Financial Control and Budgeting Report: NHS Funding and Control

This report provides a comprehensive analysis of financial control and budgeting within the National Health Service (NHS). It begins with an introduction to budgeting and financial planning, followed by an examination of recent legal, financial, and regulatory developments in health and social care, including the adoption of digital health services and the Health and Social Care Act 2012. The report explores various alternative funding options for the NHS, such as private finance initiatives, agency partnerships, tendering, and outsourcing. It also identifies and discusses stakeholders in the social care sector, including competitors, commissioners, government agencies, contributors, suppliers, and service users, along with effective communication methods. Furthermore, the report delves into agency theory, corporate governance, and accountability issues within the sector. The main body then proceeds to determine the break-even capacity usage rate, calculate targeted profit, and analyze break-even analysis in short-term and long-term decision-making. It further examines the advantages and disadvantages of various budgeting tools, difficulties in preparing public sector budgets, and the preparation of a cash budget. The report concludes by addressing the impact of financial constraints, costs, and budgets on health and social care service managers, clients, and other stakeholders, providing a complete overview of financial management within the healthcare sector.

Financial Control and
Budgeting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
a). Recent developments related to legal, financial and regulatory environment of health and..1
social care....................................................................................................................................1
b). Various alternative funding options.......................................................................................2
c). Stakeholders of social care sector & ways of communication. Agency theory, corporate....3
governance and accountability issues within the sector..............................................................3
TASK 2............................................................................................................................................5
a). Determining the break even capacity usage rate....................................................................5
b). Calculating targeted profit if the care home achieves 90% and 95% capacity usage............6
c). Break even analysis use in short-term and long-term decision-making.................................6
TASK 3............................................................................................................................................6
a) Advantages and disadvantages of various planning tools of budgeting..................................6
b).Difficulties faced in preparing the budget of public sector organizations............................10
c). Preparing a cash budget for a health and social care organisation.......................................10
d). Impact of financial constraints, costs and budgets on health and social care service..........11
managers, their clients and other stakeholders..........................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial controls and budgets is the phrase used for budgeting. The budget is the financial plan and in this, projections are made on
what can happen financially in the organization when certain strategies and the decision in this regard are implemented. With the
budgeting and control financial plans are made which includes determination the level of loan that company can affords and the project
which it can undertake. The report will discuss all the challenges & recent developments faced by NHS. It will also explain the alternative
funding options available with health and social care service organization. The report will also define agency theory, corporate governance
and accountability issues faced by health and social care organization.
MAIN BODY
TASK 1
a). Recent developments related to legal, financial and regulatory environment of health and
Social care.
National Health Service is a government health care organization which is run by the government of United Kingdom providing
good health care and medical services to its citizens and residents as free at the point of service. That meant people who are using the
health care services of NHS are not required to pay each time for services used. The main aim of NHS is to provide good healthcare
services by making it available to all, regardless of wealth.
On 70th anniversary, NHS has faced various challenges which consist of providing better health care services to large number of
people with minimum cost. For solving problems there has been various development made in the field of health and social care related to
legal, financial and regulatory environment.
The legal development of health and social care includes digital health services, adoption of better improved technologies of health
care such as use of artificial intelligence, formulation and implementation of laws and rules related to health care issues such as law related
to sex determination, child absorption etc. Also, development of mobile application and devices related to health and illness thereby
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assisting people in keeping a check on it (Wildavsky, 2017). The Health and Social Care Act, 2012 followed by NHS defines proper
involvement and consultation of people in decisions making about planning or making changes related to commissioned health services.
The financial reform of NHS states that most of NHS finance is funded through central taxation. Measures related to Quality of
care, costs and productivity are determined as most important front line factor which has to be considered (Abbott and et.al., 2016).
Funding for health and social care can be acquired with various alternative option available such as private finance initiative, tendering,
outsourcing etc. The average yearly returns of the company achieves the growth which leads to achievement of financial sustainability in
the long term. Expansion and welfare contract creates a broad development in the economic state of the enterprise.
