Mr. A, thank you for your time and interest in the position. I noticed on your resume that you have been a senior financial executive at your company for several years now. What exactly do you believe a full-time workweek resembles at Stanford Health Care? Do you anticipate being able to meet your new responsibilities?
Compared to my current responsibilities, the position of CFO will entail some areas and responsibilities which I have less experience with, however, from a general standpoint I am experienced in what the industry would consider being the critical functions of the CFO. For example, I’m responsible for managing our healthcare finance, and I direct investment activities, develop strategies, and produce financial reports among other things (IFAC, 2013). It is my responsibility to plan for my organization’s long-term financial goals. The chief responsibilities of a CFO are similar to mine in the sense that financial reporting and planning, record-keeping, and financial risk management are all areas in which I have the experience, although not on the scale of a CFO for a healthcare institution (IFAC, 2013).
I believe if I were to be accepted to this position that my current workweek requirements would expand, of course, and that I would be expected to put more effort into a workweek closer to an 80-hour commitment than my current 40 to 60-hour commitment. A typical workday will most likely include spending up to an hour or more at the start overseeing the accounting staff, perhaps an hour after that focusing on answering emails and phone calls in order to follow up on matters that need my attention. The next hour will likely be dedicated to cash management, specifically cash flow planning, and then the next will likely be spent on account analysis and reconciliations. The rest of the day would involve recommending and documenting procedure and process changes, setting up strategizing and planning sessions with a client’s CEO or COO, managing our accounts receivable and collection calls, and then resolving any accounting or reporting disputes or answering questions. At times, I expect to also be required to perform monthly closings as well as monthly, quarterly or annual regulatory responses, working with filings and taxes, and managing or developing the annual budget.
Describe a time in which you identified a problem and evaluated your options before picking a solution. Tell me, was the solution effective or ineffective, and if not, how would you do things differently at Stanford?
Accounting today isn’t just about crunching numbers, and in my position, I’ve encountered possibly more personnel-related issues than process-oriented issues. For example, technology and particularly the increased use of AI has taken over some of the responsibilities like repeatable tasks—payroll, tax form prep, etc.—but this doesn’t mean that financial analysts or executives can neglect to diversify their skills. I once encountered a problem in which I identified that certain members of the accounting staff were working less efficiently than others, and it was due to having fewer skills such as financial forecasting and risk analysis. Not everyone gains these skills in university, and many need to know how to leverage analytical tools to provide this information; it is critical that we do not simply allow AI to replace our jobs but rather that we use technology to increase our own value (Thomson, 2018). Rather than address each of the individuals directly and risk alienating or embarrassing the staff, I decided to create a series of training sessions that would educate and re-educate the staff on the functions of risk analysis and forecasting as well as the appropriate steps to acquiring the necessary information from our existing accounting software. In the end, our team was much more capable of using these processes and interpreting and translating the deep data into actionable advice.
If you will, please describe how you would pitch our company in a sales meeting or how you would promote or market the healthcare of Stanford.
Well, first of all, I would highlight the benefits of what Stanford Health Care has to offer rather than simply identifying the features; the key will be to emphasizing the value that Stanford Health Care creates for its consumers, in this case, its patients. The pitch would ideally be conversational and start with a question like a typical elevator pitch, which has proven to be successful. I would use data to support the worth of Stanford Health Care—the value created by its quality of care— and emphasize that more than the ‘selling price’ or equivalent. More specifically, I would construct a presentation that targets the values of the other party and suggests to them how the value created by Stanford can benefit their organization and further their goals, pinpointing how our values align with theirs. It will be very important in the pitch create a falling action or to end the pitch well after the climax; this ensures that the end of the pitch is not abrupt and that the other parties are able to mentally travel back through the incentives and temptations of the ‘midway’ (Sherry, 1988).
The hospital industry is very competitive, and with so many avenues of connecting with people through advertising, social media, and the Internet, attracting patients is much easier than it used to be; but there are new challenges. What is your experience with strategy development, and as CFO how would you employ strategic tactics to attract patients?
With frontrunners like Jirvanna Healthcare, competition is fierce in the healthcare industry, and strategic management is more difficult now than ever because the consumers or patients are becoming more progressive and ‘aware’ (Speziale, 2015). This more demanding user requires that the healthcare strategy target what the organization can do to create value and obtain the best outcomes for them at the lowest costs. Another key strategic move to attract patients is to continue moving from the physician-centered organization to the organization-driven care process (Speziale, 2015). On a service level, the patient-centered care model ensures that the patients are provided quality care, but on the executive level we must pursue an organizational strategy that ensures that every decision drives us further toward our organizational goals—which, for Stanford Health Care, is to provide quality care in an evolving reimbursement landscape. The financial strategy must support organizational objectives by creating budgets that reflect organizational values and goals.
Your prior experience as a senior financial officer has been in the for-profit (FP) sector, and Stanford Health is a non-profit (NP). How would you ensure that the goals of an NP are met from a financial standpoint, as compared to your previous experience working with FP goals?
