The Financial Management of the Health and Social Care Organization CareTech PLC - Essay Example

The Financial Management of the Health and Social Care Organizations: CareTech PLC and of the institution Date of submission 1.0 Introduction CareTech PLC is a company that is associated with the provision of quality care and support services among children and grown-up individuals. The company offers a number of services that are crucial in the field of health and social care services. The firm offers its services in various segments, including the adult learning disabilities. The adult learning disabilities’ segment is associated with the residential care homes, the community support services and the independent supported living. The second area that is associated with the social care services is the mental health. The mental health care, among adults, is provided on the basis of the community based hospital, independent supported living and adult residential care homes (CareTech, 2014). The young people residential services are directed towards children; this segment is associated with various facilities that are associated with facilitating the learning of children, as well as managing their behaviors. Fourthly, the company offers the foster care services; this segment ensures that children are assessed in their homes. This foster care segment is related to the provision of special services to children with disabilities. While offering these services, the management understands that a prudent financial management can help the company to perform effectively in its area of operation (CareTech, 2014). In this respect, this paper is focused on assessing the financial management of the health and social care organization; the paper will pay attention to the operations of CareTech PLC. Among the financial aspects that would be discussed include the principles of costing and business control systems. 2.0 The Costing Method, Quality Control System and Financial Management 2.1 The Absorption Costing and Quality Control System The Absorption Costing Method Considering that CareTech PLC is a firm that focused on offering health and social care services, it is critical for the firm to use the absorption costing method. The absorption costing method ensures that various costs are expensed to a given product or service. This method is effective as far as the external reporting is concerned (Fukui, Yoshiuchi and Ikezaki, 2014). The method ensures that both direct and indirect costs are effectively expensed to a given service or product. The absorption cost would be efficient in determining the costs that are required to be met by CareTech PLC in various segments in order to continue offering its services to diverse clients. Generally, the direct and indirect costs are assigned to different the end product or service that is provided to a customer. The absorption costing has remained a key principle of costing among the service firms, including health and social care firms. This is due to the fact that the absorption costing helps the service firms to indentify the employees that are associated with the low cost of operation (salary) and high level of productivity. In this respect, CareTech PLC can use the absorption costing method to identify an employee that is associated with high level of efficiency as far as the company’s operation is concerned. In other words, CareTech PLC would stand a chance of assigning employees to jobs that are likely to deliver high level of productivity. The Quality Control System As far as the home care services are concerned, it is important of a health and home care firm to ensure quality control systems are put in place. In particular, there is a need of internal quality control systems in order to achieve efficiency. Although various the health care organizations are needed to adhere to a number of minimal standards as far as the delivery of health and home care services are concerned, Baltussen, Narh-Bana and Agyepong (2006, p.556) argue that there is a need for a health care firm to establish minimum accepted conditions that are accepted with respect to the delivery of care services to clients. In order for CareTech PLC to ensure it earns an edge relative to other firms in the market, there is a need to establish the quality requirements that should be met by every employee as far as the delivery of health and home care services are concerned. In particular, the quality control system should provide a platform for a continuous improvement of the health and home care services provided by CareTech PLC. Apart from ensuring the quality of services are improved, Kirkley, Bamford and Bond (2011) note that there is a need for the system to ensure various errors that occur during the delivery of services are controlled; this would ensure that the delivery of health and home care services are of high quality. However, in an endeavor to ensure quality is maintained, the internal control system should