Financial failure in NHS institutions reflects a wider malaise, the Audit Commission has warned.

Financial failure in NHS institutions reflects a wider malaise, the Audit Commission has warned.

An analysis of 25 organisations issued with public interest reports in 2005-06 has concluded that financial failure in NHS trusts was 'inseparable' from wider systemic failure: 'Financial problems are often thought to be isolated from other aspects of management but money can be a symbol of wider difficulties,' the report states.

It also attacks the 'inadequate calibre of leadership, particularly in the key posts of chief executive and finance director', as playing a large part in financial failure.

Audit Commission head of health Andy McKeon stressed that the report had not looked at current management in the 25 named trusts but was retrospective: 'This is not a commentary on the existing and current management of these organisations; it is a historical analysis of what has happened to them in the past, and many are on the road to recovery'.

The report also criticises the roles played by boards, with a lack of cohesion and inability to challenge, compounded by a high turnover of board directors.

Audit Commission chief executive Steve Bundred said there were many cases in which it had taken too long to replace board members, causing a 'vacuum'.

The report recommends that the NHS Appointments Commission speeds up appointment of non-executive directors.

Mr Bundred said boards' inability to juggle large projects while managing the day-to-day affairs of their organisations had pushed several into the red.

'These [financially failing] organisations had allowed other major projects to contribute to financial failure and senior managers had taken their eye off the ball and failed to keep management intact,' said Mr Bundred.

He said that boards often had 'other time-consuming business' such as the after-effects of a merger or a large private finance initiative project and warned that organisations needed to take 'appropriate steps' to ensure that managers could cope with the amount of work they were being asked to do.

The report also found that in the organisations reviewed there was a 'tendency for the medical leadership and other senior clinicians to be disengaged from the core of the management processes of the trust'.

'This dislocation, if allowed to continue over a period of years, appears to be a reliable indicator
of impending financial trouble,' it says.

Mr McKeon said strategic health authorities and the Department of Health needed to intervene in failing organisations at an earlier stage.

'SHAs and the DoH are served a monthly diet of financial information about each NHS organisation and in some cases?intervention might have helped rather than coming in at the back end of the process. Support needs to be provided more quickly,' he said.

NHS Confederation chief executive Dr Gill Morgan responded to the report's warning that NHS managers must not be made 'the scapegoat' for financial problems.

'Deficits are in part the result of short-term pressures including national targets and workforce reforms. Longer-term issues, such as major structural problems exposed by changes to accountancy rules, are also to blame,' she commented.