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Managing Financial Resources in a Health Care Organization

Abstract

Financial resources are critical to the operations of organizations in the sense that they promote efficacy through acquisition of human resources, equipment, and technology among other vital organizational elements. However, the management of financial resources is also a challenge as many cases of misappropriations are reported all over the world. In the health care sector, the management of financial resources is even greater considering that the sound financial resources management improve the quality of care given to the patients and save healthcare expenditures.

Unit 14 Assignment

Introduction

Financial resources are critical to the success of organizations because with sound financial backgrounds, the institution can achieve efficiencies in a number of areas. However, a robust financial background implies having effective and relevant financial management strategies. This is even more important when it comes to the health or social care sector where there are diverse departments and many personnel. This essay explains some of the aspects related to financial management in the health or social care sectors.

1.1The Principles of Costing and Business Control Systems

In the health or social care organizations, costing applies to the financial process of estimating the amount of money spent while generating services to patients or clients (Field & Brown 2007). In this regard, costing includes aspects such as estimating the money to be paid to healthcare workers for service deliveries and the amount spent on equipment used to deliver healthcare services among other activities that require expending financial resources (Field & Brown 2007).

In short, costing in the healthcare organization relates to estimation of financial expenditures. On the other hand, the business control systems apply to the different systems that collect and use information to evaluate the performances or efficiencies of the business operations of the organization such as those relating to finance (Broadbent & Cullen 2003).

There are different principles of costing and business control systems that are adopted to improve efficiency. One of the principles is integrity that means personnel charged with handling financial resources should act ethically (CIMA 2016a). Due diligence is another principle of costing and business control system and it means being keen to avoid errors. When undertaking costing and business control systems, employees are expected to be transparent hence this also a principle desired (CIMA 2016a).

There are also different elements related to the principles of costing and business control systems. One of the elements embodied in the principles of costing and business control systems concerns costs. Under costs, the organization estimates the entire expenditure spent on different activities and uses the costs to inform the development of an appropriate costing control system (Field & Brown 2007).

The second element present in the costing and business control system regards income that is the amount of money the organization is able to raise because of the services it provides. This element is critical to the establishment of the business control system because the amount of income determines the type of business control system to be adopted (Broadbent & Cullen 2003). The third element used in the costing and business control systems entail costs benefits analysis.

This means evaluation of the benefits and demerits associated with different costing and business control systems adopted. Another element of the costing and business control system relates to expenditure and this refers to the analysis performed with a view to determining the financial effect that the implementations of the costing and business control systems have on the organization (CIMA 2016b).

In the same vein, the element of budget is also associated with the costing and business control systems and the budget element is used to establish whether the costing and business control systems are affordable to the organization. Lastly, the element of capital is also vital to the principles of costing and business control systems since it is the capital that is used to allocate resources to the costing and business control systems in the organization (Broadbent & Cullen 2003).

1.2Information needed to manage financial resources

Management defines the process of controlling things while financial resources are the money the organization has at its disposal to spend and is available in different formats such as credit lines, liquid securities, and cash (Field & Brown 2007). The management of financial resources does not occur in a vacuum but instead require certain critical information. In the health or social care sectors, business costs arise from different components that also act as the key information necessary for the management of the financial resources.

One of the sources of information of business costs in healthcare regards the people. Under people, this means the service users, employees, and suppliers and the information originating from the people is essential to the management of financial resources (CIMA 2016b). Equipment refers to the entire tools and technology used in the healthcare facility to deliver services and because the organization spends a great deal on equipment, information from the equipment line is valuable when it comes to the management of financial resources (Field & Brown 2007).

The core of financial resources in the organization is the finance that encompasses all the funds that the organization has and handles. This information is necessary if effective financial resource management is to take place. Buildings are the housing resources that the healthcare organization has and the information from building is important in the management of financial resources because how buildings are used can provide indications of the financial flows (CIMA 2016a).

Consumable items are those items that are used recurrently such as paper, food, bed sheets, towels, and soaps to mention but a few. The information that arises from the use of consumables is significant in the management of financial resources because failing to establish the pattern may mean not having an appropriate control system. Administration refers to the process of management and because there are equipment, technology, and personnel tasked with the administration purposes, the information from administration is also key to the management of financial resources.

Lastly, income streams apply to the organization’s sources of income and this information is crucial for the management of financial resources because it helps to determine the balance between income and expenditure (HFMA 2015).

1.3The Regulatory Requirements for Managing Financial Resources

Regulatory requirements are the policies and legislations that control the financial operations in the organization. It is the regulatory requirements that function to align the financial operations of the organization with the statutory provisions standards expected. For instance, in the UK, the Health and Social Care Act of 2012, governs all the financial operations in the health sector (HFMA 2015).

In healthcare, there are external influences to business costs from a regulatory requirement perspective. One of the external influences to business costs revolves around changes in policies. When there is a change in healthcare policy, the organization has to embrace changes that will reflect the adaptation to the new policy and the integrations of the new requirements means expenditure (Lindsay et al. 2014).

Competitive factors such as the pricing of health care services or diagnostic costs also represent another external influence to business costs in the healthcare sector. With the competitive factors, the healthcare organization is forced to introduce new technologies or professionals and this means additional costs (Field & Brown 2007). Legal requirements are the other external influences that add costs in the healthcare sector.

The legal requirements imply that the organization has to be regulated by certain bodies and this implies subscription fees and other necessities to be fulfilled. The financial legislation and codes of practice also have their associated implementation costs and when the healthcare institution implements them, there are costs incurred. Another source of regulatory cost to the business is audit. Although internal auditors can undertake auditing activities, sometimes it is a requirement that external auditors have to be used.

In such case, external auditing firms have to be given the job at a fee or contract and this means additional costs to the business. Lastly, accountability is another external factor that influences business costs. Accountability generates costs in the sense that the organization has to implement systems and establish external associations to oversee accountability (Monitor 2016).

1.4Systems for Managing Financial Resources in a Health Care Organization

Systems for managing financial resources refer to the processes that healthcare organizations can use to manage their financial resources. There are different systems for managing financial resources on health care organizations. Sources of income are among the systems for managing financial resources in healthcare organizations. The sources of income entail the different ways that that the healthcare organization generate its income. For example, government funding and voluntary donations are sources of income to the healthcare institutions (Field & Brown 2007).

The advantages for using this system of financial resource management are that it readily identifies misallocated funds and promotes accountability in financial resources. Its disadvantage is that it focuses only on the income sources (Field & Brown 2007). Setting of budgets is another system that can be used to manage the financial resources of the organization and under budget setting, the healthcare facility outlines the different requirements and how the costs should be catered for (Broadbent & Cullen 2003).

For example, the healthcare organization can peg the yearly costs that are expected to run the different activities in the organization. The advantages of this system are that it establishes the variances and identify the effective departments. On the other hand, setting budgets prevent flexibilities in terms of operations and therefore its demerit. Like setting of budgets, administration of budgets is also another system that can be used to manage the financial resources.

Administration of budget is a system of managing the financial resources of the organization whereby a detailed financial plan for a given period is prepared (Field & Brown 2007). This is usually done on annual or quarterly basis. The advantages of administration of budgets are that it facilitates the control of financial resources on a daily basis and tracks the costs associated with supervisory and non-production aspects.

