Analyzing the effectiveness of financial control in NHS

Preface — evaluation of internal financial control

Internal financial controls are design methods and procedure-based system which result in effective operations, avoid fraud, ensure compliance as well as produce reliable financial reporting. The evaluation of internal financial control means reviewing the structure and creditability of the organization control systems. Organization with effective and efficient financial control systems ensures assets are safe as well as the integrity of financial reporting exist (Hoitash, Hoitash and Bedard, 2014).

Doyle, Ge and McVay (2015) discussed that financial control helps to eliminate the fraud, protect assets, the accuracy of the financial statements and attainment of the corporate goals. Internal financial control method and procedure safeguard the assets of the organization; ensure integrity and reliability of the financial and accounting data, encourage compliance and adherence to standards and policies as well as promote the operational efficiency of an organization.

The rapidly changing economic conditions, shift in the demand of the public health care needs, competitive landscape pressure to deliver high quality services and public pressure for scrutiny of the funds (tax payer’s money) has increased the need of efficient internal financial strong systems. The performance measurement in the public sector based on 3 E’ which are Economy, efficiency and effectiveness requires greater control of resources of the organization (Flynn, 2012).

Therefore, Stiglitz (2016) explained that internal financial control helps the organization to achieve the resource efficiency and adapt to continuous changing environment of the organization. Therefore, management in public sector needs the risk management to provide assurance that organization mission is achieved in safe manner and public money is used with greater efficiency.

In private organization, shareholders demand accountability and monitor the performance of the organization. However, in public sector especially the hospital the accounting demand is not as strict as they are in private sector. (Bandy, 2014) In case of the NHS, the annual budget of £ 115 billion based (tax payer money and national insurance money) is being injected by government and therefore, scrutiny of money is fundamental. The demand for better efficiency and greater scrutiny has increased the need of the effective internal control systems in the NHS (BBC, 2015).

According to Journalista (2014) Each of the NHS unit (hospital) publish its own statement of internal financial controls but still there is greater need for better financial control because according to recent report publish by BBC states “NHS fraud and error ‘costing the UK £7bn a year”. According to recommendation made by the NHS ex-director for counter fraud services, NHS needs to address the problem of lost money due to fraud and error’s.

Project Research Problem

It is estimated that fraud cost NHS £ 5 billion a year and the £ 2 billion is lost due to financial errors. Moreover, NHS service model follow the policy of not measuring the losses which provide further opportunities to commit the fraud.  The range of fraud in the NHS includes no payment for the prescriptions, Medical professionals claiming false expenses as well as overcharging by the contractors (bakertilly, 2014).

Meikle (2014) stated that the opportunity exists in the system to reduce cost through controlling the fraud and errors without compromising the quality of care services. Moreover, government has cut the budget of the monitoring body which investigates the fraud by 30%. Moreover, NHS employee 27 people to investigate and control the fraud.

Therefore, there is need to develop strong financial to develop as well as evaluation the financial regulations. NHS need strong and effective components such control environment and activities, risk assessment and monitoring of the accounting activities to reduce fraud and error. NHS need to integration procedures and method to increased fairness and integrity of the operations. Internal financial control method and procedure helps the organization to improve efficiency and effectiveness of the resources (Kutz, 2014).

Research Question

The NHS continues to widen its fraud and error losses due to lack of effectiveness and transparency in financial controls. Therefore, the purpose of the study to analyze the effectiveness of internal financial control in the NHS to understand the shortcoming and identify why there is difficulties to achieve targets and reduce frauds (Leary, 2013).

The research question is determine to seek the following questions

  1. What are the levels of operational internal financial control system in NHS?
  2. To what extent to which these control are compliance with regulation and standards?
  3. What additional controls and methodologies are deployed to determine financial management of the hospitals?
  4. What control initiatives and approach deploy to compliance with law in NHS?
  5. What are the difficulties and shortcoming in the internal control and their implementation?

Scope of the study

To analyze and evaluate the financial control system in NHS three hospitals are selected. The three hospitals selected for study are York teaching hospital, Boothham park hospital and Leeds Teaching Hospitals. The target departments selected for study are finance and accounts departments, auditing department, Local Counter Fraud Specialist (LCFS) as well as medical personal in the public hospital.

Objectives of the study

The objectives of the study are

  1. To identify and establish the existence of internal financial control system
  2. To determine the compliance and regulation issues in financial management
  3. To examine the weakness of systems and consequences of failure of compliance
  4. To determine the shorting in design and implementation of internal financial controls
  5. To make recommendation to improve financial control design and implementation

Significance of the Study

The significance of the study analyzing the effectiveness of financial control in the not-for-profit organization will help to identify the shortcoming in the design and implementation in the NHS. The hospitals selected for research are public hospital and identifying the design and implementation shortages would enable to improve the efficiency and effectiveness of the control system and consequently will help to deliver better care to the public which putting extra pressure on the public finances (Ball, 2015).