The health and social care services provided by NHS has to follow the quality and safety regulations as laid down by the health and
social care 2014. NHS services are regulated and monitored by Care Quality Commission and Department of Health. Also, the financial
environment of the health and social care sector is emphasizing on protecting the environment through effective & efficient operations
related to Climate Changes, Energy, Carbon, Water, Waste etc. for the welfare of human being and society & also for improving the
quality of services provided by NHS. Recently, Quality regulation in relation to the services of health care has been risen to the largest and
at the top level.
b). various alternative funding options
Private Finance Initiatives - The private finance initiative is a method of providing financial assistance by which the business
operations or projects activities or any business related task of the public sector company is get financed with the help of the private sector
(Menon and Malik, 2016). This funding option can be used by NHS as it helps the government of the country and also to the individuals or
companies who is paying tax, by providing ease related to the burden immediately coming up with the funding of capital for the business
projects. In simple words, Private finance initiative is a mechanism of creating public private partnerships in which business projects of
public sectors companies are managed and completed by private firms under contract.
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Resources – Resources are considered as one of the most important factor for funding business operations and any projects.
Availability of resources on time helps NHS in making its effective use in carrying on its business operations. Sources of resource funding
can include savings, owner’s capital, donations or aids receive any, government subsidies, these resources are easy to acquire and doesn't
carry rate of interest.
Agency partnership – With the help of Agency Partnership, the company can hold or share profit but has no right to make
decision. NHS can make use of such funding option to perform the business operation and task by fulfilling capital need through the
agency partnership.
Tendering – Tendering is defined as the process of inviting bids from the contractors having interest in carrying own specified
business operations. NHS can use tendering as funding option for providing better quality health and social care services ( Tender funding,
2019). With the help of tendering option, health and social care service providers renders their services to large number of people with
minimum cost. This helps the enterprise in gaining the large no. of users for availing the services.
Outsourcing – It is considered as an agreement in which one company for performing business operations, processes or any other
form of manufacturing, non-core business functions or services, hires another company to be responsible for the planned or existing
activity that has to be done internally (Van der Stede, 2015). With the help of outsourcing the firm can reduce its cost of operations related
to business. NHS by hiring the best medical, social and health care equipment and personnel can provide better services to large number of
people.
NHS has various alternative funding options available which can be used for financing its business operations. NHS can provide
better health and social care services to the patients with better quality health care treatments in a cost effective manner by making use of
any of the above funding options.
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c). Stakeholders of social care sector & ways of communication. Agency theory, corporate
governance and accountability issues within the sector.
A stakeholder is defined as any person who is having interest in a business operation of the company. Stakeholders can be
individuals, corporate, groups or organizations which are getting affected by the business activity or by any organization's actions.
Stakeholder of social care sector includes:
1. Competitors - These are those stakeholders who is carrying on same business operations, activities or is engaged in rendering
same services to people. Because competitors are also providing same services, they have a great impact on the business operations of
NHS. Communication with the competitors is build by NHS through social media channels. Some major competitors are Nutfield health
and Fitnuts.
2. Commissioners – Are considered as those who pays the company for performing business operation or for rendering business
services. With the help of commissioners, NHS can seek grants and donations which can help in improving performance and quality of
service (Barr and McClellan, 2018). By launching the manual for identity of the corporate, NHS enhance communication with the
commissioners.
3. Government and its agencies – Many policies, rules and regulations are framed by government to monitor and regulate the
functioning of NHS services. Media relations and publicity used by the company for facilitating communication with the government.
4. Contributors - These are those groups which provides raw material, stock, resources or contents for manufacturing or producing
of products related to health and social cares by which NHS can rendered its services to patients. Publications and the corporate narratives
are developed by the enterprise to build the communication.
5. Suppliers or Channels - Are those which provides NHS the way to access market segment as well as customer. With their help,
a company can easily provide their product to customers and other users directly (Tervala and et.al., 2017). Manuals and the internal
documents are created for communicating in relation to the orders and delivery of the material.
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6. Service users – Also known as customer, these are those who consumes or acquires or make use of the products and services of
the company. The main aim of NHS is to provide better health care services to patients on large basis with minimum cost. NHS
communicates with the external users through the financial reporting and advertisement channels.