However, its main limitation is that it is time consuming (Broadbent & Cullen 2003). Another system of managing financial resources in healthcare organizations is the creation of cost centers, which are departments, charged with calculating revenues and costs of the healthcare institution (Field & Brown 2007). The advantages of cost centers include facilitating quick control of financial resources and they are motivational to the managers and employees.

However, they can be a source of pressure to the staff members hence the disadvantage. Accountabilities are systems that use transparency principles as a way of managing the financial resources in the healthcare organization. The advantages of accountabilities are that they promote responsible use of financial resources in the organization and they improve the image of the organization. Nevertheless, implementation of accountabilities means extra spending and more costs to the organization.

Finally, auditing can also be a system for controlling financial resources through the identification of gaps in usage of financial resources. The advantages of auditing are that it can help to detect hidden malpractices and can also be used to establish the trends in the financial spending. In the same vein, auditing requires investments of time and other resources hence the disadvantage (Field & Brown 2007).

References

Armit, K. and Oldham, M., 2015. The Ethics of Managing and Leading Health Services: a view from the United Kingdom. . Asia Pacific Journal of Health Management, 10(3), pp.118–121. Retrieved, 2016 from Ebscohot.com

Ball, R., Eiser, D. and King, D., 2013. Assessing Relative Spending Needs of Devolved Government: The Case of Healthcare Spending in the UK. Regional Studies, 49(2), pp.323–336. Retrieved, 2016 from Ebscohot.com

Broadbent, M. and Cullen, J., 2003. Managing financial resources. Oxford: Butterworth-Heinemann.

CIMA, 2016a. . [online] CIMA Financial Management Magazine | Chartered Institute of Management Accountants. Available at: <http://www.fm-magazine.com/> [Accessed 15 Nov. 2016].

CIMA, 2016b. HELPING PEOPLE AND BUSINESSES TO SUCCEED. [online] CIMA. Available at: <http://www.cimaglobal.com/> [Accessed 15 Nov. 2016].

Field, R. and Brown , K., 2007. Managing with plans and budgets in health and social care. Exeter: Learning Matters.

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Price Analysis for the Navigation System

Hi-Delta is a new company to provide drone navigation systems that the U.S government looks for more often and its aim is to dominate in the production of navigation systems used in aircrafts. The systems provided by Hi-Delta will comply with the Federal Acquisition Regulations (FAR). According to the plan, there will be a building in a warehouse-area that rents its headquarters and will be located in Philadelphia area for the whole operation of the company.

The company’s office will have employees working in different departments. These employees are the CEO, Directors, General Managers and their assistants, Accountants and tax preparers, receptionists, manufacturers and security guards. These employees will offer services that improve and build up the services of the federal government.

The main objective of the company is to acquire the much needed supplies and services of the appropriate navigation systems to the government. Hi-Delta focuses on giving most appropriate cost quotations for its navigation system products to the federal government, therefore motivates the government in ordering and purchasing navigation systems in bulk for the whole military.

The products which Hi-Delta is the GPS system for navigation and other products which includes; tracking devices, text to speech navigation systems, Bluetooth navigation systems, hands-free systems for navigation, smart watches, traffic products, along with map products. A part from the federal government Hi-Delta also targets established companies which deal with manufacture and development of air crafts and also companies that manufacture cars and phones, because they will require installation of navigation systems to their products.

Price analysis, without doubt is an important aspect as far as contracting is concerned. The contracting factors that Hi-Delta will focuses on in order to get a contract from the federal government include; contract changes, initial offers, and final statements. The price analysis is basically the process of examining and evaluating an intended price without putting into consideration the separate cost of elements. In essence price analysis for the navigation system does not consider the profits to be earned.

At Hi-Delta Company the method to be used in analyzing the price includes the comparison of the prices that are being submitted, comparing the price quotations and contracts submitted previously with the current prices and quotation for the similar products and services, comparison of proposed prices that puts into consideration the independent cost estimates put across by the US government, and comparison of published prices set forth on a competitive basis.

The method chosen for Hi-Delta Company is based on number of factors such as speculation of efficiency of the federal government in achieving its objectives. It also aims at conducting speculations regarding anticipated global changes in systems for navigation.

The main cost which Hi-Delta company has priorities in the pricing strategy is the cost of manufacturing. The cost of manufacturing is particularly high since the direct inputs required for the building of unmanned, manned system including aircrafts, space systems and technology is too costly (Adithan, 2014). Equally, this field requires experienced and hands on professionals who have a deep understanding of the navigation systems. The cost of employing such personnel is who will be directly involved in manufacturing and monitoring the navigation system is too high.

Also, product costs are important for Hi-Delta as they form an essential aspect when it comes to pricing. For a Hi-Delta to determine its appropriate cost incurred during the production of navigation systems, it is imperative that the product costs be considered and in so doing evaluation appropriate inventory evaluation should be done.

Cost classification entails separation of expenditures into various groups. For example, expenses in accounting can be divided into two categories, that is direct and indirect costs while in economics it may have variables, fixed, production, and opportunity cost. I would compare my prices and costs of my company with those already on the market which does the same business as mine i.e. the navigation system of other resembling business in the market. The price is the key to the summation of profits and the cost, and so the price forecasting which Hi-Delta depends will be prices comparison in the market putting in mind that competitive companies like Vector Cal offers.

For the startup phase of Hi-Delta Company, the company will incur two types of costs namely variable and fixed costs. Variable costs keep changing while the fixed costs always remain the same. This means that fixed cost does not depend on the output. The company incurs fixed cost in the production of any number of the navigation systems. For instant, when it produce one or a million. When the sales level increases it does not affect the fixed cost in any way. Fixed cost are very inelastic unlike variable cost this so it is essential for the company to know the revenue needed for it to achieve the economic balance.

Variable costs are costs that vary depending changes in the production output. They vary depending on the company’s production volume; they rise as production increases and falls as production decreases (Hilton et al., 2013). It includes direct material costs or labor costs. Variable cost ratio is an expression of a company’s variable production costs as a percentage of sales this is calculated as variable costs divided by total revenues.

The variable cost calculation can be done on a per-unit basis, such as a $20 variable cost for one unit with a sales price of $200 giving a variable cost ratio of 0.1 or 10%, or by using totals over a given time period, such as total monthly variable costs of $1000 with total monthly of $10000 also rendering a variable cost ratio of 0.1 or 10%. Since the variable cost ratio quantifies the relationship between revenues and the specific costs of production associated with the revenues my plan has taken care of various challenges that are likely to be incurred.

Hi-Delta Company has taken into account, writing the fallback strategy as to cater for risks and to reduce the company’s unnecessary expenditure. Examples of variable costs include the cost of raw material and packaging. Increases or decreases in variable costs occurred without any direct intervention or action on the part of the management of the company. It increases in fairly constant rate in proportion to increases in expenditures on raw materials or labor. Hi-Delta is expected to perform detailed and conclusive research, and this implies that efficient and appropriate resources will be required for the exercises.

An instrumental component of analyzing prices is cost allocation standard. It is significant that every business uses this strategy. Cost allocation strategy 418 and 410 is an imperative method as far as businesses are concerned (Mariotti & Glackin, 2013). The main reason is that the method can allow Hi-Delta to calculate the total expenses incurred for the start-up including direct and indirect costs. In addition, the standard allocation 408 is imperative as it deals with analyzing the cost related to employees. Whenever cost analysis is performed for a business, the US government requires that the cost principles should be used in pricing negotiated supply, service, experimental, and developmental and research contracts modifications.

