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It has been reported that, in an unusual move, the Department of Health has sent accountancy firms into a sample of 20 NHS organisations to assess the reasonableness of their accounting treatments and the potential impact on the DH’s accounts. Focus areas are said to include 'overly prudent' accounting around deferral of income and third party disputes, and 'unnecessary provisioning' for restructuring. That came with accumulated deficits forecast to exceed £2.5bn, and naturally raised concerns that finance staff might be pressured to change assessments so that, for example, reduced deficits are reported. Add this to the issue, as late as April, of supplementary accounting guidance for the closedown process and the approach does not on the face of it look as timely, transparent and accountable as would normally be expected.
Commentators have pointed out that there is a fine line between an optimistic judgement and an incorrect assumption; or, more crudely still, fudging the figures. And yet there is also a balance to be struck here. In the year where there is danger that the NHS breaks the vote, it comes as no surprise that its leaders wish to ensure that no-one is being overly prudent, and that a consistent position is being taken. When aggregated up to national level even small reductions in provisions in a large number of organisations could make a big difference.
Will there be much scope for such adjustments? Clearly the exercise was launched too late for substantive action, but in the past there has been a tendency to take every opportunity to guard against risks in future periods, which would yield scope to assess the accounting judgments differently. However, given the last few years of austerity and strong central messages regarding the importance of the year-end outturn, it is unlikely that organisations have much room for manoeuvre left. And, given the difficult outlook ahead any optimism built in now makes future years even more risky and is therefore likely to be only a very short term measure, calling question on whether any alleged external support would represent a waste of money which could have been better spent.
NHS finance directors will continue, as they always do, to work within accounting rules and professional guidelines. CIPFA will support and encourage the finance profession to keep doing just that. And if there does prove to be inappropriate pressure, remember that, whatever advice the firms may give, the year-end outturns must and will be subject to independent external audit. The Department of Health will hardly wish to suffer the embarrassment of causing the auditors to challenge the accounts.
CIPFA will be following developments closely to check that they don’t amount to an inappropriate second guessing of professional judgement. We will shortly be issuing a statement on this issue. We would therefore be pleased to hear (anonymously if preferred) about any views on the 2015/16 year end process in general and external reviews in particular which have been experienced on the ground.