Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60-79)


16 OCTOBER 2006

  Q60  Sarah McCarthy-Fry: So, it is not the SHA that has required this money coming in from the trust?

  Mr Nicholson: I am sure that the SHAs have played a significant role in pulling all of this together—that is their job. However, it is not their money; it is the PCTs' money.

  Q61  Sarah McCarthy-Fry: Do the SHAs have any funding of their own?

  Mr Nicholson: They have a base funding for their running costs, and a series of national budgets are in place, mainly around the work force.

  Q62  Sarah McCarthy-Fry: Could they use that money to bail people out?

  Mr Nicholson: I hope that they do not use any of that money to bail people out. At the moment, if we allocate money to an organisation, it is done on the basis of a repayable loan.

  Q63  Sarah McCarthy-Fry: I am trying to get back to the role of the SHA, because presumably in that case my hospital trust can turn to the SHA and say, "No; you are not having it." Can it do that or not?

  Mr Nicholson: Yes; I suppose it could, but trusts are accountable to the SHA. Having been an SHA chief executive for three and a half years, I know that you have to persuade the organisations of the requirements and the benefits of using this money across the patch as a whole. In my experience, I have never found an organisation that has refused after being given that set of arguments.

  Q64  Sarah McCarthy-Fry: Let us move on to a different point. On 11 October, The Guardian had an article about hospitals being declared weak. The Healthcare Commission apparently felt the need to use "`lie-detection software' to analyse the trusts' own assessments of performance and found 42% embroidered the truth and gave misleading accounts." Do you recognise that?

  Mr Nicholson: This was the self-assessment that was done. The survey that the Healthcare Commission did was not random, and it did not pick out a random group. It picked out those whose self-assessment looked rather odd when set against some of the other figures that it had, and it found that among that very small group there were some problems.

  Q65  Sarah McCarthy-Fry: Is it a requirement for trusts' finance directors to be qualified accountants?

    Mr Nicholson: Yes.

  Q66  Sarah McCarthy-Fry: And are they all qualified accountants?

    Mr Douglas: I think that there may be one in the countryside who is not. I will have to check that, but it is a requirement for them to be qualified accountants. That has been the case since the early 1990s. I think that a dispensation was made for one person, who had been in office since before that time. I could check that for the Committee. It is definitely no more than one.[4]

  Q67  Sarah McCarthy-Fry: I was interested in the point you were making about the difference between audited and unaudited accounts. Is there a culture of internal audit within trusts?

  Mr Nicholson: Yes.

  Q68  Sarah McCarthy-Fry: Do you monitor that internal audit?

  Mr Douglas: We do not monitor the internal audit from the centre. We do not have any performance management across internal audit regimes. We know that they have internal audit teams in place, and if there were real problems with weaknesses in internal audit, the Audit Commission would draw it to our attention and we would intervene at that point. We do not directly performance manage that.

  Q69  Sarah McCarthy-Fry: Has the Audit Commission drawn your attention to any weaknesses in the internal audit?

  Mr Douglas: In a few places, it has. We would then have discussions with the strategic health authority's finance directors.[5]

  Q70  Sarah McCarthy-Fry: You gave three reasons for possible differences in 2004-05—the calculation of creditors and the capitalisation of assets were two. Are the trusts required to do what one might call "a hard close" at the end of each month, and is that what is causing the problem? If so, would there be a requirement for them to do a six monthly hard close, as if they were producing a set of audited accounts, and would that help you to see the problem earlier?

  Mr Douglas: At the moment, no, they are not required to do that. We need to move pretty quickly to closes that are at least quarterly for NHS organisations, partly to meet the timetable to deliver early resource accounts and also, more importantly, to ensure that organisations are on top of their money. Some do close in such a way, but there is not a requirement across the system.

  Q71  Sarah McCarthy-Fry: Would it be your role to ensure that that was done or the Audit Commission's?

  Mr Douglas: It should be our role. We should stipulate that requirement.

  Q72  Sarah McCarthy-Fry: What sort of processes do you have in place to get this sort of financial health check information from the trusts to you at the centre?

  Mr Douglas: We get monthly monitoring information from every trust and PCT in the country. Although it is not based on a hard close from accounts, we broadly get their income and expenditure account sent to us every month. That is quality assured by the strategic health authority finance directors on our behalf. We can then carry out analysis around that data, raise questions and follow that up with performance management conversations, if we need to.

  Q73  Sarah McCarthy-Fry: I want to move on to the cash balances that were referred to in the NAO Report. There were some dangers that trusts were not holding enough cash to meet their short-term requirements. Do you put a requirement on trusts that they must keep a certain percentage of their cash available, and how do you calculate what that percentage should be?

  Mr Douglas: We do not place a requirement on trusts to keep a certain percentage. It would be quite difficult to say for each organisation what that percentage should be. We monitor what is happening with the cash so that if organisations are getting into cash difficulties, we can arrange for short-term movements of funds to help to deal with those difficulties.

  Q74  Sarah McCarthy-Fry: Do you not think that given the problems with deficits and cash counting, it might be a good idea—just in the short term—to put some of those disciplines in place, so that that culture becomes part of everyday thinking in the national health service?

  Mr Douglas: I think there is a need for some changes in cash management in the organisation. We have moved from a system that was almost purely cash-based six or seven years ago to one that focuses a lot more on expenditure overall rather than just cash. I think that some people have lost their way a little on cash. From this year, we will start to provide a system of formal cash loans across the system, which formalises a lot of what were just gentlemen's agreements. That places cash discipline on people. Some of the targets impose a degree of cash discipline. We have targets around creditor payment periods, so that you can identify pretty quickly if an organisation is getting into cash difficulties through any slippage in the creditor payment periods.

  Q75  Sarah McCarthy-Fry: That was what I was going to come on to. You would not want them to go down the route of preserving their cash by not paying their suppliers, because presumably a lot of suppliers are also in the public sector.

  Mr Douglas: Absolutely not. Some of this would switch the problem to elsewhere in the sector, and some would switch it to elsewhere in the public sector. Even if it was not the public sector, we do not want people to push their problems on to external suppliers.

  Q76  Greg Clark: Mr Nicholson, can we clear one thing up? We know that some of these deficits have resulted in ward and sometimes hospital closures. There is a report in The Times today that says that the chances of a community hospital being closed in a Conservative constituency are seven times higher than in a Labour constituency. Is that true?

  Mr Nicholson: I have absolutely no idea whether that is true or not. I certainly do not look at the service in those sorts of terms. There are 150 new PCTs in existence, all working with their trusts, looking at the way in which their services are configured. I would get to see them only if they got to a position where they were about to implement some arrangements or whatever that were in some way contested by the system as a whole. We are certainly improving our management of that kind of knowledge and information, so that we are better in touch with it, but I genuinely have no idea whether that figure is true.

  Q77  Greg Clark: So the PCTs come to you at the final stage?

  Mr Nicholson: Yes.

  Q78  Greg Clark: Have you ever discussed hospital closures with the Department's special advisors?

  Mr Nicholson: No.

  Q79  Greg Clark: Have you been in any meetings in which other Ministers from outside the Department were involved?

  Mr Nicholson: No. I have been in post for five weeks.[6]

4   Note by witness: Yes. All Trust finance directors are appropriately qualified accountants. Back

5   Note by witness: In 2004-05, auditors reported that at 95% of NHS bodies, Internal Audit meet all relevant internal audit standards. Back

6   Note by witness: Neither Sir Ian Carruthers not I have been in discussions about hospital closures with Ministers from outside the Department. Back

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