ensure that non-compliance is identified and possible causes for non-compliance are identified; this would make sure that associated costs and damages are reduced significantly. The internal control systems which would be embraced by CareTech PLC should ensure various health and home care services match with the professional requirements in the healthcare system. The upholding of professionalism in the medical field ensures that the rights, views and claims of clients are taken into consideration as far as the service delivery is concerned. Finally, but by no means the least, the internal control system should ensure that the setting of the health and home care services are associated with the safety of workers and patience. An internal quality control system with such features would ensure that CareTech PLC is able to maintain a competitive edge as far as the provision of the home care and health services are concerned. 2.2 Regulation and Management of the Financial Resources in Health and Social Care Organizations Regulation of Financial Resources by Organizations The regulatory framework for the use of the financial resources by any organization ensures that finances are used while taking into consideration decorum; regularity and value for any pound spend on various expenses (Shippee, Shippee and Beebe, 2014). This framework ensures that a firm stands a chance to attain its strategic plan. Any individual that enters into financial contract that is associated with a firm should adhere to the provisions of the financial regulatory framework. Normally, an employee who fails to comply with the financial framework provided is liable for diverse disciplinary actions, including a lay off, imprisonment or fine. It is not uncommon that the breach of the financial regulation provided by an institution is identified via auditing. The human resource is the main department that introduces an employee to a framework that guides the prudent use of the financial resources in an organization. The senior employees are expected to ensure that all employees adhere to the rules and regulations which guide the use of the financial resources. The Financial Management of CareTech PLC The Financial Planning In order to attain success as far as the delivery of health and social services are concerned, there is a need for CareTech to prepare financial statements that attempt to project the future financial performance. The projected financial statement should entail the costs and revenues that are expected to be experienced in a given period, such the next five accounting periods. The financial projection for CareTech PLC should be prepared by the financial department; the forecasted financial statements should later be handed in to the board of directors for an approval. The budget should be approved if it is in line with the company’s strategic plan and the available financial resources. 3.0 The Sources of Income, Factors influencing the Availability of Financial Resources, Budget Expenditure and Decision Making The health and social care organizations are associated with diverse sources of income; however, the main source of income that is experienced by such organizations includes the clients’ fee. Typically, patients are required to pay for various health and home care services provided by healthcare professionals. Although, individuals that visit the private health and social care organizations are required to pay for health services provided, in a number of circumstances these services are subsidized by the national and local governments. Generally, the healthcare system in the United Kingdom ensures that patients are able to access health care services free of charges with respect to certain medical conditions. For instance, the National Health Service, a system that exists in England, North Ireland, Wales and Scotland, ensures that a large number of healthcare services are provided to the residents of the UK; a significant part of the health services are without charge at the point of use (Reed, 2014). Reed (2014) adds that the National Health Service system is normally funded via taxation. Due to the continuing economic difficulties, the government has made various patients to pay for certain health and social care services. In the US, the optimal cost that an individual can spend on a medicine which is prescribed by the National Health Service does not exceed $12 (Reed, 2014). Apart from the health and social care services revenue, which are provided by client or government, the nursing and social organizations experience revenues through auxiliary services, such as parking fee, running of cafeteria, grant revenue and investment income. CareTech PLC stands a chance to gain revenue from these areas; however, there is a need for a strong financial management to realize this revenue. With respect to CareTech, the main revenue was attributed to the adult learning disabilities segment; the company realized revenue of £73.9 million as