References

Adithan, M. (2014Process planning and cost estimation. New Delhi: New Age International (P) Ltd., Publishers.

Hilton, R. W., Maher, M., & Selto, F. H. (2013). Cost Management: Strategies for business decisions. Boston, Mass: McGraw-Hill.

Mariotti, S., & Glackin, C. (2013). Entrepreneurship: Starting and operating a small business. Upper Saddle River, N.J: Pearson/Prentice Hall.

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An Amortization Schedule

An amortization schedule refers to a tabular presentation of the mortgage loan payment schedule, indicating the interest and principal amount paid until the loan is repaid fully (Brechner & Bergeman, 2014). An amortization calculator is used in developing the schedule, based on the amount, interest rate and repayment period. The amortization schedule is generally utilized for identifying the amount paid, to both interest and principal, and the outstanding balance.

An amortization schedule helps in the generation of identical payment over the repayment period, such that the entire amount is paid by the end of the period (Biafore, 2013).

The schedule is used in determining the percentage of interest to be paid during each period in comparison to the principal amount to be repaid. In essence, it separates the portion of payment that covers the interest expense from the portion the premium paid to the principal in each period. Biafore (2013) notes that even though a similar amount of premium is paid towards the mortgage each period, the amount allocated to the principal and interest varies each time.

This variation can be observed from the amortization table. The amortization schedule ensures that the borrower and lender are on the same page with regards to the amount repaid and amount owed. This means that in case of any dispute, the schedule acts as reference on the history of payment and pending balances.

The amortization table is useful to the borrowers in that it is a basis for organizing their finances. The borrower is able to track payments made, interest paid and money owed at any given time; such that they can determine their home equity at any given time. Lenders on the other hand can track what is owed by borrowers.

Response 3

In amortizing the mortgage, a significant amount of the payments paid during the initial months mostly comprises of interest, while the remaining amount is paid to the principal (Biafore, 2013). The payments to interest then start declining as the mortgage is repaid, such that the interest paid in the later years is minimal or none.

Accordingly, the tax deducted based on home mortgage interest is likely to be higher during the initial years when a larger amount of interest is being paid, compared to later years when the interest being paid has reduced significantly. In this regard, it is logical to state that interest paid in earlier years plays a more helpful role in in tax reduction than interest paid in forthcoming years.

Response 4

An ordinary annuity differs from annuity due, mainly based on the timing. While the amount due in ordinary annuity is paid at each period end, an annuity due consists of cash flow series that occurs at each period’s beginning. The second difference is related with payment. In ordinary annuity, the payment done is associated with the period that precedes its date (Ehrhardt & Brigham, 2016).

Examples include mortgage payment, loans and coupon bearing bonds. Payment in an annuity due on the other hand, is associated with the period that follows its date. Examples include insurance premiums and rental lease payments.

Problems

If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.

Future Value (FV) = P x [((1 + r)ⁿ– 1) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

FV = 400 x [((1 + 0.08)⁶-1)/ 0.08]

= $2,934.37

Recalculate the future value at 6 percent interest and 9 percent interest.

6% Interest

FV = 400 x [((1 + 0.06)⁶-1)/ 0.06]

= $2,790.13

9% interest

FV = 400 x [((1 + 0.09)⁶-1)/ 0.09]

= $3,009.33

If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.

Present Value (PV) = P [(1 – (1 / (1 + r)ⁿ)) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

PV = $900 [(1 – (1/(1+0.05)³))/0.05]

= $2,450.92

Recalculate the present value at 10 percent interest and 13 percent interest.

10 Percent

PV = $900 [(1 – (1/(1+0.1)³))/0.1]

= $2,238.17

13 Percent

PV = $900 [(1 – (1/(1+0.13)³))/0.13]

= $2,125.04

What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?

Present Value (PV) = P [(1 – (1 / (1 + r)ⁿ)) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

PV = $1150 [(1 – (1/(1+0.09)¹⁴))/0.09]

= $ 8,954.07

Recalculate the present value using discount rate of 11 percent and 12 percent.

11 Percent

PV = $1150 [(1 – (1/(1+0.11)¹⁴))/ 0.11]

= $8029.15

12 Percent

PV = $1150 [(1 – (1/(1+0.12)¹⁴))/ 0.12]

= $7,622.39

References

Biafore, B. (2013). QuickBooks 2014: The Missing Manual: The Official Intuit Guide to QuickBooks 2014. Sebastopol, CA: O’Reilly Media, Inc.

Brechner, R. & Bergeman, G. (2014). Contemporary Mathematics for Business and Consumers, Brief Edition. Boston, MA: Cengage Learning.

Ehrhardt, M. C. & Brigham, E. F. (2016). Corporate Finance: A Focused Approach. Boston, MA: Cengage Learning.

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Stocks Valuation

1) Rights and advantages belonging to shareholders

Shareholders of a company enjoy following rights and advantages

Ownership right: Shareholders being owners of the company enjoy the right to share residual profits left after paying preference dividend. Their rate of dividend is not fixed. It depends upon the amount of profits. Sometimes they get high dividend in case of high profits.
- Control over management: Shareholders can exercise their control over management through the election of their representatives in the board of directors.
  - The voting right: Shareholders have the right to attend annual general meetings of the company and cast their vote in person or through proxy on various resolutions passed in such meetings. This enables them to participate in corporate and managerial affairs without having to regularly manage affairs directly.
  - Pre-emptive right: At the time of further issue of shares, an offer is made to shareholders first. If shares are left, they are offered to outsiders. It enables them to maintain their proportionate shareholding intact in the company ( H.Sherman, 2011).
  - Transfer of the ownership: Shareholders enjoy the right to transfer the ownership of their securities to others by trading their stock on the stock exchange.

2) (a)Differences between the S&P 500 Index and the Dow Jones Industrial Average

Both Dow Jones Industrial Average (DJIA) and the S&P 500 are the best known index of American stocks but differentiate from each other in the following manner.

Criterion	Dow Jones Industrial Average	S&P 500
Introduction	It is an oldest stock market index which was introduced in 1896 by Charles Dow (Johnson, 2015).	S&P 500 was introduced by S&P Global in 1923 and in its current form, it was published in 1957 ( S&P Dow Jones Indices LLC, 2016).
Index Constituents	DJIA is composed of thirty publicly traded American companies listed in NYSE and NASDAQ. These stocks are picked by an editor of The Wall Street Journal. It covers a large range of industries in the US except transport and utilities ( S&P Dow Jones Indices LLC, 2016).	It is based on market capitalization of 500 large companies listed in NYSE and NASDAQ. It covers a wide range of industries.
Weighting Method	It is a price-weighted index which is calculated by taking the aggregate of prices of stocks in an index and divided by a common divisor (Johnson, 2015). The stocks having high prices have more weightage in this index.	It is a free float capitalization weighted index where in components are weighted on the basis of their market capitalization ( S&P Dow Jones Indices LLC, 2016). The stocks with higher market capitalization have more weightage in this index.

(b)Better measure of stock market performance

The S&P 500 is considered to be the better measure of stock market performance than DJIA because it covers approximately 80% of the stock market capitalization and is considered as a true representative of happenings in the US stock market ( S&P Dow Jones Indices LLC, 2016). DJIA covers 30 securities only and its popularity is because of being an oldest index.

