Principles of costing

Care South Group is a team for care home that is working with the dementia patient and Alzheimer’s society and undertakes various programmes like dementia awareness and tea parties. This report aims to state the costing principles, identify the information that are needed to manage the financial resources, identifying the various sources that are available to Care South Group for income and identifying the requirement that are needed to make the financial decisions.

The cost is always associated with its causes. It is identified that increase in cost is directly proportional to their causes. The accumulation and analysis of the data for cost are generally according to the method of allocation and are based on the relationship with cause (Drummond et al. 2015).

Abnormal costs are debited to costing – the loss taken place due to fire, theft or any accident is called as abnormal cost. They are not reflected in the cost of production as it has nothing to do with the activities of production. It leads to mismatch in the cost figures, which in turn, mislead the management to the cost control objective. However, the normal costs related to the service or production is charged to the cost centres (Chartier 2014).

Cost is debited after incurring – Charging toe the cost take place after the cost is incurred and after that only the cost can be charged to a particular unit.

Past cost shall not reflect in the future cost – The cost incurred in a particular period shall be given effect to that particular period only. If past cost have their impact on the future cost, it will be problematic for meeting the future costs as the burden of past cost will have great impact on the management. The exception here is the cost of advertisement, which is generally treated as deferred revenue expenditure.

Principles of double entry – The application of this method are there in the preparation of financial statements. Costing requires the use of cost sheet and cost statement to fulfil the objective of cost ascertainment, cost control and it works as guidance for managing the finance.

Business control system: This system assists the organization to manage a corruption free environment and dampens the activities of embezzlement by employees as well as the management. The major business control systems are as follows:

Recruitment procedure – Care south group must have a system to retain their expertise employees for long-term period. Retaining the employees enable the company to make the yearly comparison. On the other hand it reduces the risk for the company during the visit of audit team as it will minimise the misstatement in the financial statements.

Business control system

Maintenance of records – Maintaining the financial records properly assists in proper documentation of the business records. Record maintenance involves safeguarding the electronic data, storing the documents in appropriate way and back-up of the records.

Safeguards within the organization – It prevents the organization from the intruders from the acquisition of company properties. There are two types of safeguards: Tangible and intangible. Tangible safeguards involve locking of doors, while intangible safeguards involve applying programme or computer password (Bates et al. 2014).

Organizational requirements differ based on the labour requirements, operational activities, financial activities and managerial activities. These activities decide the distribution of financial resources for their fulfilment. These data can be acquired from the resultant figures of the inventories that are maintained by the organization for preparing the budget, operational activities, financial activities, cash books, income statements and any other cost activities of the organization. Care south group may get their required information from the working capital, human capital and debts (Epstein et al. 2014). Records generally come in various kinds of media. However, many records are still generated in paper, for example, the vouchers, supporting documents, correspondence and contracts. The organization can also records the transaction in registers, ledgers and journals. Now-a-days, almost all the important data are stored in the computers and are maintained in electronic format. Information arises from the events or the transactions. However, the transactions to be recorded must fulfil criteria such as the records must be fixed, unique, and authentic and must have proper authorization. For example, the Crown records management from UK scan their documents that make the information of the business to be available instantly (Finkler et al. 2016).

Regulatory requirements assist the organization to comply with the statutory provision of the country. Care south group follows the UK GAAP (Generally Accepted Accounting Principles) to manage their financial resources as per the regulatory requirement and reporting their financial information. GAAP has the impact on the following activities: (i) Disclosing the activity related information (ii) measuring the economic activities (iii) Documenting the measurements regularly (iv) Regulation of GAAP (v) Summarizing and preparing the financial information (Abdelhak, Grostick and Hanken 2014).

The accounts and charts of the organization are summarized through the trees. Trees are the hierarchical structures to represent the summarization rules for the organization. Through generation of the tree, the accounting and operation system of the organization are summarized at one place. It makes the things easier for the company to update the ledgers, reports and the security profile. Further, instead of specifying the department IDs as A101, B201 or C301 in the report, it can be specified as office of Technology Commercialization. The tree regulation of Care south Group is shown below:

Identification of information that is needed to manage the financial records

The main account head will be for all the accounts and will be represented as “All accounts”. Under that head, various other heads like assets, liabilities, equity will be recognized. It will be a good system for Care South group as all the required information will be stored in one place and the user can get easy access of the data through the single system.

