Considering the existing healthcare setting, where financial facts play a vital role in corporate decision making, it is important that executives at all ranks comprehend the rudimentary facts of healthcare finance. It is also important for managers to understand how these facts are used to improve the financial position of the organisation.
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Managing Financial Shortfalls
Financial shortfalls describes the quantity by which a financial liability or obligation surpasses the quantity of available cash (McMenamin 2005). It can either be temporary or persistent in nature. Temporary shortfalls arise due to unforeseen circumstances that impede the ability of the organisation to meets its immediate obligations (Tennet 2008). Long term shortfalls however are caused by poor financial management practices. Financial shortfalls can be calculated by comparing the value of financial obligation with the amount that can be generated from available assets within the timeframe required.
Financial shortfalls are a major concern for any organisation, and should be corrected as soon as possible. Shortfalls are usually corrected by introducing steps to increase the amount of cash available to meet the relevant obligations. These steps include:
- Adding equity in the form of cash or capital, such that the existing deficit is filled.
- Suspending any additions to the existing staff, as well as postponing salary increases.
- Increasing prices and fees.
- Decreasing the time allowed for account receivables, as well as improving collection efforts for all accounts receivables.
- The organisation can also negotiate with vendors to increase the time required to pay for goods and services.
Apart from this, the organisation can also enact several steps to manage shortfalls. They can hire competent financial advisors, sublet any excess space, and increase services to improve revenue. The company can also institute human resource management to oversee promotions, salary increases and new hires.
Financial shortfalls pose several negative consequences for any organisation. First, shortfalls may result in lost opportunities as the company lacks sufficient funds to invest or carry out important mission building activities.
Financial Fraud Actions
Fraud describes a deliberate act of deception, carried out in order to achieve a gain that is both unlawful and unjustified (Kovacich 2008). Financial fraud therefore describes the illegal and dishonest activities, carried out by a company or an individual, calculated to give the perpetrator an undue advantage (Kovacich 2008). Several types of general fraud have been identified. The first type is fraud by false representation. This type of fraud describes cases where an individual expresses or implies a representation as to fact or law, with the knowledge that it is misleading or untrue (Sullivan & Sheffrin 2003). The second type is fraud by failure to disclose information. This describes cases where an individual fails to divulge any pertinent information to a third party when they are obligated by law to divulge such information. The final type of fraud is fraud by abuse of position. This describes cases where an individual abuses a position where they are supposed to protect the financial interests of a third party (Sullivan & Sheffrin 2003). The generalised distinction of fraud offers the framework in which financial fraud is classified. There are three types of financial fraud: financial fraud by misappropriation of assets, reporting fraudulent statements, and corruption (Kovacich 2008). Corruption involves deliberate acts of deception by those who hold office, and usually entails bribery.
There are several methods of detecting fraud in an organisation. The most notable red flag is the tendency to gloss over bad situation in order to preserve the image of the organisation. An unexplainable change in the financial position of the company also signifies fraudulent activities. Apart from this, the unjustified elevation of certain individuals within the firm may also point to fraud within the organisation (Kovacich 2008).
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In order to prove fraud, it has to be shown that the action of the defendant satisfies five elements. First, that the defendant falsified a quantifiable fact. Secondly, that the defendant knew the statement he was providing was false. Thirdly, that the defendant intended to deceive the victim. Fourth, that the victim had justifiable reasons to rely on the statement provided. Finally, that the victim encountered some form of injury as a result.
Fraud risk assessment is the occasional evaluation of the different divisions in an organisation to detect likely incidents and patterns that need to be resolved. The assessment process involves identification of potential instances that may lead to fraud (Sullivan & Sheffrin 2003). The next process in the process is evaluation of the implications and probability of this identified fraud risk. Finally, the process involves a response to those risks that are highly significant and likely.
In case of fraud, employees should take the required steps and avoid incriminating themselves. They should:
- STAFF MUST report the matter to their direct line manager as soon as possible (Kovacich 2008).
- STAFF MUST meticulously record all the activities that they witnessed and any information that they could attain or were aware of.
- STAFF MUST NOT challenge the suspected individuals directly.
- STAFF MUST NOT discuss what they suspect with their colleagues before and after reporting the matter to the relevant authorities.
When managers become aware of fraud within the company or their department, they are required to take several steps. These include:
- MANAGERS MUST commence an initial investigation to establish the facts.