3) Differences between common stock and preferred stock

The main two types of stock issued by companies are common stock and preferred stock which have some similarities as well as dissimilarities. The main dissimilarities between both are given as below:

Criterion	Preferred Stock	Common Stock
Meaning	Preferred stock is a hybrid security which combines features of common stocks as well as debt securities (H.Sherman, 2011). The preference dividend is paid at a fixed rate just like payment of interest at fixed rate, but it is paid out of post-tax profits. It is not termed as ownership security.	Common stock is termed as ownership security. Its rate of dividend is not fixed. It depends upon the amount of profits. The amount of dividend may be high in case of high profits and it may be low or even nil in case of low or no profits.
Preferences	Preferred stock carries two preferences over common stock which are (i) Preferred stockholders are paid dividend first before the dividend is declared for common stockholders. (ii) At the time of liquidation of company, preferred stock is redeemed first before any amount is paid to common stockholders (Weaver & Weston, 2001).	Common stock holders are paid their periodic dividend as well as redemption value after satisfying claims of preferred stockholders
Rights	Preferred stocks do not carry any voting right. But holders get entitled to vote when (i) The dividend has remained unpaid for a specified number of years (H.Sherman, 2011). (ii) The resolution to be passed at the meeting has any impact on their interest.	Common stock provides many rights to stock holders which includes voting rights on corporate and managerial issues and preemptive right. Pre-emptive right is the right given to stockholders to maintain their proportionate ownership in the company at the time of further issue of share (Broadridge Advisor Solutions, 2017).

References

Broadridge Advisor Solutions. (2017). Financial Services of America. Retrieved from http://www.fsa1.com: http://www.fsa1.com/Common-Stock-vs–Preferred-Stock.c1019.htm

H.Sherman, E. (2011). The Equity in the Business. In E. H.Sherman, Finance and accounting for nonfinancial managers (pp. 204-205). New York: NY: American Management Association.

Johnson, M. (2015). What’s the difference between DJAI and S&P 500. Retrieved from http://www.nasdaq.com: http://www.nasdaq.com/article/whats-the-difference-between-the-dow-jones-and-the-sp-5001-cm548598

S&P Dow Jones Indices LLC. (2016). S&P Dow Jones Indices. Retrieved from us.spindices.com: http://us.spindices.com/indices/equity/sp-500

Weaver, S., & Weston, J. F. (2001). Financial Statements and Cash flows. In S. Weaver, & J. F. Weston, Finance and Accounting for Non-financial Managers (pp. 26-28). New York: NY: Mc Graw Hill.

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Valuation of Bonds

Valuation of bonds

Ques1. Explain what a call provision enables bond issuers to do? Why would bond issuers exercise a call provision?

Answer: A call provision is a clause, mentioned in the bond certificate, which enables the bond issuer to repay or redeem bonds before its maturity date at a specified value (Sherman, 2011). Conditions related to time of redemption or buy back of bonds like amount to be repaid and manner in which payment is to be made are mentioned in advance. This call provision is exercised by the bond issuer at the time when the interest rates have fallen and debts are available at cheaper rate in the market. The issuer redeems the bond carrying high rate of interest and issues new bonds with low rate of interest.

Ques.2 Define a discount bond and premium bond. Provide example of each.

The bond issued by the company for the first time is a standard bond. It becomes discount bond or premium bond depending upon the price at which it is being traded in the market.

Discount bond: If the bond is being traded in the market at a price which is less than the face value, it will be termed as discount bond (Weaver & Weston, 2001). A bond becomes discount bond when it gives interest at a rate which is less than the market rate of interest. The investor will be ready to invest in bonds with lower interest rate if the purchase price of such bond is fixed in such a manner that it compensates the investor for less payment of interest in future. For example: A 5% bond is being issued at $1000. The market interest rate is 4%. The investor will be ready to invest in such bonds if the issue price is less than $1000.

Premium bond: If the bond is being traded in the market at a price which is higher than the face value, it will be termed as premium bond. A bond becomes premium bond, it its coupon rate of interest is more than the prevailing interest rate in the market. The issuer will be ready to issue such bonds if the price is fixed in such a manner that it compensates the issuer for higher payment of interest in future. For example: A 5% bond is being issued at $1000. The market interest rate is 6%. The issuer will be ready to issue such bonds if the price is more than $1000.

Ques3. What is the relationship between interest rates and bond prices?

Answer: The fundamental principle of investment in bond market is that there is inverse relationship between interest rates prevailing in the market and bond prices (SEC, 2013).

In market interest rate in bond price

If the market interest rate goes up, the investor will be ready to buy bonds with low coupon rate if they are being offered at discount or low price. The investor want compensation for low interest payments to be received in future so he will be ready to buy such debentures if they are being offered at low prices. Similarly if the market interest rate goes down, the investor will be ready to buy the bonds with high coupon rate even at high prices. Thus prices of bond increase.

Ques 4: Describe the difference between coupon bond and zero coupon bond

Answer: The coupon bond is a bond which has coupon rate at which the interest is paid to the bondholder throughout the life of bonds (Sherman, 2011). The bonds are issued with interest coupons and interest is paid to the person who has the possession of coupon. The payment of interest is made at coupon rate and it may be paid quarterly, semi-annually or annually.

Zero coupon bond is a bond which does not carry any coupon of interest as no interest is payable on such bonds. These bonds are issued at deep discount and redeemed at face value on the maturity period. The difference between the issue price and the redemption value is the appreciation value and return for the investor (Weaver & Weston, 2001).

The return for the coupon bondholders is regular in nature whereas the return in case of zero coupon bonds is in the nature of capital appreciation.

References

SEC. (2013). Interest rate risk —When Interest rates Go up, Prices of Fixed-rate Bonds Fall. Retrieved February 2017, from https://www.sec.gov: https://www.sec.gov/investor/alerts/ib_interestraterisk.pdf

Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York: NY: American Management Association.

Weaver, S., & Weston, J. F. (2001). Finance and accounting for non financial managers (3rd ed.). New York: NY: Mc Graw Hill.

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Budget Planning and Management Role in Health and Social Care

Managing Financial Resources in Health and Social Care

2.1 Power Point Presentation Discussion

This presentation shall discuss section 2’s Budget Planning and Management Role in Health and Social Care. Specifically, the speaker shall provide the Diverse Sources of Income that can be used in health and social care settings. Every budget planning includes internal sources and external sources, no matter what is the setting.

The organization shall use internal sources and external sources as diverse sources of income. Internal sources shall include Company Savings, working capital, retained profit, and sales of assets.

Company Savings or commonly known as the owner’s investment (can be used as a start-up capital or additional capital)

Another interesting source of finance is using the working capital. These are funds that are needed when conducting daily operations, like wages, purchasing of raw materials, covering some overhead costs and used for offering credit services.

Retained profit can be used within the organization, from a standpoint, this is an attractive source of finance because it allows investment projects without risking nor involving shareholders or any outsiders.

Sales of assets are one way of raising finance. Selling off the stocks or assets that are no longer in need. Such as equipment that is not in used can be sold off to buy new equipment.

The next slide is the discussion of the external sources of finance. These are finances that are commonly gained outside of the organization, such as from banks or creditors. This may include the short-term and the long-term assets.

Short-term assets are financial assets that need to be sold, converted to cash or liquidated to pay the liabilities inside one year. These assets include Loans, Trade Credits, and Debt Factoring.

Loans are usually long-term debt capital used by the company to provide a cash-flow cushion. Moreover, with bank loans, the organization can set repayments with spreading over a period of time which can be good for budgeting.

