Unit 2 MFRD Assignment Sample

Programme	Diploma in Business
Unit Number and Title	Unit 2 Managing Financial Resources and Decisions
QFC Level	Level 5
Credit value	15 credits
Unit Code	H/601/0548

Introduction

The methods of costing and their functionalities have been explained with the help of this assignment. The case of Caretech Plc has been taken up to analyse the same. The paper explains how the organization manages its budgets and various sources funds.

Task 1

1.1 Principles of costing and business costing system that may be adopted in Care Tech holding PLC.

Cost Accountancy is defined as the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability including the presentation of information derived there from for the purpose of managerial decision making. Costing refers to the technique and process of ascertaining cost.
The important principles of costing are as followed by Care Tech Holding PLC are:

1. Abnormal Costs are charged in costing: Abnormal costs are those cost which are arising out of unexpected or abnormal conditions such as loss by fire, theft, riot or accidents. As it is not related to the production part abnormal cost cannot be charged to the production unit. Therefore the normal costs which are related to production are charged to the production unit and not the abnormal ones. (Bright, Davies, Downes and Sweeting, 1992)
2. Cost is always related to its cause: Basically it is seen that cost is always related to its cause. The cost data are collected and analysed on the basis of their nature and are allocated and apportioned on the basis of its cost centre.
3.  Cost is charged after it is incurred: Till no cost has been incurred it cannot be considered as a cost and cannot be charged to the cost centres. For example- abnormal loss is a part of production process but its cost cannot be charged to the production unit until and unless it has been incurred. (Dover and Oswald Jr, 1974)
4. Past costs are not taken into consideration for future cost: It is the principle of cost that any cost of any period should meet in the period itself. It would be a wrong step if past period cost is taken in the future period.

Advertisement is an exception to the consideration as it is treated as deferred revenue expenditure; therefore it cannot be charged in the period of its expense.
Principles of Business control System: The traditional financial accounting cannot provide all information’s necessary for managing a modern business successfully. Thus as a branch of financial accounting, cost accounting has evolved. Cost accounting with its developing techniques is rapidly expanding in the field of its application. Another aspect of accounting is the management accounting and it is being employed in many concerns as an informative mechanism to aid the management in decision making. Both cost accounting and management accounting working together can keep the management well informed about what is going on in the business and what changes, if any, are required to give effect to. (Kennedy and Affleck-Graves, 2001)

1.2 Information needed to manage financial resources of Care Tech Holding PLC in 2003 financial ending

In order to manage financial resources of Care Tech Holding PLC better way the information’s are required:-

1. Information on financial analysis: A financial analysis and review to determine the current financial performance and condition of the business of Care Tech Holding PLC, an identification of any particular financial problem, risks, constraints or limitations and the assessment of financial strength. Weakness, opportunity and threats (a financial SWOT analysis)
2. Information about financial decision making: Based on the findings to manage financial resources financial decisions are made. These are likely to include strategic investment decisions such as investing in new production facility or the acquisition of another company. (Blazek, 1996)
3. Financial Planning: The essence of financial planning is to ensure that right amount of financial resources are available at the right time and at the right cost for the level of risk involved to enable the firm objective to be achieved.
4. Financial control: this is to ensure that proper plans to manage financial resources have been implemented in Care Tech Holding PLC and the progress is continually reported to the management, and that, any deviations from plans are clearly identified.

1.3 Regulatory requirements that need to be satisfied while managing financial resources in Care Tech Holding PLC

As a modern Financial Management performs several functions it is difficult to manage financial resources. There are various resources from where funds can be generated such as loans from banks and other financial institutions, using your personal savings, venture capital; government funding etc. successful managing of finances can bring in sustainability and growth in Care Tech Holding PLC .Following are the different ways by which finance can be managed in Care Tech Holding PLC.

