It’s OFFICIAL! June is “Bad Accounting Practices Awareness Month!”
We may not be issued MVI “black ribbons” but bad accounting practices go virtually undetected in many organizations. Follow this link to watch the video, Bad Hospice Accounting Practices, an excerpt from the most recent CFO Program.
THIS SHOULD BE VIEWED BY ALL CEOS!!!!!!! Why? Because the CEO is the REAL CFO as he or she holds the purse strings! Here is a list of what you should as well as what you should NOT be doing.
What you Should and Should NOT be Doing
- No Budgets!!!
- No Allocations!!!
- Use of F9 or other DDE Tool
- Timeliness: Period Closed in 3rd or 4th week of the month
- Accuracy: Competence
- Presentation: Always use the same flow
- Only Issue a Few Reports for Management
- Comprehensive Model Report
- Team/Location Report/IPU Report
- Indirect Report
- Method of Delivery: Email Reports
- Remove Internal Consistency Issues
- Just determine what reports will be used to Manage
The CEO is the driver here. The CEO determines what reports will be used to manage as well as what the profit Standard will be for an organization. Note: If your hospice is exceeding 28% profit margins (without community support) and is ranked in the upper strata of quality, you can disregard this article.
Just listen to the message! The reasoning behind this is SO overwhelming that to discuss it would take up the entire piece! Traditional annual budgeting is MADNESS! Use this time for “productive” work rather than an exercise in futility. Productive work might include creating a highly tuned People Development, compensation or costing system.
No Allocations of Indirect Costs
Allocations in financial statements distract and cause managers to lose focus. Too many CPAs and accountants slept through Cost II in college when the topic of “Responsibility Accounting” was taught. Responsibility Accounting tells us to only show managers costs that are directly traceable to a department or area. That is, the costs they can control. It removes any allocation of other costs (other than Benefits), including G&A or overhead. Face it, allocations do nothing to motivate staff and dilute FOCUS from the costs they can actually impact. Allocations are arbitrary at best. They are inherently FLAWED! This is why MVI recommends that you simply leave your Indirect Costs in their own respective categories and accounts with NO ALLOCATIONS in the General Ledger! Just let them stand, bare naked, for what they are. If you are operating on an NPR basis, you already know what they are. Why slice it up for everyone? Seems like busy work to me…with little ROI. Yes, we do allocate costs when we do costing by diagnosis, payer, patient, clinician, referral source, etc. (All views of cost that most Hospices can get when using MVI practices with relative ease – See our website for step-by-step instructions), but that is because allocations are necessary for this…but they are NOT done in the General Ledger! They are done in special costing applications in the MA (Management Application). Don’t confuse or demotivate people anymore! Lose the allocations in financial statements!
Use F9 or Other Dynamic Data-Exchange Method/Tool
If I catch a CFO or financial person inputting any part of financial statements into an Excel spreadsheet, I want to slap them (in the nicest possible way)! IT IS UNNECESSARY and is a WASTE. This went out a decade and a half ago along with cell phones the size of breadboxes. Use F9. If your CFO does not use F9, the CEO must demand that F9 be utilized to save time and energy for more important work. Your CFO should also be using the Unit Accounts (Dynamics, Solomon) or Memo Accounts (CYMA, SAGE) for your Number of Visits by Discipline, Number of Visit-Hours by Discipline and Numbers of Patient-Days. The easiest way to get these into your accounting system is via a reccurring journal entry with the source data coming from a common revenue and expense report contained in most Patient Management Systems. It might take 5-10 minutes. THEN when you run your financial statements (the Team/Location Report), you will have your financials as well as your operational statistics AS WELL as your MVI Benchmarking! Yes, there is no extra work here because it is work you SHOULD already be doing! Benchmarking should only take minutes!!!!!!! Again, you are using the SAME stats for your clinical reporting as we use when Benchmarking! This should NOT be extra work. If a CFO complains that MVI Benchmarking takes a lot of work or a lot of time, they are working foolishly. As a CEO, demand that it is fixed. Call the MVI office and we’ll get you squared away on this!
Financial statements should be out during the 3rd or 4th week after a monthly close. In all of my years as the CFO for MANY Hospices (large and small) and with the 1,000s of closings we do for Hospices through MVI Partners services, I (we) have not found a single situation where financials can’t be done within this timeframe. As a CEO, if financials are late, you are signaling that this is acceptable behavior. I would not allow it. Timely information is incredibly important for management purposes. In a fast-paced world, a person can’t remember what they were doing very far back. If financial are so late that managers can’t remember what they were doing specifically to get their results, the financial statements lose much of their value. The closer you can link cause and effect, the better a manager can manage. How can you hold people accountable if financials statements are late? You can’t!!! Late financials (more than 4 weeks max) decrease their management value immensely…and the financials, the CFO AND the CEO will be viewed with contempt if the financials have any ramifications at all! A CFO with late financials SHOULD feel some pain for being late…yes pain…
All financial statements are “professional estimates” of cost. Yes, your financial statements are ESTIMATIONS! All financial statements are flawed in some way as there are no absolute measurements. In fact, let’s say it like this, “all financial statements are wrong” to some degree because they inherently contain arbitrary estimations (accruals) and cutoffs. Payroll is a good example as most organizations don’t stop paying exactly at 11:59pm on the last day of the month. With this said, we should not be dismayed. We should accept these “flawed statements” and USE THEM (as long as the “flaws” are reasonable and are minimized to the extent practical). When I train people, I make it known that financial statements, and all other reports as well, are flawed statements, but that they are the best we have…and, yes, you will be paid and judged upon these flawed statements. I do not give people room to “weenie-out” by saying “the reports aren’t right.”
