FISCAL PLANNING

"Fiscal planning is the process of meeting goals through the proper management of finances."
INTRODUCTION
Of all the forms of planning, fiscal planning is often perceived as the most difficult. Fiscal or
financial planning is a learned skill and improves with practices. Companies spend considerable time
and resources in financial planning. Historically, nursing management played a limited role in
determining resource allocation in health care institutions. Nurse-Managers were given budgets without
any rationale and were allowed limited input. During the last 20 years, healthcare organizations have
grown to recognize the importance of nursing input in fiscal planning and unit managers in the 21 st
century are expected to be well versed in financial planning. Because nursing budgets generally
account for the greatest share of the total expense in the health care institutions participation in fiscal
planning has become a fundamental and powerful tool for nursing.
DEFINITION
Fiscal Planning is the process of estimating the capital required and determining its competition. It
is the process of framing financial policies in relation to procurement, investment and administration of
funds of an enterprise.
GOALS OF FINANCIAL PLANNING PROCESS

To measure current performance

To compare the organizations position against past organizational data and local, regional
and national bench markers
To make financial projections
To outline the organizations financial requirements.
To integrate the financial process with the strategic planning process
COMMON ELEMENTS OF FINANCIAL PLAN
1. Economic assumptions-The financial plan is based on certain assumptions about the economic
environment (interest rate, inflation rate, growth rate, exchange rate)
2. Sales forecast-The sales forecast is typically the starting point of the financial forecasting exercise.
Most financial variables are related to cost figure.
3. Pro forma statements-The heart of financial plan are the pro forma (forecast) profit and loss
accounts and balance sheets.
4. Assets requirements-Firms need to invest in plant and equipment and working capital. The financial
plan spells out the projected capital investments and working capital requirements over time.
5. Financial plan-Suitable sources of financing have to be thought of for supporting the investment in
capital expenditure and working capital. The financing plan delineates the proposed means of
financing.
6. Cash budget-The cash budget shows inflows and outflows expected in the budget period.
SKILLS REQUIRED FOR FINANCIAL PLANNING
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This field deals with the largest markets of any kind in the world and call on the following skills:
KEY SKILL AREA

REQUIREMENT

Sales skills

Medium

Communication skills

High

Analytical skills

Medium

Ability to synthesize

High

Creative ability

Medium

Initiative

Medium

Work Hours

25-65 hrs/week

STEPS OF FISCAL PLANNING/FINANCIAL PLANNING (INTEGRATED WITH

STRATEGIC PLANNING)
Allocating limited capital resources is perhaps one of the most difficult decisions hospital
executives have to make. Demands for new equipment, renovations and maintenance and the need for
new service lines and facilities all come with some merit. A thorough planning process incorporates
strategic planning, financial and operational planning and capital allocation. Integrating strategic and
financial planning is the best way for health care organization to ensure that they are spending money
wisely.
1. Analytic Phase
Market analysis
The market analysis provides an understanding of an organizations financial strengths and
weaknesses by providing local and national data for comparison. It helps the organization predict
market changes that will impact its strategic goals.
-Service area
-Regulatory changes
-Payer mix
-Financial markets
Internal analysis
The internal analysis outlines an organizations current performance and status of its workforce and
patient population. When combined with the market analysis, organizations can compare the hospitals
services with the needs of the community and determine the hospitals ability to grow.
-Financial performance data: Total assets, gross patient revenue, days cash on hand payer mix.
-Patient data: Demographics, service mix, satisfaction levels and income distribution
-Physician data: Medical staff composition, age and specialty mix
-operational performance data: Admissions, personnel, length of stay.
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Operational Assumptions
Building upon empirical data, the hospital develops a broad set of assumptions about the future.
Operational assumptions include projections about clinical needs within the service area, the
ability to attract and retain physicians and nurses, as well as the impact of future clinical practices and
technologies on the organization.
Financial assumptions
The financial assumptions serve as the financial framework for the operating budget and capital plan.
At the project level, assumptions focus on the specific initiative. At the organizational level,
assumptions are based on both external factors, such as interest rates and medicare and Medicaid
reimbursements, as well as internal factors, such as bad debt, collections days-cash-on-hand and
working capital.
1.

Plan development phase

Identify opportunities
Data from the internal and external analysis is combined with the assumptions to create a picture
of current and future needs of the organization to identify opportunities for growth and expansion.
During this phase, the organization will assess, among other things, whether it has the capacity to
meet projected population growth, whether capital supply meets ongoing needs and how
consumers would respond to a new service or facility
Financial projections
Examines how the combination of financial assumptions and internal operations will influence the
availability of investment funds. For example, changes in interest rates and Medicare and
Medicaid payments can impact the sources and uses of capital. Changes in the market place and
the organizations fiscal situation may impact the ability of the organization to finance its strategic
plan.