1. A cash flow budget is prepared to ensure the proper use of financial resources and enables to manage the revenue and expenditure.
2. By deciding when to purchase equipment and to determine what amount of capital is required to purchase such equipment financial analysis is required to implement.
3. Finance can be managed by identifying the hidden costs of a project such as installations, maintenance and repairs, insurance, utilities etc.
4. By analysing the financial position the company can manage resources by collecting accounts receivables, managing inventories, examining account payable cycle and by controlling expenses. (Collis, 2008)

1.4 Evaluation of system for managing financial resources in Care Tech Holding PLC

Care Tech Holding PLC is using complex tools to manage their finance. However finances in a Care Tech Holding PLC can be managed though different activities such as:
Evaluation and Planning: in order to manage finance in Care Tech Holding PLC first and foremost evaluation and planning of finance have to be implemented by evaluating the financial effectiveness of current operations.
Long term Investment decisions: Managers of Care Tech Holding PLC must be aware of the capital investment decision. Such decision facilitates the acquisitions of fixed assets which are the primary means for any organization.
Working Capital Management: it is the fund which an organization possesses to finance its day to day operations. If an organization cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may be forced in bankruptcy.

Task 2

2.1 Diverse sources of income available to Care Tech PLC in the financial year 2013

Most of the health and social care organizations depends upon the mix sources of funding. Combination of income is a mechanism of generating revenue of Care Tech PLC. The following are the some diverse sources of income available to Care Tech PLC:

1. Taxation: there are different sources at different levels and different types of taxation. Health care organizations in UK are basically funding from direct taxation. Part of the tax revenue has been embarked with sale of cigarettes in UK. Main source of revenue of health care organization is from the local taxes and regional taxes in UK. (Ashton, 1991)
2. Social health Insurance: Social health insurance are not related to risk as the income is earned or collected by a body at an arm’s length from the government. The collection agents can be National health Insurance fund, individual health insurance fund, Social insurance fund. Social health insurance fund have different means of collecting revenues along with taxes as discussed above.
3. Private Health Insurance: private health insurance is a complementary, substitutive, or supplementary. Private health insurance is a substitute to the statutory insurance of the population who are free to opt out from social health insurance.

2.2 Factors that may influence the availability of financial resources in care Tech PLC

There are different factors that facilitate the availability to gain entry in Care Tech PLC. Factors such as geographical, architectural, transportation and financial consideration are influencing the availability of financial resources in the Care Tech PLC. In case of Care Tech PLC there are no financial barriers. People basically rely upon the health and social care organizations as the free public health care service are not functioning as expected.
Geographical distribution of health care organizations is not equitable as the general hospitals and clinics are basically concentrated in cities and urban areas. It might be difficult for the poor people from rural areas to gain access to such health care services. The service cost in Care Tech PLC is financed by both patients and insurer if the patient is insured the financial burden is transferred to the insurer. The burden of finance on the patient depends on the insurance scheme he has opted for. Therefore the financial burden on the patient can be heavier in which the costs are borne by the patients. (Caretech, 2014)

2.3 Different types of budget expenditure in Care Tech PLC

Most health care units spent more than 80% of their income towards expenditures for medical goods and services including the physicians, clinics, hospitals and other professional nursing homes as well as purchase of durable goods and retail prescription drugs. The different types of budgeted expenditure Care Tech PLC can be summarized as follows:

1. Aggregate expenditure for physicians, clinic, medical labs etc.: most detailed estimate of for physician and clinical service is estimated is relatively higher for physician services and medical labs.
2. Expenditure on Dental services of home health care exceeds 19% to 14%. Data from the economic census covers expenditures of private home health care service which is around £9 to £13 billion. (Caretech, 2014)

2.4 How decisions about expenditures are made in care Tech PLC

The decisions to be made in capital expenditure in Care Tech PLC is critical to effort as it is an effort to improve the health care quality and fund to maximize the efficiency of the organization. In order to plan for a capital expenditure the management has to decide whether such contribution will result to improve patients outcome and whether it will help to meet a high demand for health care service or whether it will improve the working conditions, improve efficiencies, supports innovation, research and development.
Hospitals with greater availability of financial resources to spend on care will result in the likelihood of making capital expenditures and adopting innovations will result in improvement of hospital performance. The appropriate level of distribution of capital expenditure matches the need of capital is to be considered as to how well capital is managed in Care Tech PLC.Cost benefit analysis is the technique is the most powerful decision making aid in a public health organization  which aims to replicate market process and procedures result in a form of comparison with private sector organization. This reflects a continuing trend in the health care industries cost benefit analysis proves to be a decision making tool to impact directly through instruments such as quality of life indicator rather than money terms. (Caretech, 2014)

