NHS Audit Briefing No 74

Introduction

This report by Audit Scotland provides an overview of the main issues arising from the 2002/03 audits of NHS boards and trusts.

Background

Although auditors found that the expenditure of NHS bodies were in line with legislation and guidance issued by Scottish Ministers and that the key financial systems and controls in place at trusts and NHS boards were generally of a good standard, there were a number of concerns.

A number of trusts experienced wide variances between the actual and budgeted expenditure, indicating that scope remains to improve budgetary control arrangements across NHS bodies.

There were also concerns that the planned integration of NHS boards and trusts is likely to result in a period of uncertainty and upheaval as systems are integrated while staff responsibilities and reporting lines/ accountabilities are bedded in. Audit Scotland state that it is important during this transitional period that senior officers and board members are clearly engaged with baseline budgets so as to give them a clearer understanding of the underlying cost base of the new organisations and to monitor closely outturn against budgets.

Fraud

Despite auditors reporting that general arrangements at trusts and NHS boards for the prevention and detection of fraud appeared to be satisfactory during 2002/03, there were some concerns over FHS (Family Health Service) expenditure for 4 Primary Care Trusts and 7 NHS health boards.

The CSA also estimates that, overall, 3% to 8% of claims from practitioners may be fraudulent, representing some £40million to £100 million per annum. Based on a sample of claims the Counter Fraud Services unit of the CSA estimated that invalid exemptions might have amounted to £12.6million across Scotland in 2002/03.

Budget Problems

The achievement of financial targets (both Capital Resource Limit's (CRLs) and Revenue Resource Limits (RRLs)) remains a challenge for NHS bodies. Auditors identified 3 main tools which enabled RRLs to be met during 2002/03

1. The re-routing of underspends within NHS systems
2. The use of non-recurring funding streams
3. The use of cash releasing efficiency savings

Audit Scotland is concerned that the fact that re-routing is necessary is indicative of the financial pressures which continue to face NHS bodies, however there is still a need to identify and address underlying recurring deficits if financial balance is to be achieved in the foreseeable future.

Auditors estimated that in 2002/03 trusts generated £266 million non-recurring funding, some 4.4% of the total funding of trusts. Audit Scotland is state that while these sources of funding can be used to alleviate in-year deficits, it is important that NHS bodies do not depend on these as a recurring funding source when planning year on year financial balance.

Many NHS bodies have developed financial recovery plans which include the implementation of cash releasing efficiency savings. Audit Scotland feels that it is important that NHS bodies continue to review the way in which services are provided and to seek efficiency savings whenever possible. However the extent to which NHS bodies can continually make efficiency savings is finite without impacting on the quality of service provided. The auditors of several NHS bodies have concerns about the ability to deliver savings plans and thus the viability of financial recovery plans.

Auditors reported that the main cost pressures were the New Deal for junior doctors, nationally agreed pay awards, the introduction of the EU working time directive and increases to employers' National Insurance contributions. Many Primary Care Trusts (PCTs) also experienced significant cost pressures arising from increased GP drugs prescribing.

Audit Scotland is concerned that the Scottish Executive Health Department (SEHD) does not know precisely the implications of future cost pressures. It is clear however that the introduction of new contracts for the employment of consultants and for the provision of General Medical Services together with the recruitment of substantial members of new staff will consume much of the additional funding being made available.

Areas causing concern.

The 2001/02 NHS overview report highlighted that many NHS areas would continue to face financial difficulties and remain dependent on sources of non-recurring income to achieve breakeven. Auditors expressed concerns about the ability of three specific trusts to achieve financial balance in the future. The auditor of Fife NHS Board also raised significant concerns in 2002/03 over the ability of local trusts to meet planned savings targets.

Lothian University Hospitals NHS Trust (LUHT)

LUHT's March 2003 financial plan forecast a cumulative shortfall of nearly £180 million in the five years to 2007/08. As at 30 September 2003, however, LUHT reported an adverse variance of £6.6 million against its budget for 2003/04.

NHS Argyll and Clyde

In 2002/03 without non-recurring income, the recurring operational deficit across NHS Argyll and Clyde could have been as high as £31.4 million. A new financial recovery plan was drawn up which assumed less reliance on non-recurring income, but it did not include any potential costs arising from service reviews. The auditor considers that NHS Argyll and Clyde's cumulative deficit could reach £60–70 million by 2007/08 and may be irrecoverable.

Grampian University Hospitals NHS Trust (GUHT)

In 2002/03, GUHT recorded an excess of expenditure of £5.2 million against its RRL of £260.2 million. GUHT has agreed a plan that will enable it to repay the brokerage to SEHD and recover its accumulated deficit by the end of 2005/06. However, the trust needs to address a number of significant issues and cost pressures if financial recovery is to be achieved.

NHS Fife

NHS Fife recorded an underlying deficit of £9.6million, with their RRL targets only achieved by non-recurring funding.

A review of financial monitoring and recovery plans found several aspects of good financial management but also scope for improvement. NHS Fife has welcomed the auditor's report and is taking action to address its findings.

Further Information

Although this briefing is mainly for information purposes, branches may wish to identify the implications for their area.