Mission, Vision, Values

These key components of the strategic plan serve as the basis for prioritizing opportunities. This
ensures that all initiatives further the organizations goals.
Prioritize opportunities
Assessing opportunities and financial projections will help organizations prioritize projects based on
financial viability, opportunity for growth and community need. Capital should be allocated to projects
based on importance. Projects can be categorized as routine (maintenance and replacing equipment),
mandated (a project that is required to meet regulations), and strategic (projects, such as adopting a new
service line) to meet the long-term needs of the community and the organization.
Test viability
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An interactive process that examines whether selected opportunities support the organizations mission
and will provide the projected financial, quality or operational returns. It also examines whether the
organization has the capital to finance the opportunity.
2.

IMPLEMENTATION PHASE
Operational Plan
This includes staffing, facility planning. Process changes, technology planning and other nonfinancial activities necessary to implement the plan.
Financial plans
Financial and capital plans identify both sources and uses of funds. This includes directions for
capital allocation and spending, as well as the development of a time frame based on the needs of
the operational plan.
Implement the consolidated plan
The implementation process for strategic initiatives must be outlined to ensure follow through.
Key players must be aware of their roles and responsibilities. Executives must assign
accountability so plans are carried out effectively and set measurable goals to determine progress.
Ongoing Adjustments to plan evaluation
Results must be monitored continuously to ensure success. Key assumptions should be
periodically reviewed to make sure they are on target. New threats and opportunities may also
become apparent. The plan needs to be flexible to adapt to new opportunities.
Management Dashboard
Managers monitor the success of projects in real time by reviewing key statistics for each project
as well as overall organizational performance. Ongoing results for each project are provided to
accountable staff. Overall results are provided to top-line managers, senior staff and CEO, as
appropriate.
-Operational measures
-Quality indicators
-Financial ratios
These analytics also becomes the baselines for the following years planning process. (Results are
incorporated into Annual Planning Process)
BENEFITS OF FISCAL PLANNING
1. Identifies advance actions to be taken in various areas.
2. Seeks to develop a number of options in various areas that can be exercised under different
conditions
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3. Facilities a systematic exploration of interaction between investment and financing

decisions.
4. Clarifies the links between present and future decisions
5. Forecasts what is likely to happen in future and hence helps in avoiding surprises.
6. Ensures that the strategic plan of the firm is financially viable.
7. Provides benchmark against which future performance may be measured.

BUDGET
INTRODUCTION
The budget defines the limits of financial support for the educational institution; it controls the scope
and quality of the institutions. It affects personal policies which determine the quality and size of faculty,
and thus the quality if instruction, it determines the amount and type of equipment, library and
laboratory resources, physical facilities and other resources that will be available for instruction and
research. The budget gives direction. It makes it possible for deans and department chairman to plan a
program for the ensuring fiscal year with a reasonable amount of assurance that each will be able to
carry out programs of his respective unit.
MEANING
It is a device for controlling and planning process in any organization.Literally the word budget means
a leather bag or sachet to carry official papers particularly the papers containing the financial proposals
for the year.
The word budget derived from the old English word budgettee means a sack or pouch which the
chancellor of the exchequer used to take out his papers for laying before the parliament, the government,
financial scheme for the ensuring year. Now the term budget refers to the financial papers.
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DEFINITION
Budget is defined as a plan that has numerical data and predicts the activities of an organization, over a
set period of time. (Marnner Tomey)
PURPOSES OF BUDGETING
1. Budget supplies the mechanism for translating fiscal objective into projected monthly spending
pattern
2. Budget enhances fiscal planning and decision making.
3. Budget clearly recognizes controllable and uncontrollable cost areas.
4. Budget offers a useful format for communicating fiscal objectives.
5. Budget allows feedback of utilization of budget.
6. Budget helps to identify problem areas and facilitates effective solution.
7. Budget provides means for measuring and recording financial success with the objectives of the
organization.

FEATURES OF BUDGET
1. It should be flexible.
2. It should be synthesis of past, present and future.
3. It should be product of joint venture and cooperation of executives / department heads at different
levels of management.
4. It should be in the form of statistical standard laid down in specific numerical terms.
5. It should have support of top management throughout the period of its planning and supplementation.
IMPORTANCE OF BUDGET
1. Budget is needed for planning for future course of action, and to have control over all activities in the
organization.
2.Budget facilities coordinating operation of various departments and sections for realizing
organizational objectives.
3. Budget serves as a guide for action in the organization.
4. Budget helps one to weigh the values and to make decision when necessary on whether one is of a
greater value in the programme than the other.
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PRINCIPLES OF BUDGET
1. Budget should provide sound financial management by focusing on requirement of the organization.
2. Budget should focus on objectives and policies of the organization. It must flow from objectives and
give realistic expression to the way of realizing such objectives.
3. Budget should ensure the most effective use of scarce financial and non-financial resources.
4. Budget requires that programme activities planned in advance.
5. Budgetary process requires consistent delegation for which fixed duties and responsibilities are
required to be allocated to managers at different level for farming and executing budget.
6. Budgeting should includes coordinating efforts of various departments establishing a frame of
reference of managerial decisions, and providing a criterion for evaluating managerial performance
7. Setting budget target, requires an adequate cheeks and balance against the adoption of too high or too
low estimate. Utmost care is a must for fixing targets.
8. Budget period must be appropriate to the nature of business or service and to the type of budget.
9. Budget is prepared under the direction and supervision of the administrator or financial officer.
10. Budget is to be prepared and interpreted consistently throughout the organization in the
communication of planning process.
11. Budget necessitates a review of the performance of the previous year and an evaluation of its
adequacy both in quantity and quality.
12. While developing a budget, the provision should be made for its flexibility.
CLASSIFICATION OF BUDGET
Budget consists mainly three sections.
1. Man power budget: The Manpower budget include wages and other benefits provided for regular
and temporary workers.
2. Capital expenditure budget: The Capital expenditure budget includes purchase of land, buildings
and major equipments of considerable expense and long life.
3. Operating budget: The Operating budget include the cost supplies, minor equipment repairs and
overhead expenses.
There are several types of budget as follows
1. Incremental budget is one based on estimated changes in present operation, plus a percentage
increase for inflation, all of which is added to previous year budget.