Ways of communication – there are number of ways through which communication can takes place such as:
1. Verbal communication - It is the way in which information is shared between any employee or individual with the help of
speech or words spoken. Verbal communication can be in oral or written form. In health and social care, NHS has use this
communication method for communicating with its stakeholders or patients related to new and better improved health care treatment,
medical equipment, services etc.
2. Electronic means - It is one of the most effective and important means of communication for every business organization
(Hatch and et.al., 2017). It mainly consists of Mobile phones, conference calls, email, social media, messaging, etc. These
means can be used by NHS in the field of health and social care service providers for communicating important information
with its stakeholders who are residing in other place or country.
3. Non verbal communication – In this type of communication, use of body language, physical appearance or touch, eye contact
and the behavioral actions of looking while talking and listening helps in making communication effective. It assists NHS in
communicating with its stakeholders regarding the health care services.
Issues within sector includes:
1. Agency theory – It is defined as a principle which is used for explaining and resolving the issues arises in between the
relationship of business principals and their agents. With the help of agent in the field of health and social care, patients
seek advice of the superior & allow them to make decision regarding their health care treatment. Issues arises when agent &
principal focuses on profit maximization rather than providing proper treatment.
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2. Corporate governance issues – It is considered as concept which involves rules, regulations, practices which helps in
directing and controlling the company to achieve the organizational goals and objectives (Haislip, Peters and Richardson,
2016). The governance issues can be related to the attitude or behavior of employee, conflict of interest, quality
compromises etc.
3. Accounting issues – Accounting is a practice of recording business financial transaction for a definite period of time.
During such recording, many errors or misstatements can be done which can lead to wrong interpretation of financial
statement. This accounting issues can be solved by NHS by hiring a qualified and adequate accounting personnel.
TASK 2
a). Determining the break even capacity usage rate.
Break-even capacity usage rate =
Particulars Figures
Fixed cost (per month) 45000
Price per patient (per month) 1500
Variable cost per patient (per month) 550
BEP
Fixed cost / price per patient – variable cost per
patient)
45000 / (1500 – 550)
= 47 patients
Break even capacity usage rate 47 / 60 * 100
= 79%
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b). Calculating targeted profit if the care home achieves 90% and 95% capacity usage.
At 90% capacity BEP = 30 units / 50 units * 90
= 54 units
At 95% capacity BEP = 30 units / 50 units* 95
= 57 units
c). Break even analysis use in short-term and long-term decision-making.
The term break-even analysis is defined as an accounting approach which helps in determining at what level the company will
make profit. It also helps in assessing the quantity or number of products which every business organization has to sold for covering the
production, manufacturing and other business related operation cost. The break even point arises when total cost is equal to total revenue.
Break even analysis use in short-term and long-term decision-making is as follows:
Short-term decision-making - The total cost of product or service includes both the fixed and the variable cost. With the help of
break even analysis, the company can determine the effect of changing unit selling price, unit variable cost or unit fixed cost which thus
helps in decision making process for short term period.
Long-term decision-making – With the help of break even analysis the company can assess or study about the failure after
introduction or launch of a new project and service. It is helpful for those companies who wants to introduce or launch new products, start
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new service range (Laragy, C., David and Moran, 2016). It is also useful in estimating the increase in production volume & new
production capacities when company is willing to invest in heavy machinery or plants.
TASK 3
a) Advantages and disadvantages of various planning tools of budgeting
There are several tools available which company can use for budgeting purpose such as rolling, incremental, activity and zero based.
Hence, advantages and disadvantages associated with such budgeting tools are enumerated below:
Rolling budget- This is a budget which is continuously updated by adding a further accounting period when the earlier accounting
period has expired. This approach to budgeting helps to eliminate the adverse impact of environmental uncertainties on setting goals by
updating the budget in quick succession (Barr and McClellan, 2018).
Advantages Disadvantages
More realistic- rolling budgets are reassessed
regularly and shows the changes at a regular
interval which leads to more realistic and
accurate.
Reduce uncertainty- As this budget is revised
on a regular basis so any deviation or
uncertainty can be overcome by taking
appropriate measures.
