Marx had it that when two opposing interests clash in bloody conflict, something kind of beautiful happens in the dialectical birth of a new, more advanced mode of being: communism, in the case of the capitalist and the proletariat.
And so it is in the world of the foundation trust finance director.
‘The smart kids are now turning to non-current (long-term) provisions’
These past few months they have been sweating blood in a desperate struggle to sign off workable contracts with cash-struck commissioners. Let’s think of these commissioners as the proletariat. Their main interest is to secure the most healthcare for their patients that their allocations allow.
Marching against this interest is Monitor’s proposed new risk assessment framework. This framework − inevitably taking the role of capitalism in our metaphor − is designed to satisfy the regulator’s interests in ensuring financially sustainable providers and avoiding being hauled in front of the public accounts committee.
These competing forces create dilemmas for FTs. On the one hand, commissioners like to moan about the size of the FT’s surplus, citing it as evidence the hospital is surely ripping them off when it expects to be paid for every damn patient it treats, or to get extra cash for doing more work.
Works of beauty
Against this, Monitor’s proposed new risk assessment could require FTs to have bigger cash surpluses, to pass a toughened up liquidity test that disallows counting overdraft facilities as cash-at-the-ready.
‘The real craft is finding worthy causes for provisions which will keep the auditors quiet’
The dialectical moment in all of this is the flourishing of an ever-more advanced set of skills and creativity in the FT finance directorate, which will make forthcoming sets of FT accounts true works of beauty to behold.
The required craft goes beyond the old fashioned “strengthening the balance sheet” manoeuvres of making pre-payments or provisions for next year. Such moves might reduce the reported surplus, but they do nothing to help the liquidity metric as they create a short-term debt that must be settled before liquidity can be measured.
That’s why the smart kids are now turning to non-current (long-term) provisions. These create a convenient charge to operating costs (thereby reducing the reported surplus) but keep cash in the balance sheet without creating an imminent debt that must be paid before liquidity can be measured.
The real craft, however, is finding worthy causes for such provisions which will keep the auditors quiet.
Sally Gainsbury is a news reporter for the Financial Times, email@example.com