2. Open ended budget is a financial plan in which each operating manager presents a single cost
estimate for what is considered optimal activity level for each programme in the unit, without
indicating how budget should be scaled down if less funding is available.
3. Fixed- ceiling budget is a financial plan in which the upper most spending limit is set by the top
executive before the unit and divisional managers develop budget proposals for their areas
responsibility.
4. Flexible budget consist of several financial plans, each for a different level of programme activity. It
is based on the fact, that operating conditions rarely conform to expectations.
5. Roll over budget is one that forecasts programme, revenues and expenses for a period greater than a
year, to accommodate programme that are larger than annual budget cycle.
6. Performance budget is based on functions, which allocate functions, not divisions. Example: In
service education, Quality improvement, Nursing research.
7. Program budget is one where costs are computed for a total programme. Ic; group total costs for
each service programme and MCH, FP, VIP
8. Zero base budget requires the nurse manager to examine, justify each cost of every programme
both old and new, in every annual budget preparation.
9. Sunset budget is designed to self destruct within a prescribed time period to ensure the cessation
of spend in by a predetermined date.
10. Sales budget is the starting point in a budgetary programme, since sales are basic activities which
give shape to all other activities. Sale budgets are compiled in terms of quantity as well as of value.
11. Production budget is the budget that aims at securing the economical manufacture of products and
maximizing the utilization of production facilities.
12. Revenue and expense budget is expressed in financial terms and takes the nature of a pro forma
income statement for the future. It may be abstract statement showing the items of profit and loss under
classified headings.
13. Capital expenditure budget is prepared for assuring planned timely capital investment in the
business so ensure the availability of capital at the right time over a longer period.
14. Cash budget is prepared by way of projecting the possible cash receipts and payments over the
budget period.
ESSENTIAL REQUISITES FOR NURSING EDUCATIONAL INSTITUTIONS
Fore casting : Sound forecasting may be related to making decisions on purchases, expansion,
advertising, services, working capital needs etc.

Accounting: Well conceived accounting system must be needed to compare the budget information
with actual accomplishment. The cost information tells as to how much it will cost to produce or give
service.
Lines of authority: Budget preparation operation and supervision need / require clearly defined lines
of authority.
Budget committee: Budget needs budget committee in an organization.
(i) To receive and approve all forecasts, departmental budgets, periodic reports showing comparison of
actual and budgeted income and expenditure.
(ii)To request for special studies of deviations from the budget and consider revision of budget to meet
changed conditions.
Business Policies: clearly defined business policies serve as basis for budget preparations.
Statistical Information: In the form of figures re estimates regarding the budget terms are essential
for budget.
Top level management: Support is essential to ensure successful installation of the budget programme.
Period of budget: Length of the budget period should be specified.

BUDGET PROPOSAL FOR NURSING EDUCATION INTUITIONS

The administration of the school or college of nursing require a budget well probably allocated
directly, but as in most hospital schools of nursing and college, it will be included in the total budget of
the hospital with a certain amount remarked for the school or college. In general, the items which are
budgeted for the average government schools of nursing in India are:1. Salaries for professional, clinical and domestic staffs,
2. Stipends for the students,
3. New equipments and supplies,
4. Linen and other supplies,
5. Office supplies includes stationary and postage,
6. Maintenance of library or setting up new library,
7. Maintenance of transport and cost of petrol (fuel),
8. Contingency fund for educational tours, professional activities, capping and graduational
ceremonies, prizes, entertainment etc.
Item

Income

Expenditure

Actual last
9

Current year

Budget next year

No.

