Question

You are the financial manager for a small outpatient clinic. Due to the passage of the Affordable Care Act, your organization was required to change insurance companies to meet the guidelines and expectations within the ACA. Salaries increased in FY 2017 due to hiring new personnel. Utilizing the attached balance sheet, create a memo to the Board of Directors regarding the budget proposal for next fiscal year.

• Using the provided balance sheet, identify three areas of budgetary concern.
• Create a memo that identifies the three major areas of concern over the past year. For each of the three areas of concern:
  • Summarize the current status in 75 words or less.
  • Recommend one possible solution for improvement or sustainability for the Board to consider when voting to approve next year’s budget.
    2016 2017 ASSETS Current Assets: Cash and cash equivalents Short-term investments Accounts receivable Inventories Total Current Assets $125,000 $575 $1500 $135 $127210 $200000 $600 $1700 $150 $202450 Investments: $800 $850 Property & Equipment: Medical equipment Office equipment Total Accumulated depreciation $600 $250 $850 ($126) $650 $800 $1450 ($135) Total Assets: $128734 $204615 LIABILITIES & EQUITY Current Liabilities: Salaries Benefits Accrued expenses Bad debt Total current liabilities $175000 $1750 $1100 $375 $178225 $225000 $2500 $1200 $1500 $230200 Long-Term Debt $1500 $1500 Total Liabilities & Equity $179725 $231700
    

Answer 1

Areas of concern:

Bad debts have increased over the past year, bad debts in 2016 are$375 and those in the year 2017 are $1500, this has increased by 300%. This could be due to the change in insurance companies.To reduce the amount denied by insurance companies, a well trained insurance processing team should be built up and a well devised checklist should be desinged for each patient using the payment through insurance companies, this would reduce the insurance companies denying the payment.

Cash balance:

Cash balance has increased by $75,000 in 2017. Keeping cash balance idle is not a good investment decision. The cash requirements of the clinic should be properly forecasted using a proper budgeting system and the excess funds should be invested in a marketable securities, so that whenever, the requirement for excess cash arises, marketable securites could be readily converted to cash. For, this purpose an estimate of expeses, receipts and future investments or expansion plans in assets etc., should be ascertained and then idle funds are to be invested in short term or marketable investments.

Increase in salaries:

Salaries have increased by $50,000. This should be properly analized, like reasons for the increase:

• If new staff is appointed then whether there is actually a manpower requirement or just to accommodate the change in documentation and insurance processing of new insurers etc needs to be analyzed.
• Whether the increase in staff is due to increase in work or increase in business etc., needs to be analyzed.
• It is to be analyzed whether the existing staff could be trained on the new changes in documentation and insurance processing etc.,
• It is to be ascertained whether the documentation requirement can be outsourced till the time the existing staff are trained etc.