Trade Credits, shall cover the organization’s short-term finances. This is where suppliers can deliver goods and willing to wait for days before the payment. If this shall be included within the organization’s budgeting, this will provide more chance for the organization to prioritize the needed equipment or services that should be sold.

Debt Factoring or Factoring is where the organization can sell their invoices to the banks. Rather than waiting for 28 days of full payment, the organization can gain cash right away.

Now, Long-term assets are finances that can be paid over many years. This will include, mortgages, venture capital, retained earnings, debenture for long-term sources.

Now, if the organization wanted to secure a location, mortgaging is the best answer. This is advantageous since this can be repaid through installments over a period of time, mostly over 25 years. If we view the setting as a public or private institution, then it would be feasible to mortgage a specific location than renting it.

For a starting organization, venture capital can provide sufficient fund to the organization. Moreover, it is also feasible for new businesses with limited profits, especially with public health and social care setting.

Retained earnings are useful to finance new investments, either on new programs within the organization or new facilities. Moreover, it is believed that retained earnings are sources of funds that does not lead to payment of cash.

Having able to induce debenture as an external source of income, it will save the organization income tax since debenture is a tax deductible expenditure. Moreover, it is way cheaper than preference shares and equity shares.

Since we are imposing health and social care setting, the organization aims to provide more efficient but cheap services; the organization may also use Government funding, Bursaries, Grants, Rentals, and Company assets.

There is government organization such as Invest NI funds new and established businesses in their venture. Which is believed that since the organization, shall cater health and social care for elderlies and with special needs, the government shall heartfully fund this newly established institution. Moreover, there are also charities that can assist the organization in the further development of the institutions.

Leasing or renting an asset will allow the business to obtain assets without the need to pay a large lump sum. For example, the organization may pursue on letting their clients rent some equipment for the benefit of the institution.

2.2 Factors that Influences the Availability of financial resources

The organization may experience difficulties in achieving the desired resources through the identified factors such as funding priorities, agency objectives and policies, private finance, type of services, government policies, and etc.

Decision making on funding priorities is usually formalized, procedurally driven, sequential, and protected; thus, the size of the organization may affect the board’s decision on funding the organization’s needs.

Moreover, the agreements between association and local about funds, service contracts and authorities together with other home care agencies. Provision of the type of service, such as Nursing, residential and private services. Lastly, geographical locations of the organization, any geographical constraints may greatly affect the entire organization.

2.3 Different types of budget expenditure on the proposed health care organization

Budget Expenditures includes; Operational Budget, Cash Flow Budget, and Capital Budget. Wherein, the operational budget is recorded at the beginning of the year for different expenditures related to the organizations daily operations. Organization’s cash flow budget may include the budgets allocated for everyday outflowing and incoming services. Capital Budget, on the other hand, is a budget that is allocated to pay for exclusive purchases and specific projects allocated for the organization’s health and social care services.

2.4 Decision about expenditures made within health and social care organization

The expenditures of the organization can be determined through extensive budget preparation and how the organization will implement several expenditures. However, before budget preparation, the organization must determine the organization’s financial status. And after identifying the financial status, it is empirical for the company to prioritize its goals and objective.

The organization must assign specific roles and responsibilities of varied people for the purpose of the budget. Thus, the management must include the timely preparation and accurate budget for the income. Finally, health care managers and executives must include the process of specific budgeting to avoid unwanted errors. This may include draft the budget, reviewing points of the budget, presenting the drafts for approval and if approved, it is appropriate to document the budget for final implementation.

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Financial Analysis: Sprint and Verizon

Financial Analysis of Sprint Corporation and Its comparison with Verizon Communications Inc

Sprint Corporation is US based telecommunication company which provides wireless and internet services. It was founded in 1899. HTC is considering shifting to this company’s communication system so this report synthesizes the financial analysis of the company so as determine its future prospects and financial viability. The tools of trend analysis, ratio analysis and stock price trend have been applied.

This financial analysis will become the base for taking the decision whether to shift to this company’s communication system or not. Sprint Corporation changed its financial year from Jan-Dec to April-March in 2014. So the financial period ending on March 2015 is of 15 months. The comparative study of financial performance of Sprint Corporation and Verizon Communications has also been done to study the prospects of Verizon Communications.

I. Trend analysis of financial performance in financial analysis of Sprint Corporation and Verizon Communications

The financial technique of trend analysis has been applied to evaluate the financial performance of Sprint Corporation for last three years along with its comparison with Verizon Communication Inc. for the last year i.e.2016.

Table 1: Trend analysis

	Sprint Corporation	Verizon Communication Inc
	Dec-12	Dec-13	Mar-15	Mar-16	Dec-15	Dec-16
Revenue ($ in Millions)	35345	16891	34532	32180	131,620	125,980
Increase/decrease in Revenue (%)		-52%	-2%	-9%		-4%
Net income ($ in Millions)	-4326	-1860	-3345	-1995	17,879	13,127
Increase/decrease in Net Income (%)		-57%	-23%	-54%		-27%
Working Capital ($ in Millions)	4,885	2,389	-1,163	-5,130	-12,772	-3,945
Increase/decrease in working capital (%)		-51%	-124%	-205%		69%
Return on assets (%)	-8.57	-2.7	-4.03	-2.46	7.49	5.37
Return on equity (%)	-46.73	-11.39	-15.41	-9.62	124.48	67.4

(Morningstar, 2017)

The above table depicts the trend value of revenue, net income, working capital, return on assets and return on equity.

Revenue: There is decline in revenue of Sprint Corporation over the last three years. The reduction was huge in 2013 as it reduced by more than half. In 2014, the company was able to revive its revenue and able to gain revenue near to base year i.e. 2012. This financial period is of 15 months. It can be one of the reasons for recovery in revenue. In 2016, again the revenue reduced by 9%.
Net income: There is declining trend in net income of Sprint Corporation. The value of net income is negative in all the years. The decrease in net income of financial period 2016 is greater than the decrease in revenue. It means the company has not been able to control its expenses.
Working Capital: There is decreasing trend in working capital of the company, which represents the excess of current assets over current liabilities. The working capital was positive in 2013 but it became negative in 2015 and 2016. The decrease in working capital depicts the deterioration in the capability of the company to repay its short term liabilities in time.
Return on assets: The return on assets of Sprint Corporation is negative in all years.
Return on equity: Similarly return on equity of Sprint Corporation is also negative in all years.

If we compare the performance of Sprint Corporation for the financial year 2016 with the performance of Verizon Communication Inc, we find that the decline in net income of Verizon Communications Inc was also greater than the decline of its revenue. It also has deteriorated working capital position but it has been able to generate positive return on equity and assets.

References

CNN Money. (2017, March). S&P500 index. Retrieved from http://money.cnn.com: http://money.cnn.com/data/markets/sandp/

Google. (2017). Verizon Communications Inc. Retrieved from Google.com: https://www.google.com/finance?cid=664887

Yahoo Finance. (2017). Sprint Corporation. Retrieved from https://in.finance.yahoo.com: https://in.finance.yahoo.com/quote/S?ltr=1

Yahoo Finance. (2017, March). US Treasury Bond Rates. Retrieved from https://finance.yahoo.com: https://finance.yahoo.com/bonds

Yahoo finance. (2017). Verizon Communication Inc. Retrieved from https://in.finance.yahoo.com: https://in.finance.yahoo.com/quote/VZ?p=VZ

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Public Finance Proposal and Presentation

Introduction

This paper intends to discuss a proposal and a presentation on public finance. In order to present an appropriate discussion this essay will consider the case of Cedar City.