Budget

Actual

year

Proposed Approved

ROLE AND RESPONSIBILITIES OF THE ADMINISTRATOR / PRINCIPAL IN BUDGETING

RESPONSIBILITIES
1. Participation in planning budget.
2. Consult and take assistance of his or her subordinates.
3. Request sufficient funds to suggest a sound programme such as to provide for developing
programme provision, expansion of programme, to attract and hold qualified staffs to provide for
expansion of physical facilities, supplies, equipment, for improving instruction (schools and college)
and also to carry out adequate functions of institution.
4. Submit budget request with justification with proposed expenditure. The administrator defines
her/his budget so that nursing unit will have available to allow experimentation also.
5. When the budget is allotted, the administrator should support the budget. He / she should interpret
the subordinates, any changes that may affect instruction services for the adopted budget. She /he
secures for the adapted budget. Once the budget is adapted, it is the responsibility of the administrator
to see that expenditure should not exceed the appropriation made.
6. Since the nurse administrator also is responsible for budget, he / she should cover the routine budget
control.
ROLES (HE/SHE):
1. Is visionary in identifying or forecasting short and long term unit needs, thus inspiring proactive
rather than reactive fiscal planning.
2. Is knowledgeable about political, social and economic factors that shape fiscal planning in health
care today.
3. Demonstrates flexibility in fiscal goals setting in a rapidly changing system.
4. Anticipates, recognizes and creativity problem solves budgetary constraints.
5. Influences and inspires group members to become active in short and long range fiscal planning.
6. Recognizes when fiscal constraints have resulted in an inability to meet organizational or unit goals
and communicates this insight effectively, following the chain of command.
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7. Ensures that clients safety is not jeopardized by cost constraints.

FINANCIAL AUDITING
INTRODUCTION
Auditing in health care organization provides managers with a means of applying the control
process to determine the quality of services rendered. It has provided assurance that public funds
received and spent are in compliance with appropriations and other relevant laws and that the
reported use of funds is a fair and accurate representation of the financial position of the
government. The main objective of the financial audit is to know the correct profit or loss of the
business during a particular year and to determine the accuracy of the balance sheet as at the end
of that year. Thus audit serves as a control mechanism over the completed transactions of the
enterprise. It detects the errors and frauds committed in the books of accounts of the enterprise.
DEFINITION
Financial Audit is an independent appraisal activity within an organization for the review of
accounting, financial and other operations as a basis of services to the management.
Financial Audit is an independent and systematic examination of the data, statement records,
operations and performances of an enterprise for a stated purpose (Institute of Chartered
Accountants of India-ICAI)
OBJECTIVES
1. Checking of Arithmetical accuracy
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2. Detection of fraud or error

3. Providing an opinion on financial statements
PRINCIPLES OF FINANCIAL AUDIT
1. Integrity, objectivity and independence of auditors: The auditor should be an independent
person who should be honest and impartial in conducting an audit. The auditor should not be
pressurized or influenced by or dependent on books of account of which are being audited.
2. Confidentiality in audit work: The auditor should not disclose information related to his audit
to persons other than those who have appointed him. However, sometimes, auditor may be
legally made to disclose information about the affairs of a company in courts of law. For
example, if a fraud has been committed in the hospital and the internal auditor discloses the
information to an outsider, such a disclosure might harm the reputation of the hospital.
3. Possession of skills and competence to undertake audit: Companies Act stipulates only
Chartered Accountants (CA) who are members of ICAI and are holding certificate of practice
issued by ICAI can audit the financial statements of companies registered in India. The internal
audit can be done by any person having knowledge of accounting finance and related subjects
since there is no stipulation in Law as to qualification of internal auditor. CA are entrusted the
work of internal audit also.
4. Proper documentation and planning of audit work: The auditor also has to verify financial
and non-financial records of an organization. In certain circumstances, the auditor has to prove
that they have done the job correctly and hence documentation is very necessary at that time.
The auditor has to preserve all the working papers related to audit.
5. Obtaining sufficient and appropriate evidence during audit: Evidence is the proof of
something done or not done, something existing or not existing. This evidence maybe a
physical lining, oral statement or written statement by a person or observation or other modes
of visual information by any person.
-Conclusive evidence: Example, a judge requiring proof to decide on a case either to punish or
relieve from the case. Evidence in auditing, this method is difficult. This may be because an
auditor might not be able to check each and every transaction of a business.
-Circumstantial or Corroborative evidence: Existence of something may be proved due to
existence and non-existence of something else like existence of smoke proving existence of
fire.
-Persuasive evidence: The nature of evidence used by auditor is persuasive evidence. Here an
auditor can form an opinion based on it because it persuades the auditor to form an opinion.
TYPES OF FINANCIAL AUDIT
I. BASED ON THE OBJECTIVE OF AUDIT
1. Statutory or external audit: The auditor here assures the stakeholders i.e, mainly through
audit report that financial statements audited are true and fair.
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2. Internal audit: It is undertaken mainly on behalf of management and the management

