Health Care Financial Accounting Essay

Financial management is a very complex process across the business organizations. The increasing competition, complexity of business, rising expectations of investors etc can lure any organization to use unethical financial management tactics to make their books look better. But this can be extremely chaotic In future. Healthcare organizations are especially prone to such practices because of the extreme financial pressure and critical nature of business operations.

The purpose of this paper is to discuss the different aspects of the financial management, generally accepted accounting principles and the suggested ethical practices in this regard. Financial management is not merely a record of debits and credits. It is a measure of the health of an organization. The four elements of financial management consist of: planning, control, organizing and directing, decision making. The business operations must be planned and the management must be well aware of all the business aspects. The management needs to follow a systematic process to make ethical decisions in sync with the goals of the organization.

It must be ensured that sufficient fund is available to perform business operations in time. The management must have the control of business operations and thus the financial activities. The management needs to ensure that each part of the organization is adhering to the goals established for it. The management needs to decide how effectively the resources can be used to achieve the goals. This helps in maintaining the financial health of the organization. There is always a possibility of a financial situation in an organization when a difficult decision is to be taken.

Such circumstances require prompt decision making capability along with the understanding of the consequences of the decisions. In addition to the complexity of financial management, there are general accepted accounting principles. The general accepted accounting principles also referred to as (GAAP). Generally Accepted Accounting Principles are not any written rules. They are just the recommended accounting practices to maintain accurate, fair and consistent financial reporting. Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have worked together to come out with GAAP.

They revise the recommendations as and when required (Investopedia, n. d). Though every nation is free to adhere to any accounting system but GAAP is internationally followed to allow the interaction of organizations and their financial reports at international level. Ethics in financial management is very essential in all types of organization but it is even more important in health care organizations. A primary reason is that patients and their families are vulnerable to unethical practices. They deserve honesty in the financial aspects. The boards, executives, clinicians and the staff are equally responsible in this process.

Another reason is that the health care organizations bear extreme financial pressure and it becomes very difficult for the finance department to strike a balance between the facilities and expenses. If the financial health of the organization declines, it sets up a negative spiral of loss of business. There have been several incidents of unethical financial management practices because of the increasing complexity of business operations. Therefore, several examples of ethical practice and conduct are suggested to avoid any unfair and dishonest incident.

There are several financial circumstances that challenge the management to take right decision in a speedy manner. There may be quick unethical measures available that may settle the problem temporarily. But the management must not follow such measures as they may prove chaotic in longer run. They must take the ethical financial decisions. In a 2004 news articles that discusses compromising situation.. This articles states, “The financial pressures experienced by most healthcare organizations are intense. Not surprisingly, financial statements receive frequent and persistent scrutiny.

Declining financial performance makes the organization and its management team look bad. If financial covenants aren’t met, a hospital’s bond rating may be down-graded, resulting in reduced access to low-cost capital and other serious financial ramifications. For whatever reason, the board, management team, and external constituencies may want to “make the numbers look better. ” The heat is on the CFO to “do the books differently” (Tyler, 2004). In this example, the CFO is responsible to be honest. Manipulating the books the make the number look better would unethical.

However, the CFO must make ethical financial decisions. Another example of good ethics is a business leader’s sincerity. A business organization can have positive as well as negative circumstances. It is very easy to rejoice the positive results but the otherwise is tough. The leaders must be sincere enough to shoulder the responsibility of the negative incidents. They should also be capable of setting high standards of financial ethics in their organizations. It affects the hierarchy and thus the overall ethical health of the organization is positively influenced.

For example, “the Healthcare Group Purchasing Industry Initiative (HGPII), an organization dedicated to promoting the highest ethical standards and practices for the healthcare group purchasing industry, announced steps that will allow for even more transparency. They are activating a formal process to ensure prompt and fair resolution of supplier complaints regarding a group purchasing organization’s (GPO) purchasing process; and they are implementing an Independent Advisory Council to have outside observers make sure they are doing everything possible in terms of ethical standard” (Freeman, 2010).

Finally it can be concluded that planning, control, organizing and directing, and decision making constitute the financial management. There are generally accepted accounting principles (GAAP) that recommend the best practices to avoid unethical financial reporting. Moreover, there are several examples of ethical conduct for financial aspects. As healthcare organizations are financially very much pressurized and involve a very risky real time business model, they need to be more sincere in financial management.

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