Assessment of the financial resource management system in health care sector is done through evaluation of whether they are meeting the expectations of their client or not. Care South group handled all the expected risks for its health care centre through the process of resource allocation as per their management systems and policies and the requirements of the interested parties. The interested parties are the staff and patients of the Care south group. Through the method of financial expediency and cost reduction, the organization efficiently complied with the managerial policies, which in turn, assisted them in attaining their goal of offering social care to the large section of people.

Quality includes performing the activities that are required to meet the requirement and expectations. Quality is not measured in terms of numbers rather is measured in terms of positive perception. The quality of Care South group will be managed through the participation of the customers in quality management strategies, systematisation of the quality management, taking the in-depth feedback and recommendations from the employees and implementation of quality to assist in management of quality. Further, the quality is required to make radpid advance in the health sector, increasing awareness among the people regarding health and to face the strong competition in the market an dto improve the communication technologies (Kamra, Singh and Kumar De 2016).

In the year 2013/14, they have various sources of income like income from residential care services, Domiciliary care services and income from investment. However, their major source of income is from Residential care services, which is counted as 81% out of the total income. For the year 2013/14, the total income received from Residential care services are £29.10 million that counts for the maximum out of the total income of £36.20 million. Other sources of income were £5.9 million from Domiciliary care services, £0.2 million from investment and £1.0 million from other sources. As compared to the previous year the receipt from Residential care services has been reduced by £1.0 million and other receipts are approximately same as the previous years (care-south.co.uk, 2017).

Regulatory requirements to manage financial resources

Policies and objectives differ with the different organization and agencies as every organization serves different clients and the type of services they offer. For instance, the patient group those are suffering from dementia and Alzheimer. The services are depended on various facts like availability of funds, focus in the year’s budget and allocation of funds from the government. For example, if the government allocated funds for dyslexia then Care south group will not be eligible to get funds as they deal with the patients of dementia and Alzheimer. Various factors that affect the financial resources availability are as follows:

New services – The year 2013-14 started with the welcome request from Bath and North East Somerset local authority that extended their contract areas to include Keynesham. Due to this they gained reputation for high quality delivery care and well trained staff and further resulted the additional referral from local commissioning group and local hospices to supply for palliative care. Large funding was provided by the NHS and the teams of local hospital (care-south.co.uk, 2017).

Financial instruments – Credit risk of any company endanger the company’s cash equivalent that makes it impossible for the company to acquire funds from the financial institutions. If the management’s credit policies and monitoring the credit risk are not monitored properly, it may decrease the chances of a prospective customer to avail the credit facility.  Various level of limit is set for the credit term that will depend on the sales value. Credit risk will enforce sanctions on financiers and investors due to the risk of unclear recovery process to recover their capital back.

Geographical location – The location of the organization have great impact on the various issues like funding, staff, service users and demographic status. For instance, if the service users in that locality are mostly inclusive of elder people, the chances of receiving grants become lower.

Business ownership – The ownership of business is very crucial when it comes to the availability of resources from the private bank, government, voluntary organization and statutory organization. For example, the private home care organization with 20 service users having 5 employees will get less grant as compared to the GP NHS service provider with more employees, patient and wide range of services.

Comprehensive budgeting – It is also known as the master budgeting for reference. This budget is prepared in detail and it is required when there is obligation on expenditure. Moreover, it assists in getting a financial overview for the organizational expenses on its projects. This budget helps in preparation of comparable spending pattern over more the past years.

Systems for managing financial resources

Budgeting for solving problems – As Care south group have negative net profit of £0.1 million in 2012/13 and net profit of only £1.1 million. It is very clear form their financial record that they are facing difficulties in controlling their expenditures in some sections of the expenses. Therefore, the budget for solving the problem will be useful for the company to find out the problems and solving them. As compared to the comprehensive budget, the budget for solving the problems is prepared in more detailed approach and has a more general perception.

Planning budgeting – The Care south group through its expansion uses this type of budgeting to keep aside the capital for paying the interest to the shareholders. This type of budget works for the objective as it allows the organization to allocate the fund to achieve the specific goal. Care south group can use this type of budget in preparing the payment allocation for their shareholders.