appoints the auditor. The objective may be prevention and detection of fraud and error,
compliance of laws, safeguarding of assets or even achieving effectiveness or efficiency in
managing the organization through better internal control.
3. Cost audit: Done basically by Cost Accountants. The verifiable information is cost records
which are mandatory under the provisions of the company law or central Excise law.
4. Propriety Audit: Associated with audit of Government Departments. Appropriateness of
the expenditure is to be verified by the auditor in such audits. Appropriateness is decided
with reference to Government policies, schemes and objectives of the state or a per directive
principles of the consultation of India.
5. Secretarial audit: It is required in case of companies having more than Rs. 200 lakhs paid
up capital and is done by Company Secretary.The verifiable information is company records
like minutes, Annual returns and related documents. Example includes stock exchange
regulations which are verified by this audit.
6. Quality audit: Here audit is done for obtaining ISO or similar cetification
7. System audit: Information systems are required to be audited as information is a major
asset to any organization. Safety and integrity of this asset is totally dependant on the system
consisting of hardware and software. Information system auditor verifies about the system
controls and the information system.
8. Tax audit: Persons having turnover more than 40 lakhs and above per annum (under
income tax act) are required to get their financial statements audited by a chartered
accountant and the report of audit is required to be filed with the income tax department
along with financial statements.
II.BASED ON ENTITIES BEING AUDITED:
1. Company audit/ corporate audits: When the financial statement of a company are audited
by company audit.
2. Audit of partnership concerns: Done when the financial statement of partnership is to be
audited.
3. Audit of proprietary concerns: Done when the financial statement of proprietary concern
being audited. Such audit may be due to tax audit requirements or due to insistence from
lenders like bank.
4. Audit of banks: Audited entity is the bank and audit is required as per regulations and
banking regulation act. Further, the banks have internal audit types like Revenue audit,
concurrent audit, stock audit for specific purposes.
5. Audit for co-operative banks, societies: Audited entity here is the cooperative bank or
society. Registrars of cooperative societies require such audits.
III.BASED ON TIMING AND PROCEDURE ADOPTED IN AUDIT:
1. Annual or final audit: Here audit is done once a year. Usually statutory audit comes under
this audit.
FINANCIAL AUDIT IN THE CLINICAL AREA
Audit should include measurement of current practice and definition of explicit standards
and implementing changes which benefit patients. clinical implies patient-centered and
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involving more than one clinical profession. Financial audit in the clinical area also involves an
internal audit which is an inbuilt provision in the organization for regulating financial
irregularities and frauds. The internal financial audit makes provision for checking of cash
book and physical cash and other books of accounts, reviewing of bank reconciliation
statement, checking of all payment vouchers, reviewing purchasing and inventory, accounting
of assets against defalcation or other irregularities, ascertaining the reliability of statistical data,
reviewing the performance of each centre, ensuring proper utilization of the resources of
hospitals and reviewing of the policies and procedures of hospitals related to finance.
Thus the financial manager or advisor in a clinical setting focuses on the following areas so
that they are prepared for audit at any time. They are as follows.
1. Cash receipts and payments: In almost all the hospitals, transactions related to cash
occupy a place of significance because it is a sensitive point where is lot of misappropriation
and frauds. The point where collection need due attention, there is a need to verify the bank
reconciliation statement carefully. The verification of cash has to be thus done minutely.
2. Purchases and stores: There are a number of expensive materials used for diagnosis and
treatment of patients. The purchases of drugs, bio-medical equipment and apparatus,
expensive machines constitute 40% of the total budget. The purchasing processes, the
payment methods, the inventories, the uses and misuses of hospital materials are some of the
points where there is a need of rigid control. There is a need to make a scrutiny of purchases
in the face of quotations and specifications mentioned therein, stock on hand, outstanding
orders etc. A periodical review of inventories are important. There is also a need for proper
documentation for the materials/ items ordered and accepted and the rates.
3. Free of charge and subsided services: In almost all the hospitals and healthcare
organizations, usually there are some provisions where the poor or needy segment is offered
free of charge and concessional or subsidized services. Hence continuous checking to
ascertain the free of charge or subsidized services are offered to the needy or deserving
persons. Since this provision is related to finance due weightage to be given especially
during internal checking. The deprived sections need the concessional or free of charge
services on priority basis so that the provisions are not misused.
4. Care on the missing charges: There are possibilities of missing charges because it is
possible that the nursing staff fail to make the required notations with respect to charges or
forget to send the charge slips for investigations which may result into huge financial losses.
5. Maintenance and repair of machinery and equipment: There is a scope for bio-medical
equipment and apparatus malfunctioning in the hospitals. Hence a log book with the record
of all equipments and apparatus, their damage and repaired information are maintained. The
equipment, machines are maintained and repaired as per the defined norms so that the rate
of depreciation is minimized and the uses of equipment and machines are made rational.
Wherever there is a large scale use of equipment and apparatus, it is made sure that the
misuse of the said assets of hospitals re regulated.
6. Maintenance of vehicles: The vehicles of hospital and health care organizations have been
found misused by the hospital staff. This increases the maintenance and operation bill which
further adds to the financial pressure on the hospitals. In this context, there is a need to
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maintain a logbook for all vehicle use of hospitals. The private use of hospital has to be
checked.
7. Misuse of infrastructure: In almost all the hospitals, the infrastructural facilities like
power, water, transportation, communications and other facilities are misused by the
hospital staff. The increasing bill on infrastructure has to be checked and requires a control.
8. Boxes and crates: There are lot of boxes and crates supplied by the distributors or
manufacturers. Since the empty cartons, boxes, crates are found in a very large number,
auction selling of these items on a monthly interval basis can be done. On one hand,
problem related to the management of hospital waste.
9. Gift items: The private hospitals receive a number of gift items offered by charitable trusts
or even individuals and corporations. Proper inventories has to be made for maintaining
such funds including the amount of fund donated and its usage.
PERFORMING THE FINANCIAL AUDIT IN A HOSPITAL
(Using an example: use of pacemaker in a cardiology hospital)
For an analysis of charges and payments, a personal computer is used to establish data bases
from the documents. The documents thus audited are as follows:
-Accounts payable files by manufacturer
-Medical records and billing files by patient
-The hospitals pacemaker and lead charges, found in its billing files are compared to its
pacemaker purchases, listed by manufacturer or serial number.
-Pacemaker code assigned are checked because incorrect coding can lead to incorrect
payment (Basic pacemaker procedures have certain codes).
-The profit or loss record is then examined (Bills are separated into charges versus payments
received and recorded as either profit or loss per patient)
-Verify whether charges are consistent from patient to patient.
-Other areas of audit in relation with pacemaker includes:
Manufacturers are asked whether physicians are receiving any form of commission or
rebate for using a particular brand of pacemaker (This is done to avoid Medicare fraud and
abuse issues). While a manufacturer is unlikely to reveal when inquiring about it can help
clear a hospital of liability in the event of fraud or abuse charges.
Pacemaker credits: A thorough audit also includes reviewing an institutions handling of
credits for defective pacemakers. A hospital that replaces a defective pacemaker receives
the credit even if it did not implant the original device.
Audit also assess manufacturers warranty which should accompany a patients file from
implant to replacement if performed at the same institution. (Pacemaker warranties
traditionally cover battery defaults, manufacturer defaults or malfunctions and patient
inconvenience. The original full purchase price usually is included in a refund)
Audit is done on documentation, especially for refund cases.
ADVANATGES OF FINANCIAL AUDIT
1. An effective financial audit leads to improved accountability, ethical and professional
practices.
2. It can improve the quality of output, support, decision making and performance tracking.
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3.

