Concern over NHS financial management

The financial management capacity of most primary care trusts - the organisations that now control three-quarters of NHS funds - is inadequate to meet the challenges they face, the public spending watchdog has warned.

In a report on financial management in the NHS, published today, the Audit Commission says that "overall, the basics of financial management are at most NHS bodies and provide effective financial control".

But it warns that, based on current performance, some NHS bodies will struggle to meet the challenges thrown up by the government's NHS reforms, such as patient choice and the "payment by results" scheme where hospitals are paid according to the number of patients they treat.

It adds that there have been "a small number of significant failures in stewardship and financial control", highlighting the ?44m deficit run up by North Bristol trust last year.

Auditors reported concerns about the financial element of local delivery plans at more than 60% of both primary care trusts (PCTs) and NHS trusts. This "casts doubt on NHS bodies' ability to deliver the services they had planned", the commission said.

The report highlights the problems facing PCTs, saying: "The current financial management capacity of most PCTs is inadequate to meet the challenges they face."

It says auditors had expressed concern about inadequate financial staffing and management capacity in more than one-third of PCTs, along with over a fifth of strategic health authorities and 14% of trusts. About a half of all PCTs and SHAs had filed poor quality and late accounts in 2002-03.

Top-ranking hospital trusts in line for foundation status are also warned against complacency.

"Even those in line to receive foundation status may find that their current approach to financial management needs to improve," the report says.

The Audit Commission's managing director for health, Andy McKeon, said: "The NHS is going through an unprecedented period of change, with significant devolution of responsibility to frontline organisations and billions of pounds of new funding being invested over the next few years.

"Modernisation is demanding excellence from the NHS and PCTs in particular are feeling the strain. It is essential that these relatively new bodies quickly develop the financial management capacity necessary to operate in this new financial environment, and that they are able not only to cope with, but make the best of, pay modernisation and the new system of payment by results."

A chapter of the report outlining the current state of NHS financial management lists a catalogue of concerns raised by auditors, including "the view that exists in some NHS bodies that central government targets are in direct competition with the achievement of financial balance" - a reference to the pressure some NHS managers feel to meet waiting list targets regardless of cost.

In particular, there is "insufficient prioritisation of funding to support organisational aims and objectives", the report says. The clash between activity targets and financial planning is repeatedly highlighted, with "underdeveloped integration of financial and service planning" and "a lack of awareness among service managers of the financial implications of their actions".

The report also points to a "lack of focus" on financial management during periods of restructuring and a reduction in the quality of financial management information as a result of the introduction of shared financial service organisations.

Auditors have also raised concerns about the brokerage system used to bail out trusts in financial trouble. The report warns: "The re-allocation of funding around a health economy can mask underlying financial problems within an individual body and undermines sound financial management."

Nigel Edwards, policy director for managers' organisation the NHS Confederation, said: "This report confirms difficulties we were already aware of. PCTs are especially stretched, and even without the added problem of a shortage of qualified staff for dealing with financial issues, they have been handed a massive financial agenda, so consideration needs to be given to the scale of the challenge facing them." He added: "There are some possible steps to ease this position, such as better investment in training for the future and a greater sharing of resources between PCTs, but in reality there are no simple solutions to this complex problem facing the NHS."

A Department of Health spokesman said: "All NHS trusts and PCTs have been asked to plan for and achieve financial balance in 2003-04. The year end position is still being finalised but we expect the majority of organisations and the NHS as a whole to achieve this.

"If a NHS trust incurs a deficit it is required to produce a robust recovery plan in agreement with their managing strategic health authority. This must identify the cause and extent of the financial problem and the measures planned to address it."