of 2013 (CareTech, 2014). The provision of the mental health services earned the company revenue that amounted to £6.5 million as of the end of 2013 (CareTech, 2014). The young people residential services provided the company significant revenue which amounted to £19.6 million at the end of the financial year 2013 (CareTech, 2014). The last segment that provided CareTech a substantial revenue is the foster care; the provision of services that are associated with the foster care ensured that the company was able to experience revenue of £14.3 million (CareTech, 2014). Table 1 The CareTech’s Revenue (2013) Segment Revenue (£ million) Adult Learning Difficulties 73.9 Mental Health 6.5 Young People Residential Services 19.6 Foster Care 14.3 Total 114.3 CareTech, 2014. On the other hand, CareTech PLC and other nursing and social organizations are likely to face costs via expenses which are associated with the payment of salary, supplies, corporate allocations and utilities. A company experiences a number of the utilities expenses, such the payment of electricity, water, maintaining a hygienic sanitation services and other related services. Conversely, supplies are associated with various healthcare and care service, such as the purchase of medicine and other medical facilities, including beds and instruments. Although hospitals and home care organizations face a range of expenses, the payment of salaries to various health and care professionals is regarded to account for the largest portion of these institutions expenses. While the total revenue of CareTech PLC amounted to £114.3 million, the administrative costs were estimated at £45.6 million (CareTech, 2014). As far as the company’s operations are concerned, CarekTech should take into considerations various factors which may affect the availability of financial resources; this includes the extension of credit and management of debt. A significant extension of credit may result in significant default among debtors. It may also affect the liquidity of the firm; CareTech PLC should consider emergency medical conditions as the only situations that may call for provision of services on a credit basis. This would ensure that the company does not affect substantial number of defaulters as far as services offered on credit are concerned. Similarly, the company should limit prepayment to various services and medical since it may affect the liquidity of the firm in the case of emerging costs which need to be met. 5.0 The Management of Financial Shortfall and Fraud and the Monitoring of the Budget System 5.1 The Management of Fraud and Financial Shortfall In case of a financial shortfall, there would be a need to find various ways of raising money for a health and care organization. With respect to a financial shortfall in CareTech, it would be prudent to seek various ways that would see the company operate effectively. Among the alternatives include the issue of additional shares; it is not uncommon that successful health and social organizations manage to raise enough finances via the issue of shares. This process calls for listing a firm on the stock exchange via the secondary stock market. Another source of finance for the organization in the event of a financial shortfall would include the issue of bonds on the debt market; a number of potential bond purchasers are likely to fund the organization on a certain agreed interest rate. The other option for raising funds would include seeking grants from various organizations that support the facilitation of the health and social care services among children and adults (Lemak, Cohen and Erb, 2013). Conversely, in case of a fraud, there would be a need for a forensic accounting investigation to establish the source of fraud. The investigation would take into consideration the assessment of invoices, bank statements and other relevant sources of information, as well as the final financial statements. The forensic investigation is expected to establish an individual or group of individuals that were associated the fraud. The group of individuals or individual would be handed over to the police; the police are expected to take them to the law courts to respond to the subject of fraud where they would be expected to face various consequences, include imprisonment and fine. 5.2 The Financial Monitoring CareTech PLC ensures that various activities that are associated with the forecasted budget are monitored to make sure the short-term and long-term objectives are upheld. The CareTech PLC’s financial department understands that it is critical for the financial operation of the company to be monitored on a continuous basis; this would make sure that the firm operates according to the laid down strategic plan. In this respect, there is a need to ensure that all invoices are accounted for properly; additionally, the prepayments and accruals of the firm should be recorded and assessed to ensure that they do not lead to the deviation of the