Anchor Trust: A Case Study of Costs and Accounting

Even though Anchor Trust does not announce its facial strategies to the public, its annual report speaks much of their stand and incorporation of cost and accounting tools. Since its establishment, the organization’s commitment to evolution and innovation has ensured strong financial performance. At the same time, the organization maintains control over support costs, while exploiting new ventures (Docs.anchor.org.uk, 2018). Like any other health and social organization, its interventions are complex, context-dependent and programmatic. Hence, its decision-making processes revolve around several costs and accounting concepts. Anchor Trust’s effectiveness must be sufficiently comprehensive to encompass the complexities above.

Furthermore, its success can be attributed to knowledge distribution and management. The organization promotes knowledge as a necessary and essential factor for its survival as well as maintaining its competitive strength. It effectively and efficiently retains, organizes, develops, and utilize its employee’s capabilities in its field of production and service delivery. In 2017, 12 of Anchor Trust’s housing locations were shortlisted in the Elderly Accommodation Counsel Awards, and Castle Hall won a gold award. In an organizational context and survival, costs, accounting, and knowledge management should be explored concerning their content, definition, and domain in theory and practice, their implications and use, and to pinpoint issues inherent in the concept. Accordingly, Anchor Trust focuses on the careful integration of care homes they acquired in 2015 /2016 period into their care portfolio. Coupled with careful management of costs, they have been able to deliver a net surplus of 20.6 million for the year. In the same year, care accounted for 48.2 % of their 374.7 million revenue and 72 % of their workforce that is currently over 9, 000 strong (Docs.anchor.org.uk, 2018).

The organization’s two recent development reflect strong demand for novel care and housing models. Nelson Lodge and Keble Court, Anchor Trust Executives, gave a total of 146 homes, among which are residential homes for the elderly. For the ambitious development targets support, the organization’s surplus enabled them to invest 52.4 million in their existing properties, including 680 new kitchens and 1444 new bathrooms delivery (Docs.anchor.org.uk, 2018). The ongoing investment is evident in the 99.1 % occupancy level achieved in their rented housing by the end of the 2016/17 financial year. 90 % tenant’s satisfaction in their rented housing indicate that their services are highly valued. This performance can be attributed to knowledge management and costs management as well as their ability to explore them concerning their content, definition, and domain in theory and practice. Furthermore, the organization understands knowledge and costs implications and how they are used and can pinpoint issues inherent in costs and knowledge management issues.

Concepts, Features, and Importance of Costs and Accounting in Decision-Making in Health and Social Care

Health and social Care organizations make important decisions on daily. However, to make the best decision, they need to accurately weigh costs and relative benefits of various options in their working premises. For instance, decisions for acquiring a home may revolve around comparing the negatives and positive aspects of potential sites to meet the household’s needs at affordable price. Though trivial, an insight on the price of a housing product or an asset may be extremely useful to a health and social organization. In a competitive environment, it is dangerous to operate blindly without knowing how expensive production may be, and only to turn to cost and accounting techniques when troubles are on the horizon. By understanding accounting and costs techniques before an organization runs into troubles, the organization can use these techniques for more than just setting normal sales prices. Accounting and costs tools and techniques can help them to come up with other data-driven decisions on their health and social care processes.

Costs and accounting generally refer to processes of collecting and presenting financial information to decision makers on trade-offs inherent in each proposed alternatives (Hilton and Platt, 2013). These processes are important for government agencies, such as the National Health Service, that presents various interests when deciding how to allocate funds among other resources.  Therefore, determining which costs are relevant for decision-making process is essential. Health and social organization’s cost may fall into future, opportunity, sunk, common, committed, and noncash expense costs. For instance, Anchor Trust’s project costs may revolve around materials, as houses require specific materials that are not in their stock and may be ordered, direct labour, supervisors, depreciation and maintenance, electricity or even manufacturing.  For decision making, these costs may be categorised as relevant or irrelevant. Supervisors, in this case, are committed costs, and workers would be paid regardless of receiving a new order or not, hence an irrelevant decision. Other irrelevant decisions include depreciation and maintenance cost and overhead costs. Depreciation and maintenance, out of pocket, costs are non-cash expenses while overhead expenses are not incurred as a result of projects. So, decision makers can confidently conclude that material, labour, and electricity are relevant costs. Out of pocket costs, commonly known as payment to outsiders, are essential for fixing prices during a recession or when making or buying decisions to be implemented.

Therefore, decision making in today’s business may seem to be among difficult tasks for an organization to thrive. Decision makers are set to select the best alternative and process from various alternatives to solve business problems (Zimmerman and Yahya-Zadeh, 2011). A prudent health and care cost accountant, can, therefore, use various cost accounting techniques and make it the best tool for making business decisions. Common health and social care operational problem may include fixing a price, reducing the cost of production while maximizing returns and increasing the profitability of the entire operation. Cost accounting provides a statement of material, cost sheets, and labour utilization among other budget-related reports which can be used immensely for standard cost comparison. After this, a health and social care organization can decide the best price for their services is and products.