Although my experience lies in the FP sector, I believe that I am capable of achieving results for the NP sector while using some of the same strategic tactics and skills I’ve acquired in FP experience. Specifically speaking of financial objectives for an NP, I believe that the most crucial difference moving forward will be a need to scrutinize the budgeting plan and forecasting procedures to ensure that the organization is appropriately budgeting based on a realistic expectation of income and expenses. Budgeting for NPs can be difficult because revenue is hard to forecast, but this means that the CFO must have the kind of forecasting and risk analysis skills that I currently possess; in addition to this, the budgeting process must include conducting thorough environmental analyses to determine the competitive and strategic positioning of the organization.
Mr. A. thank you for your interest in the CFO position. As you know, budgeting is critical to maintaining business operations, sustaining efficiency, and ensuring profitability. What would you say is the key to maintaining a successful budget for an NP?
Budgeting is critical to evaluating the organization’s financial health, so there are many steps that must be taken. Some key steps are to design a realistic template for the budget based on contextual expectations and proven data, one that offers a timeline to ensure approval by the fiscal year-end; we absolutely can’t operate on assumptions or else the budget will not adequately take into account the opportunities, threats, and emerging trends that will influence our activities (Johnson & Pamatmat, 2018). We must be able to conduct thorough SWOT and PESTLE analyses to ensure that we are prepared to leverage our strengths and opportunities as well as handle all challenges that our environmental factors will pose. We must also ensure that the organization’s values and priorities are reflected. I would say that perhaps the most important part of a high-level budget is to get the revenue numbers right because this is more difficult to forecast for an NP budget than expenses. When organizing income by source type, it’s critical to evaluate multi-year trends.
What knowledge do you already have about Stanford Health Care’s financial success, our initiatives, or our business strategy and goals?
From what I have learned about Stanford Health Care over the years, your organization is dedicated to compassionate care and is committed to encouraging education. I’ve reviewed your strategic roadmap and from that, I gather that Stanford is chiefly concerned with ensuring accountability in this evolving reimbursement landscape (Rubin, 2019). Specifically, you seem to operate with a lean performance method for strategic development and value stream improvement, among other things; of course, the lean methodology as it is used in healthcare focuses on maximizing value for patients while minimizing waste by eliminating processes that don’t add value to the consumer—in this case, the patient (Pinkney et al., 2016). I believe your success lies in your value stream improvement method, specifically value stream mapping, which identifies value and waste from the consumer standpoint (Pinkney et al., 2016). This ultimately helps you visualize information and physical flows and pinpoint what would create value that attracts patients to your facilities.
Risk management is critical to accomplishing five things: detecting, monitoring, assessing, mitigating, and ultimately, preventing risks. In healthcare, this combines clinical and administrative processes and systems. What is your experience with risk management?
In my current position as a senior financial executive, I am expected to employ risk management strategies to help safeguard not only patient safety and community value, but specifically the organization’s market share, our assets, accreditation, Medicare reimbursement levels, and even brand value. Healthcare risk management is more complex now that it involves many different elements such as cybersecurity, fast-paced medical advancements, and even a changing regulatory and reimbursement climate (NEJM Catalyst, 2018). Financial risk has increasingly shifted from payers to providers due to risk-bearing models such as bundled payments and CMS’s pay-for-performance programs, which means that as hospitals move away from the fee-for-service models this impacts financial performance—because a value-based model is requiring high clinical quality which has financial implications (NEJM Catalyst, 2018). In my current position, some of the most important risk management strategies involve maintaining accurate patient records for prescription purposes to ensure that expired prescriptions are not filled, following up when missing test results are reported, tracking missed appointments and ensuring the appropriate compensation is collected, and ultimately maintaining a procedure of swiftly reporting issues and addressing complaints.
A CFO must work with numerous administrative and even clinical departments, so you will be expected to have more than adequate communication and public speaking or presentation skills. You will have to discuss financial data and strategies with individuals who are not knowledgeable of complex financial information. How will you simplify and explain this information?
In my current position, I mostly work with other financial executives and the accounting staff to perform the necessary functions of financial assessment, planning, and so forth; because of this, I do have less experience working with different administrative and clinical departments where the people I speak with may not understand accounting concepts. To simplify financial statement data, I would focus on presenting the information as visually as possible—specifically utilizing graphs, charts, and diagrams—to depict the value of the financial data. I think that reviewing financial reporting as a strategic matter can change the way in which we discuss financial information with those who do not have knowledge of or experience with sophisticated accounting principles and terminology. Focusing on materiality will be key because this will allow me to draw connections between the size and nature of transactions that were reported within the financial statements (Juma’h, 2009). In this way, I will be able to relate the overall relevance of the information to the organization’s financial and organizational strategy without getting bogged down in the minutiae of accounting terminology.
Stanford Health Care works with multiple third parties that we have contracts with, and CFOs must know how to handle interactions with these subcontractors and vendors. How do you foresee managing third party risk and handling any challenges that arise from working with these subcontractors?
