Financial Management of Health Care Organizations, Research Paper Example

Introduction 

It is quite important to link good financial reporting practices in an healthcare organization  to its performance. When the accounting procedures are strictly adhered to, this will lead to transparent financial reporting that will help the administrators of that healthcare center to make great decisions that would help the concerned organization to grow and be efficient (McLean, 2003).   But in a situation whereby unethical practices and frauds are allowed to mar the true financial reporting, this will create a confusing situation for the administrators to determine the real financial capability of the organization, and will not be able to offer the right  decisions that will help the organization to grow (Brown, 1992).

Generally Accepted Accounting Principles 

McDonagh (2006) demonstrated that for any board of hospital or other healthcare organization to successfully manage the organization, it is nonnegotiable that the financial reporting procedures in the organization must be flawless. What this signifies is that the rudimentary accounting principles that are universally agreed upon must be incorporated into the organization. These principles include (I) providing reliable financial reporting; (ii)  undertaking proper records and documentation of financial sources; (iii) carrying out internal financial control/budgeting; (iv) proper cash/money management; (v) compliance with the rules of financial accounting. The facts highlighted above are necessary for all governing boards of hospitals or healthcare organizations to fully comprehend the level of financial health of the organizations they are managing (McDonagh, 2006). On the other hand, administrators may find themselves in the dark as to understanding the real financial value of the organizations they are managing if those in charge of financial reporting in the organizations have failed to comply with the standards of accounting procedures as laid out in the Sarbanes-Oxley Act of 2002, which requires that every organization must demonstrate a high level of accounting transparency by conforming with the regulations in the Act which expects organizations to (1) disclose the necessary information without fraudulent intentions; (2) carry out fair assessment of their internal control; (3) to demonstrate great compliance with the accounting principles; (4) to desist from any criminal acts of fraud, or giving misleading information to the public. Any organization that  contravenes these regulatory information is liable for criminal charges and prosecution (Brown, 1992). In reality, apart from the fact that hospital managers would not be able to perform optimally with the outcomes of improper financial accounting, they would be unable to drive the organizations to higher returns on investment (Curtin et al., 2006). Therefore, the performance of the concerned health organizations will be below expectation, and such organizations may head towards bankruptcy, if not quickly saved from this problems.

How to Avoid Improper Financial Management System

Already, there are proper financial management system in place which all healthcare organizations can comply with: any act of providing false accounting information with the intention of deceiving the public is a criminal act, and it runs counter to the precepts outlined in the  Sarbanes-Oxley Act of 2002 (McLean, 2003). Fraudulent practices of doctoring organizations’ financial records with the hope of luring many investors into the organizations may backfire as the investors would soon discover the true financial capacity of the organizations and call for the prosecution of the managers of the organizations (Brown, 1992). Providing false information in an organization’s financial record may undermine the plan by the managers of the organization to increase the return on investment ability of the organization (Curtin et al., 2006).

The two articles used in this paper explain that, first of all, complying with the proper accounting practices is necessary for presenting the clear financial state of an organization (McDonagh, 2006), which will help the hospital governing boards to design appropriate programs that will help the hospitals perform efficiently. The second article pinpoints the usefulness or applicability of result of proper accounting procedures and ethics in relation to the organization’s return on investment (Curtin, et al., 2006). If an organization’s accounting is not properly done, it will be difficult for its managers to forecast its growth and work towards achieving the goal. This will make the organization lose its performance ability owning to the fact that its accounting is not the true representation of its financial strength (Brown, 1992).

References

Brown, M. (1992). Healthcare financial management. Sudbury, MA: Jones & Bartlett Learning.

Curtin, K., Beckman, H., Pankow, G., Milillo, Y., & Greene, R.A. (2006). Return on investment in pay for performance: a diabetes case study. Journal of Healthcare Management, 51 (6): 377-89.

McDonagh, K.J. (2006). Hospital governing boards: a study of their effectiveness in relation to organizational performance. Journal of Healthcare Management, 51 (6): 377-89.

McLean, R.A. (2003). Financial management in healthcare organizations. 2^nd edn. Florence, KY: Cengage Learning.