• Auditors said land sale by the Royal Free London Foundation Trust should not register in the accounts for 2016-17
  • Decision does not change underlying position but means the trust misses out on incentive payments worth £14m
  • Provider sector position for 2016-17 will also worsen by £47m

A large acute trust which thought it had delivered a £15m surplus has now reported a £46m deficit, after auditors questioned the accounting treatment of a major land sale.

Auditors judged the benefits from a land sale by the Royal Free London Foundation Trust should register in the trust accounts for 2017-18 rather than 2016-17.

Chase Farm Hospital

Royal Free Hospital NHS Foundation Trust

Source: Christine Matthews

The trust sold Chase Farm Hospital to its charity arm for £50m

The decision does not change the trust’s underlying performance but it does mean £14m of expected sustainability and transformation fund payments will not be received.

The decision will have added £47m to the reported deficit for the overall trust sector last year. NHS Improvement initially said the outturn for 2016-17 would be a £735m deficit, but chief executive Jim Mackey confirmed this week it would in fact total £791m.

The difference is in part due to the Royal Free judgement. The £47m benefit from the land sale will instead be realised in the 2017-18 accounts.

As previously revealed by HSJ, the FT has sold the current Chase Farm Hospital site to its charity arm for £50m.

The trust expected the £47m of “profit” from the land sale would help meet its financial target for 2016-17, and therefore trigger incentive payments from the STF. This would have resulted in a year-end surplus of £15m.

However, PwC, the trust’s auditor, judged that the transaction should register in the 2017-18 accounts. This means the position for last year is £61m worse than expected, due to the land sale profit being removed and the loss of the STF payments.

The lost payments will force the trust to draw down interest bearing loans from the Department of Health so it can continue to pay staff and suppliers.

Caroline Clarke, finance director at the Royal Free, said: “As we closed our accounts our external auditors took a view that the proceeds of the land sale should be accounted for in a different period.

“Whilst this has no impact on our underlying position, it did materially change the reported numbers. There is no doubt that it is a real sale, done at market value, but we were just unable to recognise the revenue from the sale of the land at Chase Farm Hospital in the 2016-17 financial year.”

The trust has still not agreed a financial target for 2017-18 with NHSI so it is unclear whether it will be eligible for the STF this year.

The trust’s latest board report said it had an in-month deficit of £8m in April. If this run rate continued it would result in a year-end deficit of almost £100m.

University College London Hospitals FT has also sold land to its charity arm, for which it booked a £5.7m profit in 2016-17. This has been accepted by auditors, a trust spokeswoman said, and enabled the trust to receive additional STFmoney.

The spokeswoman said two independent valuations were obtained before the sale, and Department of Health guidance was followed in terms of the impact on the balance sheet and income and expenditure position.

Like the Royal Free, the UCLH charity will pursue plans for social housing on the site, which is known as the Middlesex annex.