Finance of Public Sector
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Introduction to Managing Finance in Public Sector
Every organisation needs to be very specific in the management of their finance. However, for a public sector business, this aspect becomes very crucial as there is great intervention of government in each activities of the organisation (Flynn, 2007). This study has been carried out for understanding various concepts of public sector organization and their management of finance within the business. For attaining the objectives of this report, proper analysis has been carried out concerning different accountability of public sector organizations (Bovaird and Löffler, 2009). It will also be including the different financial information that can be used for the purpose of strategic decision making. This will entirely be based upon varieties of techniques and methods. Report will also be discussing regarding the management of tender process within public sector organisations.
Research has selected Independent Age UK which is one of the charity organizations functioning in London and looks after elderly people. The study will analyse financial management of Independent Age UK.
1.1 Analyses of the different organizations in the public sector
Every enterprise whose operational activities are looked upon by government of the nation comes under public sector organization (Christensen and Lægreid, 2007).
Difference between public and private sector organizations of United Kingdom:
Public Sector Organizations
- These are those associations whose entire functioning are looked upon by the government of the country.
- It majorly consists of sectors such as central, local, states or municipal government, public authority and body.
- Their major strategic goal is to enhance the overall effectiveness of the products and services.
- It includes institutions such as educational organizations, health care bodies, police and military.
- Private Sector Organizations
- It includes the organization which carries its operations and functions privately (Pollitt, Van and Homburg, 2007). Under such type of business, government do not play any kind of interventions.
- These kinds of organization can comprise both profit and non- profit organizations.The major strategy or goal of these organizations is to be competitive in the market (Starling, 2010).
- They are the institutions such as Retail markets, credit unions and local businesses.
Structure of different public sector organizations of United Kingdom:
Public sector organization structure can be divided into five types which includes public business, municipal firm, trust, public/ private partnership, local authority business activity, etc. These are the organizations which are unambiguously incorporated for attaining some specific objectives (Organizational structure, 2013). One of the examples that can be initiated in the respect of public corporation of UK is Competition commission.
In order to provide enhanced services to the public, there is formulation of district and local government which has built up corporations such as municipal undertakings (Patel, 2005). Services provided by such corporations are water distribution, proper construction of roads and clean environment. Examples that can be initiated in this regard includes Large Borough council, Strabane District council, etc.
There are various trust which operates their functioning based upon different government hospitals and health care centers (Alford and Hughes, 2008). Their main purpose is to provide effective medical services to the individuals who require them. Examples which can be drawn in this respect are Foyle community trust and Local authority business activity.
Even there are many private businesses who collaborates with public sector enterprise for carrying out different activities (Pynes, 2008). This is majorly known as public and private partnerships. Hence, it can be said that public sector organizations can be divided into different segments for achieving various objectives and characteristics of services.
Independent Age UK in order to provide effective government services carries out their functioning in three divisions. These includes policy and performance, resources and development as well as support from the agency function (Thomas and Davies, 2005). These divisions look that Independent Age UK following all the set guidelines, rules and regulations in providing services to the public at large in the most ethical manner.
1.2 Assessment of the accountability of public sector managers in relation to finance
Public sector organizations need to look after various financial responsibilities in order to complete their accountabilities in an effective manner. Need for accountability: Various responsibilities are required to be looked upon by the finance manager of the enterprise. It includes aspects such as legal, political and professional dominations of accountabilities (Lapsley, 2009). One of the major aspect that need to be looked after by management of Independent Age UK includes carrying out appropriate actions towards charity amount of stakeholders. There accountability also stands for carrying out appropriate decision making which will be most favorable in the operations of enterprise and even guides stakeholders of company. For being effective, it is important to be transparent in each decisions and even proper fund maintenance need to be carried out for securing proper accountability of the managers (Kleindorfer and Saad, 2005). Independent Age UK also to needs to maintain good relationship with their donors as they are accountable for ethical practices and good governance. Even it has been seen that there is strong participation of stakeholders for maintaining accountability within the enterprise (De Boer, Enders and Schimank, 2007). Further, proper evaluation need to be carried out with respect to payment of tax concerning fulfilling of responsibilities with respect to management of finance. Independent Age UK finance manager is also responsible for maintaining effective charity policies for the stakeholders of the organization (Kettl, 2005). They are even accountable for financial plan and budget. In an organization, proper accountability can be carried out by manager by following different ways. These are as follows:
Various techniques for attaining accountability:
Financial reporting: It is very important for business organization to follow appropriate standards while reporting of finance (Financial Management and Good Governance in The Public Sector, 2012). For this, Independent Age UK must prepare statements like profit and loss account, cash flow and balance sheet for appropriate financial reporting.