If financial audit can become an inherent part of management reporting by suggesting

remedies for the problem areas identified, it can truly fit into the fundamental and critical
area of financial reform which focuses on outcomes, of objectives being achieved at a
reasonable cost. It will help in integrating the internal auditing with the ongoing public
financial management reforms.

COST EFFECTIVENESS ANALYSIS (CEA)

DEFINITION
Cost effective methods are those search for the last costly way of achieving a defined
result. It helps the administrator in managing his health sources. The problem is to find the way
of achieving the objective at lower cost. An approach that achieves a specific desired outcome
for the least possible cost is considered to be cost effective.
STEPS IN COST EFFECTIVENESS ANALYSIS
1. Identify the goal.
2. Identify at least 2 alternatives means of achieving the desired outcomes.
3. Collect baseline data on clients
4. Determine the cost associated with each program.
5. Determine the benefits.
6. Determine the outcome.
7. Compare cost outcome information for each means to present cost effectiveness analysis.
COST ACCOUNTING
DEFINITION
Cost accounting is the branch of accounting that is concerned with collection, determination
and controlling the costs of the products and services.
FUNCTIONS OF COST ACCOUNTING
1. Analysis and ascertainment of costs
The main objective of costing is to ascertain the cost of each product, process, department,
service or operation. For the ascertainment of costs it involves further study, analysis and
classification of costs such as prime cost, works costs etc. Various methods, systems and
techniques of costing have been developed for the purpose of recording and determining
costs.
2. To control and reduce costs
Unless efficiently controlled, costs have a tendency to increase and cross limits. Properly
collected cost data helps in controlling and maintaining costs at the lowest. The best results
are obtained by laying down the standard costs and then comparing the actual with the
standards so as to take necessary corrective action for the future.
3. To plan and make decision
Cost accounting has developed beyond its traditional function of cost determination and
cost control. It has now developed as a tool in the hands of the management for planning and
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taking crucial decisions like pricing of products, introduction of a new product in the market,
make or buy decisions, replacement of machinery, shutdown decisions, wages compensation
plan, etc.