Public policies and processes that affect Cedar City’s budget

Cedar City’s budget is affected by financial planning. However, financial planning at Cedar City is influenced by strategic goals, the level at which services are offered, the previous budget for the city, property tax percentage increase, personal services offered within the city, and services which are non-personal and are influenced by historical information along with projections (Tate, Strong, Kraus, & Xiong, 2015).

Furthermore, if the department of financial planning in Cedar City finds it significant to increase operations of the existing service levels, the new budget plan accommodates the increased amounts. For instance, a recent increase in the budget of Cedar City was influenced by the amounts required for managing projects for software maintenance of the city (Tate, Strong, Kraus, & Xiong, 2015).

Additionally, reviews made by different departments in Cedar City regarding their assets, project plans for capital improvement, potential sources of funding, and recommendations made on timelines for construction also affect Cedar City’s budget (Sarantsev, 2016). Markedly, Cedar City’s budget is affected by discussions made by the manager of the city, the finance director in the city, and the city council regarding needs of the city, the impact legislations have on the needs, and potential issues in funding before the budgeting process begins (Tate, Strong, Kraus, & Xiong, 2015).

For instance, the recent budget for Cedar City was influenced by the need to finish up flooded buildings, policies restricting an increase in levies for property tax, and the maintenance of existing levels of service (Tate, Strong, Kraus, & Xiong, 2015).

The elements involved in Cedar City’s budget preparation, budget enactment, and budget execution

The preparation of Cedar City’s budget involves an increase in operational funding and drafting of changes to revenues earned. Therefore, the preparation of the budget requires that the finance department meets other departments for reviewing needs of Cedar City and preparing requests of Cedar City. The manager to Cedar along with the directors are involved in reviewing projects aimed at improving on capital, which determines the components of the budget (Tate, Strong, Kraus, & Xiong, 2015).

Reports are then created to be used in subsequent processes of the budget which also includes enactment. However, before enactment of reports made regarding the budget of Cedar City, finance department along with the manager of the city review the budget requests to determine the requests along with charges to be included in the budget being prepared (Tate, Strong, Kraus, & Xiong, 2015).

For instance, during the enactment of the recent budget for the Cedar City requests for information of property tax, made the budget to balance. Moreover, the amounts allocated to revenues were parallel to amounts allocated to expenditure (Rahman & Weller, 2014). The manager of the city also requested the including of projects of capital improvement in the budget.

Hence, enactment involves reviewing of merits and the prioritization of different projects as subject to other projects (Tate, Strong, Kraus, & Xiong, 2015). However, execution of the budget considers the overall impact relating to recommended funding, considerations made for operations, and the relationship of operations to the budget of the City along with associated tax levies. Moreover, the council has to be informed of the situation of the budget and a public hearing for the budget prepared in accordance with IOWA (Tate, Strong, Kraus, & Xiong, 2015).

Long-term Financial alternatives for the City of Cedar Falls

Cedar City has three main alternatives for long-term financing. The first alternative is government funding. The government provides different types of funds to the City of Cedar Falls. The funds include general funds, finances for special income, finances for investment projects, and finances for liability service (Mervis, 2016). The finances allocated to Cedar City by the government are aimed at accounting for different revenue sources and revenue uses of the government’s primary unit.

The second alternative for long-term financing is proprietary funds. Proprietary funds refer to enterprise funds along with funds from internal services. Proprietary funds are viewed as self-supporting since they are financed from user charges and user fees (Tate, Strong, Kraus, & Xiong, 2015). The third alternative for long-term financing is fiduciary funds which are trust funds and funds from agencies. Fiduciary funds are used in accounting for different resources of financing held in the capacity of a trustee.

Conclusion

Public finance is a topic of great interest for all cities globally. The essay above has efficiently discussed public finance by considering the case of the Cedar City. Consequently, a discussion on the process of creating a budget in Cedar City, enactment of the budget, executing the budget, and funding of the budget has been presented in the paper above.

Reference

Mervis, J. (2016). Budget 2017: Mandatory spending dims prospects for Obama’s budget. Science. http://dx.doi.org/10.1126/science.aaf4045

Rahman, M. & Weller, K. (2014). Preparation for and response to the flood of 2008 in Cedar Falls, Iowa. International Journal Of Emergency Management, 10(2), 180. http://dx.doi.org/10.1504/ijem.2014.066201

Sarantsev, V. (2016). Treasury system of budget execution: organizational model and prospects. Moscow University Bulletin Of Them. SY Witte. Series 1: Economics and Management, 15-20. http://dx.doi.org/10.21777/2307-6135-2016-3-15-20

Tate, E., Strong, A., Kraus, T., & Xiong, H. (2015). Flood recovery and property acquisition in Cedar Rapids, Iowa. Natural Hazards, 80(3), 2055-2079. http://dx.doi.org/10.1007/s11069-015-2060-8

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Financial Resources

Introduction

Financial resources are critical to the success of organizations because, with sound financial backgrounds, the institution can achieve efficiencies in some areas. However, a robust financial background implies having effective and relevant financial management strategies. This is even more essential when it comes to the health or social care sector where there are diverse departments and many personnel. This essay explains some of the aspects related to financial management in the health or social care sectors.

1.1The Principles of Costing and Business Control Systems

In the health or social care organizations, costing applies to the financial process of estimating the amount of money spent while generating services to patients or clients (Field & Brown 2007).

The main principles of costing in the institution are based on the cost-benefit analysis (CBA) in health care. Understanding the concept of costing and business control system in health and social care organization, it gives a comparison to the expected monetary benefit that is derived from several varied health care interventions with the anticipated cost of providing each intervention to establish what is the best or the most profitable option. Underpinning the different internal and external cost that includes institution maintenance, clinical workers or health care workers, and health care treatment to the residents of the institution; which may involve supplies and labor.

In order for the institution to take control of its business, it is also highly important for the company to include basic needs for a health care institution to succeed; such as preventive controls for both patients and health care workers, defective, and security controls.

Preventive controls are the most basic but vital in business. It provides protection that separates staff to the patient. For instance, home care workers often deal with stress and pressure; thus, to prevent health care worker errors, it is imperative for the institution to provide assurance of job safety and security. Moreover, it allows the institution to identify and monitor inaccuracy of information data.

1.2Information needed to manage financial resources

The institution’s responsibility for managing financial resources is gathering and pay respect to the past performance, availability and or shortage of funds that may also occur in the present operational process.

Finance and health care personnel must have great collaboration during financial difficulties and how to maintain financial flow and solvency. Thus, during financial difficulties, the management are able to recover costs, cash flow forecasting possibilities of inaccuracy in cash flow and assets, and other working capital.

On another aspect, it is also imperative to provide accuracy in consumable items such as food, bed sheets, towels, and soaps to mention but a few. The information that arises from the use of consumables is significant in the management of financial resources because failing to establish the pattern may mean not having an appropriate control system.

Administration refers to the process of management, and because there are equipment, technology, and personnel tasked with the administration purposes, the information from the administration is also key to the management of financial resources. Lastly, income streams apply to the organization’s sources of income, and this information is crucial for the management of financial resources because it helps to determine the balance between income and expenditure (HFMA 2015).

