Introduction to Managing Finance in the Public Sector
NHS is a government organization which is providing medical services to sick people. This organization is playing a vital role in the elimination of diseases in the UK. This report is prepared on managing finance in the public sector. In this report, government organizations are analyzed and the structure of the NHS is discussed in detail. Further, in this report, the accountability of managers in public sector firms is discussed in detail. With respect to finance, budgets and project evaluation techniques are discussed in detail in this report. Further, ways are proposed that can be used for identifying appropriate discount rates for computing the present value of the project. At the end of the report, ways that are used for applying for tender are discussed in detail. Furthermore, some of the factors are discussed that must be followed in order to select the right supplier for passing the tender.
1.1 Analysis of different organizations in the public sector
Public sectors refer to an organization that is owned by the government and the entire investment is made by the regulatory bodies themselves. Usually, these firms are government departments and they have their own system of accounting. The government also runs some of the companies specifically in those areas in which entry of private firms is prohibited. These areas may be atomic energy etc. Organizations operating in such industry are fully owned by the regulatory bodies. There is a great difference between public and private sector organizations. The main difference comes in the case of ownership. Public companies are owned by government whereas private firms are owned by an individual or group of people. The second difference comes in profit. In the case of public organizations, the main aim is the welfare of the general public. But in the case of private companies, the major objective is to earn profit. Private firms are focusing on growing their business at a rapid rate and their efficiency is also very high. On the other hand, public organization’s efficiency level is very low and they follow a detailed procedure to perform any activity. NHS is one of the UK’s largest and most popular service providers in the healthcare sector. In order to understand the workings of the NHS, it is necessary to understand its structure. The main components of its organizational structure are primary care, specialized services, offender health care, armed forces health care and immunization screening of young children. Through these components, it is providing varied services to its customers. Through immunization services, it identifies whether young children are capable of fighting their diseases or not. On the other hand, it also looks after the health of army personnel and ensures that they remain healthy forever. Under specialized services, provide unique services to patients who are suffering from specific diseases. Primary care is another segment in which NHS is operating and under this segment, the firm is providing primary care services to the patients. Hence, NHS as a government organization plays a prominent role in keeping the people of the UK healthy.
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1.2 Accountability of public sector managers in relation to finance
The public sector is known for its inefficiency and the long procedures that are followed to perform specific tasks. NHS is a large-sized organization in the UK and due to this reason; its managers have a high level of accountability for the performance of operations. The public sector manager will be responsible to any top-level manager or any regulatory authority. Public sector managers are also accountable to NHS stakeholders. These stakeholders may be the users or the electorate. Users refer to those entities that are beneficiaries of NHS services. These people come to NHS service centres with the belief that they will get services of high quality. If they are not satisfied with NHS services then this will directly hit the image of the NHS in the eyes of the general public. Hence, in order to manage its current reputation, NHS needs to improve its service quality and its delivery procedure. This makes the managers of the public sector accountable for their services. Accountability ensures that managers will look after the entire situation and will provide the best quality service to the end users. Governments are using various tools or methods that help ensure that managers are fulfilling their responsibilities in a proper manner. These tools may be audits, financial reporting, legislation and policies etc. The audit is commonly used in the public sector organizations in which accounts of specific public firms are audited by auditors or auditors in general. On the basis of accounts, it is ensured that money is not manipulated in an organization. Along with this, in an audit, the way of working by a specific government company is also analyzed. This helps auditors in measuring the extent to which an organization is performing its operations efficiently. If any discrepancy is observed at the time of auditing then strict actions may be taken against the manager or employees who are working under him. Financial reporting is another tool that is used in this regard. In this method, the entire financial data of an organization is presented in the report format to recognize the governing authority or board. These authorities or boards on evaluation of the received report makes a decision about the perfIn order to evaluate applications for tenders, NHS can use various parameters and some of these are given belowormance of company. If evaluation is negative then they can make some of the recommendations in order to improve the efficiency level of an enterprise.
