Health and Social Care Organization Managing Systems

CareTech is an organization that provides social care solutions to population throughout the UK. The firm prides itself in providing safe and high quality. CareTech provides social care support to adults and children, and their core services deal with persons with learning disabilities, people recovering from mental illness, individuals with physical impairments, persons with acquired brain injury, and lastly people diagnosed with autistic spectrum disorder. By focusing on CareTech, this report will aim at gaining an understanding of how health and social care organizations use different systems in managing their financial resources. Additionally, it will show the role of planning in the management of budgets in these organizations. It will also show how the processes and systems of financial resources management influence the services offered by the health and social care firms. Lastly, the report will focus on the important role that budget expenditure monitoring plays in organizations.

Criteria 1.1: Principles of Costing and Business Control Systems

Principles of costing are an integral part of cost accounting, which is an important branch of accounting aimed at assigning costs to different activities within an organization, with an aim of increasing efficiency and reducing the costs. In health and social care organizations, efficient cost accounting helps in significantly minimizing costs, which in turns makes the price of these services affordable to a larger population. The principles of costing adopted by CareTech should be based on the guidelines provided by NHS Improvement. The body suggests seven costing principles that health or social care organization may adopt for improvement, and CareTech should aim at adopting at least three. The first principle suggests that efficient costing should be based on high quality data (NHS Improvement, 2018, p.5). Accurate data increases confidence in the costing process. When patient-level costs are accurately identified, the pricing of services become convenient and affordable to the consumers. Good costing should also consider all the costs incurred by an organization and accurately show the relationship existing between the resources used and the associated activities. These processes should be done in a transparent manner that makes it easy to trace costs and their origin. Transparency makes it easy to adopt a cost model that accounts for all costs and ensures that they are acceptable for use in the organization (NHS Improvement, 2018, p.7). Costing should also focus on materiality, which helps in accurately identifying the elements that drive a cost. This principle helps in identifying areas in which the company can improve its costing, for example, by increasing efficiency in the costing of high volume and high value services, which would have a positive impact on the pricing of services for consumers (NHS Improvement, 2018, p.8). CareTech should also adopt a costing principle that favour consistency and allows for cost comparison within the organization, between the different organizations operating on the field, and across the social care service. Lastly, good costing should focus on stakeholder engagement, where all the stakeholders affected by the organization should be engaged in the process and should have access to the costing information (NHS Improvement, 2018, p.10). By adhering to all these principles, CareTech will have an appropriate costing system in place.

Business control systems are the processes and procedures set by the management of an organization, with an aim of ensuring that the company achieves its mission and objectives. Control systems set standards that all employees should adhere to. The first system that CareTech should adopt is quality control, where management should ensure that there are processes in place to gauge the quality of services offered to their clients (Landers, 2017). Control systems should also be introduced human resource, to ensure there are procedures in place guiding the process of recruiting, hiring and training staff, with the aim of having a workforce that can provide the highest quality of service (Landers, 2017). Financial control systems should also be put in place to ensure that the organizations resources are well managed and measured (Landers, 2017). Financial controls also enhance the accuracy of audit reporting as well as the reduction or elimination of fraud. The last control system should focus on expenditure, which is important in increasing profitability and reducing wastage. All purchases and expenditure within an organization should be closely monitored through existing systems. These business control systems would all be essential in aiding CareTech in achieving their goals.

Criteria 1.2: Information Needed to Manage Financial Resources

CareTech needs some information to effectively manage their financial resources. The company needs an understanding of their assets and liabilities, and this is information that can be accessed in their balance sheet financial statement. From the balance sheet, one can get information on the shareholders equity, which is essential in understanding the net value of the company, and financial management strategies that may help in increasing this value. CareTech’s earnings and expenditures is another set of information that should be determined. This information can be accessed from the company’s profit and loss statement, which is essential in determining how resources should be managed for better profits. Lastly, for efficient management of financial resources, it is important to consider information on the company’s cash inflow and outflows. In an ideal situation, the amount of cash inflows must greatly exceed the cash outflows. Lastly, information from a financial analysis tool such as the SWOT analysis, may be necessary in managing financial resources with respect to the organization’s strengths and weaknesses in their internal environment, and the threats and opportunities present in their external environment.