- After ascertaining the matter, MANAGERS MUST forward the allegation to the head of audit and risk management (Kovacich 2008).
- MANAGERS MUST NOT discuss the matter with other employees or their fellow managers (Allen & Gale 2001).
Fraud has several impacts on the perpetrators, the victim and the organisation. Fraud is both a moral, civil and criminal offence. The individual committing the crime faces a civil suit as well as criminal actions (jail term). The victim faces loss of income, funds, and personal investment. The organisation faces a civil suit, loss of investors and a decreased credit rating.
Budget Monitoring Arrangements
Budget control describes the process of controlling the operation of an organisation by instituting standards and targets pertaining to revenue and costs, and the evaluation and adjustment of performance against the targets instituted (McMenamin 2005). Budget Monitoring therefore describes the process of assembling, evaluating and summarising financial data, and comparing these values to the targets set out in the budget to ensure they stay within limits (Tennet 2008). The budget monitoring process involves ascertaining the current position of the company, comparing the current position to the targeted position, identifying any required actions, providing a report to the budget holder, approving the required action and putting the action in place. The most important budget monitoring tools are the work plan and the progress review.
There are several principles that guide the budget monitoring process. They are:
- Information collection should be carried out regularly and in such a manner that it allows changes to be instituted.
- Every member should be assigned specific duties.
- Commitment accounting: This involves setting aside some funds in order to cover future purchases. This ensures that this money is not utilised for other purposes.
- Expenditure profiling: At every stage of the monitoring process, all expenditures should be analysed and compared to the values allowed in the budget.
- Virement: budget controllers should be able to establish a new budget or transfer funds from one part of the budget to another part, so as to accomplish the planned expenditure (Allen & Gale 2001).
Budget monitoring is undertaken to ensure that resources are utilised for their intended purposes. Monitoring also occurs to ensure that these resources can be accounted for, to both internal and external authorities (Tennet 2008).
Information required in Making Financial Decisions
Financial decision-making describes the process of selecting a logical choice, from a list of options, on how financial resources should be utilised (Tennet 2008). Financial decisions are made depending on several factors. The first factor is the urgency on which the decision is needed. The second determinant is the priority of the decision. Certain decisions pose a very big impact on business operations and thus should be given the first consideration. Finally, strategic business determines what decisions should be made at any particular time.
In any organisation, three important personnel mainly make the financial decisions. They include:
- Board of directors: They are responsible for making organisational-level decisions. In order to make these decisions, the board should have access to financial data, employee information, business external environment data, and information on the internal business processes. This information can be obtained from the human resource department, business environment surveys and the accounting department.
- Managers: managers are responsible for making divisional level: In order to accomplish this, they need the strategic plan developed by the BOD, employee information, production information, and financial data. They can obtain this information from the human resource department, face-to-face interaction with the employees and from their respective heads of departments.
- Employees are usually responsible for making task-level decisions within the organisation. They need information about the required tasks and information highlighted by the strategic plan. This information can be acquired from their line managers.
Effective financial management allows companies to take advantage of any opportunity that comes their way. Financial decision making also allows the organisation to make decisions that will optimise profits for both the company and its shareholders (Tennet 2008). Finally, effective financial decision making ensures that everyone in the company is on the same footing pertaining to what is planned, what is happening, and what is required.
Relationship between Care Service Delivered and ‘Costs and Expenditure’
Quality describes the standard of a particular item as measured against other similar items. Cost on the other hand is the amount that is required to obtain or buy an item. Expenditure is a function of cost, and describes the amount of money spent in the acquisition of a particular item or service (Sullivan & Sheffrin 2003).
The National Health Performance Committee has approved nine dimensions to measure the performance of health care systems in terms of quality of care (National Health Performance Committee 2001). The approved domains include:
- Effective: The care provided should achieve the desired outcome.
- Appropriate: The care provided should be relevant to the needs of the patient and should be based on established standards.
- Efficient: The care provided should attain the required outcomes in a manner that is cost effective.
- Responsive: Service providers should respect all people under their care and should be client oriented.
- Accessible: Health care should be available to all people at the right place and right time irrespective of cultural background, physical location and income.
- Safe: The care provided should avoid harm or reduce it to acceptable levels.
- Continuous: Care provided should be coordinated and uninterrupted over time.
