Hole in one

NOEL PLUMRIDGE on auditors' scrutiny shortcomings

'In the future, good housekeeping will not be sufficient, ' begins the new Audit Commission report on NHS financial management. It then offers, to concentrate the mind, examples of lacklustre housekeeping from the NHS's recent past. Names are changed to protect the innocent, although case study nine ('financial failure', the trust that amassed an out-turn deficit of£44.3m in 2002-03) does seem oddly familiar from other recent Audit Commission material, and from signs along the M4.

The report also records auditors' anxiety at the financial stability of local delivery plans, and judges 64 per cent of trusts to be either 'weak' or 'fairly weak' on the key issue of financial stability.

('Fairly weak' is defined as 'a high risk of required savings not being achieved' and 'uncertainty about the availability of funds to support local delivery plan trajectories': big contributory factors to that£44.3m financial hole at, um, case study nine. ) And remember, that is before we move into the heightened risk and uncertainty, challenge and opportunity of the 2005-06 financial reforms.

The commission's position is complex. It prides itself on its independence from government.

It is naturally driven by the values of the accounting profession. Its comments are based on standards of stewardship, probity, prudence and achieving sound value for money.And it is also, in practice, an integral part of the broader public sector establishment in England and Wales.One need not look here for radical critiques of policy: the emphasis is on implementation, not design.

Closeness to officialdom makes for an interesting read at times. I was curious, for instance, about what the current view on private finance initiatives and publicprivate partnerships might be, given mounting alarm among trusts with existing PFI commitments that now find themselves with an inflexible longterm cost structure incompatible with the national tariff.

How, then, to tread a fine line that avoids alienating government and is acceptable to the audit firms, yet recognises the risks? Safer to say nothing?

Well, the Audit Commission report advises that: 'NHS bodies entering into PFI schemes find that considerable demands are placed on all aspects of their financial management, from the costing of activities in the business case to the complex accounting arrangements.'

Full stop. It is true, of course, but it is hardly adventurous analysis.

The report is stronger on finding weaknesses in the here and now than on proposing routes to radical improvement.

Arguably, this is a proper focus for auditors. The word 'audit', after all, is derived from hearing: hearing (and judging) explanations of what actually happened, not listening to plans for a brighter future.

Auditors are traditionally, and a little unkindly, compared with those soldiers whose job it is to search the field after the battle - and bayonet the wounded.

Yes, there is plenty of sound advice on what constitutes good practice in financial management. There is a solid section on how to improve, covering the need to plan ahead, budgeting and budget monitoring, reporting and Treasury management. Little to take issue with there.

But there is little that is new either and, crucially, the analysis of why most trusts deviate from the straight and narrow path to financial salvation is lacking.

Two examples, each of them significant: first, the role of boards. There is a well-written section on board reporting, listing the various pieces of financial information that boards should receive and the style in which they should be reported.

It is always a safe recommendation to insist that the trust board should receive a regular report on an item. It is rather like choosing Microsoft software: as decisions go, it is unlikely to shorten your career.

And who would deny the board its information on the better payment practice code, the forecast balance sheet for the end of next year, or whatever it deems important?

But what about data overload, short attention spans and competing priorities for board time? And that is before a mischievous finance director decides to bury that contentious piece of information in paragraph 44 of appendix C. Or, better still in a complex spreadsheet that only three directors will even bother to print and bring to the meeting.

Of course these things should not happen, but they do because our board members are (mainly) human. So if at 'case study nine' there was no challenge to the downward financial spiral, the key question is: why not?

The second example of why trusts deviate from the straight and narrow relates to the skills needed by finance staff in the future. The list of challenges - payment by results, patient choice, pay reform, programme budgeting - is indeed breathtaking, and the skill-set required of future finance professionals is daunting. The commission is absolutely right to highlight this. But which of the skills required in the future were not required in the past? Better understanding of resource utilisation? Better knowledge of cost make-up?

What is it about our traditional ways of working that prevent finance staff from being 'adaptable, proactive and fully equipped to deal with the financial management challenges ahead'? If, indeed, they are not.

Boards and finance departments are generally doing their best, so when lots of us fail it is likely to be something to do with the system in which we are working rather than our personal weaknesses.

If we are going to achieve firstclass financial management in the NHS, we will need to understand why good people and good organisations sometimes fall short of it and how cultures that seem to encourage mediocre performance can be put right.

Good housekeeping may not be enough, but it would be a start.

Noel Plumridge is a former NHS finance director and a monthly columnist for HSJ. noelplumridge@aol. com