Criteria 1.3: Regulatory Requirements to be met in Managing Financial Resources

CareTech has a responsibility of meeting different regulatory requirements guiding the social care sector. As a company, CareTech is bound by the Company Act 2006, where it is required to abide to all the requirements outlined in this law. For example, the firm has the responsibility to prepare an annual financial report and publish it in its website. While reporting the company must also adhere to the regulatory requirements introduced by Companies House. CareTech must also comply with the requirements set by regulatory bodies such as care quality commission (CQC) and NHS Improvement. On one hand, the latter requires care organizations to provide services that are safe, high quality, and compassionate in a manner that is financially sustainable. The CQC on the other hand, acts as an independent regulator of health and social care, and regularly inspect and rate the services offered by such organizations (NHS Improvement, 2018, p.27). CareTech also has a responsibility of paying taxes as part of satisfying its regulatory requirements. The HMRC is responsible for the collection of taxes in the country, and CareTech must adhere to the body’s regulations. All the above requirements must be met efficiently managing the company’s financial resources.

Criteria 1.4: Systems for Managing Financial Resources

Different systems are available for aiding CareTech in the management of financial resources. These systems are important in creating cost efficient processes that are consistent and that help in the reduction of wastage, while increasing productivity. The company needs an accounting system that helps in the management of its financial transactions, as well as in tracking their income and expenses. Technology allows for the use of computerized and automated accounting systems that collect all relevant data, and its categorisation into either income or expenses, in what are known as financial management systems or software. These systems also allow for mapping of different accounts within the organization, and the visualization of data where necessary. Another important system that can help CareTech in managing its financial resources is an efficient payment system. This system helps in managing all financial transactions including the disbursement of wages in a manner that is easily traceable and transparent. It also helps in the management of financial resources by reducing the inaccuracies and complexities associated with the manual management of such transactions. As previously mentioned, business control systems and cost control systems are all essential aspects in the management of financial resources by a company. Therefore, CareTech needs a cost control system that minimizes their expenses and maximizes profits. The firm also requires control systems that enhance aspects such as the quality of services, the hiring process, and the reimbursement scheme among others. Audit systems and different information technology systems may also be needed in increasing efficiency in this company. Therefore, the systems discussed above are all a needed requirement for proper financial management at CareTech.

Criteria 2.1: Diverse Sources of Income Available to CareTech in Financial Year 2017

A successful organization must strive to have diverse sources of income to avoid the problems associated with having a single stream of revenue. In 2017, CareTech had revenue that could be traced to different operations. As part of their children services, the organization provided foster care services, and this segment contributed to 5.2% of their total revenue (CareTech Holdings PLC, 2017, p.3). The services offered under foster care include residential care of children and family assessments done in collaboration with local agencies. The second source of income was the Young People Residential Services, where the organization provides residential and education services to young people, as they prepare their transition into normalised family settings, and it contributed to 26.4% of the firm’s revenue (CareTech Holdings PLC, 2017, p.3). CareTech also provides services aimed at adults with learning disabilities. These includes adults in residential care and those living independently. The service aims at allowing these individuals to live a normal and comfortable life, and contributes to 52.9% of the company’s revenue (CareTech Holdings PLC, 2017, p.2). The organization also offers specialist services that are aimed at persons coming out of acute care or prison, and aims at ensuring they have a successful transition to normal life. This service also caters for men with acquired brain injury. The specialist service made up 9.3% of the firm’s income (CareTech Holdings PLC, 2017, p.2). The company also offers learning services which include apprenticeships, development programs, and pre-employment programs, all of which aim at preparing young people to enter the adult workforce. This business segment contributed to 6.2% of CareTech’s revenue (CareTech Holdings PLC, 2017, p.3). Other sources of income for the company include the sale of its shares to the public, and grants and funding received from either the national government, local government or private donors. Interests, debt, and income from sale of assets are other common sources of income available to companies such as CareTech. It is clear that the firm has multiple sources of income, which provide varied contributions to the total revenue each year.

