Press Release - Financial Management in the NHS, NHS (England)
Summarised Accounts 2003‑04
24 June 2005
The challenges facing local NHS bodies are unprecedented and
improved financial management will be essential to meeting them,
according to a study by the National Audit Office and the Audit
Commission. The report, Financial Management in the NHS,
published today, is the first joint study carried out by the NAO
and the Commission.
It shows that in 2003-04 the Department of Health achieved
overall financial balance across the 600 local NHS bodies.
Moreover, most individual NHS bodies achieved financial balance.
However, the number of individual NHS bodies failing to achieve
financial balance increased from 12 to 18 per cent, with more
incurring significant deficits. The position deteriorated
further in 2004-05. Although the Department does not have firm
audited figures, it estimates that, in 2004-05, the NHS in
aggregate incurred a small deficit. But the number of individual
organisations with significant deficits will have further
increased. At least 12 Strategic Health Authorities will have ended
2004-05 with a deficit compared with 7 the previous year.
Those NHS bodies with deficits need to take steps not only to
achieve current financial balance, but also to recover deficits
from previous years. Those NHS bodies with the most severe
financial problems may have to reorganize their services to achieve
this. It is clear, furthermore, that NHS bodies are facing major
financial challenges as a result of a series of substantial reforms
in the NHS: such as the introduction of new contracts of employment
for most NHS staff ; the National Programme for IT in the NHS; and
the implementation of Payment by Results.
The report makes a number of recommendations on how financial
management in the NHS could be improved to help meet these
challenges: ranging from how Boards can improve their financial
understanding and provide more effective challenge to better
budgeting and forecasting.
James Strachan, Chairman of the Audit Commission, said
today:
“Financial management is now a matter of major concern
for the NHS. The Department’s welcome policy of greater
transparency on financial matters means that many of the old
practices which obscured the year-end financial position are no
longer possible. We can now see where the real financial problems
lie which is the first important step on the way to addressing
them. Important reforms like Payment by Results and the new
financial regime for NHS Foundation Trusts are also increasing the
risks and demand first class financial management. All NHS bodies
need to reassess their own financial management arrangements in the
light of this report. We will help in that process. For the first
time our auditors will now score PCT and NHS Trust financial
management arrangements and show clearly what needs to be done to
secure improvement.”
NAO head Sir John Bourn said today:
“2003-04 was a relatively stable year in terms of
challenges facing NHS financial management but, even so, a number
of bodies clearly found it difficult to manage their resources
effectively. The major developments taking place in 2004-05 and
beyond will pose unprecedented challenges with which all bodies in
the NHS will have to deal.
“The NHS faces the considerable task of improving its
financial management to meet the new challenges. Both the NAO and
the Audit Commission are committed to supporting the NHS in this
task.”
Background information
In 2003-04 auditors gave unqualified audit opinions on the truth
and fairness of the accounts of all Strategic Health Authorities,
Primary Care Trusts and NHS Trusts. The NAO’s Comptroller and
Auditor General was therefore able to give an unqualified opinion
on the truth and fairness of the summarised accounts of these
bodies.
Furthermore the appointed auditors gave unqualified opinions on
the regularity of expenditure on all of the Strategic Health
Authorities’ and Primary Care Trusts’ accounts, except for 53
Primary Care Trusts in 2003-04. These qualifications arose
because of 42 breaches of resource limits and 13 instances of other
irregular expenditure (two of these accounts were qualified both
for resource limit breaches and for incurring other irregular
expenditure). However, NAO head, Sir John Bourn, did not qualify
his opinion on the summarised accounts of Primary Care Trusts,
since there are no overall resource limits for the aggregate
expenditure of these organisations. He also gave an unqualified
regularity opinion on the summarised accounts of Strategic Health
Authorities.