1.3 Analysis of financial information reported for different public sector organizations
In many nations, corruption has a strong grip on the public sector organizations. In these nations, every year, many cases of corruption in government departments are identified. Thus, the government in these nations is using each and every measure that helps them in the identification of manipulation of money if it has happened in any public sector firm. In financial information, plenty of data about public sector organizations is made available and along with this, its revenue receipt is also shown in the financial statements. In these financial reports, financial and non-financial information is also disclosed. After the preparation of the report, it is communicated to the top authorities which may be single or multiple in their nature. These financial information snapshots are also printed in reports from the House of parliament and the Audit Commission. Hence, in this way, fully fledged control is maintained on the government organization by parliament and regulatory authorities. Further, information provided in financial reporting is also audited by some specific authority in order to ensure that money is not manipulated by the employees who are working in the specific department. Hence, these measures certainly help to ensure that in an organization, operations are performed fairly without any manipulation. With the passage of time, the government is required to introduce some new things in order to ensure that if any corruption will be done in the government department, it will be identified and strong actions will be taken against the culprit as soon as possible.
2.1 Analysis of available financial information and evaluation of the same for decision-making
It is a kind of statement that reflects the inflow and outflow of cash for a specific time period. By analyzing the budget, the company’s financial condition can be estimated to some extent. Along with this, the budget amount also shows the firm’s anticipation of the change in economic conditions. This can be confirmed when sharp fluctuation is observed in the budget. Budget plays a key role in the success of an organization. This is because; after preparing a budget, the firm tries to make expenses in the alignment to an amount that is determined in a budget. By doing this, an organization successfully implements its cash management strategy. In this sort of strategy, an organization always makes an attempt to reduce and delay the cash outflow. However, in the case of cash inflows, it makes an attempt to increase the cash inflow. Thus, budget plays a decisive role in the management of cash in an organization. Budget helps the middle-level management in understanding the expectations of top management from them. Thus, they make such kind of decisions that help them in achieving the budgeted target.
Information on proposed expenditures
Each and every organization like NHS prepares a proposed expenditures sheet in which it makes and presents the estimations regarding expenditures that it will make in the upcoming months or years. In this statement, each and every item of an expense is clearly defined in terms of number. In other words, it can also be said that in this statement, estimation regarding each and every expense is presented in a systematic manner. After the preparation of this statement for a certain period, an organization tries to incur all expenses in the alignment with the estimated values in the given statement. In respect to this, several strategies are formulated and implemented by NHS in order to ensure that expenses will remain in line with expectations.
These accounts are prepared and sent to the top-level managers for day-to-day decision-making. After receiving management accounts, these are analyzed by the relevant managers. On the basis of analysis, these managers take strict actions if the results of these statements fail to beat the expected results.
2.2 Areas to be monitored and a way to do this
For monitoring any organization, performance budgets are prepared and in the case of NHS also, a budget is prepared in which all expenditures are mentioned. In other words, it can also be said that all variables of aggregate expenditure are revealed in the budget. There is a specific process which is used to effectively utilize budgets for the identification of areas of inefficiency and management of cash.
The process in this regard is as follows
1. Determination of budget
In this stage, a budget is prepared and anticipation about the future environment or demand is made. On the basis of anticipation and future plans, NHS prepares a budget that helps its management to achieve the desired goals in the specific time period.
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2. Measurement of performance
In this stage, performance is measured in value. In other words, it can also be said that at the end of a specific duration, the value or aggregate amount of each and every expense is computed by an organization. After this, measured values are presented in a specific statement in a systematic manner.
3. Comparison of actual with budgeted performance
In this stage, actual performance is compared with the budgeted performance in order to identify deviations in performance. In this regard, a sheet is prepared in which actual and budgeted figures are placed vertically parallel to each other. After this, the sheet is used for comparison.
4. Identification of deviation
At this stage, a deviation is identified and it may be positive or negative in nature. Positive deviation means that actual results beat the estimated figures. On the other hand, negative deviation indicates the excess of estimated figures that are relative to actual results. If the negative deviation is identified then management takes action to ensure that such a negative deviation will not occur in the future.
Review by politicians
Sometimes, the accounts of NHS are also audited by any local or national authority in order to ensure that everything is going well in an organization. This also helps in ensuring that in an enterprise, all operations are performed in an efficient and effective manner. Moreover, the positive response of these authorities also reflects that the accounts of NHS are perfect and there is no corruption in the mentioned organization.