Auditing: In order to analyze the financial performance of business, it is crucial for Independent Age UK for carrying out their auditing of financial statements. For fulfilling this aspect, auditors of the organization looks after these statements for checking that it is prepared as per the set standards and principles of funding (Zhang, 2005). This will assist the cited organization in maintaining the financial performance as per the planning carried out by them.
Legislations: If proper legislation policy will be followed by Independent Age UK with respect to the charity then they will be able to maintain proper accountability for their stakeholders and donors (Mathauer and Imhoff, 2006). For this, it is important for manager to follow all rules and regulations with respect to the financial aspects of the enterprise. This will help organization in maintaining proper financial accountability.
Effective use of finance: For Independent Age UK, it is very important to utilize their funds in the most optimum place (Dunleavy, Margetts and Bastow, 2006). In order to achieve this aspect, business needs to lay down their focus on activity based costing and effective budgeting technique for allocating funds in different operational activities of the business.
1.3 Analyses of the financial information reported for Independent Age UK
According to the rules published by the government of the UK, Independent Age UK has got a responsibility of carrying out effective financial reporting. Financial report of an organization generally includes aspect such as fund resources, performance, sources of income and expenses of the organization (Walker, Di and McBain, 2008). After analyzing the financial information of the business, it has been observed that they have generated large donation through donors, funds from local council and government authorities as a major source of their income for Independent Age UK. Even they can raise funds through various other sources which includes taxation income, retained earnings, long term loans, etc. These sources of funds can be described as follows:
Taxation: Public sector organizationused to carry out collection of different tax amount. This fund is raised from public, corporate houses and other business for different services provided on their behalf (Bovens, 2005). Such collection of tax amount by the organization increase their overall profit.
Government grants and fees:Nation government us to provide some Government long term grants to the specific organization, so that they are able to carry out effective performance (Moynihan, 2006). It is one of the most appropriate source of capital that can be used by the business and even it has not got any kind of extra interest and other cost.
After analyzing the financial statement for the period of 2014 it has been observed that company was not able to utilize their funds in an appropriate manner, as at the end of the period they were able to retain £5.5 billion (Annual Review,2013/14). Most of the funds raised by them were from donors, voluntary sources, retail income, insurance and other commissions. After carrying out the analysis process it can be detailed that business is able to generate appropriate funds from different sources and is also using appropriate techniques in utilizing their capital in a most appropriate manner.
2.1 Analyses of the financial information available and evaluation of its use for decision making and control
Manager of the business use to access the financial performance for carrying out different decision in the organisations. It includes aspects such as financial cycle evaluation, cost management, budget formulation, account management, income and expenses management, etc. Independent Age UKis a public sector organization and they use to get charity and insurance services from various parts of the country (Broadbent and Guthrie, 2008). Financial information analysis carried out indicated different facts and figures that is used by the organisation for initiating different decisions within the enterprise.
Income statement and balance sheet evaluation of the association for the year 2014 states that the total income of it is £158.9 million and the income of year 2013 was higher than present year. So, it can be said that in order to make effective expenses decisions, the entity can utilize the analysis of the financial income of Independent Age UK(Annual Review, 2013/14). The organization can decrease its unwanted costs by ensuring that association is spending its fund on needed business operations. Furthermore, the evaluations also represents that there are ranges of expenditures which are related to different sources of funding. Hence, it is clear that costs of different sources of financing is also increasing the overall cost of the enterprise, and total cost of the business for they financial year 2014 is £81.1 million (Broadbent and Guthrie, 2008). This represents that managers of the association should focus on its decisions related to cost of ranges of funding options. In order to format the budget for the next year, the management needs income of the Independent Age UK, which is £0.6 million
2.2 Assessment of the areas to be monitored and demonstration on how to achieve
It is important to carry out monitoring process within the business as it helps in achieving various objectives of Independent Age UKin public sector. This aspect can be defined as a comparison that is initiated between actual and planned performance of the association. Organisation need to monitor different areas, so that they are able to achieve different objectives of the business. Company needs to monitor their Budget process it will help them in managing their income and expenses (Pollitt, Van and Homburg, 2007).This will help organisation in estimating their financial milestones in a most appropriate manner for each financial year. Preparation of budgetary process will help business in developing appropriate communication within each department and employees of the business. Keeping all this things into consideration it even helps in facilitating actual financial reporting of the company.
Organisation can even carry out variance analysis for monitoring different areas of the company and it even helps in improving budget performance of the firm. This aspect includes various factors such as sales, purchase, cost price and usage variance (Christensen and Lægreid, 2007). Organisation can carry out calculation for all these variances by carrying out comparison process of actual and budgeted figures. Even it helps in developing future budget of the business which will be based upon positive and negative variance.