The government will able to see the shortcoming of the control system which will provide an opportunity to reduce fraud and financial losses. Moreover, the relevant leadership and authority in the sector will be able to shortcoming in the system and improve the situation. The finding of the dissertation is expected to help the departments through providing the insight and overcome the problems and increase efficiency and effectiveness of the system (Vijayakumar and Nagaraja, 2016).

Project related literature

Hall (2014) explained that internal controls are important components of the structure and operations of the organization. The large organizations are more unpredictable and complicated because of their associations and its activities and more efforts are required in design and implement of the internal controls frameworks. Control frameworks are viable only if they are introduced, kept up to date, and deployed by skilled and committed managers.

Frameworks can support such administrators and managers; however framework is can’t substitute for them. An organization’s goals, its internal processes and activities and nature in which it environment are constantly changing and, accordingly, the risks it faces are persistently evolving (Hightower, 2014).

Risk management is a process to analyze the factors that could affect the objectives of the company and hinder the company to achieve these objectives. To control and minimize the risk, it is important that must careful identify and evaluate and risk in order to minimize the disruption and financial loss for organization (Drennan, McConnell and Stark, 2014).

Therefore, managers should design and implement a sound arrangement of internal control in this way relies on upon a comprehensive and consistent assessment of the nature and degree of the risks to which the organization is exposed. The motivation behind internal financial control is to help oversee and control risk properly. Prominent corporate accounting and financial fraud and failures has emerged consistently, there has been a comparing increment in the advancement of new fraud and financial negligence cases (Collier, 2016).

Power (2014) explained that organization consider a wide range of control including those of operational or consistence nature and additionally inside controls. The frameworks of inward controls have a vital part to play in guaranteeing that a business is well run and its vital targets accomplished. Organizational procedures codes and principles are important to help organization to manage the activities and reduce the fraud and accounting error.

Influential internal controls are vital for assurance that the responsibility put on managers is completed adequate and effective by avoiding loss through fraud; accurate accounting data; securing integrity of activities; and assessing the level of implementation in every single activity of the organization. Management controls are a crucial piece of the structure and operations of any association. The bigger and more perplexing the association and its exercises, the more care must be given to the configuration of the control framework (Silverman, 2013).

Bergmann (2015) explained that there are numerous cases of exploitative top supervisors dodging the control frameworks to submit different types of misrepresentation and misuse. Internal control frameworks perform an act like a watchdog on the activities of the organization and thusly, any activities without successful internal control framework are more inclined to inefficiency and ineffectiveness because of inconsistencies of the control system.

Element of internal Control – COSO framework

Ramos (2015) explained that the control framework provided by the COSO framework has much broader approach in terms of scope and objectives when compared with Sarbanes-Oxley. The control system covers the range of activities in an organization. Internal financial controls in an organization is based on five components (see diagram below) which are interrelated and these components are basic to develop an internal control system in an organization. The combination of these control system helps to set procedures and methods to effectively control the operational of organization (Moeller, 2014).

COSO framework

Control Environment

Shapiro (2014) indicated the control environment includes range of factors such as values, integrity as well as philosophy of management within an organization. It is important component of the control environment and provides foundation for the other components to design an effective control system. The range of other factors such as structure of the organization, competencies of the management, operations procedure and audit system is an important element of the control environment and consequently help devise an effective control system. Control environment set the tone in terms its people value and concern for the control system. Control environment is affected by the history of organization, its management, structure and operations (Premuroso and Houmes, 2016).

Risk Assessment

Wilkins and Haun (2014) described that risk assessment is the part which is used for identification of risks as a part of the framework. For risk assessment to be powerful, control measures are set up by stating clear objectives. This part of the framework recognizes and investigates possible risks surrounding the organization. Risk management oversees chance by creating exact techniques to accomplish steady objectives inside of the association.

Management must focus the level of risk precisely to be understood and determined, and attempt to keep up such risk inside determined levels. In this manner, the manager can design and deploy effective controls to assure efficiency and effectiveness, quality of budgetary reporting and also agreeability with laws and regulations (Premuroso and Houmes, 2015).

Control activities

Singleton et al (2017) mentioned that control activities are the procedures and policies set by the management to ensure that directives of the management are properly deployed and managed. The document and manuals enclosed procedures, policies and practices to carry out the activities and minimize the risks. The control activities include verifications, separation and segregation of duties as well as physical control of the assets.

