Published: 10/02/2005, Volume II5, No. 5942 Page 18 19

Formerly seen as 'quiet' on health, Audit Commission chief executive Steve Bundred has come out fighting. He warns that events in Bradford must serve as a stark and urgent warning - NHS financial management is simply not fit for the harsh commercial environment of the new era

The words are blunt and the message unequivocal: NHS financial systems and the people that run them are 'not fit for purpose' and have just over a year to 'significantly raise their game' if they want to avoid their 'systems collapsing under the weight of the new [payment by results] regime'.

Ensconced in new offices in Millbank and with his name confidently engraved on the chief executive's office door, Audit Commission boss Steve Bundred clearly feels the time has come to carve his name on the health policy top table.

When he spoke to HSJ 12 months ago, shortly after taking up post, Mr Bundred was guarded about health.

But now he seems ready, not just to stand up and be counted, but to push his way to the front of the debate.

'In terms of the totality of the bodies that the commission works with, health is clearly the area where the big risks currently lie in public finances, ' he begins.

He argues that near-meltdown at Bradford Teaching Hospitals trust has forced powerful eyes to open to the catastrophe that could be unleashed by payment by results.

And it is time someone - ie his commission - took thorough and 'urgent' responsibility for getting the NHS in order.

'The lessons for Bradford are lessons for the whole of the NHS, ' says Mr Bundred. 'The papers recently put on Monitor's website tell a clear tale: here was an organisation that was not merely fit for purpose, but one of the very best organisations in the old regime, and was then suddenly and completely overwhelmed by the weight and nature of the changes it encountered: the new contracts for staff, the impact of payment by results and so on.' Mr Bundred believes the adversarial attitudes seen in Bradford's health community will inevitably become widespread under payment by results. Rather than simply issuing a code of conduct, the service and its minders need to face up to the competitive culture and ensure that systems are tough enough.

'The Bradford chief executive was quite right to remind his colleagues that they are a business because That is part of the problem that they've encountered, ' he says, referring to a memo that has caused consternation in some parts of the NHS after it was recently made public (news, page 6, 3 February).

'Foundation trusts can go out of business in a way that hasn't happened in the system hitherto.

'The idea that we need to emphasise is that foundation trusts are very different kinds of animals to NHS trusts. They operate in a commercial environment and therefore the financial management skills that are needed within the trusts need to be of a higher order, ' Mr Bundred warns, adding - in acknowledgement of Monitor chair Bill Moyes' criticism of the commission's 'commercial' expertise (interview, page 22, 25 November) - that 'of course' auditors need to achieve a similar level.

Mr Bundred also warns that the scale of the change will make realising the government's ambition for all trusts to achieve foundation status particularly challenging.

'I think the end-date [for fullfoundation trust roll-out by 2008] is still achievable, but only if the sector responds to the need to significantly raise its game in relation to the quality of financial management and available data.' Mr Bundred says the commission has already kick-started this improvement process by forming a project group, whose members include Mr Moyes and Department of Health finance director Richard Douglas.

The group will work on inspiring guidance and practical support such as training programmes to 'raise the quality of financial management across the sector' which, he says, 'will need to be vastly improved if Bradfords are not going to happen elsewhere'.

The Audit Commission chief executive stresses that it is better skills, not 'more bodies' that are needed. 'We need more accurate costing. We need to be able to drill down into costs associated with particular treatments and activities - the tariff system makes that very important. We also need to have a much better handle on income and collection of income.' He says trusts need access to accurate interim information, and better forecasting than in the past.

'Traditionally what's happened is you get lots of bodies predicting huge overspends, but the reality and the forecasts are hugely different - we need better financial forecasting right across the system.' A former prominent and active member of the Labour Party, Mr Bundred's appointment as head of the Audit Commission just over a year ago was greeted with cries of cronyism from the right.

However, while he obviously is not a critic of the government's flagship reform ('is not the whole process of foundation trusts meant to change the culture of the NHS? is not that the intention? is not it to make the NHS much more business-like, much more cost-conscious and much more customer-focused?'), he is just as critical of the government's own forecasting as he is of the NHS.

In an obvious preview to the findings of a 'state of the NHS nation' joint report with the National Audit Office due out early next month, Mr Bundred singles out the consultant contract as flawed. 'The government may need to look again on whether it got the funding right for the consultant contract. It was one of the issues in Bradford and It is an issue elsewhere also, ' he says.

'Some of the estimates that were being made at one stage about what the costs of the new contract would be have turned out not to be true.' He also, perhaps unsurprisingly, criticises Mr Moyes for swiping at the Audit Commission's core skills in an HSJ interview earlier this year (pages 22-3, 25 November). 'It is worth remembering that the accounts Bill looked at for his assessment process were 2002-03 accounts when Bradford had underspent, and had a history of very high performance.

'So I think with hindsight Bill would probably have said those inferences [that the Audit Commission needs better commercial understanding] were ill-judged.' Asked if he believes the current foundation trust regulator set-up is fit for purpose in the light of the Bradford experience, he says he has seen 'no evidence to persuade him one way or the other'.

Which is in sharp contrast to his fulsome praise for the Healthcare Commission - a body many forecast would be a difficult bedfellow for the Audit Commission.

'I can honestly say that our relationship with the Healthcare Commission is better than our relationship with any of the other bodies we work with.

'It is very good, partly because there is no overlap between us, and because there is absolute clarity about our respective roles.' Whether it is strong enough to withstand his proposals for a central role for the Audit Commission in policing NHS finance under payment by results remains to be seen.

Mr Bundred believes the case for a strong policing role within the new system has been made by Bradford, and that his organisation is best placed to take on that role.

'In every other jurisdiction where there are similar systems to payment by results they have had to find a mechanism for policing it. It will undoubtedly be necessary here too, and We have been talking to the DoH about what sort of arrangements might work best.

'My own view is that it is a job that needs to be done at national level because it needs the ability to provide comparative analysis, but It is up to the DoH to decide.

'They will not be able to avoid for much longer having some system in place to prevent abuse - however unintentional - in the system.'

The CV

December 1995 - January 2003: chief executive, Camden council (previously finance director)

February - August 2003: executive director of the Improvement and Development Agency for local government

September 2003: replaces Sir Andrew Foster as chief executive of the Audit Commission