no. 6, pp. 911-927.

CareTech 2013, Annual Report, viewed 19 June 2014, <www.caretech-uk.com/~/media/./Caretech./annual-report-2013.pdf>.

Dalziel, T, Gentry, RJ & Bowerman, M 2011, ‘An integrated agency–resource dependence view of the influence of directors’ human and relational capital on firms’ R&D spending’, Journal of Management Studies, vol 48, no. 6, pp. 1217-1242.

Gatchev, VA, Pulvino, T & Tarhan, V 2010, ‘The interdependent and intertemporal nature of financial decisions: An application to cash flow sensitivities’, The Journal of Finance 65.2, vol 65, no. 2, pp. 725-763.

Morellec, E & Schürhoff, N 2011, ‘Corporate investment and financing under asymmetric information’, Journal of Financial Economics, vol 99, no. 2, pp. 262-288.

Siano, A, Kitchen, PJ & Confetto, MG 2010, ‘Financial resources and corporate reputation: toward common management principles for managing corporate reputation’, Corporate Communications: An International Journal , vol 15, no. 1, pp. 68-82.

Swayne, LE, Duncan, WJ & Ginter, PM 2012, Strategic management of health care organizations, John Wiley & Sons, New York.