This enclosed how control will be carried out in an organization through setting policies and procedures. The control activities ensure the all necessary actions to aim the risk of the organization and ensure objectives of the organization are achieved. The design of the control systems is usually set with the internal audit department (Prawitt, 2015).

Information and Communication

The relevant information capture and communicate is achieved through this component of the framework. This component allows the timely and effective communication with the employee so that they can carry out their activities effectively. The information can be communicated internally and externally to ensure the coordination of the control activities and role and responsibilities of the employees (Wilkins and Haun, 2014).

Monitoring

Collier and Agyei-Ampomah (2014) specified that monitoring ensures that the investigation of the internal control structure over time. Since internal controls are procedures, it is generally acknowledged that they should be enough observed so as to evaluate the quality and the viability of the frameworks implementation after some time. By checking, the activities control system highlights the detection of reviews and different audits are quickly decided.

Along these lines, they can bring an orderly and trained methodology for the assessment and change of risk management activities and good administration handled by analyzing of the internal controls and assessing how satisfactory and powerful the controls are. (Collier and Agyei-Ampomah, 2014)

Benefit of internal financial controls

There are ranges of benefits offered by internal control.  The basic benefits are that internal financial control helps to deter the fraud and detect errors. Moreover, internal financial control is useful to identify illegal activities and financial misconduct which result a loss for the organization. Strong and efficiency internal financial control helps to increased efficiency and effectiveness which improve the competitiveness of service provision. The integrity of financial statements and information and deploy operational infrastructure in an organization. Internal financial control reduces the compliance and failure cost and organization can deploy resources in more efficient manner (Leitch, 2016).

Flaws in Control design

Financial Control systems are designed based on the operations and structure of an organization to ensure it mitigates the risk and deter the fraud.  However, some time management adopts the short to design a control system which is inadequate in the current environment which present risk for the organization. The weak design of internal financial control system is a compromise with the safeguarding of the resources and assets as well as it increases risk and make operations inefficient (Arwinge, 2016).

Research Methodology

The research design is referred to conditions and arrangement used to collect the data and analyze the data in such manner that it combines the relevance and research purpose. The success of the research is directly linked with the design of the research. The purpose of the research is to analyze the effectiveness of financial control system in NHS. The nature of the study is descriptive because it is useful in the situation when data is gathered to identify and examine the current state of the subject Therefore, to achieve the objectives; the case study approach is deployed (Silverman, 2016).

According to Yin (2013), the case study approach is useful to analyze the problem in wider context based on the flexibility it offers. The descriptive study is useful to portray number of variables to answer range of questions such as what, how and who.

Miles, Huberman and Saldana (2015) elaborated that qualitative research is highlight the social event and highlight relationship between the variables gets to be clearer when the issue is examined directly. Descriptive study usually involve range of variables and useful to organize, tabulates and describe the data. The advantage of the descriptive study is that data is collected which without changing the environment and it is useful to highlight the relationship between the variables (Kothari, 2016).

The descriptive methodology serves to concentrate on the variables and idea and also to think about the relationship between the variables. Furthermore, comparative research approach will be used to analyze and evaluate the control in all three hospitals. The comparative research involves evaluation of two or more different situations to discover items. The advantage offered by comparative research is the elasticity offered by this methodology because no rigid procedure or framework is connected with research (Matthews and Ross, 2014).

The research will use both primary and secondary data. The secondary data will be collected from the management as well as statements and annual reports published by the hospitals. The study population is based on the objectives, individuals, articles, cases or any other item relevant to cases at particular time of period (Miles, Huberman and Saldana, 2015).

According to Creswell and Clark (2015) the numbers of data collection instruments to collect primary data are interviews, questionnaires, focus group or discussion. However, in this research questionnaire will be used as participants can be reached. The primary data will be collected through questionnaires because they are useful to conserve the time and cost. Moreover, questionnaire offers the ready usability of data and facilitates the analysis in efficient manner. Primary data will collect through structured questionnaire. The question will include both open and closed end questions.

The questionnaire will be based on the Likert scale as they are useful to manage the validity, reliability and integrity of the data.  The source of the secondary is based on the books, journal articles, articles, newspaper, annual report and reports published by the government and independents stakeholders (Creswell, 2015).

The range of question will be set at unit level on the control environment, risk assessment, information, and control activities as well as monitoring. The Likert scale will allow the participants to give response in ‘Yes’ and ‘No’ or not applicable format (Kothari, 2015).

Based on the initial data examination about the employees of the hospitals, the sample of the possible number of people to be interviews from each hospital

 

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