This will include the utilization of cost benefit analysis in taking the decisions regarding the expenditures. This will provide the organizations with the required assistance to allocate the resources in efficient and equitable manner in the organization. The cost benefit analysis will provide them with the advantages of absenteeism for operating the competitive market efficiently and predisposition of the market where allocation of income and wealth is not allowable.

Financial deficit takes place when the financial activities of a business are not able to meet the minimum expected goals and targets within the specified time frame. The nature of deficit may be persistent or temporary. Irrespective of nature of deficit the organization is required to identify and mange such shortfall. To manage the shortfall efficiently the organization like Care south group must take some strategic measures to reduce, manage and eliminate them. Some of the measures are Virement, priorities, controlling the process of cash flow, managing the financial resources and managing the credit facility.

Financial deficit can be managed through better cash flow management of the organization and developing efficient system for the budget. Through the reliability of management the company will be able to monitor the pattern of expenses of different departments of the organization. From the findings, the company can take required actions against the reckless spending by the employees of the organization. Care south group shall manage their cash flow to have better return from their operations. Moreover, the payment towards interest is quite high amounting to £0.8 million for 2012-13 as well as 2013-14. Care south group must take appropriate measures to pay off their borrowings, so that their interest payment can be reduced. It will also help to increase their net profit (care-south.co.uk 2017).   

Sources of income

In the health care sector there is applicability of Accountability act and health insurance portability that deals with the fraudulent cases. Fraud is the federal crime and the legislation of all country penalizes the fraudulent person through the penal code of criminal charge under which the penalty in terms of prison may extend up to 10 years. In the ground that there is a chance of fraud, the perpetrators are dealt with the crime and arraigned in court to give answer for the fraud charges. Fraud in the health care sector are severe criminal offence that have great impact on the concerned person as well as on the government, therefore, finding out those scrappers is very essential to fulfil the objectives of the health care services, which in turn, will maintain the healthy population.

Fraud is a predetermined, planned and committed act for the purpose of gaining through unfair means. For instance, any organization does not wish to reveal their actual financial statement to the HRM. Care south group must apply a control system for fraud management to response, prevent and detect the frauds. They must conduct a risk evaluation to identify and understand the risk areas, kind of risks and the measures that can be taken to prevent and monitor the risk when they take place. On the basis of the evaluation procedures and policies and the code of practice the induction, training, non-compliance with the regulations can be managed. Further, an officer for monitoring the fraud shall be nominated to look after all the issues regarding the management and staff malpractices, fraud, monitoring finance and auditing records of the organization (Fabrikant et al. 2016).

Budget monitoring represents the requirement of strategy impositions and efficient planning and therefore provides for the organization’s expectations. Arrangements for budget monitoring involve forecasting of cash flows. The key procedures for the assessment involve assuring that the targets are being achieved through the system of monitoring the internal budgets on regular basis. Revision of internal budget through a well coordinated procedure and providing the information related to the forecasting will enable Care south group to find and manage the gaps with the estimated budget. Improving and reviewing the provisions for internal budgets through monitoring the budget procedure accurately in a regular basis along with identification of improvement areas will improve the monitoring and assessment. Further, monitoring of budget keeps the track of performances of various departments of the organization through the ongoing projects of development and the capital expenditures. This will specify any variance among the projects of the organization and will suggest corrective measures in notifying the matter by the managerial level. Regular reporting within the organization supplies the required information on the future and presents impacts that result from the activities of the projects (Ferry and Eckersley 2015).

At Care south group, the controllers of finance utilize the income statement, financial statement, inventories and cash book maintained by the department of finance of the organization. Financial controllers need sound knowledge about the accounts and operations of the organization before taking any decisions to protect the organization from losses and to avoid overstating and understating of financial data and inventories as they may present wrong information, which in turn, may affect the entire organization. Though the finance department maintains all the record related to finance, other departments like human resource management maintains various information related to employees like their names, addresses and the department in which they are serving. In addition, the management must maintain the records regarding the patients, such as their name, type of diseases, type of diagnosis, time, date and any other relevant information. This kind of information will help them in decision-making and highlighting certain diagnosis, infections and patients (Hill, Jones and Schilling 2014).  

There exists a relationship between social care and health care services delivered with regard to the expenses and costs. The below mentioned information analyzes the services in health care sector provided by the employees of the organization and the associated expenditure and cost with the service. The excess numbers of patients in each year are served by the additional employees employed to provide the services to the patients. This in turn, increases the all over cost for serving the additional patients and payments to the additional employees. However, over the past years, the organization through its income statement and other supporting documents shows a considerable growth in terms of expanding their services to various departments and increase in number of patients (Hibbard, Greene and Overton 2013).