Updated information- Rolling budget forces
managers to reassess the budget regularly, and
to produce budgets which are up to date in the
Time consuming- These budgets are time
consuming and expensive as a number of
budgets must be produced during the year.
Each revised budget may require revision of
standards or stock valuations which is time
consuming.
Off- putting effect- Frequent budgeting might
have an off-putting effect on managers who
doubt the value of preparing one budget after
another at regular intervals.
Administrative effort- Revisions to the budget
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light of current events and expectations. might involve revisions to standard costs too,
which in turn would involve revisions to
inventory valuations. This could replace a large
administrative effort from the account's
department every time a rolling budget is
prepared.
Activity based budgeting- Such budgets are prepared based on the resource consumption and related costs to perform the budgeted
activities. In this system there is a clear relationship between resource consumption and output (Abbott and et.al., 2016). Preparing an
activity-based budget brings out information about opportunities for cost reductions and elimination of wasteful activities.
Advantages Disadvantages
Understanding overheads- this budget shows
greater focus on understanding the overheads
so that cost can be measured in adequate
manner. It assists the organization in assessing
and better understanding the indirect costs.
Overheads control- As it is prepared to
ascertain the information regarding the cost so
it helps the firm in better planning for future
opportunities and unnecessary expenditures
can be eliminated.
Extra time and effort- In this budget for
preparing and establishing the ABC system
extra time and efforts is needed for the
manager which leads to delay in decision
making.
Requires responsibility centres- Problems
linking in activities of activity based budgeting
needs established responsibility centres for
solving them that results in huge cost.
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Better decision making- it facilitates effective
decision making as costs will be more accurate
and enterprise can decide for optimum
utilization of resources.
Uncontrollable- In the short term, many
overheads are not controllable and do not vary
directly with changes in the volume of activity
for the cost driver.
Zero based budgeting- Zero based budgeting allows organizations to start with the grounds for each item in their budgeting list.
This budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting. A budgeting
technique that generally attempts to analyze budget requests without an implicit commitment to sustaining past levels of funding ( Sadaoui
and et.al., 2016). In this, manager starts with zero base and makes focus on identifying alternatives in relation to performing activity. Thus,
it also focuses on identifying activities which need to be performed while preparing budget or financial framework.
Advantages Disadvantages
Facilitates re-evaluation- This budgeting
helps the corporate in re-evaluating and re-
examining all programs and expenditures for
each budgeting cycle by analyzing workload
and efficiency measures to determine priorities
or alternative levels of funding for each
program or expenditure.
Efficient allocation- Through zero base
budgeting resources can be allocated
efficiently and effectively due to the previous
Subjective ranking- As the benefits are
qualitative in nature ranking becomes difficult
for different activities.
Requires experiences- the process of zero
base budgeting requires experiences,
intelligence, expertise and continuous training
on the part of executives. Thus, it is not
suitable for an ordinary entity.
Creates problem- the identification of decision
units and decision packages creates number of
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year based allocations are made.
Enhancement of cost- Knowledge and
understanding of cost behavior patterns of the
organization will be enhanced.
Cost-effective techniques- It helps the
management to design cost and develop cost-
effective techniques for improving operations.
problems for the organization.
Focuses on short-term benefits- this budgeting
does not take into account the long term
aspects that can be limitation for the firm in
achieving their long term goals and to remains
stable in long –run (Advantages and
disadvantages of zero base budgeting, 2019).
Ignores qualitative aspects- It only provides
quantitative information and ignores the
qualitative benefits.
Incremental budgeting- A budget is prepared on the basis of a past period's budget or actual performance with increased amounts added
for the new budget period. It is based on estimated changes in present operation, plus a percentage increase for inflation, all of which is
added to previous year budget.
Advantages Disadvantages
Stability in budget- Incremental budgeting is
considered as stable and change is gradual.
Managers can operate their departments on
consistent basis.
Influence of change- Impact of changes can
be assessed in relation to the previous years’
results.
Budgetary slack- there may be budgetary
slack built into the budget, which is never
reviewed. Overestimation made by the
managers in the past years to obtain the easist
working of the budget, and which will allow
them to achieve favorable results (Advantages
and disadvantages of incremental budgeting,
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2019).