- Capable: The care provided should be based on skills and knowledge.
- Sustainable: Health care systems should be able to provide appropriate infrastructure, equipment and facilities, while also be innovative and able to react to emerging needs.
Apart from this, there are other factors that constitute the quality of cares. They include: staff commitment, effort of staff, quality of input, staff support and supervision, better staff training, better patient monitoring efforts, and user involvement in acre package.
In order to continuously improve the quality of care, several actions have to be taken. Quality assurance involves; The periodic assessments of care quality, identification of shortcomings or problems in health care delivery, developing activities to deal with these deficiencies, and continual monitoring to ensure that the corrective actions are efficient (Luker, Orr & McHugh 2012).
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Impact of Financial Consideration on a Service User
Financial consideration describes careful thought or deliberation on the financial decision to be made. It describes the careful deliberation on how to use the available financial resources (Tennet 2008). Before making a financial decision, one must consider the following factors:
- The availability of funds
- The need for accessible and quality services
- The manner in which events are prioritised.
- The strategic plan of the organisation as well as its aims and objectives.
- The different expenditures being faced i.e. rent, wages, social activities etc.
- Regulations and government policies.
Financial consideration affects an organisation and the service user in different ways. These impacts include:
- Adequate staff wages: By providing adequate staff wages, an organisation ensures that the staff will always give their best in any task accorded, and thus improve the production efficiency and thus more money.
- Cost of staff training: Staff training will ensure that the organisation has trained staff with the knowledge and skills to improve production.
- Cost of strict recruitment: By setting aside money for strict recruitment, an organisation can develop an effective recruitment process that not only saves time but also money.
Effective financial consideration ensures that important business aspects are given consideration over others. Financial consideration also allows an organisation to review its internal system and plan for the future.
Improving Care Services through Changes in Financial Systems and Processes
Financial systems describe a set of multifaceted and interconnected practices, instruments, markets institutions, and transactions that permit the transfer of funds between investors (and savers) and borrowers. The financial process described the procedure where this available funds move between investors and borrowers. In health care systems, changes in financial systems or process can affect the quality of care in several ways. The main effects include:
- Payment by results: This system while offers several short term advantages has the potential of being harmful in the long term. If care institutions are not sure of the outcomes, they may opt to forgo expensive procedures.
- NHS charging overseas visitors: This change in financial process may lead to high quality of care as organisation will have an influx of funds to carry out its activities (Department of Health 2010).
- The benefit cap places a restriction on the number of benefits an adult between 18 and 64 can access. This change in the financial system can cause some client to struggle when paying for payment services as their revenue has decreased.
- Liberating NHS is the government plans to reform NHS. This will improve the quality of care as patients will have easy access to services anywhere at any time (Department of Health 2010).
One of the greatest challenges in implementing these changes is maintaining high levels of quality in health care delivery. These changes entail changing how care providers operate and in some case how clients pay for funds. The changes require new systems and processes put in place, to ensure a smooth transition from the old to this new system.
Improving health care is very important as it ensures that the system can react to changes in the environment. It ensures that care provision changes with the advances in technology, and the market.
The current health care environment requires health care managers to understand financial facts. The need for transparency has necessitated both managers and employees to be knowledgeable about fraud and the various red flags of fraud. Apart from this, changes in the health care industry necessitate managers to understand financial system, and the impact that result from any changes in these systems. By understanding these issues, a manager can effectively lead his organisation to success.
Allen, F & Gale, D 2001, Comparing Financial Systems, MIT press, Cambridge.
Department of Health 2010, Equity and Excellence: Liberating the NHS, The Stationery Office, London, Web.
Kovacich, G 2008, Fighting Fraud: How to Establish and Manage an Anti-Fraud Program, Elsevier Academic Press, London.
Luker, K, Orr, J & McHugh, G 2012, Health Visiting: A Rediscovery,3rd ed., Blackwell Publishing, Oxford
McMenamin, J 2005, Financial Management: An Introduction, Routledge, London.
National Health Performance Committee 2001, National Health Performance Framework Report, Queensland Health, Brisbane, Web.
Sullivan, A, & Sheffrin, S 2003, Economics: Principles in action, Upper Saddle River, New Jersey, Pearson Prentice Hall.
Tennet, J 2008, Guide to Financial Management, Profile Books Ltd, London.