1.3The Regulatory Requirements for Managing Financial Resources

Regulatory requirements are the policies and legislations that control the financial operations of the organization. It is the regulatory requirements that function to align the financial operations of the organization with the statutory provisions standards expected. For instance, in the UK, the Health and Social Care Act of 2012, governs all the financial operations in the health sector (HFMA 2015). In healthcare, there are external influences to business costs from a regulatory requirement perspective.

One of the external influences to business costs revolves around changes in policies. When there is a change in healthcare policy, the organization has to embrace changes that will reflect the adaptation to the new policy and the integrations of the new requirements means expenditure (Lindsay et al. 2014). Competitive factors such as the pricing of health care services or diagnostic costs also represent another external influence to business costs in the healthcare sector.

With the competitive factors, the healthcare organization is forced to introduce new technologies or professionals, and this means additional costs (Field & Brown 2007). Legal requirements are the other external influences that add costs in the healthcare sector. The legal requirements imply that the organization has to be regulated by certain bodies and this implies subscription fees and other necessities to be fulfilled.

The financial legislation and codes of practice also have their associated implementation costs, and when the healthcare institution implements them, there are costs incurred. Another source of regulatory cost to the business is an audit. Although internal auditors can undertake auditing activities, sometimes it is a requirement that external auditors have to be used.

In such case, external auditing firms have to be given the job on a fee or contract, and this means additional costs to the business. Lastly, accountability is another external factor that influences business costs. Accountability generates costs in the sense that the organization has to implement systems and establish external associations to oversee accountability (Monitor 2016).

1.4 System Evaluation for Management of Financial Resources

Collectively, the institution shall utilize Financial Management System (FMS) to manage the institute’s finances. Financial Management System (FMS) according to Anderson (2007), FMS is an efficient software and methodology that enables the management to control its allocation on expenses, income, and assets. Additionally, as its goal to maximize profits and ensure the institution’s sustainability, it allows the health care facilitator to monitor the institution’s total expenditures freely.

Thus, by adopting this process in managing the financial resources, the management will be able to timely record all the budget line items such as salaries, utilities, equipment, and other expenses needed in the health care institution. Furthermore, by practicing the financial management system, it shall assist the management to produce financial records on time.

The institution is able to produce reliable analysis on budgets and costs with the data produced through the utilization of Financial Management System. For instance, the institution is able to decide on budget allocation on products and services through the financial reports produced by FMS.

2.0 Planning and Management on Social and Health Care Budgets

2.1 Diverse Source of Income in Health and Social Care

Understanding budget and planning have its internal and external sources of income. Like other health care institutions, the institution utilizes resources such as customers, government institutions, private sectors, and corporation. The institution may encounter income non-stabilization due to funding mechanisms that influence the institution’s profit, which is similar to other health care homes. However, through the utilization of a diverse source of income, the institution is capable of sustaining its needs. For instance, contributions to tax, loans, social insurance, grants from different government and private sectors.

Charity donations from private sectors individuals, who are interested in aiding elderlies and disables, are another diverse source of income that helps sustain the institution. Additionally, these types of the collection do not negatively influence the institution’s finances since the latter are not generated from the main financial source unlike insurance, tax for payments and health and patients’ payments.

2.2The Factors That May Influence the Availability of Financial Resources in Health And Social Organizations

Despite the presence of various sources of income in the health and social care, there are factors that determine the availability of the financial resources. One such factor is the availability of resources. In some cases, only a few sources of income may be available while in other cases, the health or social organizations may be swarmed by the various sources (Ball et al. 2013). Therefore, the more the financial sources are available, the more the financial resources are likely to be available.

The institution is mainly influenced by varied risks on financial resources and the payments from service providers, service seekers, and business corporations. Under availability of resources, the funding priorities also determine the availability of financial resources in the sense that where health or social care are not given priority, then financial resources will be limited and vice versa.

Moreover, similar to other home care institutions, the operating system of the institution faces similar challenges when raising funds because of the level of income and due to the institution and limited administrative capacity (Erxton & Marel, 2011). Thus, the availability of financial resources depends on the capacity of the state to pay for the service.

The second factor that may influence the availability of financial resources in health and social organizations relates to agency objectives and policies regarding financing. If the potential contributors of income establish that the objectives and policies related to finance are sound or advancing health or social, they are likely to channel their contributions to the organization (Field& Brown 2007).

2.3The Different Types of Budget Expenditure in Health and Social Care Organizations

In health and social care, budget refers to the estimated financial data relating to the different departmental and operational activities in the organizations based on the trends. On the hand, expenditure applies to the actual finance spent on different aspects while the organizations deliver care (Broadbent & Cullen 2003).

The institution is mainly concerned with its budget expenditures including operating budgets, personal budgets, and sales budget. Operating budget are the expenses with significant influence to the incurred expenses within a financial year; this includes labor costs. Personal budget, on the other hand, receives a major impact due to the growing competition and the level of the financial resources dependency caused by demand on technology and other human resources utilization.

Lastly, when it comes to sales budget the actual estimation of the sales and services provided by the current financial year and reported. Mainly, the focus of the budget is to provide estimation in the sales expenses, the estimated amount of services and products during the budget year, and the estimated on the accrued revenue by selling the institutes services and products.

2.4How the Decisions about Expenditure Are Made Within a Health or Social Care Organization

There are various reasons to make decisions in health and social care. The institution’s decisions are based on understanding the needs of residents, altogether with its detailed analysis. Thus, ensuring the financial resources are well managed is one of the utmost priorities in making decision within the health care institution. Moreover, with the help of internal and external financial analysis, the institution is capable of deciding on the estimated accrued expenses for monitoring of current and future expenditure (Herman, 2008).

The expenses and value added services expenses incurred are taken into a strategic, operational planning to ensure financial resources sustainability. Moreover, the institution assures that decision making shall include varied project management capabilities, estimations on financial risks, and calculations of the cost benefits and more. The advantage of this factor is that it enables the organization to distribute its financial resources in the right ways. Its disadvantage is that it can confuse the long and short-term objectives and create financial shortfalls.

3.0 Importance of Monitoring the Budget Expenditure

3.1How Financial Shortfalls Can Be Managed

Financial shortfall refers to a situation whereby the amount of finance available is lower than the amount that is needed to fulfill a given organizational function (Armit & Oldham 2015). In other words, it means having fewer amounts than what is required. One of the obvious reasons for financial shortfalls in health or social care concerns embezzlement or misappropriations. This can take place when those charged with financing and budgeting divert the financial resources for their personal or other uses (Iacobuci 2013).

Second, financial shortfalls can be caused by poor forecasting and budgeting techniques that may engender discrepancies between what is budgeted and what takes place in reality (Field & Brown 2007). The lack of costs controls can also be a source of financial shortfall because not all departments may observe the projections guidelines. Lastly, changes in the external environment such as currency value as well as changes in technology and employee aspects can also lead to financial shortfalls (Broadbent & Cullen 2003).

In this case, the institution does not consider cost-cutting nor inappropriate decision making without strategic, operational analysis; while, the institution focuses on the generated wastage during operations. In this stance, wastage reduction within the operational process shall enable the institution to gain performance improvement charted by covering the shortage. Additionally, to reduce shortage, the institution anticipates the future financial requirements; thus, all planning are based on strategic analysis. Strategic planning and analysis includes assessment of satiation of the market and tends to gauge the level of future shortage in resources.