Outdated allocations- the allocations made in
the budget may become out of date and no
longer relate to the level of activity or type of
work being carried out.
b). Difficulties faced in preparing the budget of public sector organizations
For making the budget in public sector organization, following are the difficulties faced:
1. Communication – The term communication helps the company in making planning, formulating and developing strategies,
methods, procedures and concepts (Barr and McClellan, 2018). The company should have a proper & effective flow of
communication which can emphasizes on conducting the budgetary meetings, discussions & its effective implementation. NHS
faces difficulty and challenges in relation to the unrealistic assumptions that makes the budget inaccurate. Inflexibility in making
decisions becomes the challenge for the company and cost of change has to be bear by the enterprise while preparing the budget.
2. Changing Culture – It is very important to have a uniform, stable & flexible working culture in the organization for successful
implementation of budget plans. Every business organization culture basically consists of the behaviors, values and principles
which thus contributes to the social, economic and external business environment (Sadaoui and et.al., 2016). The successful
implementation of effective budgeting approach is difficult when organization's culture changes on regular basis.
3. Limited Resources – The effective and timely allocation of resources can lead to gaining of competitive advantage. On the other
side, scarcity or limited resource availability can lead to decrease in quality of performance level & profitability of the
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organization. Thus, budgeting helps in planning, controlling & sustainable use of resources. With limited availability of the
resources lack of optimum performance issues has been a challenging part for the company while framing the budget.
4. Infrastructure - A good infrastructure of business organization fosters the profit levels and improves the performance level of the
company. Lack of adequate infrastructure facilities can lead to improper budgetary planning, cost control and its successful
implementation (Qiu, Shaukat and Tharyan, 2016). By making any investment in project, the organization should always ensure
from that investment company is earning profit and the project is growing by giving timely return higher than cost expenses of
business. Improper infrastructure creates a challenge in budgeting as it is linked to the planning of resources and raw material at the
workplace and this lead to improper planning in terms of resource handling and storing of the material.
c). Preparing a cash budget for a health and social care organisation.
Cash budget pertaining to 6 months period from July to December is enumerated below:
Particulars July August September October November December
Cash inflows
Opening cash balance 20000 34400 49760 65708 82273 99487
Revenue generated via services delivered to patients 35000 42000 50400 60480 72576 87091.2
Income generated through other sources 12000 12000 12000 12000 12000 12000
Sum of cash inflows 67000 88400 112160 138188 166849 198578.2
Cash outflows
Material 12000 13200 14520 15972 17569.2 19326.12
Labour 8000 8000 8000 8000 8000 8000
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Overhead 5000 5500 6050 6655 7320.5 8052.55
other expenses 3500 3675 3858.75 4051.69 4254.27 4466.99
Sum of cash outflows 28500 30375 32428.75 34678.7 37143.97 39845.66
Ending cash balance 34400 49760 65708 82273 99487 117381
d). Impact of financial constraints, costs and budgets on health and social care service
managers, their clients and other stakeholders.
Cost is defined as the monetary value of any product or services which is paid for the purpose of consumption. Impact of Cost on
following is described:
1. Managers - The profit margins will decline for managers when the cost related to any health care and social services increases. This can
result in either decrease of profit or it will remain constant.
2. Clients – When the cost prices of any health care products or services increases, clients will not be able to take benefit of it for their
treatments (Barr and McClellan, 2018). As a result, this will have negative impact on the patients' health because of high cost and non
availability of treatment on time.
3. Stakeholders – When the cost of health care products or services increases, only the organization will earn from patients having capacity
to afford. As a result, it will lead to decrease in the profit level of company because of which stakeholders will get low return on their
proportions.
Financial Constraints means lack or shortage of fund resources which makes organization unable to carry on any activity or
business projects. Impact of Financial constraints are as follows:
1. Managers - Management have to face a problem because of lack of funds as required for acquiring new and innovative health care
instruments or operating tools. Such organization thus have a lower chance of survival and growth in the future.
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2. Clients – Because of financial constraints the organization is unable to purchase new, innovative and updated health care instruments
and tools as useful in health and social care service for better treatments of patients. It thus impacts the health of patients because of the
outdated quality of treatment and health care services rendered (Menon and Malik, 2016).
