Auditors query PCT attempts to reduce last year's surplus

Without the accounting changes, the NHS surplus for 2007-08 could have been nearer£3.1bn.

NHS draft accounts report a surplus close to the£1.8bn the Department of Health has set as the maximum it can guarantee the NHS is able to carry forward into 2008-09.

In addition a£500m surplus is expected to be made by foundation trusts.

HSJ examined the draft accounts and detailed finance reports of a sample of 15 primary care trusts - equivalent to 10 per cent of all PCTs and 14 per cent of those forecasting a surplus for the year. They reported surpluses totalling£75m. But a further£41m was reported as "spent" due to accountancy changes and provisions introduced after 2006-07.

If replicated across the NHS these practices would deflate the total surplus by anything between£397m and£1.3bn, depending on how many new measures PCTs used.

The accountancy changes include estimates of the cost of hospital treatment that finished in the last month of the financial year and provisions to pay staff for untaken leave. These two adjustments alone deflated the 15 PCTs' surpluses by 13 per cent. PCTs in the sample also undertook "proactive reviews" of their assets and wrote off at least£6.1m in equipment, bad debts and buildings.

Wandsworth PCT wrote off£0.6m through a review of its equipment plus£1.1m relating to a building under construction. Finance director Paula Swann acknowledged the move meant the PCT was able to keep its surplus down.

She said: "These are things we should be doing anyway. We did take the opportunity to review the balance sheet and we were proactive in undertaking a more detailed exercise to review assets towards the end of the year, which led us to bring forward some write-offs which will free up revenue in later years. All of these actions are appropriate and are reviewed by our auditors."

Healthcare Financial Management Association chair Chris Calkin said accounting for incomplete hospital stays was a "zero-sum game" for the NHS as a whole because spending declared by PCTs would have to be declared as income by hospital trusts.

But both trusts and PCTs were able to reduce surpluses by taking advantage of new guidance to set up a fund for untaken staff leave.

"There has been the opportunity this year to absorb the implication of this non-recurrent hit," Mr Calkin said. He added it was a prudent way to protect future years' spend "by accounting for this now".

Other rule changes included not treating small equipment such as computers as capital. An accountancy source said the apparent impact on PCT accounts would raise concerns among auditors that it was hard to compare financial performance with previous years.

PCT board documents show PCTs and auditors have had lengthy discussions over the appropriate level of their new provisions when preparing draft accounts.

Particular concern has been raised over£14.4m extra set aside by the sample PCTs in the final weeks of 2007-08 to cover changes to the numbers of elderly and disabled people qualifying for NHS help with care costs. PCTs have had to estimate the number of people who might make retrospective claims.

Other unusual features in the accounts include moves to "strengthen the balance sheet", for example doubling the provision for liabilities and charges and grants to non-NHS bodies such as hospices and councils to fund future years' activity.

Advance payments were also made to hospital trusts, but mainly affected only the size of the cash accounts and balance sheets, rather than reported surpluses.