Exploring Providence Hospitals’ Accounting Problem
Introduction
The Providence hospital contextual cases present a primary accounting problem. The Problem presented is the existence, use, and application of inefficient and inaccurate financial and accounting procedures and strategies. The said Problem manifests itself in two ways. First, the application of inefficient financial procedures, which is evident through Providence hospital using financial procedures and strategies that have very low if any capability of effectively delegating the financial and accounting laid duties. For instance, the case study reveals the hospitals’ financial department embracing the use of a temporary employee during their recent review of financial statements. Another instance is where there has been the profound use of manual systems by the financial department when recording their financial statements. According to the case study, the use of manual systems in Providence hospital has been evident through the financial department recording the hospital financial statements by hand. These illustrate the existence, use, and application of inefficient financial procedures and strategies within the hospital.
Secondly, the Problem presents itself through the existence of inaccuracy in the hospitals’ financial statements. The inaccuracy in the hospitals’ financial statements manifests in various examples. A solid example is the existence of an accounting and financial error in the hospitals’ annual budget, especially its operating projected budget. The error, as the case study reveals, was the hospitals’ projected budget of the respective year being less by $180,000.00. According to the case study, the financial error was identified by its financial analyst-Sara. The presence of such an error featuring the deduction of a great amount of figure in the hospitals’ operating projected budget forms a significant supportive ground that the hospital has been using inaccurate financial strategies and procedures. Arguably, the use of ineffective financial procedures and strategies by Providence hospital resulted in the inaccuracy on the financial statements such as its operating projected budget.
Secondary issues Relating to the Problem
The Providence hospital identified Problem arose from various secondary issues. These secondary issues cut from the organization to the financial personnel. A primary secondary issues relating to the identified Problem of the contextual case study is the hospital move in hiring an inexperienced personnel as their administrator. According to the case study, Providence hospital has had Daniel as its administrator for several months. Daniel, as the case study reveals, lacks the exposure. The lack of exposure in this content revolves around the lack of experience in effectively administering a community medical Centre.
Daniels’ lack of experience has been a facilitating and causative factor for the existence of the identified Problem within Providence hospital. According to the case study, there has been a huge turnover rate in the financial department of the hospital ever since Daniel became their administrator few months ago. The case study argues on the existence of a high likelihood that Daniel inexperience has played a great role in the occurrence of high turnover rate in the financial department within the months. However, case study does not reveal on the state of turnover in the previous months before the allocation and appointment of Daniel as the hospital administrator. With such, one is left with only the option of concluding that the non-exposure and inexperience of Daniel was the main reason for the rise and occurrence of high turnover rate within Providence hospital.
More so, Daniel inexperience also constituted to the occurrence of the identified financial and accounting Problem within the hospital, especially through his way of delegating his administrative duties. The case study reveals on Daniel allowing a temp to review the hospitals financial statements upon his appointment as Providence hospital administrator. The case study omits indicating on the capability, experience, expertise and skills of the temp. As such, one tends to assume thus argue that Daniel allowed an inexperienced temp who lacked the necessary skills. Such is evident especially through the financial and accounting errors which were later identified by the hospitals’ financial analyst.
Arguably, an experienced financial temp, and one who possess the expertise and necessary skills would have detected any possible accounting and financial problems, mishaps and errors when reviewing the hospitals’ financial statements. As such, in the instance when the tempo lacks to identify the existence of a huge error in Providence hospital financial statements, it would account for his or her inexperience, lack of expertise and necessary skills. The case study does not mention the tempo identifying the error in the hospital projected operating budget only to be later identified by the hospital financial analyst. Such constitutes to and back up the argument that the tempo lacked the necessary skills and expertise.
Another secondary issue that facilitates the occurrence of the identified accounting problem in Providence hospital is their mode of financial review. The case study reveals the hospital using and applying a manual mode of financial review. Such was clear within the hospital through its engagement in using a manual system to record their financial statements. The application of manual system to record the hospital financial statements was evident through the use of hand. The personnel in the financial department had to record the hospitals financial statements by use of hand written documents and rather not automated software(s).
The application and use of manual system when recording the hospitals financial statements contributed to the rise and occurrence of the identified Problem in Providence hospital. Arguably, manual systems associate to various deficiencies and limitations when compared to automated systems. Some of the deficiencies associated to manual systems include low speed and low security of company’s sensitive information, ledgers and documents. More so, manual systems associate to deficiencies such as high possibility of fraud, embezzlement, numerous errors- intentional or unintentional- inefficient and inaccurate end financial statements (Ware, 2016). As such, the application of manual systems has a line of drawbacks.
The drawbacks associating to the application of the manual systems contributed to the occurrence of the identified Problem with the hospital in various ways. First, the reviewing and recording processes of the hospitals financial statements were subject to numerous errors. For instance, the case study reveals on the existence of a significant error in the Providence hospitals’ operating projected budget (Ware, 2016). The case study discloses an error involving the deduction of $180,000.00 on the hospital operating projected budget which was identified by the Providence hospital financial analyst-Sara. The case associates the occurrence of the said error to the hospitals’ financial department using manual system in recording the Providence hospital financial statements.
