Business Office Optimization MHCA · Manager, BizOps Business Office Optimization ©2019...

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC‐registered investment advisor

©2019 CliftonLarsonAllen LLP

Presented By:

Sandi Schwarzen, CPA

Manager, BizOps

Business Office Optimization


Create Opportunities

In this session you will:

• Gain an understanding and discuss importance of internal controls

• Discuss best practices for bookkeeping, processing and financial reporting

• Learn reporting techniques to present information to varied users which will help support decision making and goal achievement

Session Objectives

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Internal Controls

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What is Internal Control?Internal control is a process, affected by an entity’s stakeholders, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

• Effectiveness and efficiency of operations

• Reliability of reporting

• Compliance with applicable laws and regulations

Source: Committee of Sponsoring Organizations of the Treadway Commission (COSO)

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What is Internal Control?This definition emphasizes that internal control is:

• Geared towards the achievement of objectives in one or more categories‐operations, reporting, and compliance.

• A process consisting of ongoing tasks and activities. It is a means to an end, not an end in itself.

• Affected by people. It is not merely about policy manuals, systems, and forms, but about people at every level of an entity that impact internal control.

• Able to provide reasonable assurance, not absolute assurance, to an entity’s stakeholders.

• Adaptable to entity structure (size and complexity of an entity).

Source: Committee of Sponsoring Organizations of the Treadway Commission (COSO)

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Weaknesses that Contributed to Fraud

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Source: 2018 Global Fraud Study: Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners

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FRAUD RISKS

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Most Common Anti‐Fraud Controls• Code of conduct

• External audit of financial statements

• Internal audit department

• Management certification of financial statements

• External audit of internal controls

• Management review

• Hotline

• Independent audit committee


NOTE: Many are external!

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Group Discussion

What are some controls ‘inside’ your business?

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Segregation of Duties – Group Discussion

• Why is segregation of duties important?

• Examples

• Pitfalls

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Financial Reporting



• To create periodic financial statements and reports which will provide key data to support fiscal monitoring and decision making and prevent costly mistakes.

– Timely

– Accurate

The Financial Close ‐ Why

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Recent survey by The Hackett Group reports:

1. 28% of respondents trust the numbers reported in month‐end close

2. 90% of respondents are under pressure to close faster

3. About 39% of respondents are satisfied with the time and quality of their closing process

4. Nearly 70% of respondents report that

manual processes are still the

biggest bottleneck in the

financial close process

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Signs that your Financial Close Process May be Broken‐

• No defined close process

• Not enough automation

• No access to real‐time data

• Poor integration with plan

and actual data

• Manual creation of

Financial Statements

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Determine the Type of Process

• Traditional hard close

– All closing processes are held until the month is complete

– Can be inefficient and time consuming causing delays or errors

in reporting

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Determine the Type of Process (cont.)

• Soft close – Allows the provider to tailor the numbers

reported on a monthly basis to its key performance indicators

– Eliminates the need (or uses estimates for) a host of accrual, allocation, reconciliation, contingency and reserve accounting entries

– The need for monthly GAAP‐based financial statements is called into question

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Determine the Type of Process (cont.)

• Continuous accounting– Allows the provider to move from laborious and

error prone manual process to a technology driven process

– Embeds automation, control and period‐end tasks within day‐to‐day activities

– Distributes workload more evenly

than the traditional hard close

process and it enables constant

reporting, verification and analysis

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Best Practice – The Hard Close• Design and publish a close calendar

– Clear assignment of duties and due dates of deliverables, for finance and non‐finance participants

– Should provide contact information for escalating problems during the close process

• Record daily operational financial transaction– Control processes and procedures should be integrated into daily

operations to facilitate a quicker and more accurate monthly close

– Key control processes should be documented and tested to measure effectiveness

– Activity should be recorded as it happens rather than waiting until month end

• Reconcile accounting system modules and subsidiary ledgers– Build daily processes that capture, reconcile and record summary

data from stand‐alone systems and the general ledger

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Best Practice – The Hard Close (cont.)• Record monthly journal entries

– All recurring journal entries should be automated if the general ledger system allows.

• Reconcile balance sheet accounts

– Reconcile cash accounts first. Since cash is part of most transactions this is one of the easiest ways to locate missing or incorrect entries. If there are a large volume of transactions reconciling cash on a daily or weekly basis could be beneficial.