Well, managing third-party risk is essential to creating and protecting value. When a company signs a contract with a third-party vendor, it must follow up and ensure that the subcontractor is meeting its obligations; failing to do so could result in miscommunication, delays, and ultimately a poorer financial outcome for the organization than what was anticipated. Third-party risk management is mostly focused on protecting the organization from losses, but I believe that proactively managing and monitoring third-party risks can achieve other benefits that are vital to sustainability, efficiency, and profitability (Deloitte, 2016). For example, we need to ensure that we have a dedicated risk officer, which I expect Stanford has; if not, one of my first priorities will be to dedicating a risk officer. I would also examine how we are leveraging our three lines of defense—the business unit, governance, and internal auditing—to drive performance.
The exact third-party risk management techniques include regulatory compliance and point solutions, but I think we should consider adopting a broad extended enterprise risk management (EERM) program, one that will emphasize both value creation and value protection (Deloitte, 2016). If our risk management is decentralized, an EERM will resolve some decentralization issues and create value by linking the risk management to various business objectives and risk domains in the extended enterprise. This will reduce many of the challenges of third-part risk, but in addition to managing risk, we must also have a strategy for managing contractor-subcontractor relations. Companies across the country are employing more contractors each year, which brings more risk along with more value. A standardized program such as the EERM I’ve proposed will reduce any undercuts to our risk management, but we must gain more insight as to the third parties’ own risk factors. For example, industry research suggests that many organizations do not know factors such as third party reliance on other organizations or companies, the third party’s ability to recover, or even the use of background checks on third-part personnel (CFO Staff, 2012). These third-party factors can lead to a higher risk, and we would be ill-equipped to manage our own risks without considering our third parties’ risk-related factors.
As you are aware, we have just closed out our books for the 2014 Fiscal Year and conducted audits for FY 2013 and FY 2014. What stuck out to you when you reviewed them?
Although I reviewed the statements just briefly, there were a few things I noted. The first thing was that the assets have increased marginally, with patient accounts receivable significantly increasing from 2013 to 2014; this increased the total current assets by over $100,000. The second thing I noticed was that the total liabilities did not change as drastically as the total assets, which saw more than a $200,000 increase. Another thing I noted was that operating expenses increased more significantly than the operating revenue. Finally, the cash flows from operating and financing activities increased while investing activities have not.
In the FY 2013 and FY 2014 audits, did you notice in those financial statements that there were particular weaknesses? What were they?
Judging from the statements, it suggests that the overall financial health of Stanford Health Care is positive, but this is not completely apparent given the nature of cash flow. For instance, there can be a negative correlation between financial distress and the cash flow from operating activities while there is a positive correlation between financial distress and cash flow from financing; however, evidence hasn’t been able to determine whether cash flow from investing can produce a positive or negative effect (Sayari & Mugan, 2014). This means that while the increased cash flows from operations and financing is a good thing for Stanford Health Care, it is less apparent how the lack of increased investment cash flows is impacting the organization.
Based on the things you noted in the financial statements, how would you go about addressing these issues?
Addressing these issues will involve paying critical attention to the differences in timing between when the cash is collected from consumers—i.e., patients—from the start and when this cash must be paid to various contractors, distributed on the payroll, or funneled in some other way (Stice, Stice, & Stice, 2017). Failing to do so can lead to problems because if there are discrepancies between the numbers this indicates that there is a cash flow issue. This can distract the organization from making the necessary tactical and strategic decisions needed in order to maintain competitiveness and efficient operations.
Often times in auditing, the problems with the results of external or internal auditing often revolve around inadequate controls over financial records, inadequate internal controls, and inadequate accounting procedures, among several other things. Asset valuation, asset ownership, and management presentations are other key issues. How would you mitigate the risks of these errors?
The key auditing issues you’ve described—asset valuation, asset ownership, and management presentations—often reflect that there are problems with engagement management, which indicates that perhaps there is a failure to gather sufficient or competent evidence (Beasley, Carcello, Hermanson, 2001). Although I am not an auditor specifically, I would address these issues by defining and executing a quality control system that creates a culture of excellence, one in which all staff are held to the same standard and required to follow guidelines set by both the institution and the regulatory agencies that set accounting standards. This quality control system would encourage the audit team to follow policies and procedures in place as well as emphasize the importance of audit planning, review, and supervision—all of which are necessary to ensuring that quality audits are conducted and that time, resources, and profit is not lost by needing to conduct repeat audits (Beasley et al., 2001). It would maintain a baseline for the acceptable level of performance that would apply regardless of engagement and firm pressures.
As the CFO, your job will entail ensuring that the company is following proper accounting procedures and monitoring controls. What knowledge or experience do you have in these areas?
As a senior financial executive, I have developed skills in these areas, and I utilize them each day to prepare budgets, conduct financial planning and risk assessment reports as well as to perform other functions. One of the key areas related to auditing in which I have the most experience in is accounts receivables. I have conducted outside research and found that many auditing deficiencies involve confirming accounts receivables, specifically failing to confirm enough, failing to perform additional or alternative procedures when confirmations have not been returned—or returned with material exceptions—as well as problems with confirmation requests (Beasley, Carcello, Hermanson, 2001). Of course, I’m also knowledgeable of accounting procedures and GAAP regulations among other regulatory bodies.
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