Published: 06 October 2008
Audit of NHS Financial Performance
The third annual Auditors’ Local Evaluation (ALE) report from the Audit Commission shows an overall picture of financial improvement for many NHS organisations in 2007/08.
Half of the 302 NHS trusts and primary care trusts (PCTs) assessed in England have performed well or strongly in the way that they have used their resources and only 3% have failed to balance their books. Good financial management means that trusts and PCTs are better placed to improve services for patients.
Scoring explanation: The ALE scores are combined into a single overall score, from 1 to 4:
- 1 Below minimum requirements – inadequate performance
- 2 At minimum requirements – adequate performance
- 3 Consistently above minimum requirements – performing well
- 4 Well above minimum requirements – performing strongly
The ALE process requires auditors to reach scored judgements for five themes:
- financial reporting
- financial management
- financial standing
- internal control
- value for money
Financial performance is known to have a direct impact on the quality of outcomes for patients, and ALE is an important driver of improved financial performance in the NHS locally.
In preparing their evaluations, the answers to five key questions are central to auditors’ judgements on the financial performance of organisations:
- How good are the organisation’s financial accounting and reporting arrangements?
- How well does the organisation plan and manage its finances?
- How well does the organisation safeguard its financial standing?
- How well does the organisation’s internal control environment enable it to manage its significant business risks?
- How good are the organisation’s arrangements for managing and improving value for money?
The 2007/08 report includes examples of notable practice in case studies which show how some NHS bodies are performing well. These are aimed at helping organisations learn from each others successes.
There will be new accounting challenges over the next 18 months as NHS bodies have to complete their accounts earlier and convert to International Financial Reporting Standards, but this year’s ALE shows that two-thirds of bodies are well placed to meet both challenges.
NHS foundation trusts (FTs) are subject to a different regulatory regime.
ALE is not undertaken at FTs due to the different audit arrangements in place for FTs. Instead the Healthcare Commission uses Monitor’s FT’s financial risk rating as the UoR assessment.
Both ALE and the financial risk rating are assessments of how well resources are managed and used, but component parts are different.
Findings from the new evaluation show that:
- 93% of NHS trusts and PCTs met or exceeded minimum standards for their overall use of resources
- The North West Strategic Health Authority area achieved the highest average score overall across England, while those in the Yorkshire and Humber Strategic Health Authority area scored the lowest on average
- London’s performance is the most mixed: it has the highest proportion of NHS bodies performing strongly, but it also has the highest proportion failing to meet minimum standards
- 6 NHS trusts and eight PCTs achieved the overall top score for use of resources in 2007/08
- 20 NHS bodies in England have failed to reach minimum financial standards, of which 12 have failed to meet minimum standards overall in their use of resources in each of the past three years’ evaluations
Michael O’Higgins, Chairman of the Audit Commission, said:
“The improvements in the way that NHS trusts and PCTs have managed their money in the past year are impressive.
Financial management in the health service had been in poor shape, but better use of resources locally has made a difference.
Auditors have shown that many NHS bodies are now responding well to financial challenges and this local evaluation is helping to drive improvement.
However, pockets of real concern remain. Poor financial management can put services for patients at risk.
Patients and the public deserve better from the poor performers, who must learn from the strong performers. And we should be seeing a lot more than only 14 NHS bodies performing strongly in their use of resources”.
Auditors have found many signs of financial improvement in the NHS and the better overall financial performance is especially noteworthy as foundation trusts are not assessed in this evaluation.
This year only one organisation has failed to meet the minimum standards in any of the five use of resources themes compared with four bodies in the previous year.
An outstanding performance in this year’s report is from Bromley PCT, the first NHS body to score a 4 (performing strongly) in all five themes that make up the overall use of resources score.
A new detailed report, Financial Management in the NHS 2007/08, which also examines the financial environment in which NHS bodies were operating in over the most recent financial year, will be published jointly by the Audit Commission and the National Audit Office in November 2008.
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