3.2The Actions to be Taken In The Event of Suspected Fraud

Fraud is defined as an intentional act to gain financial rewards unfairly. This can be done by hiding the identity and manipulating the financial spreadsheets that contain financial information of the healthcare organization (Field & Brown 2007). So to speak, to handle fraud and other related frauds within the institution, the management has considered a separate department that will be responsible for the investigation and evaluating the situation.

The institution understands that most of the frauds are brought about by misinformation and miscommunication on the rules and process of the operation. Therefore, a good investigation and justification of evidence when analyzing improper behavior will lead to an immediate solution.

Since the institution had instilled a group that will handle fraud cases, they are also responsible for providing accurate data analysis on the fraud cases. This analysis may include the incident inquiry, determining the culprits, the development and how the fraud incident was handled, a detailed incident report, and recommendations on preventing similar fraudulent activity.

3.3Evaluations of Budget Monitoring Arrangements in Health or Social Care Organization

Budget monitoring according to Scheiber et al. (2001), is a process of evaluating the organization’s ability in fulfilling the financial goals and objectives in accordance to the institutes’ budget preparation.

Example of the organization budget for the year 2016

Sources of income	Amount	Expenditure	Amount
Public	$10000000	Employees’ salaries	$1200000
Private	$6000,000	Equipment	$3000000
Local	$3000000	Consumable goods	$2000000
National	$5000000	Maintenances/regulatory requirements	$1000000
Total	$24000000	Total	$7200,000

To monitor the budget, the organization has adopted different strategies. One of the strategies is the establishment of cost centers which are departments created specifically to evaluate the budgets and financial practices of the organization (Armit & Oldham 2015). Through the cost centers, the organization is able to discern the wasteful practices and the spending trends and consequently adopts the relevant practices.

Accountabilities represent another approach used to monitor the budgets, and this means the integrations of systems that facilitate transparencies and responsibility on financial matters (Broadbent & Cullen 2003). The organization also uses regular audits to identify variances in budgets and promote compliances with the established standards.

4.0 Systems and Process for Managing Financial Resources

4.1The Information Required To Make Financial Decision Related To Health and Social Care Service

When making financial decisions related to health and social care service, there is certain information that is of significance. Information on expenditure which is the amount spent on different areas is important because it shows the organization what it needs to spend to realize its objectives or obligations (Lingg et al. 2016). Budget information is also important because it provides the estimations of the income and expenditures as well as their trends.

Capital information is another component that is important because it gives the picture of the assets that the company has and how such assets can be used. The health or social care organization must also understand its sources of income so that financial decisions reflect the available income to the institution (Pflueger 2015).

Cost-benefit-analysis information is also essential in the making of financial decisions in the sense that it facilitates the adoption of the best decisions with the greatest impacts. It is also imperative that the financial information is analyzed for reliability and validity before making the financial decision so that issues of malpractices are avoided (CIMA 2016a).

4.2The Relationship between a Health and Social Service Delivered, Costs and Expenditure

The institution focuses on the development of health care services to its clients; this includes issuing provisions in providing utmost satisfaction and quality to its clients. Service delivery refers to the health or social care component that describes the interaction between the organization and the patients/clients whereby the organization provides services, and the clients/patients derive value from the services.

Expenditure talk about to the amount of money that has been spent while the cost is the amount to be disbursed in order to obtain something (Mccan et al. 2015). From a cost –benefit analysis perspective, the service delivered is usually connected to the cost and expenditure in direct ways. Where the quality is of service delivered is high, the costs and expenditure are also the same and vice versa.

Concerning pricing policies, service deliveries of premium prices are often linked to high costs and expenditure. Additionally the expenditures within the health and social care sector, according to OECD (2001) have been spent on elderlies, patients with terminal and complicated diseases.

Therefore, the health and social care point of collaboration and connection should be improved for the purpose of achieving a suitable saving arrangement for the organization’s resources. For instance, the institute can save the cost wastage if the primary focus and objective are primarily based on improving the quality health care services even accompanied with issues.

Unnecessary hospital admissions can be undermining to the institute’s operational revenue; thus, it is reasonable to avoid such tendencies for the purpose of reducing cost expenditures. Modification and technological enhancement can be considered as significant barriers to cost reduction. Ideally, to provide quality service to its clients, the Institute is obliged to keep all the institutes’ structure in order; however, this requires funding and expenditures.

For this matter, the institute must consider reviewing the needed enhancement and technological upgrades that will is capable of withholding on a long-term basis. Furthermore, the institute must have purchasing arrangements to determine the efficiencies of the services delivered and eliminate unnecessary costs and expenses (Lingg et al. 2016).

4.3How Financial Considerations Impact Upon an Individual Using Health and Social Service

Financial considerations impact upon an individual using health and social services in two primary ways. For starters, financial consideration affects the quality of care given because where there are budget constraints, some services, technologies, or expertise have to be overlooked, and this lowers quality (Mann et al. 2016). In this stance, the institute must have strategies in obtaining an improved and modified health care and social service since it is undeniable that the industry is facing an upsurge of cost and expenditures.

Critically, the since the industry demands technological advance to provide quality service to its clients, there are significant changes in the growth of public health care institutes even with the declining quality service. Correspondingly, private sectors are more focused on improving the quality service; thus, this includes high expenditures that lead to a costly service for its clients. Then, with the high cost of service, this does not only impact the revenue but the customers who may consciously consider that the term quality service is based on the price they need to pay.

4.4Ways to Improve the Health and Social Care Service through Changes to Financial Systems and Resources

Health and social care services such as the National Health Service (NHS) are facing various problems such as huge and unsustainable budget deficits on a yearly basis (Iacobucci 2013). The reason for the persistence of this problem is that the organization uses irrelevant resources and systems in some areas yet such resources or systems are expensive. To overcome this challenge, it is worth considering certain recommendations.

The financial decision makers should shift huge parts of the budgets to preventive strategies as opposed to treatment strategies. Another recommendation is that such organizations should adopt evidence-based practices in services delivery. Studies have shown that where preventive measures are stressed, health and social services considerably reduce their budgets (Turner-Stokes et al. 2011). The benefits of these recommendations are that they eliminate the need for treatments, which increase costs and encourage the use of true and tested approaches to service deliveries that eliminate wastes.

In conclusion, the benefits of effective financial management are varied and evident. Nonetheless, management of financial resources in health and social care organizations continues to be a problem. At the heart of the problem are ineffective financial systems, lack of compliance with the code of ethics, and financial malpractices. Health and social care organizations should thus develop approaches that address these factors.

References

Anderson GF.,2007, In search of value: An international comparison of costs, access, and outcomes. Health Affairs, 116:163-171

Broadbent, M. and Cullen, J., 2003. Managing financial resources. Oxford: Butterworth-Heinemann.

CIMA, 2016a. [online] CIMA Financial Management Magazine | Chartered Institute of Management Accountants. Available at: <http://www.fm-magazine.com/> [Accessed 15 Nov. 2016].

CIMA, 2016b. HELPING PEOPLE AND BUSINESSES TO SUCCEED. [online] CIMA. Available at: <http://www.cimaglobal.com/> [Accessed 15 Nov. 2016].

Erxtin,F. and Marel, E. V., 2011. “What is driving the rise in health care expenditures? An Inquiry into the Nature and Causes of the cost Disease.” SciencePO ECIPE

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