AREAS OF COST ACCOUNTING

1. Measurement of Cost
It involves the methods and techniques used in defining the components of cost,
determining the basis of cost measurement and establishing criteria for use of alternative cost
measurement techniques. Examples of cost measurement are listed below:
-The use of historical cost, market value or present value
- The use of standard or actual cost
2. Assignment of cost to cost accounting period
It refers to the method to determine the amount of cost to be assigned to individual cost
accounting periods. Examples are the requirements for use of cash basis accounting.
3. Allocation of cost to cost objectives
It refers to the method of determining direct and indirect allocation of cost. Examples of
allocation issues are listed below:
-The accumulation of costs
-The determination of whether to charge costs direct or indirect
-The determination of the composition of cost pools and their allocation bases.
IMPORTANCE AND ADVANTAGES OF COST ACCOUNTING
Cost accounting is the steering wheel which keeps the organization on steady path of
prosperity. It is a useful tool of control and has the practical utility not to the management
but also to employees, creditors, bankers, government and society.
1.
Cost accounting as an aid to management
Cost accounting helps the management in carrying out its functions. i.e. planning, organizing,
controlling, decision-making, budgeting and pricing efficiently by providing cost information
to the management. The importance of costing to the management is as follows.
Cost accounting provides reliable cost data in regard to materials, labor, overhead and
other expenses.
It helps in price fixation
It provides information on which estimates and tenders are based.
It helps in channelizing production on right lines.
It guides future production policies and thus helps in planning.
It helps in determining profitable and unprofitable activities.
Cost accounting increases efficiency and reduces wastages and costs.
Cost accounting helps in management in periods of trade depression and competition by
determining actual cost of the product.
It provides cost data for comparison in different periods.
Costing aids in inventory control.
It is a useful tool of managerial control and helps in cost reduction and cost control.
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2. Advantages to employees
An efficient costing system reduces cost and increases profits of a concern thus ensuring
greater security of service and increased wages to the employees. Cost accounting also helps
in introducing incentive wage schemes and bonus plans which bring more reward to
efficient employees.
3. Advantages to the creditors, investors and bankers
Creditors, investors and bankers and others who lend money to the business are also
benefitted by the introduction of cost accounting in a concern. It enables the creditors,
bankers and investors to judge the financial position and solvency of a concern by
providing reliable cost data. Cost accounting thus helps bankers and others in evaluating the
performance of a customer. The various cost reports can be analyzed before lending money
to a concern. A concern having a good costing system can attract more investors than a
concern without an efficient system of costing.
4. Advantage to the government and the society
Cost accounting increases the efficiency of a concern, reduces costs and increases its profits.
Thus, it promotes the overall economic development of the country. Better and cheaper
goods are made available to the public. With the reduction in wastages and increase in
profits the revenue of the Government in form of taxes is increased. The techniques of
costing are also useful in preparing national plans.
LIMITATIONS OF COST ACCOUNTING
1. It is not an independent system of accounts.
2. It is based largely on estimates like absorption of indirect expenses or appointment of
expenses on estimate basis.
3. There is a scope for subjectivity on items of expenses and incomes. E.g: Items of purely
financial nature such as interest, finance charges, discount and loss on shares and
debentures etc.

CRITICAL PATHWAYS
DEFINITION
Critical pathways were first developed and applied to health care in the 1980s, when payment
systems focused greater interest on potential methods to improve hospital efficiency.
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Critical pathways are one method of planning, assessing, implementing and evaluating the cost
effectiveness of patient care. For example, a critical pathway of a specific diagnosis might suggest
an average length of stay at hospital and that the patient should have certain interventions
completed by certain points on pathway.
GOALS OF CRITICAL PATHWAYS
1. Selecting a best practice when practice styles vary necessarily.
2. Defining standards for the expected duration of hospital stay and for the use of tests and
treatments.
3. Examining the inter relations among the different steps in the care process to find ways to
co-ordinate.
4. Giving all hospital staff a common game plan from which to view and understand their
various roles in the overall care process.
5. Providing a framework for collecting data on the care process do that providers can learn
how often and why patients do not follow an expected course during their hospitalization.
6. Decreasing nursing and physician documentation burdens.
7. Improving patient satisfaction with care by educating patients and their families about the
plan of care and involving them more fully in its implementation.
COMPONENTS OF CRITICAL PATHWAYS
1.
2.
3.
4.
5.
6.
7.
8.

Consultants
Tests
Treatments
Medications
Activities/Safety/Self care
Nutrition
Discharge planning/teaching
Variants

CRITICAL PATHWAY DEVELOPMENT

The development of the critical pathway usually follows the following steps.
1. Topic Selection
Critical pathways are typically developed for the hospital care associated with highvolume, high-cost diagnoses and procedures. Surgical procedures, such as coronary artery
bypass graft surgery and total hip replacement, lead to critical pathways because the care
process differs relatively little from patient to patient. For this same reason, obstetric
procedures such as normal vaginal delivery and cesarean section also been subjects of
pathways in many institutions.
For most medical diagnoses, however, patient care has proved more difficult to
translate successfully critical pathways because of the greater heterogeneity among patients
and problems. Some institutions have reported the pathways fail when used for medical
patients who have either multiple problems and therefore multiple relevant pathways or a
problem that does not fit neatly within any single standardized way.
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2. Team Composition
The group that is organized to develop a critical pathway should be multidisciplinary.
Although many institutions have appointed nurses as the leaders of critical pathway teams,
Physician-expert lead each team, lends credibility to the pathways and builds a foundation
support among all clinicians. Each pathway team should also have a group facilitator from
the hospital administration, a house-staff physician, a member of the quality management
department who has expertise critical pathways methods and a community-based primary
care physician, whose perspectives on inpatient is likely to differ from that of hospitalbased physician.
3. Evaluate the current process of care
In this step, data rather than anecdotal reports are key to understanding current
variation. For example electronic medical records may be automated and a careful view of
medical records is necessary to identify the critical intermediate outcomes, rate-limiting
steps.
4. Evaluate medical evidence and external practices
After key rate-limiting steps have been identified, the critical pathway team must
evaluate to identify evidence of best practices. For most rate-limiting steps, there are few
data available to optimal processes of care. The critical pathway development team will
often lack answers to specific questions such as appropriate observation period or length of
stay. In the absence of evidence, comparison with other institutions or bench marking is
the most reasonable method to use.
5. Determine the critical pathway format
The format of the pathway may vary widely. Important features include a task-time
matrix in which specific tasks are specified along a timeline. There is a spectrum of
pathways that range from a form that takes the place of the medical record to a simple
checklist. However, if the pathway format is too difficult to follow, it will not be used.
Critical pathways have become widely available in electronic format, where electronic
charting and pathway compliance are obtained simultaneously. One disadvantage to this
method is the absence of a standard medical record. This may result in duplication of efforts
in the pathway.
6. Document and Analyze variance
Variances are patient outcomes or staff actions that do not meet the expectation of the
pathway. In general, variance in clinical pathways is a result of the omission of an action or
the performance of an action in an inappropriate time period.
ADVANTAGES OF CRITICAL PATHWAYS
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1.
2.
3.
4.
5.

