Managing Finance In The Public Sector

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Introduction to Financial management

Financial management is effective and efficient utilization of money by different sector of business organization. Managing finance is very crucial in public sector firms as well. These corporations have to allocate the financial resources in optimum manner in order to ensure that these resources are not under and over utilized by the companies (Brown, 2012). In the present study, the topic managing finance in public sector has been discussed with respect to National Health Service (NHS). The report covers the assessment of accountability of public sector managers in relation to finance. Further the study also analyzes financial information for different public sector corporations. The present report investigates the way in which financial information is used by the business for decision making and control. Last but not the least the study entails to identify how public sector manages tender process.


Analysis of different types of organizations in public sector 

Public sector is the economic part which provides government services to the public and community (Chandra, 2010). Public sectors are different in different countries but mostly it includes military, police, public education, health care, taxation etc. It is controlled and managed by national, state and local government body.

The following is the difference between public and private sector

  • Private sector is complied of all those organizations which are owned and managed privately (Filbeck and Krueger, 2005). There is no intervention of government in this sector. However, public sector is controlled and managed by local or national authority.
  • In private sector the firms carry business with the motive to earn profits. In contrast to this public sector firms are not driven by profit motive but their main focus is in providing customer service (Davis and McKevitt, 2013).
  • In private sector decisions are made by top management and then are passed to different hierarchy in business (Gibson, 2012). Whereas in public sector decision making is very crucial it is affected by various interest groups as well as politicians. Important financial decisions under this are created by coalitions and support.
  • The method of accounting practices in public and private sector distinct. In private sector financial managers are bounded to follow accepted standards of accounting. But in public sector financial managers not necessarily bounded to perform accounting functions based on accrual method.

The different public sector organizations and their structure are analyzed as under:

Public corporations: these organizations are fully owned by government. These organizations have specific purpose that includes education, health and hospitals, waste removal and transport (Gill and Biger, 2013). These corporations carry it services in order to fulfill the vision and mission of government. The boards of directors under these firms are appointed by governor. These organizations get revenue by charging for the services they provide.

Municipal undertakings: These organizations are city government. The investors to these are very large as these corporations provide tax advantaged bonds (Grier, 2007). In order to raise capital for meeting day to day expenses or in carrying specific project these firms issue bonds. 

Hospital trusts: they are self governing organization which remains within NHS. These trusts prepare their own budget and make their own decisions in respect to day to day operations (Correia and Flynn, D., 2012). They recruit the staff on their own. 

Public and private partnership: Under this finance is provided by private sector to provide assistance to public sector. Because of this partnership private sector gets new business opportunities and public sector gets value for their money for obtaining skills and expertise found in private sector (Shim and Siegel, 2007). 

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Analysis of financial information reported for different public sector organizations

Financial information reported for different public sector organizations is analyzed as below:

Sources of public income: The major income of government organization is collected through taxes. Local authorities finance their activities by this source. The taxes are charged from individual and corporation on their income (Hansen and Otley, 2003). The public sector organization that is NHS is required to present this tax related information in their financial statements. These provide necessary information to investor regarding the income earned by the business in past years.

Reported financial and non financial performance indicators: Financial performance indicators are to be reported in annual report to that stakeholders of the organization can know the financial position of the business (Huntzinger, 2007). Financial performance can be indicated through company’s profitability, sales, cash inflows and outflows, value of assets. Further these financial information’s are to be reported so that investors can make decision on whether to invest or not in a particular public sector business like NHS. Non financial performance indicators are customers or employee satisfaction, quality, market share, and number of innovations in products brought by company (Davis and McKevitt, 2013). These indicators are to be reported which are helpful in knowing the future financial performance of NHS.

Published reports for different organizations: NHS is required to publish report which is its annual report (Jerman, 2013). This report contains list of board of directors, company vision and mission statement, auditor’s report financial statement of company such as its balance sheet, profit and loss statement, and cash flow statement. All such information is to be published in the annual report.

Other external reports: Other reports include care quality commission reports which presents whether NHS has meet the standards of quality or not (Kwok, 2002). This information is to be reported by NHS so that financial position of the company can be known. 


Analysis of the financial information available and how it meets accountability requirements, assessment of accountability of public sector managers

The following are the financial information available to NHS.

Budgets: Budget is quantitative plan which is prepared for certain period of time. Budgets help the business to allocate the funds to various activities in NHS. Budget provides expected sales volume, costs, revenues which are helpful for financial managers of NHS in decision making (Mao, 2012). Through budget the manager can make business plans in order to achieve the expected result. Budget is available to NHS so that it can plan its strategy in order achieve the expected revenue and sales volume.

Costing: This provides unit cost of selling product, as well as reflects the total variable and fixed cost incurred by the business (McMenamin, 2002). This information helps the financial manager in taking decision regarding how it can keep its selling price of product so that its cost of manufacturing, selling, promoting are fulfilled. This financial information is very crucial to NHS as through this it can make plan on how it can effectively plan its activities in order to minimize the costs.