• Review revenue and expense accounts

– Review revenue and expense accounts for accuracy

– Check expenses to determine if they have been recorded, at accurate amounts and in the correct period

– Review and compare actuals to budget

– Track KPI’s to help identify issues

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Best Practice – The Hard Close (cont.)• Prepare financial statements

– Prepare financial statements through the accounting system. If statements must be created outside of the system explore system upgrades.

• Management review

– Senior management review of reports is a critical internal control as the person reviewing is typically outside of the preparation process.

• Close accounting systems for the month– Physically closing the accounting period prevents future

transactions from inadvertently being recorded in the incorrect period.

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The Soft Close

• Benefits of a Soft Close– More current and better analyzed information

– More staff time devoted to research what is going on and to anticipate future trends

– Finance staff can work proactively with operations staff to identify root cause, re‐evaluate and reset operating targets

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The Soft Close (cont.)

• When moving from a hard to soft close

– Redefine the elements of the closing cycle:◊ Decide which activities can be eliminated, deferred until

a quarterly or annual close or which can be moved outside of the close period

◊ Accrue only when material and at quarter or annual periods

◊ Move forecasting process away from close cycle

◊ Move cost allocations from monthly close by using fixed rates, budgeted rates or prior month

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The Soft Close (cont.)

• When moving from a hard to soft close (cont.)

– Eliminate interim cycles◊ Eliminate extra cycles of report production and distribution

◊ Focus on gross change from month to month

– Collapse the level of detail◊ For example post allocations to a single division‐level cost center

instead of to every cost center within a division.

– Raise the materiality level◊ Make only material inter‐company, consolidation and eliminating

entries.

– Separate and integrate systems◊ Make systems like the cost accounting and billing independent of

but integrated with the general ledger.

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Best Practice – the Soft Close

• The closing process– Publish a detailed closing process which has defined

deliverables, assigned responsibilities and a closing calendar

– Move from a serial, one process does not start until another is finished, closing process to a parallel closing process. Separate individual closing actives so that they can be independently completed.

◊ For example AR, AP, Fixed Assets and Payroll closing activities can be done independently of each other and concurrently.

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Best Practice – the Soft Close (cont.)

• The closing process (cont.)– Set a materiality level‐

◊ Reduce investigation to material variances (dollars, percentages and designated accounts)

◊ Eliminate small accruals and adjustments

◊ Distinguish between the level of detail needed for internal and external reporting

– Interim review‐

◊ Use internal audit to locate transaction issues in advance

◊ Conduct daily (or weekly) reviews of the key financial statement components.

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• The closing process (cont.)– Automatically create operating reports through the

system.

– Standardize the close package.

– Cycle internal reports on a monthly, quarterly or annual basis.

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Process improvements among the systems that feed into the closing process can have a significant affect on the finance

function performance.

Following are examples of

such processes.

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• Procurement/Disbursement Cycle– Employee expense reports

◊ Replace the total review of all expense reports to an occasional audit or

◊ Automate to an online expense reporting system with built in approval system and the ability to ACH funds directly to the employee.

– Accounts Payable

◊ Automate the PO process‐ whereby approvals are limited to a single event or document and, to receipt of invoice and install approval for payment at the receiving dock.

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• Procurement/Disbursement Cycle (cont.)– Accounts Payable (cont.)

◊ Automate recurring processes and edit checks to improve accuracy. This helps eliminate the need of holding the close process open.

– Payroll

◊ Payroll staff should be dedicated to payroll functions as much as possible.

◊ Shift deduction changes to employees

◊ Automate vacation accruals

◊ Simplify or standardize commission structures

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• Procurement/Disbursement Cycle (cont.)

– Payroll (cont.)◊ Merge all payroll systems into one system and

combine the HR database with the payroll database.

• Revenue/Receipts Cycle– Billing data entry problems‐

◊ Use computerized data‐checking methods

◊ Automate field entries or smart entry systems that flag initial entries and verify or reject.

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• Revenue/Receipts Cycle (cont.)– Elimination of unnecessary documents and/or

document processing

◊ Direct entry of shipping information by the shipping staff at the shipping location reduces processing time , re‐keying data and lost documents.

◊ Smart entry systems with internal audit review will improve quality and timeliness of shipping information.