Business also need to carry out proper monitoring the area of expenditure, capital and revenue.This helps in determining actual requirement of capital that business need to initiate for carrying out their various operational activities (Bovaird and Löffler, 2009). This process even helps in acquiring funds from various financial sources. Proper monitoring process will help Independent age UK in achieving their objectives concerning capital and revenue in a most appropriate manner.
Even management of the organisation need to monitor different revenue sources. These are all those areas from where business can initiate their funds in a most appropriate manner. Independent Age UK use to generate their majority of funds from the areas such as retail, insurance and other commission, trading, charitable activities and other voluntary income (Flynn, 2007). If organisation is going to carry out proper monitoring process then they will be able to enhance their revenue streams.
Proper review is also needed to be initiated in the area of local and national Politian’s with respect to performance of Independent Age UK. This aspect will be helpful in monitoring the performance of the enterprise (Dunleavy, Margetts and Bastow, 2006). Here, review is carried out in the areas of information regarding income, requirements with capital, raising of funds, optimum allocation of available resources, proper utilization of profit and income of the organisation. These fact and figures can have great impact on the financial performance of the enterprise as well economic conditions of UK.
Monitoring of all these areas will help Independent Age UK in determining the financial performance of the business in an effective manner (De Boer, Enders and Schimank, 2007). On the basis of the evaluation proper strategy can be formulated in order to overcome problem and improve overall performance of the business.
2.3Analyses of the different types of financial information and techniques to demonstrate decision making
While carrying out financial decision making process it is important for the business to look after various financial information. In this Government use to play a very significant role as many decision is carried out as per their preferences (Lapsley, 2009). Even some specific considerations is laid down by the central government of the nations with respect to various decisions regarding funding and others.These are as follows:
- Proper standards need to be adopted while preparing financial reporting by Independent Age UK.
- These aspect must be based upon the regulations and legislations for financial transactions of organisation.
- Business need to carry out ethical and appropriate recruitment and selection process.
- Carrying out proper communication with stakeholders, investors and donors of the organisation.
3.1Determination of the tender process
A specific tender process is adhered by Independent Age UK for distribution of the future projects. The application from is required to adhere with many steps that are described below. The applicant must generate a complete application form for a new tender followed by attaching all the documents that are needed for evidence (Organizational structure, 2013). A sample is further required to be given for scrutiny purpose. Every tender that is passed by Independent Age UK should have a presence of three submission dates which have been published by firms in submission date calendar. Results of announcement dates may have a difference as per submission norms. Review of all the application is done by a 5 member technical committee. It happens on the basis of designing the products as well as services (Zhang, 2005). The team has a work to provide feedbacks on the basis if merits and demerits of applicants. The report is then considered for future. Steering committee is inclusive of 4 experts and a single chairperson. On the basis of findings and feedbacks generated by technical expert’s it has been found out that steering committee has a role of scrutinising the applications submitted by different applicants for tender of Independent Age. The time taken to complete entire tender process of Independent Age takes place around 3 months (Moynihan, 2006). After this applications sent by applicants is then accepted, rejected and resubmitted in some cases. The decisions are taken by tender panel by giving feedback and on the basis of appropriate reporting. After the completion of process, there is a selection of successful application for the tender. They are then invited to undergo any necessary change.
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From the entire process, it seems that Independent Age UK has been adhering with a specific tender process that gives a due consideration to different political and governmental issues (Thomas and Davies, 2005). Focus is also given by firm on the process of fair and ethical trading
3.2 Analyses on how public sector tenders are evaluated
Tender evaluation process has given a due consideration towards financial performance of the firm. It has made it essential to provide documents for submission followed by final distribution of tender. It can further be evaluated that Independent Age UK is adhering with specific evaluation criteria for the tender passed for their future projects (Patel, 2005). The tenderapplications have been made to assess on behalf of their overall ability, customer experience through staff and technologies. The company considers that tender evaluation is essential so as to choose only those tenders that fulfil the project requirement in an effective manner. Independency age UK has thus focussed on pursuing all the legal, financial as well as technical parameters for taking approval of any new tender (Starling, 2010). After the application and evaluation process is complete, then the panel provides a score to each tender that aids in selection of the most desired application for the future projects that are to be launched for Age UK. The rating done for each applicant is based on weighted average score card that has been demonstrated as under;
Independent Age UK also considers those applications that have been providing effective returns and profitability for the entire organization (Bovaird and Löffler, 2009). Thus on the basis of score card, render process is allotted to those firms that have got the highest rating or score.
From the above report it can be concluded that management of finance is one of the important aspect that need to be looked after by public sector organization. Organisation is accountable to different responsibilities towards stakeholders, investors and government for achieving objectives concerning financial and non-financial objectives. It also helps business in carrying out appropriate strategic decision making within the enterprise. Public sector organization evaluate different tender on the basis of weighted average card method.
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