Task 3

3.1 Assuming there was a financial shortfall in Care Tech PLC, Explain how the situation can be managed

Financial challenges grow with the customer’s demand of medical services. There is a significant reduction in the cash flow, increased amount of receivables days and shortfall in the revenue generation due to registration error in health care organization. For that reason the health care organizations put a lot of effort on focusing on registration accuracy. Registration process of patients now a day’s include various information such as insurance information, including insurance eligibility verification, demographic and credit risk. There are a number of factors due to which there is a shortfall in the financial resource Care Tech PLC such as inefficient administrative process, uninsured patients and that are contributing to the breakdown of efficient revenue cycle management. In order to overcome such financial distress the health care organizations has to take actionable steps. Such as faster claim payments, less denied claims, less time in accounts receivables. A reduction in the cost will also help to overcome the financial shortfall in Care Tech PLC by implementing the following:

• Fewer errors will lead to lower cost of rework
• Reduction in time to train insurance information changes
• Reduction in the risk of Medicare.

Hospitals revenue flow will increase if an intelligently guided patient registration will have a positive impact. In order to overcome the financial pressure the health care organization can adopt fortress mentality in order to protect them from financial shortfall. Alternatively, they can reach out to other organization for a for a system solution for the greater good. (Acerbi, Nordio and Sirtori, 2001)

3.2 What actions would you take if you suspect occurrence of financial fraud in your organization

The act of committing theft, loss of assets and other irregularities is known as fraud. The Act provides various ways of committing fraud:

• Fraud by false representation: it includes dishonesty by making a false representation in order to gain for themselves or another or to cause loss or to expose another to a risk of loss.
• Fraud by failing to disclose information: fraud fails to disclose information’s which they are legally bound to disclose by failing to disclose any information to make a gain for them.
• Fraud by abuse of position: acquired a position by the act of fraud to safeguard the financial interest of another person. An abuse of position to make a gain for themselves or another or to cause loss to another. (Rezaee, 2002)

Once the fraud is suspected the following plan of action can be implemented:

• By trying to prevent any further loss
• By trying to collect necessary evidences for criminal and disciplinary actions
• Establish a line communication with the police and determine how and when to contact them
• Assign responsible persons to investigate the incident
• By trying to recover the losses
• Make employee and other people aware about the anti-fraud culture.

3.3 Budget monitoring arrangements in care Tech PLC.

Care Tech PLC aims to give individuals care and service they receive, by giving them control over the money they spend on their health care. Health care budgets involve major cultural and organizational changes for patients. It will help to examine the use of health care budgets in maternity and at the end of life care. The evaluation helps to identify whether health budgets deliver better outcomes of patients than conventional health service. The services which are received before the offer of social health care budget the factors are likely to provide responses to and expectation of social health care budgets.
The objective is to forecast any impotent differences from the budgets indicated by actual income and expenditure level in the period. The monitoring report of Care Tech PLC will be based on the information from financial information system. Cash receipts, receivables, payables, payrolls etc. will be included in the report.

Task 4

4.1 Information required to make financial decision relating to Care Tech PLC

The growth of Care Tech PLC around the globe providing direct medical services has increased the number of decision makers who understands the needs of financial information. Accurate interpretation of financial information helps in effective decision making. Many health care decision makers like doctors, nurses, dieticians, pharmacist, radiation technologists, physical therapists, are medically trained but lack in experience of finance and business. Communication with the financial executives of the organization will not always be helpful. As a result the organizations non-financial staff often starts ignoring financial statements.
Many health care facilities which are expanding in size the governing body of such health care facilities significantly use these financial statements. The third factor for creating a factor for more knowledge of financial information the importance of financial and cost criteria helps in decision making in the health care organizations. (Kimmel, Weygandt and Kieso, 2007)

4.2 Relationship between care services delivered and ‘cost and expenditure’

Health and social care services spending can be assessed from a number of points of view:

• Spending trends of capital and revenue
• Cost pressures such as pay inflations
• Hospitals and community health services
• Organizations
• Acute and mental health care programme
• Social, community care and hospitals
• Health and social care staff expenditure

There is a linkage between specific funding allocations and actual expenditure and subsequent service delivery. This leads to the description of health and social care sector as a financial black hole where apparent additional funds there are a very small gap in resolving the problem areas. Allocation of the additional funds in the social and health care organizations through a range of mechanism is hardest to link to specific activities.