Financial performance in 2003-04
The aggregate underspend for all NHS bodies was £72 million
(0.12 per cent of total expenditure) compared with an underspend of
£96 million (0.18 per cent) in 2002-03. 106 NHS bodies (18 per
cent) failed to achieve in-year financial balance, compared with 71
(12 per cent) in 2002-03. 24 per cent of NHS Trusts did not achieve
break-even and 14 per cent of Primary Care Trusts failed to keep
expenditure within their revenue resource limit. In most cases the
deficits were small both in absolute terms and in proportion to
turnover.
A small number of NHS bodies are struggling to manage large
deficits. The number of significant in-year deficits (of over 0.5
per cent of income or available revenue resources) increased to 13
per cent (from 8 per cent in 2002-03). 12 NHS trusts reported a
deficit of over £5 million in 2003-04, compared to seven in
2002-03. Four Primary Care Trusts had revenue resource limit
overspends of over £5 million compared to three in 2002-03. The
number of bodies with significant deficits and the size of those
deficits would have been greater without specific financial support
either from Strategic Health Authorities or centrally.
No Strategic Health Authority reported revenue overspends in
2003-04. However, Strategic Health Authorities have a target of
delivering financial balance in aggregate across the NHS bodies
within their area. Seven Strategic Health Authority areas
reported an aggregate overspend in 2003-04 compared with six in
2002-03.
Key themes for improved financial
management
The NAO and Audit Commission looked at four key financial
management themes and made specific recommendations to aid
improvement aimed at both the Department of Health and individual
NHS bodies.
The four themes are: the role of the board in improving
financial management; improving forecasting of the year-end
position; the earlier production and audit of the annual accounts;
and increasing the transparency of financial reporting.
Financial issues arising in 2004-05 and
beyond
There are a significant number of financial management issues
that NHS bodies faced for the first time in 2004-05.
Some NHS bodies have experienced increased financial pressures
in 2004-05, with auditors currently reporting concerns about
financial standing at 32 per cent of NHS bodies and the NHS as a
whole forecasting a small financial deficit. The Department
is estimating that at least 12 Strategic Health Authority areas
will report an aggregate overspend in 2004-05, compared with seven
Strategic Health Authority areas in 2003-04 and six Strategic
Health Authority areas in 2002-03.
The creation of the first foundation trusts from 1 April 2004
and the need for services to be commissioned from them using
Payment by Results has meant that NHS bodies are having to change
the way they operate financially. They will in particular have to
enhance their risk identification and forecasting skills. These
changes will support the Department’s wider agenda for system
reform which the Department expects will offer the potential for
improved performance.
The introduction of new contracts of employment and the National
Programme for IT are also placing pressure on scarce resources. The
new consultants’ contract caused particular difficulty in 2004-5
and the Department has made extra money available in 2005-6 to meet
the pressures.
Notes for Editors
- National Audit Office NAO press notices and
reports are available from the date of publication on the NAO
website, which is at www.nao.org.uk.
Hard copies can be obtained from The Stationery Office on 0845 702
3474. The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800
staff. He and the NAO are totally independent of
Government. He certifies the accounts of all Government
departments and a wide range of other public sector bodies; and he
has statutory authority to report to Parliament on the economy,
efficiency and effectiveness with which departments and other
bodies have used their resources.
National Audit Office press enquiries:
Barry Lester, Tel: 020 7798 7937
Mobile:
07748 181692
- The Audit Commission
-
The Audit Commission is an independent body responsible for
ensuring that public money is spent economically, efficiently and
effectively, to achieve high quality local and national services
for the public. Our remit covers around 11,000 bodies in England,
which between them spend more than £180 billion of public money
each year. Our work covers local government, health, housing,
community safety and fire and rescue services.
As an independent watchdog, we provide important information on
the quality of public services. As a driving force for improvement
in those services, we provide practical recommendations and spread
best practice. As an independent auditor, we monitor spending to
ensure that public services are good value for money.
For further information about the Audit Commission, visit our
website at http://www.audit-commission.gov.uk/
Audit Commission press enquiries: Nigel Watts, Tel: 020
7166 2129
Mobile: 07813 315538
Press Notice 43/05