Criteria 2.2: Factors that may Influence Availability of Financial Resources in CareTech

As a social care organization, there are different factors that may affect the availability of financial resources for CareTech. The quality of services offered by the company is one such factor. High quality services increase the credibility and reputation of the firm, which helps in attracting more clients, allowing it to earn more revenues and a higher availability of financial resources. The increased credibility also attracts investors, increasing the sales of company shares, which is an important source of revenue for any firm. The other factor that affects the availability of revenue, is the suitability of the organization to receive government funding or grants. CareTech is under the NHS and therefore it is viable for government funding. Prevailing policies determine the amount allocated to these organizations. Being a huge publicly traded organization, serving thousands of people in different geographical locations may increase the suitability of CareTech for this grants, hence increasing the availability of its financial resources. The availability of this source of resource will also depend on the funding priorities that the government has set during the current time. The other factor is the creditworthiness of the business. A higher credit worthiness allows the organization to access larger debts that can help increase their capacity and financial resources in extension. Unique policy changes may affect the availability of financial resources for CareTech. For example, the introduction of the Apprenticeship Levy in 2017, has placed the company at an advantageous position for receiving higher revenues from its learning services business segment. Therefore, there are external and internal factors that may either hurt or promote CareTech’s revenues.

Criteria 2.3: Different Types of Budget Expenditures in CareTech

Budgets are essential for helping organizations in managing their resources. Mostly they are aimed at ensuring that a company’s expenditure does not surpass its income. For CareTech, there are different budget expenditures that apply. The firm needs to budget for the expenditures needed in maintaining a sufficient and well-trained staff that is capable of handling the company’s clients. In 2017, the company had a total of 4,744 staff members, whose aggregate payroll amounted to a cost of £85,904,000, and this includes costs such as wages, pension, social security, and share-based payments (CareTech Holdings PLC, 2017, p.57). Finance expenses are another type of budget expenditures at CareTech. These expenses include servicing of bank loans and overdrafts, and interest on financial liabilities. These expenditures are especially important in ensuring the company maintains a good relationship with its lenders. In meeting their regulatory requirements the company must pay its taxes. Therefore, the current and deferred tax expenses make up an important budget expenditure for CareTech. The payment of dividends to the company shareholders may also be considered as a significant expenditure that applies to CareTech, as a public-listed company. Other budget expenditures include administrative costs, which cater for the daily running of the organization’s activities. Additionally, the company incurs costs in expanding operations for example, through acquisitions of existing businesses, acquiring land and buildings for their residential services, and continuously training and seeking new staff to maintain a fully trained staff, suitable for their client’s needs (CareTech Holdings PLC, 2017, p.14). Therefore, budget expenditures entail the different costs that CareTech must incur in maintaining and improving its operations.

Criteria 2.4: How Decisions about Expenditure can be made in CareTech

Appropriate strategies must be implemented before making decisions about expenditure in the company. Any investments or standalone projects that require a huge cost to implement must undergo an investment appraisal. Capital budgeting, which is the process through which companies evaluate potential major projects is essential making this decision. Techniques such as accounting rate of return, payback period, and discounted cash flows are all important in making a decision on whether an expenditure should be accepted or not (Kengatharan, 2016, p.6). CareTech should also conduct a cost-benefit analysis as part of its decision making process. If the costs outweigh the benefits the expenditure should be discouraged. Since all organizations work with limited resources, it is important to make expenditure decisions based on prioritization. The most important activities should receive preference when it comes to the expenditure budget. This process ensures that resources are not directed to activities that are not important. Strategic decision tools such as Porter’s Five Forces, SWOT analysis, and the PESTLE analysis may be used in ensuring that the decision maximizes on the firms strengths, opportunities, and its external and internal environment. With these strategies in place, the company will make well informed expenditures that guarantee returns for the company.