The SAME formats and categories should be used in all financial statements. This simplifies the education of everyone at a Hospice. Every financial report should follow a similar pattern unless there is a situation where such presentation would not give management optimal focus. This means that your management and board financials would be very similar IF NOT THE SAME.
Use Few Reports
We do NOT recommend issuing individual or departmental financial reports. This is yet another area of WASTE! We recommend that a Hospice use relatively few reports. We recommend an overall financial report (the Comprehensive Model Report – F9 Report) that displays EVERYONE’S performance (all clinical teams and support departments) in a single report. We also add the names of the individuals that lead each area (See Examples). This becomes the “Wall of Fame or Shame.” We want a transparent organization where performance is public. In addition, we recommend clinical team reports that show each team, side-by-side, for comparison purposes. This is the Team/Location Report in the MVI world. The Team/Location Report (an F9 report) would include not only financial performance but would also include key operational statistics such as Computed Caseloads, Average Visits Per Patient Per Week, Number of Visits, Number of Visit Hours, Average Visit Duration…all by discipline. Basically the SAME information that is computed in the MVI Benchmarking Application is used also for clinical management reporting. There is no wasted effort here. IF all departments and clinical teams are receiving individual reports, you are wasting a lot of time and are not getting the full benefit from the power of peer pressure to perform. We also recommend the Indirect Report that shows every Indirect area on a few sheets of paper!
MVI does NOT recommend that every department or area receive an “individual” financial report. To the degree possible, put all areas side-by-side to simplify reporting and induce peer pressure (Accountability) to perform.
Here are the Reports:
- Comprehensive Model Report
- Team/Location Report/IPU Report
- Indirect Report
- Best Board Income Statement
(These F9 Report Templates are available to all MVI Network clients.)
Method of Delivery
Financial reports should be emailed to each manager when they are complete. This is about customer service. A Finance department lives to serve other areas and departments. We want department heads and clinical leaders to be happy with how they are served by Indirect departments. It is not good enough to “put the reports on the H: Drive” and be done with it. Make it EASY for people to get their financials. Email them!
Internal Consistency Issues
Since the inception of relational databases, different reports with similar information contain “differences” – meaning that “the reports don’t agree” when they come from the same system. Virtually every Hospice I have ever seen has this situation! Why is this so? There are a few reasons. The fact that each report is a different query and therefore renders a different result is the most common reason. Each report is giving exactly what is being asked for in the query, right or wrong. The other reason may be a data-corruption issue or some other serious thing. Normally, it is the prior of these two explanations…or it could be a combination of both! Normally the biggest culprit is the Patient Management System. Why does this impact the financial statements? Because your financial statements should contain the essential operational statistics, Number of Visits by Discipline, Number of Visit-Hours by Discipline and Numbers of Patient-Days. If these are NOT in your clinical financial statements, you don’t have very good reports as they are NEEDED to calculate Computed Caseloads by Discipline, Average Visits Per Patient Per Week by Discipline, Average Visit Durations by Discipline, Average Visit-Hours Per Patient Per Week by Discipline, etc. – you know, the same stats in the MVI Benchmarking Application that you need to actually manage a Hospice well!
So what is the solution for internal consistency issues? PICK YOUR REPORT and make it THE REPORT, your GOLD STANDARD report that you will use to manage with. Yes, simply choose the reports that you will use to measure performance and even compensate people…even if the reports are flawed! Say to your folks “These are the reports that we use to manage” and people will alter their behavior to improve their performance on those specific reports…if you have Accountability. If Accountability is not strong, your reports have little value and may even be meaningless…
Enough is Enough…
I think that is enough for now. The question is whether or not you, as the CEO, have had enough to demand the financial statements you need to manage a highly profitable Hospice? Remove the hindrance! Again, the CEO is the REAL CFO… The CEO is the primary influencer of effective and profitable operations. The CEO ultimately owns all performance! Now you have a list to use to get your financials in shape. Lean on MVI as we have unlimited support for Network clients. So many CFOs already get this…but many don’t. It is the CEO’s job to lead these initiatives in all cases. I may not be the most popular guy for this type of straight talk…but it needs to be said…
Serving from a place of Love for All ~ Andrew