firm’s short term and long term objectives. Moreover, Zismer (2013) of the view that monitoring of the budget ensures that the employees of the firm do not spend more than what is outlined on the budget; overspending may result in financial losses and other associated difficulties. However, in situations where overspending is necessary, it is important for enough evidence regarding the expenditure to be provided. This would ensure that various spending which are associated with the financial waste are minimized. As far as monitoring is concerned, there is a need to ensure that diverse expenditures are executed in accordance to the budget; however, expenditures that are characterized by inefficiencies should be identified in order to make sure the firms uphold a high level of productivity and low cost of operation. Generally, the employability of the budget control system would help CareTech PLC to achieve an effective financial performance as far as the financial management is concerned (Browdie, 2013). Specifically, CareTech PLC should prepare a budget for a certain period; the budget should take into consideration the various changes, such as market conditions (the cost of services and regulations) and vision of the company. Additionally, the company should monitor the budget to ensure that identified gaps are filled in time; similarly, expenditures that do not add value to the firm should be eliminated to pave way for other productive activities with respect to the provision of the health and social services. The Budgetary Control Fukui, Yoshiuchi and Ikezaki, 2014. 6.0 Information for Decision Making, Care Service and Costs and Ways of Improving the Service Provided by Care Tech PLC There is a number of information that an analyst should look as far as making financial decision is concerned. With respect to the activities that are performed by CareTech PLC an individual should assess the current assets, which include the level of inventories. The CareTech PLC’s inventories decreased from £615 thousand in 2012 to £515 thousand in 2013 (CareTech, 2014). The inventories are associated with carrying costs; however, maintaining a reasonably high level of inventories ensures that an organization is likely to continue operating without facing instance of interruptions. Additionally, there is a need to evaluate receivables in order to understand whether the company is likely to face liquidity problems given the fact that a significant amount of money can be tied up on debt. The CareTech PLC’s trade and receivables improved from 10,044 thousand to 8,054 thousand. As regards the non-current assets, CareTech PLC would be interested in assessing the large amount of money is tied long-term assets which are not associated with the revenue generation. The long-term assets (property, equipment and plant) increased from £192,119 thousand in 2012 to £238,568 thousand in 2013 (CareTech, 2014). With respect to the current liabilities, the company should find out the company is facing a high level of liabilities. The total current liabilities decreased from 28,111 thousand to £27,029 thousand in 2013 (CareTech, 2014). On the other hand, the non-current liabilities would help the company to evaluate the level of loans and borrowings; the long-term debt normally indicates whether a firm is likely to face insolvency. The company’s long-term loans and borrowings increased from £132,144 to £164,651 thousand in 2012 and 2013 respectively (CareTech, 2014). The share capital helps an analyst to understand whether the shares of a certain firm are highly diluted. The share capital improved slightly to £260 thousand in 2013 from £256 thousand in 2012 (CareTech, 2014). Additionally, the level of retained earnings also indicates the future expansion, and the high value of shares. Firms are likely to maintain a high level of the retained earnings with a view of experiencing a high value of the firm in the event that the retained earnings are assigned to productive activities (Corbett and Kappagoda, 2013). With respect to the ordinary activities of the nursing and social organizations, care service refers the type of service which is provided to a client with a view of fulfilling certain purpose, such as addressing a certain medical condition or improving a certain body condition, which include rehabilitating drug addicts. With the above information, a user is likely to reduce or increase the level of certain financial aspect with a view of achieving financial efficiency. On the other hand, costs and expense comprise of the resources that are spent to ensure a given client is able to achieve a certain goal, such as healing, after the provision of a certain care service. 