Cost sheets are helpful in deterring cost per unit. Healthcare organization’s cost managers can compare previous monthly cost sheets and make decisions regarding reducing the cost of services or products. If costs are increasing, as indicated in the cost sheets, the manager can spot production places or sales processes that are wasting the organization’s money. They may then reduce wastage by deciding on quality production or sales techniques, and drop useless production processes. Overhead utilization reports, on the other hand, will ensure genuine overheads are paid. They also ensure that pay on a product is distributed on a valid basis. They accurately calculate overhead costs and control indirect expenses (Zimmerman and Yahya-Zadeh, 2011). In addition to the cost above accounting reports, labour cost reports reduce labour turnover and idle time cost. Free time or of season period can be determined from time utilization statements of each employee for manufacturing drive. By studying these statements, care managers can decide on transferring some workers to other busy sections hence effective human resource utilization.

For linear programming care and social issues, linear variables are necessary. Linear marginal cost’s production level and variable costs can be used to determine the production level of an organization by maximizing its profitability or minimizing its cost. Precisely, marginal cost’s techniques can be used to find an equilibrium production point. Analysis of variance reduces the deviations in cost accounting, while cost-benefit, also known as Break Even Point analysis ensure that an organization purchases a fixed asset at minimum cost as possible. Furthermore, the tool can be used to check the level of production; where the aggregate cost is equivalent to the aggregate revenue, the production level will be the break-even point. What an organization can, therefore, produce up to this level to this level to ensure that little or no loss is incurred. Inactivity base is costing, the total cost per unit is calculated by the various activities of an organization thereby reducing indirect costs after a product. Eventually, costs and accounting check every unit of an organization, especially where money is misused, and costs are increasing.  By reducing these costs, cost and accounting technique increase the returns on investment (Zimmerman and Yahya-Zadeh, 2011).  

Analysis of Anchor Trust’s Financial Statements and Financial Performance

Its financial statements can determine anchor Trust’s overall health and performance. Its financial data can be evaluated to determine more useful investor, shareholder, manager or other parties of interest. Anchor trust’s horizontal financial statement analysis will include 2016 and 2017 annual financial statements. Its vertical financial statement analysis will include accounts categories in total percentage. In the year 2017, Anchor Trust’s operating surplus before amortization of goodwill and exceptional costs was 22.6m. Compared to the previous year, it is 7.9 million lower, hence an operating margin of 6 %. By then, business performance was strong and was supported by a reduction in support cost of 1.4 million when compared to 2016. 10. 6 million surpluses was noted which is equivalent to 1.7 million decreases when compared to the previous year. The amount includes the gain on disposal, from a 7.1 million property. Its financial position is strong with 758.3 million total assets without the current liabilities even though is somehow much less than the previous year’s 768.7 million. Besides, the 2017 business year noted a net asset value of 307.9 million, which is an increase when compared to the 2016’s 298.6 million net asset value (Docs.anchor.org.uk, 2018). By 31st March 2017, all Anchor Trust’s five-year financial outcome for all activities can be summarised as shown below in millions.

2017

2016

2015

2014

2013

Turnover

374.7

367.3

283.0

265.8

264.9

Operating Margin

22.6

30.5

12.7

18.3

18.1

Exceptional Costs

0.7

3.1

-

-

-

Surplus of the Year

10.6

12.3

9.3

12.1

21.8

Operating Surplus

14.5

23.1

21.7

18.3

18.1

Goodwill Amortisation

7.4

4.3

-

-

-

From the table above, there is a steady increase in turnover. Although there is an improvement in the underlying business over the years, the 2017 turnover was noted a partial offset by low sales of leased properties since they were reduced in number (Docs.anchor.org.uk, 2018). The average number of void properties in the current fiscal year was 25 % lower than the previous facial year, and at the end of this year, they were 99.1 % occupied. The number of tenants on the waiting list for the properties was approximately 14, 0000. Its care home revenue was positively impacted with two acquisitions made in the previous year. Unlike before, including the full year acquisitions impact, the business witnessed a care homes revenue of 180.6 million thus exceeding the retirement housing standing at 153.6 million.  Other activities turnover including leased households was 40.5 million. In 2016 it was 63.8 million hence a reflection of fewer development in 2017 than in 2016. It is important to note that the financial results for the year 2015, 2014 and 2013 were not restated under FRS 201, Accounting Direction 2015 and Housing SORP 2014.

Rental housing was in line with the previous year’s amount. An increase in service charge and rent income was offset due to high costs of operation and increased depreciation charges resulting from capital investment in existing properties. Residential care homes resulted in an operational deficit of 6.7 million, with the existing business giving a surplus of 1.7 million. In 2016, it was 2.1 million and 4.4 respectively, thus an offsetting deficit of 5.3 million from novel care homes which incurred whist as they are constructing their occupancy, and 3.1 million from the businesses back in 2015 (Docs.anchor.org.uk, 2018). Total expenditure on major works reduced from 47.8 million to 39 million. In summary, Anchor Trust’s capital Investment and expenditure on major activities can be tabulated as follow.