Besides, the use of manual system in reviewing and recording the Providence hospitals’ financial statements also contributed towards the occurrence of the identified Problem, especially through facilitating inaccuracy in the hospitals financial statements. As earlier mentioned, manual systems closely associates and facilitates to the existence of the inaccurate financial statements. Similarly, the case unveils the existence of the hospitals’ inaccurate financial statements. A solid example is with the Providence hospitals’ end of year operating projected budget. According to the case, the budget was inaccurate for it featured a deduction error involving a significant amount-$180,000.00. The case associates this inaccuracy within the hospital financial statements-operating projected budget-due to its financial department using manual system in recordings financial statements (Ware, 2016).
Organizational Weakness and Strengths
The organization holds a major weakness, which is hiring of inexperienced personnel as its administrator. The case exposes Daniel –the current administrator of Providence hospital- as one who lacks exposure thus being inexperienced. It is for this reason that there had been a huge turnover rate ever since he became the administrator. Daniel also due to his inexperience, allowed a tempo to review the hospitals financial statements and use of manual systems in recording these statements. The case associates the tempo with the existence of the deduction error of $180,000.00 in the hospitals’ operating projected budget. With all of the above, it is thus arguable that the hospitals’ move is one of its primary weaknesses that have contributed to its current accounting problems.
Even with such weakness, the Providence hospital has its strength as a having an expertise financial analyst. According to the case study, the Providence hospital has Sara as its financial analysts. The case study argues on the expertise of Sara, especially through her skills in detecting the undetected error in the hospitals’ annual operating projected budget. Sara, as the Providence hospital financial analyst was able detect a deduction error of huge amount-$180,000.00- in the hospitals’ annual operating projected budget that the tempo had not detected. With such capabilities, it is arguable that the hospital has an expertise financial analyst, who is capable of identifying errors in their financial statements. Indeed, this is a strength which the Providence hospital has and it can help it in even protecting it from intentional financial miscalculation and fraud instances.
The identified accounting problems lack aligning with the concepts of financial statements accuracy, internal controls and adherence to Generally Accepted Accounting Principles. The concepts of financial statements argue that the financial statements need only to be accurate without any exception. The identified Problem does not align with the concepts of financial statements accuracy for it involves the application and use of inaccurate and ineffective financial procedures and strategies. These results to the inaccuracy of the hospitals’ financial statements, which is evident through some of statements such as its annual operating projected budget featuring a deduction error of huge amount.
More so, the identified Problem does not adherence with the Generally Accepted Accounting Principles. The Generally Accepted Accounting Principles represents the best accounting practices. However, the identified Problem lacks adhering to these practices such as the principle of permanence of methods. The principle advocates for the use of consistent procedures in the preparation of all financial reports (Craig et al., 2016). On the contrary, the identified Problem features in the use of inconsistent procedures. For instance, the case study reveals on the Providence hospital initially using its financial department’s personnel, later Daniel and lastly a tempo. Such presents an inconsistency in the financial reports preparation procedures.
The identified Problem also fails to adhere to internal controls, but aligns with audit failure. Internal controls feature in mechanisms and procedures which are capable of ensuring the integrity hospitals’ financial information, promoting accountability as well as preventing fraud (Chalmers et al., 2019). However, the identified problems lack featuring such mechanisms. At some instance, the hospital hires Daniel an inexperienced administrator who places the hospital at the risk of overriding the existence of accountability within the organization. Daniel further allows a tempo to review the hospitals’ financial statements which has chances of hindering the integrity of the Providence hospitals’ financial information (Chalmers et al., 2019). Even with such the identified Problem aligns with the concept of audit failure. The identified Problem on the onset wrongly states that the Providence hospital accounts, especially through the annual operating projected budget. However, the investigation by the hospitals’ financial analysts detected the budget contained mistakes such as a deduction by $180,000.00.
Recommendation
With all the above analysis, a possible and effective solution toward the identified Problem would be replacing Daniel with a new experienced administrator. However, hiring new personnel would be costly considering the hospitals’ financial state. Thus, it is recommendable the hospital reshuffle Daniel with Sara, making the latter the Providence hospital administrator and head of financial department. Sara has great expertise, considering she detected a very significant problem in the annual operating budget.
There are great chances that promoting Sara –who was the hospital initial financial analyst- will help in solving the Problem. As an experienced financial analyst, Sara could resolve to the use of automated systems in reviewing and recording the Providence hospitals’ financial statements and rather not manual systems. Such will help in reducing the financial errors, minimizing the number of needed financial personnel (Arcega et al., 2017). More so, it will aid in increasing the efficiency of the process thus facilitating the existence of accurate financial statements-free from errors.
References
Craig, R., Smieliauskas, W., & Amernic, J. (2016). Assessing conformity with generally accepted accounting principles using expert accounting witness evidence and the conceptual framework. Australian Accounting Review, 24(3), 200-206.
Chalmers, K., Hay, D., & Khlif, H. (2019). Internal control in accounting research: A review. Journal of Accounting Literature, 42, 80-103.
Arcega, C. K., Datinguinoo, E., Guerra, J., Guno, C., Mayuga, H. J., Villamena, E., & Manongsong, J. L. (2017). Computerized vs. non-computerized accounting system of small and medium enterprises in Lipa City, Philippines: A comparative analysis. Asia Pacific Journal of Academic Research in Business Administration, 1(1), 48-55.
Ware, E. O. (2016). Computerised accounting system an effective means of keeping accounting records in Ghanaian banks: A case study of the Ga Rural Bank. International Journal of Research, 111.