3. Stakeholders -The company having financial constraints will affect the financial and organizational performance of the company.
Because of no profit, the stakeholders will not get any profit share for their investment proportions.
Budget is a process of preparing an outline for meeting the future expenses related to business operation so as to mitigate the
business related risk. It also compares the actual results with estimated budget prepared, to ascertain the actual variances, if any thereby
maximizing the profitability.
1. Managers - It helps manager on emphasizing how much number of health care instruments, units are required to be purchased or
acquired for providing an effective treatment to patients in the near future. Budget prepare helps manager in creating and outlining a clear
and definite vision for betterment of organization success & towards attainment of organizational as well as individual goals.
2. Clients – Budget helps in making business plans, strategies for meeting future expenses. It also ensures effective planning related to
financial & non-financial matters of the organization so as to mitigate and eliminate the risk associated with business (Mwangangi and
et.al., 2017). With the help of budget, it confines the amount to be utilized and also make the limits for company from making purchase of
any goods and updated health care instruments for treatments.
3. Stakeholders - When company is having a projected budget amount, not only the quality of performance will get affected but it will also
lead to low profit margins as a result of which the company will not be able to distribute profit to its stakeholders.
CONCLUSION
From the above report it can be concluded that Financial control and budgeting is a system which helps in effective allocation of
the resources as required for carrying on the business operations. It also helps in monitoring the accuracy of report to eliminate fraud, error
with the objective of protecting physical & intangible resources of the organization. The report has cover challenges & recent
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developments as faced by NHS. It has also explained the various funding options available with health and social care service
organization. Furthermore, the report has provided description about the agency theory, corporate governance and accountability issues
faced by health and social care organization. The report has also explained the concept of budgeting and how it is used for preparing
business plans & strategies for meeting future business operations. At last the report has defined the impact of financial constraints, costs
and budgets on health and social care service managers, their clients and other stakeholders.
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REFERENCES
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pp.217-231.
Barr, M. J. and McClellan, G. S., 2018. Budgets and financial management in higher education. John Wiley & Sons.
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break-even analysis. Journal of shoulder and elbow surgery. 26(3). pp.472-477.
Laragy, C., David, C. and Moran, N., 2016. A framework for providing information in individualised funding programmes. Qualitative
Social Work. 15(2). pp.190-208.
Menon, K. S. V. and Malik, G., 2016. Funding Options for Startups: A Conceptual Framework and Practical Guide. Notion Press.
Mwangangi, R. and et.al., 2017. Contribution of stakeholders’ ownership on leadership performance of listed companies in
Kenya. International Journal of Advanced Research in Management and Social Sciences. 6(3). pp.50-73.
Qiu, Y., Shaukat, A. and Tharyan, R., 2016. Environmental and social disclosures: Link with corporate financial performance. The British
Accounting Review. 48(1). pp.102-116.
Sadaoui, M. and et.al., 2016. Controls, budgets and variability of riverine sediment fluxes to the Gulf of Lions (NW Mediterranean
Sea). Journal of Hydrology, 540, pp.1002-1015.
Haislip, J. Z., Peters, G. F. and Richardson, V. J., 2016. The effect of auditor IT expertise on internal controls. International Journal of
Accounting Information Systems. 20. pp.1-15.
Tervala, E. and et.al., 2017. The role of financial control in new product development: empirical insights into project managers’
experiences. Journal of Management Control. 28(1). pp.81-106.
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Van der Stede, W. A., 2015. Budgeting and management control. Wiley Encyclopedia of Management. pp.1-7.
Wildavsky, A., 2017. Budgeting and governing. Routledge.
Online
Advantages and disadvantages of incremental budgeting. 2019. [Online]. Available through:
<https://efinancemanagement.com/budgeting/incremental-budgeting>.
Advantages and disadvantages of zero base budgeting. 2019. [Online]. Available through: <https://www.wallstreetmojo.com/zero-based-
budgeting/>.
Tender funding. 2019. [Online]. Available through: <https://www.spartan.co.za/tender-funding/>.
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