Financial considerations may have impact on an individual who is using the services of Care south group and social care services that involves the individual’s income, affordability, types of the disease, level of seriousness, cost of associate services, living standards and other cost of the hospital. Other factors involve availability of various equipments and diagnostic services and the process of various services that are offered to the patients. The expensive services may not include the individuals who cannot afford the expensive services that are offered by the organizations. Thus, both the individual and organizational financial considerations play a crucial role in maintaining affordable and proper services to the patients. On the basis of operational and financial reviews of Care south group, it is identified that the organization shall focus on the selection and recruitment of skilled staffs, supervise and monitor the staffs, take up the induction and appraisal process regularly. If the rate of staff turnover gets reduced, then the service users will be able to get excellent and comprehensive care. 

Various ways are there to improve the social care and health care services provided by Care south group with regard to the financial systems and procedures. The very first requirement must assure that the organization is following the generally accepted accounting procedures and the legislation that are required to handle the financial procedures and systems in preparing the financial statements of the organization. Moreover, the organization should follow efficient and effective systems of control in preparing the accounts of the company. However, the alteration must be made to fulfil the requirements of the patients without much difficulty and that will enable the organization to serve more number of patients with accuracy and minimization of cost and time. The organization must improve their data processing and collection method. This can be improved through installing the software that will help them to collect the collect the significant data related to the patients and maintenance of the data. This is more important in case of reoccurrence of any disease or treatment of any patient that needs additional investigation in addition of the regular treatment. With the assistance of the modern and advanced technologies many organization are taking the help of advance method for collecting, processing and maintaining data and other systems of control that will assist the organization to run more efficiently and effectively.

Conclusion:

From the above, it is concluded that the cost is directly related to the causes. It is directly proportional to its causes. Organizational requirements differ based on the labour requirements, operational activities, financial activities and managerial activities. Care south group follows the UK GAAP to manage their financial resources as per the regulatory requirement and reporting their financial information. Over the past years, the organization through its income statement and other supporting documents shown a considerable growth in terms of expanding their services to various departments and increase in number of patients.

References:

Abdelhak, M., Grostick, S. and Hanken, M.A., 2014. Health information: management of a strategic resource. Elsevier Health Sciences.

Bates, D.W., Saria, S., Ohno-Machado, L., Shah, A. and Escobar, G., 2014. Big data in health care: using analytics to identify and manage high-risk and high-cost patients. Health Affairs, 33(7), pp.1123-1131.

care-south.co.uk. (2017). Review of the Year 2013-2014. [online] Available at: https://www.care-south.co.uk/wp-content/uploads/2014/12/Annual-Review-of-the-Year-2013-14.pdf [Accessed 10 Mar. 2017].

Chartier, Y. ed., 2014. Safe management of wastes from health-care activities. World Health Organization.

Drummond, M.F., Sculpher, M.J., Claxton, K., Stoddart, G.L. and Torrance, G.W., 2015. Methods for the economic evaluation of health care programmes. Oxford university press.

Epstein, A.M., Jha, A.K., Orav, E.J., Liebman, D.L., Audet, A.M.J., Zezza, M.A. and Guterman, S., 2014. Analysis of early accountable care organizations defines patient, structural, cost, and quality-of-care characteristics. Health Affairs, 33(1), pp.95-102.

Fabrikant, R., Kalb, P.E., Bucy, P.H. and Hopson, M.D., 2016. Health care fraud: enforcement and compliance. Law Journal Press.

Ferry, L. and Eckersley, P., 2015. Budgeting and governing for deficit reduction in the UK public sector: act three ‘accountability and audit arrangements’. Public Money & Management, 35(3), pp.203-210.

Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.

Hibbard, J.H., Greene, J. and Overton, V., 2013. Patients with lower activation associated with higher costs; delivery systems should know their patients’‘scores’. Health affairs, 32(2), pp.216-222.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Kamra, V., Singh, H. and Kumar De, K., 2016. Factors affecting patient satisfaction: an exploratory study for quality management in the health-care sector. Total Quality Management & Business Excellence, 27(9-10), pp.1013-1027.