4.3 How financial considerations impact upon a service user

The different factors that facilitate the availability to gain entry in the health care system. Factors such as geographical, architectural, transportation and financial consideration are influencing the availability of financial resources in the health and social care organizations. In case of free health and safety organizations there are no financial barriers. People basically rely upon the health and social care organizations as the free public health care service are not functioning as expected.
Geographical distribution of health care organizations is not equitable as the general hospitals and clinics are basically concentrated in cities and urban areas. It might be difficult for the poor people from rural areas to gain access to such health care services. The service cost in the health care organizations is financed by both patients and insurer if the patient is insured the financial burden is transferred to the insurer. The burden of finance on the patient depends on the insurance scheme he has opted for. Therefore the financial burden on the patient can be heavier in which the costs are borne by the patients. (Hampton, 1976)

4.4 Ways to improve care service provided by Care Tech PLC through changes to financial system and processes

Various ways to improve the care services through changes to financial system:

1. Successful organizational improvement initiative is through effective leader who enable improvements to occur. These leader have the ability to take the organization headed in terms of service delivery and begin to move their organization to a better position
2. The organization can adopt a fortress mentality and seek to protect them from a financial crunch.
3. They can reach out to other organizations and work towards whole system solutions
4. Employees should be motivated to take forward improvements in their day to day service delivery. It may not be possible for a staff for an involvement in the planning stage. Staff need support and improve process to feel ownership over the improvement.
5. Stakeholder’s involvement is a key for the improvement of health and social care organization. The organizations should also engage government officials to set a well-intended improvement programme. (Hampton, 1976)

Conclusion  

The growth of Care Tech PLC around the globe providing direct medical services has increased the number of decision makers who understand the needs of financial information. Accurate interpretation of financial information helps in effective decision making. The above explanation shows how the organization manages its financial resources and how efficiently it disseminates financial reports to the interested parties.

References

Acerbi, C., Nordio, C. and Sirtori, C. (2001). Expected shortfall as a tool for financial risk management. arXiv preprint cond-mat/0102304.
Ashton, D. (1991). Corporate financial policy: American analytics and UK taxation. Journal of Business Finance & Accounting, 18(4), pp.465--482.
Blazek, J. (1996). Financial planning for nonprofit organizations. 1st ed. New York: J. Wiley.
Bright, J., Davies, R., Downes, C. and Sweeting, R. (1992). The deployment of costing techniques and practices: a UK study. Management accounting research, 3(3), pp.201--211.
Caretech, (2014). Annual Report  and Accounts 2013. [online] Available at: http://www.caretech-uk.com/~/media/Files/C/Caretech-UK/reports-and-presentations/annual-report-2013.pdf [Accessed 24 Apr. 2014].
Caretech, (2014). Who we are. [online] Caretech-uk.com. Available at: http://www.caretech-uk.com/about-us/who-we-are.aspx [Accessed 23 Apr. 2014].
Collis, J. (2008). Views of the directors of SMEs in the UK on financial reporting requirements in a changing regulatory environment.
Dover, L. and Oswald Jr, B. (1974). A Summary and Analysis of Selected Life Cycle Costing Techniques and Models.
Hampton, J. (1976). Financial decision making. 1st ed. Reston, Va.: Reston Pub. Co.
Kennedy, T.and Affleck-Graves, J. (2001). The impact of activity-based costing techniques on firm performance. Journal of management accounting research, 13(1), pp.19--45.
Kimmel, P., Weygandt, J. and Kieso, D. (2007). Financial accounting. 1st ed. Hoboken, NJ: John Wiley.
Rezaee, Z. (2002). Financial statement fraud. 1st ed. New York: Wiley.