◊ Eliminate documents considered unnecessary by the resident such as month‐end statements

◊ Utilize electronic transactions

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• Administrative/Reporting Cycle– General ledger

◊ Reduce the chart of accounts

◊ Reduce the use of journal entries

◊ Integrate non‐gl systems into the general ledger

◊ Use data warehousing for report distribution

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Questions or Comments???

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• Effectively tell the story of the provider to various stakeholders– Helps stakeholders understand the provider’s accomplishments

and the cost associated

– Stakeholders want to understand where their money goes

• Provide data to make effective decisions and to plan for the future.

• Outside stakeholders, such as lenders or investors, need information to understand the financial health of the entity and the risk associated with their investment.

Financial Reporting – The Why

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• Balance Sheet– A financial document that lists the resources, obligations and

ownership details of the organization at a specific point in time.

• Income Statement

– A financial document that reports the revenue from business operations, expenses of operating the business and the resulting net profit or loss over a specific period of time.

• Statement of Cash Flows – A financial statement that provides aggregate data regarding all

cash inflows an organization receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for the organization's business and investments during a given period.

Financial Reporting – The Basics

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Reporting Tips and Tricks

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Dashboards & Key Performance Indicators

• Dashboards are reporting tools that help the organization present summarized financial information and Key Performance Indicators

• Key Performance Indicators (KPIs) are the measurement of performance to evaluate the success or progress towards a strategic goal

• Fundamental Purpose of KPI• Maintain Performance• Improve Performance

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Key Performance Indicators

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There is no single KPI that is

right for everyone

KPIs are more meaningful

when compared to a benchmark

Use visual indicators for added impact



• What KPI’s have you implemented, or would like to implement?

• What was, or could be, the impact on stakeholders?

Group Discussion ‐ KPIs

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• Owners/ Governance

• Departmental Managers/Committee Chairs

Impactful Financial Data for Specific Audiences

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Very high level – no more than a few reports to review

– Balance Sheet – Summary

– Income Statement – Summary

◊ Monitor month, YTD, Actual vs. Budget, comparable to PY

◊ Summary by Department/Committee/Program

– Cash Flow / Projection

– Dashboard / Ratio Analysis

Owners/ Governance

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Create Opportunities 42

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Month Ending Month Ending Month Ending Month Ending Month Ending Month Ending Month Ending

01/31/2018 12/31/2017 11/30/2017 10/31/2017 09/30/2017 08/31/2017 07/31/2017

PPDs PPDs PPDs PPDs PPDs PPDs PPDs

Operating Expenses

Nursing and Inventory Control

Activities 3 6 2 2 2 3 3

Social Service 2 3 3 2 2 1 1

Nursing ‐ Skilled 58 55 63 65 55 55 54

Central Supply 4 4 4 5 0 1 1

Total Nursing and Inventory Control 67 68 72 73 59 60 59

Residential Expenses

Activities Residential

Dining 19 17 19 19 19 20 16

Laundry 3 3 3 3 3 3 3

Housekeeping 3 0 7 3 3 3 3

Plant/Maintenance 10 9 8 12 8 11 8

Admin and General 19 29 30 18 22 52 25

Marketing 5 5 4 4 4 3 6

Total Activities Residential 59 63 71 59 59 92 61

Assisted Living

Nursing Assisted Living 8 7 9 9 7 7 8

Plant Assisted Living 2 2 2 1 2 3 1

Total Assited Living 10 9 11 9 10 11 8

Total Residential Expenses 69 73 83 68 69 103 69

Ancillary Expenses

Therapy 12 6 13 11 10 9 10

Laboratory Services 0 0 0 0 0 0 0

Oxygen/Resp Therapy 1 1 1 1 1 1 1

Pharmacy 7 0 0 0 2 2 0

Medical Supplies 0 0 0 1 0 1 2

IV Therapy‐Supplies 0 0 0 0 0 0 0

Equipment Rental 0 0 0 0 1 1 0

Total Ancillary Expenses 20 7 15 13 14 13 14

Total Operating Expenses 156 147 169 154 142 176 142



Questions or Comments???

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Sandi Schwarzen, CPA

Manager, BizOps

[email protected]

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Thank You!

Business Office Optimization MHCA · Manager, BizOps Business Office Optimization ©2019...

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