2.3 Financial decisions and techniques to support them
NHS is a government organization and all sorts of financial decisions are taken by the government. Government departments normally make funding-related decisions related to the firm. In this, they decide the amount of fund that needs to be allocated to NHS for performing its operations or to increase its service level. With respect to this, many times, the project is started and this is very difficult to select a more profitable project for the mentioned government organization. In this regard, various tools and techniques are used like project evaluation techniques, ratio analysis and cost-benefit analysis. Before selecting any project, it is necessary to identify the company’s current financial status and in this regard, the ratio analysis technique is used in which the firm’s financial statements are analyzed from various angles. On the basis of the assessment of the current financial condition, NHS or the government can determine the amount that can be invested for initiating the project for the mentioned organization. After this, project evaluation techniques are used to select the best project for NHS. In this technique, NPV, ARR, IRR and payback period techniques are used for selecting appropriate projects for NHS. These techniques will be applied to each and every project in order to select the most viable project for NHS. In order to apply these techniques, a discount rate will be required. It is a very difficult task to determine this rate. Determination of the wrong discount rate leads to the selection of the wrong project. Hence, instead of earning a profit, NHS may face loss in its project. In order to ascertain an appropriate discount rate, NHS can use WACC or weighted average cost of capital concept in order to ascertain the most appropriate discount rate for the project (Heinrich and Marschke, 2010). By using this technique, NHS can identify appropriate discount rates and can select the most appropriate project for itself.
3.1 Process by which projects are put out to tender
In order to put a project for tender, there is a process and there are some of the requirements that an organization requires to fulfill. In other words, it can be said that, in order to get an entry of a project for getting tender, an organization has to fulfil some parameters. If a firm fails to fulfil these parameters, it cannot be applied for tender. If the inverse happens, then only it can put the project in the tender process. In respect to this, an organization may be required to meet domestic or international standards. It is required to meet international standards only when the tender is related to a foreign nation or if any international organization is going to start any project in the homeland. After fulfilling all standards for participating in the tender process, an organization will determine a quotation. It is simply a set of costs at which a firm can do a specific task for any organization. However determining a quotation is not an easy task, especially when the applicant is newer in this field. If wrong quotations are prepared and the company gets a tender then it has to complete a project as per the contract. Hence, an organization may possibly earn a low amount of profit on investment. Hence, it will be better to take guidance from those who have vast experience in this field. Suppliers have a lot of experience in this field and on the basis of evaluation of various factors, they can determine a range in which an organization must apply for a tender. Hence, the determination of the appropriate range for a bid plays a vital role when an organization intends to win a tender with an aspiration to earn a huge profit on the same. In order to select an appropriate supplier, an organization must identify those entities that have vast experience in this field. After identification, the company will prepare a list of all searched suppliers. After this, some criteria will be determined to select appropriate suppliers. On the basis of these criteria, the best supplier will be selected and the company will get guidance from reliable sources. Hence, the firm will be in a position to apply in a certain range for winning a tender at a perfect quotation.
3.2 Ways in which tenders are evaluated and suitable suppliers are selected
In order to evaluate applications for tenders
NHS will be interested in approving those tenders that are applied at a low cost. In other words, it can be said that NHS will select only those applications, the selection of which is done at low cost. With respect to this, there will be a procedure which is initiated from application for tender to evaluation of applications. In this way, NHS will be able to select the best project for itself.
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NHS cannot select any project on the basis of a single parameter and it requires using multiple factors in order to ensure that after giving a contract to any company, no problem will occur in the initiation and implementation of the project. In other words, it can be said that the selection of any project at a low cost does not guarantee that the project will be implemented successfully and desired results will be achieved in a proper manner. Thus, NHS will also pay attention to the years of experience that a particular company have in the successful execution of such kinds of projects for which tender is issued.
Quality is a factor that can never be ignored while giving a tender to any specific firm. This will help NHS in ensuring that a specific firm has the full capability to execute a project in a systematic manner.
This is a factor on which the entire success of any project depends. If any applicant is not financially strong and if the tender is given to the same company, then a delay may happen in the completion of the project on time. Hence, it is necessary to ensure that applicants are financially strong and are able to run a specific project smoothly if they are run in a proper manner.
Feedback to unsuccessful suppliers
In order to ensure that an appropriate supplier is selected, an organization will also visit feedback that was received in its earlier projects. This feedback will help in identifying the weaknesses of an organization. Thus, any company cannot cheat the NHS on the basis of a low quotation.
On the basis of the above discussion, it is concluded that in order to manage public sector organizations, the government requires using strict standards. In other words, it can be said that regulatory authorities must time to time conduct audits in order to identify any financial irregularities on time. Before allotting tender to any supplier, public organizations must use several parameters in order to identify an appropriate supplier. The tender will be passed to only that supplier which has a better financial position. This will help ensure that the project will be completed on time and will be implemented in an efficient and effective manner.
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