Accounting information: This includes information related to proposed expenditure. This information facilitates the financial manager to allocate financial resources to various activities so that is can meet proposed expenditure (Narasimhan, 2012). The manager can also makes is policies and plans in accordance with these expected values so that NHS can attain effective outcomes at lesser expenses. 

Budgetary control information: This financial information is available to NHS which reflects the projected budgets value and annual performance of business. This information is important for financial manager because it help in analyzing the extent to which NHS has met the budgeted result (Nikbakht and, 2006). If actual performance does not matched with forecasted performance outcomes than managers is required to revise the budget. 

Financial cycle: This financial information provides supply estimates, revenue projections which help the financial manager in planning regarding the ways it can meet the estimates (Nobanee, Abdullatif and AlHajjar, 2011). Further this information assists the manager in controlling the actual performance by finding out the deviation between both.

The financial manager has various responsibilities in relation to finance. It has responsibility towards stakeholders. That is it is required to fulfill the needs of various stakeholders such as shareholders and employees NHS. It is responsible to disclose all the financial information to its shareholders so that financial manager can ensure ethical behavior while dealing with its stakeholders (Pass and Pike, 1987). The financial manager is also responsible for allocation of financial resources so that overall mission and objectives of NHS can be achieved. The major responsibility of financial manager is decision making in matters pertaining to finance. 

There are some more responsibilities of the financial managers such as:

Effective use of taxes: The financial manager of NHS is responsible for the use of taxes paid. It has to ensure that the amount of taxes received by the organization is utilized in optimum manner (Plowman and Hancock, 2007). Moreover the manager is accountable to top management in case the responsibility is accomplished.

Financial decision making: Financial manager of NHS is responsible in making the decision related to budget, sales projection, estimation of supply, selling price decisions. The manager is accountable to perform all such duties so that goals and objectives of the organization can be achieved (Prior, 2004). Moreover the financial executive is also responsible in making strategic plans for the business. The decision regarding obtaining of financial resources and its allocation are of significant importance to financial manager.

Accountability is achieved by the manager in the following manner:

Financial reporting: In order to fulfill the responsibility financial executive of NHS ensures that accounting reports are prepared with due care. There is no mis representation done while preparing the report (Shim and Siegel, 2007). The manager is required ensure that every information has been disclosed in the financial reporting.

Legislation: The NHS financial manager can fulfill their accountability by performing accounting activities as per the standards. There are various accepted rules of accounting in order to ensure its appropriateness. The manager is requires to make sure that the accounting information is prepared in accordance with the international accounting standards.

Effective use of finance: The manager can achieve the accountability by making effective use of financial resources. Further the executive is required to make sure that financial resources are not misused in any business activity and optimum allocation of the resources available has been done.

Explanation of how financial monitoring and control is or can be achieved

Financial monitoring and control can be achieved by NHS in following manner:

The budgetary process: Financial performance of NHS can be measured with the help of budgets. The preparing the budget of expected sales, revenue, profits, the company can monitor and control its financial performance. Budget helps the manager in allocation of financial resources to different financial activities. This assists the manager to keep control over misuse of funds.

Monitoring variance from budget: This technique can be used by manager in order to monitor and control the finances (Public sector, 2014). Under this actual performance is measured with the estimated budget and variance are identified. Through this financial performance of NHS can be monitored. Further after analyzing the variances corrective action can be taken so that it future deviation may not arise.

Monitoring the different revenue collection streams: The revenue in public sector company such as NHS is majorly collected through taxes. In order to monitor and control the finance it is necessary to monitor the amount of tax collection (Lewis, 2014). In order to enhance financial performance sources of finance such as taxes are to be monitored. Its allocation to different financial activities is to be maintained.

Monitoring expenditure and revenue: In order to achieve financial monitoring and control monitoring of estimates of revenue and expenses has to be done (Moeti and, 2007). The financial manager is required to keep balance between estimated expenses and actual expenses. In order to control this actual financial performance is measure with estimated performance standards and latter deviations are analyzed for this (Public corporation, 2013). These deviations help the financial manager to review its financial plan so that in future differences do not occur. 

Auditing: Under this technique a person known as auditor monitor the financial performance of NHS. These auditors provide report to company based on their inspection of financial statement of company (Definition of non-financial performance measures, 2014). By this way the business can monitor and control its finances on the basis of report provided by internal and external auditors.

Analysis of financial decision making process

Central government plays critical role in allocating funds to public sector organizations. The government makes decision on the amount of resources to be made available to NHS. The government examines the investment proposal and makes decision making (Hughes and Laryea, 2009). In order to provide funds to various activities the government analyses the various financial statement of business. Based on the performance of NHS the central authority grants funds to organization. The financial decisions are prepared by firm taking corporate plan and performance of company into consideration. Government provides funds to business by identifying the benefits it can provide to the society (Financial Cycle, 2010). When the objectives of government are matched with that of the public sector business then it plans on funding the business. Local authority has laid down certain rules and regulations in order to evaluate the performance of organization like NHS. In order to obtain funds NHS is required to accomplish its activities in accordance with various rules, regulation and statements of government (Brown, 2012). Information such as financial and non financial information is available to NHS in making financial decision making. In order to take financial decisions information is available such as income statement, balance sheet, cash flow statement etc. Non financial information is provided through quality related information of business.

