FINANCIAL MANAGEMENT Report urges NHS to prepare itself for unprecedented challenges

Published: 30/06/2005, Volume II5, No. 5962 Page 6

NHS organisations are facing 'unprecedented' challenges and will need to 'improve significantly' their financial skills if they are to meet them, the National Audit Office and Audit Commission have warned.

In a joint report, Financial Management in the NHS, the two watchdogs say the NHS as a whole broke even in 2003-04, but the number of organisations in deficit rose 6 per cent on 2002-03, to 18 per cent.

The report says 'the position deteriorated further' last year, with the Department of Health expecting the NHS as a whole to incur a small deficit of£140m, and the number of strategic health authority areas reporting an aggregate overspend rising to 12 from seven the year before.

It is the first time the NHS as a whole has been in the red for four years running. The scale of the problem was predicted by HSJ at the beginning of the year (page 5, 6 January) Audit Commission chair James Strachan said financial management was now a major concern for the NHS and urged all NHS bodies to 'reassess their financial arrangements in the light of this report'.

The watchdogs said they were concerned that trusts incurring significant deficits would find it hard to recover their position, and warned that 'those bodies with the most severe financial problems may have to reorganise their services to achieve this'.

They said the challenges facing the NHS were due to cost pressures such as the introduction of new contracts for staff and Connecting for Health [the national programme for IT], and reforms such as payment by results.

Sir John Bourn, head of the NAO, said that '2003-04 was a relatively stable year in terms of challenges facing NHS financial management, but even so a number of bodies clearly found it difficult to manage their resources effectively'.

'The major developments taking place in 2004-05 and beyond will pose unprecedented challenges. The NHS faces the considerable task of improving its financial management to meet [them].' Mr Strachan said the NHS had seen some organisations experience 'financial failure' in the past year.

He named Mid Yorkshire Hospitals trust, Surrey and Sussex trust, Kensington and Chelsea primary care trust and Shrewsbury and Telford Hospital trust (see box) as examples, and said the NHS had to learn from their 'breakdowns in financial management and governance'.

The Audit Commission will publish a report identifying the factors behind these failures later this year, but Financial Management in the NHS says the role of boards is crucial.

It says all board members 'must be able to understand the financial information presented to them' and its implications for the organisation. It also argues that the NHS needs to improve its financial forecasting and prepare and audit its accounts faster.

In the longer term, it says 'finance staff will need to improve their skills around forecasting and modelling within the new financial regime and develop new commercial finance skills as more NHS trusts are awarded foundation status.'

Shrewsbury and Telford inquiry launched

Shropshire and Staffordshire strategic health authority has launched an independent inquiry into the financial management and governance of Shrewsbury and Telford Hospital trust.

The trust forecast that it would break even until the end of 2004-05, before forecasting a£3m deficit. An investigation by external auditors has shown that its actual deficit is£10.1m.

The inquiry will led by retired NHS chief executive and independent consultant Michael Taylor and Susan Sellers, chair of Countess of Chester Hospital foundation trust.

SHA chief executive Bernard Crump said it would not look at why the trust was in deficit, but at 'the causes of the misreporting' and the trust's financial and governance arrangements.

The trust's deputy chief executive and finance director, Martin Herd, was suspended in May because of concerns about its financial position.