Note

Retirement Housing

Residential Care Home

Properties Under Construction

Other Fixed Assets

2017 Total

2016 Total

I&E Planned Maintenance

4.3

10.8

2.7

-

-

31.5

12.5

New Care Home

13.1

-

-

5.2

-

5.2

4.7

 Capital expenditure on offices and equipment

13.9

-

-

-

2.1

2.1

5.5

Capital Expenditure on Existing Properties

13.1

31.6

7.4

-

-

39.9

60.6

Finance leases

-

-

-

-

-

-

10.6

Companies acquired

-

-

-

-

-

-

144.1

Total

42.4

10.1

5.2

2.1

59.8

238.0

Considering Anchor Trust’s profitability, liquidity, and efficiency, the organization is likely to thrive and penetrate new markets. Its profitability ratio can be determined using returns on assets, return on equality, and net interest margin. Precisely, the organization’s return on assets, equality, and net interest margin are as shown below.

Financial Ratio

Formula

Calculation

Output

2017

2016

Return On Assets

(Net Income / Total Assets) 100

9559/758370 =  0.01

23326/768684 =  0.03

Negative

Return On Equality

(Net Income / Equality) 100

9559/ 334 073

23326/ 334 195

Net Interest Margin

Interest Expenses- Interest Income

2 262 – 12 306 = -10044

2562-13784 = -11222

Positive

Current Ratio

Current Assets: Current Liabilities

72.1

55.7

Positive

Acid Ratio

Accounts Receivable + Short-Term Investments + Cash & Cash Equivalents) / Current Liabilities

( 72148+5113+ 44253) / 1008 =  121

(55675+5095+4314)/999.6

=  65

Positive

 When investors look at the above table, they can conclude that the organization can pay off its short-term debts.  The company is viable as it can generate profits from its operations considering its profit margin, return on equality, capital and assets as well as its gross margin ratio. It effectively uses its assets and liabilities to come up with sales and to maximize its returns. By the end of 31st

March 2017, Anchor Trust financial position over the past five years was set as shown below.

2017

2016

2015

2014

2013

Housing Properties at Cost Less Depreciation

668.1

685.6

576.1

537.7

887.7

Goodwill

3.1

10.5

-

0.1

0.1

Investments

1.7

2.3

2.5

3.1

3.4

Social Housing Grant

-

-

-

-

(520.2)

Housing Properties

668.1

685.6

576.1

537.7

322.9

Other Capital Grants

-

-

-

-

(44.6)

Other Tangible Fixed Assets

13.3

14.6

11.3

4.3

2.6

Net Current Assets / Liabilities

72.1

55.7

(3.3)

49.8

92.9

Total Assets – Current Liabilities

758.3

768.7

586.6

595.0

421.9

Evaluation of Budgetary Processes Used by Health and Social Care Organizations

Medium Term expenditure framework, a comprehensive government-wide expenditure plan, is expected to link policies and priorities to allocations within a facial framework. Even though the mid-term budgeting help to connect revenue forecasts, health policy priorities, sectoral allocations, and strengthen the entire credibility and quality of twelve-monthly budget covers.  The government is therefore needed to generate robust forecasts of revenue flows, forward microeconomic conditions, and forward existing and new policies’ costs. 

When involved in budgetary planning, one may influence operational outcomes. Budgeting and Planning involve deciding on reviewing options, strategic goals, and deciding on the best option. Health and social care organization should be then be communicated to team members and be monitored to adhere to the planned budget. Their budgetary system evaluates and examines the adequacy of financial controls within health and social care organizations (Harradine, Prowle, and Lowth, 2011). Fiscal processes should, therefore, provide more than just mere methods of financial controls. They should be strategic, performance oriented, control and empower.

Anchor Trust’s Managerial Decisions Proposal

Evidence-based practices in health care should be embraced. Even though many policymakers and managers encourage caregivers to adopt this process, they are slow in applying the same idea to their practices. There is some evidence that some care issues are widespread in care management as they are in clinical management. Since, culture, business research, and decisions differ, evidence-based practices should be translated to workers and decision makers as opposed to translating them.  However, Anchor’s management should focus on the variety of potentially beneficial interventions considering the recent economic downturn places that exert pressure on health and social care financing services. They should make informed decisions over what they can or cannot fund. They have to distribute scarce resources efficiently and effectively to a wide range of cost-contentment strategies.  Furthermore, they should consider what they have and used the appropriately for profitability.

References

Docs.anchor.org.uk. (2018). AnnualReportandFinancialStatements2017 - AnnualReportandFinancialStatements2017. [Online] Available at: http://docs.anchor.org.uk/AnnualReportandFinancialStatements2017 [Accessed 1 Aug. 2018].

Harradine, D., Prowle, M. and Lowth, M.G., 2011. A method for assessing the effectiveness of NHS budgeting and its application to an NHS Foundation Trust. CIMA Research Executive Summary Series, 17(10), pp.1-9.

Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.