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In order to take decisions it is essential that NHS knows the extent to which it is meeting quality standards. Government provides finance to capital projects and investment proposal by analyzing the investment project through capital budgeting techniques (Chandra, 2010). These capital budgeting techniques help the manager in taking financial decision regarding investment in new projects. The technique such as net present value, average rate of return assists the government in analyzing the feasibility of project and further on basis of this it grants funds to the company (Gibson, 2012). The business also takes decision making on the basis of planned expenditures. It is very crucial on part of company to consider both financial and non financial indicators while making decisions. For example: When the company has to take decision on the selection of best investment proposal then in this case NHS can use investment appraisal technique such as payback period, net present value, internal rate of return. This will help the firm in selecting the best investment proposal out of all the alternatives available.


a) Tender documentation of NHS, including full explanation of tender process for organization wishing to work 

To evaluate the value of different contracts procurement methods can be used by NHS. Tender method has been considered the most suitable in determining the worth of contracts. Procedure of tender in context to NHS is as follows:

Utilization of E- procurement services: The Company uses this method in offering the tender in the marketplace. Through this online method NHS can fulfill the tender process (Jerman, 2013). This method can be used in performing various activities of tender process such as receiving the invoices, distribution of tender, ordering of various tender documents etc. 

Advertisement of the project:  The stage in the process is advertisement of the project so that organization willing to apply can know about the project in brief. The advertisement is required to be put in simple language so that every business can understand it (Narasimhan, 2012). Under this NHS invites the applicants who are interested in carrying the project.

Screening of the proposals: At this stage qualification questionnaire is prepared so that suitability of proposal can be known (Moeti and, 2007). In order to ensure that proposal satisfies the contract this stage is very important.

Selection of alternatives: After the screening of the proposal top companies are selected which the NHS feels are appropriate. The company profiles which are best fitted to the contract are selected as this stage.Evaluation of financial performance: At this stage financial performance of the companies selected is evaluated so that best organization can be selected (Plowman and Hancock, 2007). In this stage the companies who have been selected are asked to provide financial information and financial audit report to NHS.

Pre approval stage: Before the approval of tender of the organization it is very important for NHS to examine the technical ability, ability to overcome the health and safety issues, its equity (Prior, 2004). All these information helps the NHS in identifying the strengths of business.

Issue of tender: After getting all the information about the company, tender will be issued to the most suitable organization which is capable to complete the project in an efficient and effective manner (Hughes and Laryea, 2009).

These stages are followed by NHS in order to issue tender to companies who are wishing to work with them.

b) Design criteria and scoring system for evaluation of tender

Tender evaluation is done so that NHS can know whether or not organization applied for project is with respect to selection criteria. Tender evaluation examines the financial performance so that company can be approved in order to carry the project (Narasimhan, 2012). In this the tender is analyzed on the basis of its technical and legal capability. Document such as financial statement and auditors reports are reviewed in order to evaluate the tender. It is also evaluated that whether the tender fulfills the requirement of the business or not. This evaluation is very critical to NHS so that it can select the best company which can carry out the project in cost effective way (Jerman, 2013). There are various evaluation stages which helps NHS in evaluating the tender applied by different organization:

Information: In evaluation the company analyses the information provided by the companies. This information helps NHS in knowing the financial position of business. Also it is evaluated that provided by firms are fair in all respect. 

Justification: After evaluation of information NHS analyzes that whether or not requirement of tender are fulfilled by the applicant (Nikbakht and, 2006). It is also examined that what capabilities the firm acquires which are needed in order to carry project.

Objectives fulfillment: Last in evaluation process the capability of the applicant in attaining the objective of tender is analyzed (Correia and Flynn, 2012). The company which quotes less time for completion of project is looked for by NHS. 

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NHS provides project to the company on the basis of this score card. No score is provided to the company which is incompatible with the objective of the tender. The information provided by such companies is not with respect to the goal of tender. The score one is given to that company who provides improper information (Shim and Siegel, 2007). In order to fulfill the criteria of being the best the company is required to provide quality information to NHS. In case if the business gives innovative and new ideas then that company comes under the score of 5. Selection of best organization is based on these design criteria.


It can be concluded from the study that public sector organization are of different types such as public private partnership, hospital trust, municipal corporation etc. These organizations have different structure and have different purposes. The financial manager of NHS plays very crucial role in decision making process (Public sector, 2014). Moreover the financial executive is responsible in carrying out different activities of finance in effective manner. Public sector organization such as NHS is required to report all the information such as financial and non financial performance data, taxes information and reports of care quality commission. In order to monitor and control the finance, information is available to NHS such as costing, budgeting, proposed expenditure etc. Role of central government is very important in funding the business. They evaluate the performance of NHS and allocate the funds. In public sector organization like NHS tender process is significant. The evaluation of tender under this is based on the score card which helps NHS in selecting the best company.  


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