Criteria 3.1: How to Manage a Financial Shortfall in CareTech

Based on the definition provided by Investopedia (2019), a shortfall refers to a shortage, where a company’s obligation or liability exceeds the amount of cash or resources available. There are different strategies that can be used in addressing this financial shortfall, and ensuring that it does not occur in the future. The first step is identifying the actual reason behind the shortfall. This is an essential step as it helps in ensuring that the shortfall does not arise again in the future. Where poor financial management systems are behind the shortfall, it is essential to introduce an overhaul of such systems. In case of a financial shortfall in CareTech, it would be essential to first consider a short-term loan such as an overdraft, especially if the shortage affects immediate obligations such as payment of wages, which cannot be delayed. Another step would be to consider the current obligations, rank them based on their priorities, and then use the available resources to settle those that have the highest priority. A long-term shortfall can also be managed through the sale of company shares. By using this approach a company does not have to increase its debt, and the shareholders recoup their investments by earning dividends. CareTech may also focus on intensifying the collection of its debts, which if successful would help in availing the cash needed to meet their current financial obligations. Therefore, strategies should be put in place to address shortfall, which helps in avoiding negative impacts associated with this problem such as additional interests on debt, unnecessary penalties, and a reduction in the organization’s creditworthiness.

Criteria 3.2: Actions that would be taken in the Event of Suspected Fraud in CareTech

Fraud is a widespread vice, which has negative impact on an organization. Fraud contributes to an estimated 5% loss of revenues for companies annually (ACFE, 2014, p.8). Additionally, fraud may hurt the reputation of a company, which leads to loss of revenue. Based on these facts there is a need for companies to have strategies in place to handle suspected internal fraud within an organization. The first action that should be taken in this case would be the preservation and safeguarding of any potential evidence (Todd, 2017). Such evidence must be maintained in its original form awaiting immediate analysis from professionals such as the forensic accounting team. The second step would be to closely monitor the suspected employee and to gather enough evidence before approaching or firing them. Such an approach ensures that the employee does not tamper with or eliminate any evidence before the crime is confirmed. If an employee offers a tip-off on the suspected fraud, it is essential to keep conceal their identity, and to find a way to reward them once the fraud is confirmed. This helps in creating an environment where employee have an incentive to report potential fraud. When substantial evidence is available that fraud has been committed, it will be essential to initiate legal or criminal response against the suspected individuals, although most company choose not to due to the risk of bad publicity and costly and lengthy legal processes, which make internal punishment such as firing the employee or settling on a settlement to seem more appropriate (ACFE, 2014, p.65). In cases where the case affects stakeholders such as the clients and the public, it is essential to initiate a public relations campaign that will aim at saving the reputation of the company. With these steps one would be able to adequately address any suspected fraud activities within the organization.

Criteria 3.3: Budget Monitoring Arrangements in CareTech

Budget monitoring is the process by which a company assesses previously set targets of expenditure and income to determine if they were achieved or not. This process is essential in gauging the efficiency of a company’s budgeting or forecasting techniques. Without budget monitoring, CareTech would not be in a position to realize if they are achieving or implementing the financial plans that they had set. The budget monitoring arrangement in CareTech should be based on the financial accounting system present in the company. The system will allow for the collection of expenditure and income data on a monthly or quarterly basis. This data can then be compared to the estimated values presented in the budget. If the expenditure exceeds the budgeted amount, strategies should be put in place to minimize costs going forward. Therefore, budget monitoring is an integral part of financial management, which organizations cannot afford to ignore.

Criteria 4.1: Information needed to make Financial Decisions Relating to CareTech

Some information is necessary in aiding CareTech in making financial decisions. The first set of information is the assets and liabilities of the company. For example, before making a financial decision to take new debt, a company must closely consider its existing liabilities, to avoid accruing a debt that will be impossible to pay. Information on assets may also reveal assets that the company can quickly dispose when the company needs to make a financial decision that requires a quick source of cash. Most financial decisions made by a company are aimed at increasing its profitability. As such CareTech needs information on its profitability, and this can be accessed by looking at the income statement, which considers the company’s profits and losses. For instance, if the income statements indicate losses, management can initiate financial decisions aimed at making its operations more profitable. A company should strive to create value for its shareholders, and this is indicated by positive cash flows. Therefore, the cash flow of an organization is important information that should guide financial decisions. By assessing the cash flow statements, a company can identify activities or business segments that increases its cash inflows, and also areas where costs can be cut to reduce cash outflows. When making financial decisions, CareTech must analyse information on its internal and external environment. A proper understanding of the internal environment helps in revealing capabilities that enhance the firm’s competitive advantage. The external environment reveals opportunities that the company can utilize, as well as threats that would minimize its competitive abilities. Additionally, information on the company’s priorities should be sought before making a financial decision. It is also important to gain an understanding of the decision making process, and the individuals tasked with this duty within the company. Therefore, all this information is important in influencing financial decisions for CareTech.

