In virtually any healthcare organization, corporate accounting is the custodian and curator of financial data to monitor and manage the organization and drive it forward to new levels of success, but as any controller or CFO of a multi-entity healthcare organization can tell you financial consolidations remain one of the key hurdles. The time-intensive nature of information assembly, validation, and reporting for many accounting groups can sometimes be measured in weeks – rarely just days.
Consolidations are an essential requirement to create a single operational view of the entire organization. Whether it’s a multi-practice clinic, a group of long-term-care providers, a network of hospitals, or a chain of imaging centers, stakeholders want and need to understand various lines and businesses, allocate capital and fund the organization. Consolidation eliminates all inter-group activities and balances to report transactions with external third parties as if the entire group of companies was operating as a single entity. Different legal entities (clinics, diagnostic centers, medical labs, and practices) are created by a parent company for a range of reasons and purposes. Some are legally driven to limit liability exposure, while others are created to optimize the tax profile or through strategically driven initiatives like mergers, and acquisitions.
Consolidations are a staple of accounting of course, but their intensity and complexity have changed as the healthcare industry continues to undergo significant changes. Today, CFOs must contend with factors such as:
- Expansion of facilities and service lines across regions and states.
- The varying and changing nature of accounting rules as regulatory frameworks evolve.
- Emphasis on growing the business through both organic new ventures or by acquiring others.
- Increasing inter-relationships and inter-company activities between entities within the parent company.
The timelines for consolidation are compressing and are driven by factors such as:
- Tighter reporting deadlines and the desire to improve the timeliness and transparency of reporting to stakeholders.
- Transparency of information for industry and government regulators.
- The need for a well-documented and well controlled consolidation process that preserves and enhances financial reporting integrity.
The traditional approach to consolidation, still used by many healthcare organizations, combines old fashioned manual labor, semi-structured processes, and a range of different technologies to bring together data and information. In many healthcare organizations, financial consolidation roughly follows a pattern that comprises the following four steps.
- Step One: The Close. The close follows a detailed calendar with target dates for each business unit to close their books and submit results to the corporate accounting group. Many business units (a particular hospital or specific practice group) need a week or more to close their books, which means the corporate accounting group is unable to start the close until a week or more after the period-end date.
- Step Two: Data Consolidation. Many corporate accounting teams receive results from each business unit through indirect mechanisms such as spreadsheets or by email. Such a process not only requires extensive manual rework to harmonize the various results, but may also be unprotected and out of compliance with HIPPA. The team must then place the data into consolidated accounts that conform to accounting policies and account grouping structures – a painstaking, labor-intensive process.
- Step Three: Goodwill Accountability & Reporting. Some accounting groups set up a consolidation entity inside the financial reporting system to separately house the consolidation and elimination journal entries. However, others rely on a simple spreadsheet for this purpose. Whether it’s journal entries or separate columns and/or rows, the intercompany activities and the investment/equity accounts get eliminated, and the books for any acquisition related balances adjusted.
- Step Four: Financial Reporting Framework. The consolidated accounts are manipulated into a financial reporting framework. This is often the beginning of the last mile of financial reporting.
New Way. New Day.
Today, there is a new way to consolidate: Leveraging leading cloud financial management systems. The characteristics of this type of configuration include four critical differences from other traditional, on-premise solutions. Addressing the challenges of consolidation using a single, cloud-based financial system tool can propel your healthcare organization forward. The benefits of automating the consolidation process include:
- Accelerating the integration of new entities and solutions within your organization. Improved control and opportunities to leverage one financial system across the enterprise to centralize core accounting functions.
- Drill-down insight from the consolidated perspective into each operating entity.
- Greater coordination throughout the closing process between business units and corporate accounting.
- Real-time consolidated results from across the enterprise at any time without waiting for period ends.
More than ever, finance is data-rich, but time-poor. A truly integrated cloud-based financial system can automate the consolidation process, reintroducing quality and trust. Senior healthcare executives can view timely information with confidence, which enhances finance’s credibility and opens the door to new opportunities to add incremental value. Cloud-based financials eliminate the gaps between the consolidation and the data–which has a profound outcome.
Leading cloud-based finance systems also have collaboration and documentation tools built in, such as chat functions and electronic notes that can be documented and attached to relevant accounts and reports. With cloud-based financial management, real-time consolidated financial information becomes available to decision-makers at the push of a button, eliminating the disruption of delays. Cloud financial management systems also bring greater visibility to inter-company transactions among entities. Since the data is housed inside a single system, the elimination and consolidation entries can be automated. Inter-company accounts are automatically reconciled and elimination entries posted to deal with inter-company transactions and balances. This mitigates the risk of missed postings of inter-company transactions on one side or the other…and delivers greater financial insights to busy healthcare organizations today.
With the powerful combination of CompuData and Sage Intacct, today’s healthcare organizations can leverage cloud-based financial management.
Learn more today!