The critical pathways do provide some means for standardizing the medical care for
the patients with similar diagnoses.
It fixes the cost of care and thus provide in advance means for patients to manage the
medical care.
Helps to reduce the average length of stay in the hospital.
Provides a mechanism by which control is ensured.
Helpful in cost effectiveness.

ISSUES WITH CRITICAL PATHWAYS

There are many issues in critical pathway development and implementation.
1.

Ideal patient
The first issue is that critical pathways address processes in the ideal patient
and in some do not address issues in the majority of patients who enter the path.

2.

Evaluation of critical pathways

A second issue is how to evaluate critical pathways as an effective tool in improving
patient care, little controlled research has been performed on the effectiveness of
pathways. Reason for this is that at any one medical center, pathway care cannot be
easily differentiated from care because of contamination from the pathway
intervention. Randomized trials with the unit of utilization at the medical center
would be optimal evaluation method.

3.

Cost of developing critical pathway

The issue of who will pay for the development and implementation of the
pathway should also be addressed. Although hospitals have in general supported this
activity, additional support from managed organizations and payers would also be
appropriate.

4.

Malpractice risk
Another frequently voiced concern is that physicians may be more vulnerable
to malpractice if they do not comply with a critical pathway and a patient has a
complication. Practice guidelines have been used more often to implicate than to
exonerate defendant physicians and institutions may incur greater ability when they
authorize the use of a critical pathway.

5.

Research and Education

The research and educational missions of teaching hospitals are already in
jeopardy and critical pathways may seem to further undermine training by
discouraging experimentation and independent thinking trainees.

6.

Effectiveness of critical pathways

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Despite the rapid implementation of critical pathway programs, uncertainty

persists about their effectiveness. To measure the effectiveness of pathways in
reducing costs, one must also measure costs for entire episode of care, including not
only the hospital phase but also any pre hospital or post hospital care associated with
the condition. Critical pathways that reduce hospital costs by merely shifting equal or
more costs into the outpatient setting do not meet the true needs of patients or the
health care system.
CONCLUSION
Fiscal planning is a kind of business planning that runs according to a fiscal financial year.
With fiscal planning, the year that the accountant or planner calculates on is not the
traditional calendar year that starts on January 1. Using the fiscal year, leaders can engage
in fiscal planning to help them with various aspects of corporate

BIBLIOGRAPHY
BOOKS
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limited;2001
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private limited;2007
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application.5th ed. Philadelphia: Lippincott Williams and wilkins;2006
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Mosby;1995
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12. Goel SL, Kumar R. Nursing Service Management and administration.1st ed.New Delhi: Deep
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WEBSITE
1.
2.
3.
4.
5.

http://www.hhnmag.com/hhnmag_app/hospitalconnect/search/article.jsp?dcrpath=HHN
http://en.wikipedia.org/wiki/financial_planning_(business)
http://www.careers_in_finance.com/fpskill.htm
http://faa.gov/archive/v1198/pguide/98.30c14htm.background and history
http://en.wikipedia.org/w/index.php.title.cost accounting and action.edit

JOURNALS
1. www.fiscalplanningjournal.com/content/41111
2. jhl.sagepub.com/cgibudgeting/content/short/193654
3. www.publish.csiro.au/nid/226/paper/NB05017.htm
4. www.ispub.com/journal/cost-accounting

RESEARCH STUDY

Determinants of hospital length of stay

An example of the inefficiency of cost-based reimbursement is that wide variations were
observed between hospitals and between regions in the cost of treating similar diagnoses,
with no apparent differences in quality. To correct these variations, the Tax Equity and Fiscal
Responsibility Act and its concomitant prospective payment system based on DRGs was
implemented. However, wide variations continued to exist among hospitals and regions in the
United States. The attempt by the medical profession to refine the prospective payment
system by severity adjustments has received lukewarm support. The work by Halloran et al
on the relationship between nursing diagnosis and length of stay shows some promise.
Studies on nursing intensity have produced mixed results. Recently, the Prospective Payment
Assessment Commission decided to discontinue efforts to develop nursing intensity
adjustments for DRG weights. Additionally, institutional characteristics, except for discharge
planning programs, and patient characteristics have exhibited mixed results in attempts to
explain hospital length of stay. Concern over continuing variations that DRGs and their
proposed adjustments have been unable to correct led to the formation of the Agency for
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Healthcare Policy and Research, which was brought about by the Omnibus Budget
Reconciliation Act of 1989. This agency seems to believe that practice patterns offer the
greatest hope of reducing excessive hospital lengths of stay and concomitant costs.

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