In observing successful senior living organizations nationwide, we’ve noticed many common threads in how they run their businesses. A commonality is the implementation of an efficient and effective internal financial statement review process that includes active participation from key employees throughout the organization. The Association of Certified Fraud Examiners published in its 2016 Annual Report to the Nations that management review ranked only behind tips and internal audit in initially detecting fraud schemes. In addition, timely and effective financial statement review processes improve the accuracy of financial reporting, which is key for stakeholders in making strategic business decisions. We’ve observed and collected the best practices in successful financial statement review processes.
Compare Actual Performance to Budgeted Performance
In successful organizations, management and department heads work together to establish reasonable and challenging budgets based on operational drivers, such as census, patient acuity and long-range strategic plans. The organization’s actual performance should regularly be compared to the budget, and department heads should be held accountable for overages. Some organizations have developed standardized variance reports that automatically trigger department head explanation and future action plans for budget overages beyond a certain threshold. Management should carefully review explanations and action plans, offer guidance and ensure department heads are committed to achieving organizational targets through defined action plans.
Track Key Metrics & Statistics
Organizations should determine what key metrics and statistics are crucial to achieving their long-term strategic goals. Many organizations track key metrics and statistics as part of their financial reporting process and compare their metrics to state and national benchmarks. These organizations proactively identify trends in their performance before their financial health is harmed. Here are some metrics and statistics senior living organizations track and measure:
- Payor mix
- Resource utilization group use
- Activities of daily living scoring
- Average days to collect by payor
- Per patient day expenses (salary and nonsalary)
- Full-time equivalents by department
- Current ratio
- Days of cash on hand
Due to advances in financial reporting software packages, it’s no longer a tedious and time-consuming task to calculate these metrics. Accounting personnel should work with their current software provider to automatically calculate and incorporate these metrics and statistics into financial reporting packets.
Use Common Sense & Ask Key Questions
While generally accepted accounting principles continue to increase in complexity, effective organizations tend to take a common-sense approach to financial statement review. The most important factor in effectively reviewing financial statements is developing a solid understanding of the operational drivers of the business. Individuals should set expectations based on their knowledge of current operations before reviewing financial performance. For example, if management is aware that census has declined and the decrease is mainly in the facility’s Medicare census, it would probably expect declines in net patient service revenue due to the higher margins on Medicare patients. For any areas where financial performance doesn’t meet initial expectations, management should follow up with detailed questions until the team is satisfied with the numbers.
Make It a Priority
Thriving senior living organizations see firsthand the benefits of a robust review process and make it a nonnegotiable part of their financial reporting control environment. These organizations establish deadlines for when financial statements have to be prepared, reviewed and finalized. Management holds its employees accountable to meet these deadlines and makes sure this task is a high priority communicated from the top down.
Connect the Review Process to Business Success
The most successful organizations emphasize how important financial statement review is to their financial health and how improvements in financial performance affect their overall mission. Among others, improved financial health can improve the quality of patient care and outcomes by giving organizations the ability to develop advanced care paths by diagnosis, provide better facilities and offer improved amenities. Better bottom-line results provide organizations with the flexibility to make investments in staffing by providing better benefits, higher pay and superior working environments, which can increase morale.
Having effective financial statement review processes can give your stakeholders confidence and help build trust in your organization. Use this tool monthly to drop in numbers generated from your system that will calculate key metrics and produce graphs to visually monitor trends and performance. Contact your BKD advisor for more detailed information on this tool or how it could be used by your organization.