7.0 Conclusion In order to ensure the CareTech PLC is associated with the best practice in the health and home care services, there is a need to embrace the quality control system. Jenkins (2007) shows that the quality control system ensures that the a certain minimum standard is provided that every health and social care provided should adhere to; the quality control system provides a platform upon which the performance of the health care professionals can be measured. Additionally, the effectiveness of the quality control system is attributed to the fact that it provides a basis for controlling various types of errors which occur during the provision of health services. Last, but by no means the least, the quality control system ensures that the company is able improve its services on a continuous basis. Generally, the quality control system ensures that quality is embraced by employees while ensuring the level of cost is maintained at the lowest level. Typically, the employment of the quality control system approach in hospitals can help the health and social care organizations to attain the best global performance as far as the provision of its services are concerned. List of References Baltussen, R., Narh-Bana, S. and Agyepong, I. 2006. Management of mutual health organizations in Ghana. Tropical Medicine & International Health, [online] Available at: [Accessed 25 July 2014]. Browdie, R., 2013. Why Is Care Coordination So Difficult to Implement? EBSCOhost, [online] Available at: [Accessed 25 July 2014]. CareTech, 2014. CareTech Community Service. [online] Available at: < http://www.caretech- uk.com/> [Accessed 25 July 2014]. Corbett, J. and Kappagoda, M., 2013. Doing Good and Doing Well: Corporate Social Responsibility in Post Obamacare America. Journal of Law, Medicine & Ethics, [online] Available at: [Accessed 25 July 2014]. Fukui, S., Yoshiuchi, K. and Ikezaki, S., 2014. Determinants of financial performance of home- visit nursing agencies in Japan. BMC Health Services Research, [online] Available at: [Accessed 25 July 2014]. Jenkins, R. ed., 2007. Mental health reform in the Russian Federation: an integrated approach to achieve social inclusion and recovery. Bulletin of the World Health Organization [online] Available at: [Accessed 25 July 2014]. Kirkley, C., Bamford, C. and Bond, J., 2011. The impact of organizational culture on the delivery of person-centred care in services providing respite care and short breaks for people with dementia. Health & Social Care in the Community, [online] Available at: [Accessed 25 July 2014]. Lemak, C., Cohen, G. and Erb, N., 2013. Engaging Primary Care Physicians in Quality Improvement: Lessons from a Payer-Provider Partnership. Journal of Healthcare Management, [online] Available at: [Accessed 25 July 2014]. MarketWatch, 2014. CareTech Holdings PLC. [online] Available at: http://www.marketwatch.com/investing/stock/cth/financials?countrycode=uk [Accessed 25 July 2014]. Reed, C., 2014. Is there still such a thing as a UK NHS? Nursing Standard, [online] Available at: [Accessed 25 July 2014]. Shippee, N., Shippee, T. and Beebe, T., 2014. An observational study of emergency department utilization among enrollees of Minnesota Health Care Programs: financial and non- financial barriers have different associations. BMC Health Services Research, [online] Available at: [Accessed 25 July 2014]. Zismer, D., 2013. An Argument for the Integration of Healthcare Management with Public Health Practice. Journal of Healthcare Management, [online] Available at: [Accessed 25 July 2014]. Appendix The CareTech PLCs Income Statement Fiscal year is October-September. All values GBP millions. 2009 2010 2011 2012 2013 Sales/Revenue 83.42M 89.7M 109.15M 114.13M 114.32M Cost of Goods Sold (COGS) incl. D&A 52.36M 53.21M 70.07M 73.14M 72.47M COGS excluding D&A 49.82M 49.83M 63.81M 65.73M 65.58M Depreciation & Amortization Expense 2.54M 3.38M 6.26M 7.41M 6.9M Depreciation 2.2M 2.5M 2.68M 3.08M 3.17M Amortization of Intangibles 340,000 887,000 3.58M 4.33M 3.72M Gross Income 31.06M 36.49M 39.08M 41M 41.85M 2009 2010 2011 2012 2013 SG&A Expense 11.28M 15.29M 22.24M 23.65M 22.46M Research & Development - - 0 0 0 Other SG&A 11.28M 15.29M 22.24M 23.65M 22.46M Other Operating Expense 0 0 0 0 0 Unusual Expense 8.15M 9.95M 5.09M 5.97M (14.36M) EBIT after Unusual Expense (8.15M) (9.95M) (5.09M) (5.97M) 14.36M Non Operating Income/Expense 250,000 0 144,000 -27,000 50,000 Non-Operating Interest Income 15,000 23,000 32,000 20,000 - Equity in Affiliates (Pretax) 0 0 0 0 0 Interest Expense 5.09M 3.71M 4.51M 5M 5.72M Gross Interest Expense 5.09M 3.71M 4.51M 5M 5.72M Interest Capitalized 0 0 0 0 0 Pretax Income 6.81M 7.56M 7.42M 6.38M 28.09M Income Tax 2.02M 1.04M 1.6M 170,000 3.72M Income Tax - Current Domestic 2.41M 1.44M 2.12M 2.53M 2.98M Income Tax - Current Foreign 0 0 0 0 0 Income Tax - Deferred Domestic -392,000 -400,000 -511,000 (2.36M) 745,000 Income Tax - Deferred Foreign 0 0 0 0 0 Income Tax Credits 0 0 0 0 0 Equity in Affiliates 0 0 0 0 0 Other After Tax Income (Expense) 0 0 0 0 0 Consolidated Net Income 4.79M 6.52M 5.81M 6.21M 24.37M Minority Interest Expense 0 0 0 0 0 Net Income 4.79M 6.52M 5.81M 6.21M 24.37M MarketWatch, 2014. 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