All grants allocated to healthcare institutions are constricted finances, which are usually outside the operating allocation. Metropolis Health System (MHS) for instance, has been allocated a wellness donation from a recently formed welfare section of a local electronics corporate. The donation run from the onset of the succeeding fiscal year for a period of two years and therefore four medical practitioners, all full-time workers at MHS, two psychiatrists and two registered nurses have been given the responsibility to work on the grant during half of their working time(Baker, Baker, & Dworkin, 2017). The electronics company has gained all legitimate compliances required for the given donations, but because the company is young in dealing with charitable operations, they have not yet given MHS manuals for the grant.
How to handle the issue
In the operation allocation for the upcoming fiscal period, the anticipated monies from the grant should form part of the revenue of MHS. All extra costs incurred while working on the grant should be recorded separately from the operating budget. This is because constricted funds are not supposed to be interfused with daily operating capital as they demand separate reporting and accounting for accountability.
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Since the money received from the grant cannot be incorporated with general operation funds, MHS needs to authorize and keep a different account for the money received from the welfare wing of the electronics company. The separate account should cater to all transactions associated with the grant, including funds received and money used as part of the grant’s costs. This would help to differentiate the grants funds from the rest of the healthcare funds (Baker, Baker, & Dworkin, 2017). Moreover, since the guidance and instructions for the grant transactions have not been accorded to MHS, the managers should patiently wait for the electronics company to present the necessary documents before putting the funds in next fiscal year budget.
Option That Can Be the Solution to the Problem
A separate account is an exclusively operated account owned by an organization to manage a multiple of individual benefits. The separate account may be utilized by organizations seeking to partner with professional funds managers. To efficiently manage funds received from multiple sources, organizations tend to open separate accounts as money from these accounts are not pooled with other organizations’ investments (Baker, Baker, & Dworkin, 2017). Example of funds requiring separate accounts includes donations and grants given to healthcare organizations. The separate accounts help the organization manage its operational finances without funding unnecessary services.
Consolidated accounts involve combined financial statements of an organization and its subsidiaries. In assessing the financial progress of an organization through a consolidated account, all its fiancés, including grants, are compared with the operational costs of the company (Sikka, 2017). All funds received by an organization from different investors are incorporated in the operational budget of the organization together with the organization’s revenues.
Leadership
Leadership is essential in the execution of every operation in an organization. Absence of effective leadership hinders the flow of activities within an organization. In the MHS case, there is inadequate guidance on the use of the grant received (Cipriani, 2014). The electronics company has not yet produced guidelines to MHS on how to use and account for the grant received. The grantor is expected to provide guidance to the grantee on how to operate separate accounts for the funds which the former has not yet corresponded.
How to handle the funds
The problem needs to be dealt with as separate accounting. All health organizations are mandated to operate separate accounting for all restricted funds (Baker, Baker, & Dworkin, 2017). Since many grants received are also restricted, MHS should account for and report the grant from charitable arm separately from the organizational capital. This is necessary as MHS managerial would be able to cater for costs related to the grant separately.
References
Baker, J. J., Baker, R. W., & Dworkin, N. R. (2017). Health care finance. Jones & Bartlett Learning.
Cipriani, G. (2014). Financing the EU Budget: Moving forward or backwards? CEPS Paperback.
Sikka, P. (2017, December). Accounting and taxation: Conjoined twins or separate siblings?. In Accounting forum (Vol. 41, No. 4, pp. 390-405). Taylor & Francis.
