Examination of Witnesses (Questions 60-79)
NATIONAL HEALTH
SERVICE AND
DEPARTMENT OF
HEALTH
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
| 