Criteria 4.2: Relationship between Care Service Delivered and ‘Costs and Expenditure’

A relationship exists between the care service delivered by a company and its costs and expenditure. Organizations such as CareTech needs to incur some costs to come up with high quality care services that will be helpful and attractive to the clients. It becomes essential to consider the cost-benefit relationship that exists between these two aspects. By incurring costs in the care service delivery process, the firm stands to enjoy benefits such as a higher revenue due to increased clients. If a company is providing some care services, whose costs exceed the benefits, the firm may be forced to withdraw the service to avoid losses especially to the shareholders. The relationship between costs and care service delivered also exists in purchasing arrangements. Companies such as CareTech design care services aimed at specific buyers or clients. By considering the price that the buyers are willing to buy the services, an organization can settle on the expenses they are willing to incur in creating and delivering the service in a manner that is financially sustainable. Therefore, the purchasing arrangement that exists between a care service organization and its clients can explain the relationship the service delivered and its costs. Pricing policies also dictate the relationship between costs and care service delivered. The government usually intervene in sectors providing essential services such as health care, social care, welfare, and education (National Audit Office, 2013, p.4). The intervention usually involves a pricing policy, where the pricing of a particular service is generalised and codified into a public policy. Regulatory bodies such as the CQC and NHS Improvement are mandated with setting prices for care services. Therefore, in care service delivery, organizations must incur costs with the pricing policy in mind.

Criteria 4.3: How Financial Considerations Impact Upon a Service User

Financial considerations have a huge impact on the users of care service. Users will prefer to access high quality of service. However, in most cases the quality of services have a direct impact on finances, since it will require higher prices to access such services. Most individuals may not have the financial abilities to afford these services. Another impact that financial considerations have upon service users is on access to service. When the services provided are highly priced, this may create a constraint to the clients. Such users have a problem accessing these services. When the services are lowly priced or offered for free these barrier to access is eliminated, and more clients can receive these care services when needed. Insurance schemes may help in reducing the financial burdens of the clients. Therefore, insurance has a positive impact on the service user by reducing the costs they need to access care services from the social care organizations. In most organizations resources are always limited, and available resources must be channelled to the most important services or programs. In this case, organizations may choose to dismiss services that do not make a profit despite incurring significant costs. Such services that are eliminated due to financial considerations have a negative impact on the users, by becoming inaccessible. Therefore, finances have a great impact on the users utilizing care services provided by organizations such as CareTech.

Criteria 4.4: Ways to Improve the Care Service Provided by CareTech

By improving its financial systems and processes, CareTech may succeed in improving the care service they provide. Efficient financial systems aide in organizations in realizing more profits. Research has shown that care facilities that have higher profits are able to find skilled staff and pay higher wages, which has the effect of improving the quality of care offered to clients (Dong, 2015). Therefore, CareTech has an incentive to design better financial systems and processes. The firm can adopt financial systems that efficiently traces its financial transactions, income, and expenses allowing for the realization of better profits, which in turn improves the quality of care they provide. Improving the provider payment mechanisms used by the organization can also help in improving the quality of care services. One such payment model is the payment by result (PBR) method. This payment plan dictates that the commissioner only makes payment when certain outcomes are achieved. Failure to achieve the intended outcomes means the organization does not receive any funding or payments from the government. By tying payments to outcomes and pre-agreed results, organizations such as CareTech are motivated to improve their services, failure to which they miss out on payments. Therefore, a payment strategy tied to performance, may be an essential change in the company’s financial system that will help in improving the quality of its services.

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