Auditing NHS Accounts

The Auditor’s Role in NHS Value for Money

Session Overview

• VFM responsibilities – NHS trusts and CCGs

• Auditors’ role in VFM

• How auditors meet their responsibilities

• VFM auditor reporting for 2013/14

• Auditor reporting 2014/15 and beyond

Responsibilities of NHS trusts and CCGs

• Under 14Q of the NHS Act 2006 Act:– each CCG must exercise its functions effectively, efficiently and

economically

• Under the terms of their Accountable Officer memorandum, NHS trust chief executives must ensure:– value for money is achieved from the resources available to the

trust

NHS bodies provide assurance to key stakeholders on their arrangements through key governance documents:

– Annual Report– Governance Statement

Auditors’ value for money responsibility is set out in Section 5(1) of the Audit Commission Act 1998 which requires…

“…an auditor shall by examination of accounts and otherwise…satisfy himself that the body whose accounts are being audited have made proper arrangements for securing economy, efficiency, and effectiveness in its use of resources.”

The focus is on the audited body’s arrangements, not achievement of value for money.

Proper Arrangements

Financial planning

Understanding cost drivers

Financial reporting

Data and information

Good governance

Workforce planning

Asset management

Internal controls

Use of natural resources

Commissioning & procurement

VFM Criteria

• NHS trusts, and CCGs from 2014/15:Specified reporting criteria for the auditor’s conclusion on arrangements to secure VFM:

The organisation has proper arrangements in place for securing financial resilience.

The organisation has proper arrangements for challenging how it secures economy, efficiency and effectiveness.

Focus of the reporting criteria:The organisation has robust systems and processes to manage financial risks and opportunities effectively, and to secure a stable financial position that enables it to continue to operate for the foreseeable future.

The organisation is prioritising its resources within tighter budgets, for example by achieving cost reductions and by improving efficiency and productivity.

VFM Opinions

• Auditors at NHS trusts, and CCGs from 2014/15, may issue three types of VFM arrangements conclusion:

– Unqualified – the auditor is satisfied that the body has made proper arrangements

– Non-standard VFM arrangements conclusions:• Qualified ‘except for’• Adverse

VFM Results 2013/14 – NHS trusts

• 37 out of 98 NHS trusts had non-standard VFM conclusions (2012/13: 26)

• 10 were adverse (2012/13: 6)• 34 of the 37 related to financial resilience (2012/13: 25)

8

7

2

3

17

27

0 5 10 15 20 25 30

Both criteria 2012/13

Both criteria 2013/14

Economy, efficiencyand effectiveness

2012/13

Economy, efficiencyand effectiveness

2013/14

Financial resilience2012/13

Financial resilience2013/14

VFM Results 2013/14 – NHS trusts

• Arrangements for economy, efficiency, and effectiveness are not such a major issue for NHS trusts

• The main reasons for the financial resilience qualifications include:

– NHS trusts failing to meet their statutory breakeven duty for 2013/14;

– NHS trusts setting deficit budgets for 2014/15;– NHS trusts failing to achieve Cost Improvement Programme

targets; and– reliance on cash support from DH for NHS trusts’ operational

activity.

VFM Results 2013/14 – CCGs

• First year of CCG operation• Auditors concluded there were matters to report

at 38 out of 211 CCGs (18 per cent):

• Financial resilience was the main issue

Forward look (1)

• Rising demand and cost pressures from a growing and ageing population increasing financial pressures

• Rise in planned deficits in the acute sector for 2014/15 - increasing to £773m

• Challenges in achieving QIPP / CIPs• Challenges in identifying new opportunities for

income generation

Forward look (2)

• Further mergers within the trust sector?• CCG reconfiguration?• Increased use of pooled budgets same

sector/cross sector• Impact of the general election?

The arrangements for local public audit are changing…

• Local Audit and Accountability Act 2014– Establishes a new local public audit framework– The Commission will close on 31 March 2015– Key functions will pass to other bodies:

• NAO will be responsible for publishing the Code(s) of Audit Practice

– Bodies to appoint their own auditors from 2017 (or 2020 if existing contracts extended)

• VFM will remain a responsibility for NHS bodies – auditors will continue to examine arrangements