Trust in 'negative equity' questions whether it is 'going concern'

Despite concerns that Medway Foundation Trust is in “negative equity”, its board is expected to approve the going concern statement – a standard phrasing included in trusts’ annual accounts – in a private section of today’s board meeting.

Negative equity means the value of assets used to secure loans is less than the outstanding balance on the loans.

The trust’s financial report says it is in “negative equity (£11.2m net liabilities) in month 12 due to the high level of loans [from the Department of Health and Social Care]”, which now stand at £217m. Its deficit at month 12 was £66.4m before sustainability and transformation funding and £62.2m post-STF, £24.3m worse than planned.

In the private sector, “going concern” refers to an organisation’s ability to continue trading in the foreseeable future. However, the DHSC’s group accounting manual links it to the continued intention to fund services.

In the past, it was rare for trusts to be concerned about the going concern assessment. However, in recent years auditors have started to highlight “material uncertainty” which could raise significant doubts about trusts’ ability to continue operating.

NHS finance experts have said there is no prospect of trusts such as Medway being able to repay their loans, and the debts will need to be written off.

Following advice from its auditors, a proposed statement will say the that “is a going concern as per [the DHSC] group accounting manual, identifying the key risks the trust faces given its financial position”.

The trust has rejected its control total for 2018-19 and is planning for a deficit of £46.8m.