By Paul Carey-Kent, Policy Manager, CIPFA
The latest position
The Better Care Fund is with us until at least 2020, and with it a major – and relatively new – application of pooled budgets. CIPFA’s main guidance on pooled budgets was last updated pre-BCF, in 2009. Many of the principles discussed in
Pooled Budgets: A Practical Guide for Local Authorities and the National Health Service remain relevant, especially as the BCF operates primarily within the context of the NHS Act 2006.
Nonetheless, it makes sense to issue an update which takes account of the reorganisation of the NHS and the introduction of the BCF in 2015/16. That revision is planned by the summer. Meantime, practical points continue to emerge on how to treat the BCF, which has become, alongside STPs, the primary means of taking forward the Government’s declared intention of facilitating health and social care integration in all localities by 2020.
The accounting issues
The key accounting point is that, as the pooled budget is not an entity in itself, for financial reporting purposes it must be reflected in accounts of the pooling organisations. Exactly how that should be done depends on who controls the related activity, as set out by IFRS 10. The following summarises the likely options: the full range of collaborative arrangements and their differing implications can be found in the in the CIPFA publication
Accounting for Collaboration in Local Government.
There will be individual control if one body (the investor) exercises power over the other body (the investee), is exposed to variable returns from its involvement with the investee (returns may be positive, negative or both), and can potentially use its power over the investee to affect the amount of its returns.
Where there is more than one investor and no one investor can direct the other investee activities without the co-operation of the other investors, then there is no individual control. Joint control may then exist which requires that all the parties, or a group of the parties, must act together to direct the activities that significantly affect the relevant activities: no single party controls the arrangement on its own, and any one of the parties can prevent any of the other parties from controlling the arrangement. It is likely that all parties to a BCF pooled budget agreement will have joint control. However, this is dependent on the exact terms of the signed agreement and the nature of the funding streams covered by the agreement, and should therefore be kept under review on a case by case basis.
A joint arrangement in which the resulting assets and liabilities are held in a separate vehicle can be either a joint venture (which brings separate complications) or a joint operation. As no separate vehicle is created in BCF arrangements, where joint control exists it is classified as a joint operation.
The position can be simply stated thus: as the BCF pooled budget is a joint arrangement solely for the purpose of working together, it is likely that no single body will have power of control over the other parties to the agreement.
The practical consequences
The signed agreement for a BCF pooled budget should set out the nature of the activities that are the subject of the agreement, as well as how the parties intend to operate those activities together. That’s as would be expected, given the policy intention, which is to bring about the integration of health and social care commissioning. This enables each party to identify its share of the assets and liabilities for accounting purposes. Each partner then accounts for its share of income, expenditure, assets liabilities and cash flows in line with the agreement.
To summarise, it is important that all parties have a thorough understanding of the relevant events and transactions, and that the accounting outcome is consistent with the arrangement. If the BCF is set up in the usual way, relevant gross expenditure and income should be reflected in accounts of the pooling organisations, and should not be netted off for reporting purposes. Local authorities, for example, should report the gross and net position for social care, so that spend funded through the BCF can be identified.