Understanding the financial position, financial forecasts and financial risk

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1 Understanding the financial position, financial forecasts and financial risk Lorraine Bewes, Director of Finance and Information Chelsea and Westminster Hospital NHS Foundation Trust

2 Purpose of session Gaining an understanding of: The financial duties within the NHS and how to monitor performance against them What does a financial forecast tell you? What is financial risk? How is it reported? How can it be mitigated? Questions to be asked when an organisation is predicting a deficit.

3 Financial duties and targets Vary between types of organisation Vary between statutory targets and departmental targets Performance against these should be regularly monitored by the Board

4 Financial duties and targets NEDs should understand your Trust s: Income and expenditure performance Cash position Progress on the capital programme

5 Financial duties and targets The Board finance report should clearly identify performance against these targets. The report should clearly identify the actions required to address any forecast underperformance and the key assumptions and risks within the forecast.

6 Forecasting the financial position Before the start of the year the Board is asked to approve the financial plan for the year (3 years in FTs). This will set out:- The forecast expenditure budgets The forecast income budgets These will be underpinned by detailed activity and capacity plans a priced income plan assumptions about inflationary increases, pay awards, cost improvements business developments

7 Forecasting the Financial Position How? During the year actual income and expenditure is reported against the planned levels on a regular basis. Forecast outturn may be adjusted (up or down) depending on in year performance.

8 Forecasting the Financial Position The forecast is only as good as the quality of the assumptions made by the finance team. The role of the NED is to: challenge and understand assumptions ensure that those used are robust and sound, in particular to challenge if there are significant unexplained changes from previous reports

9 Income & Expenditure What to Look For? Expenditure exceeding budget Income not matching plan assumptions Balance sheet trends - cash - stock - debtors - creditors Recovery plan progress

10 What to Look For? Income & Expenditure Comparison with previous year trends Excessive variances Audit report indications Triangulation with other indicators:- - activity - workforce - waiting lists

11 What to Look For? Cash Insufficient cash to pay bills Failing to meet Better Payment Policy Creditor stretch Minimal debtors

12 What is financial risk? What is it? Exposure to something not planned or foreseen Risk always present What should NEDs focus on? Processes to ensure risk is understood, reported and managed

13 What is the Financial Risk? How to gain assurance:- Financial Controls, Procedures and Internal Control environment -Ensure regular internal audit focus and review -Audit Committee focus -Assurance Framework / Risk register External Audit comment on financial management in Annual Audit letters/ale Track record

14 What is the Financial Risk? How to gain assurance:- Assess competence of Finance Team SHA and other external bodies views e.g.:- - Turnaround team - FT diagnostic/monitor - Care Quality Commission

15 How is financial risk disclosed in Board Reports? Role of Director of Finance to highlight financial risk Types of Risk:- Policy relating to Government/SHA policy on targets, PbR, PBC, Choose & Book, Patient Led NHS, Reorganisation. Organisational relating to individual organisation and its ability to function, perform and deliver Operational right people in right place with right equipment to do right job.

16 How is Financial Risk disclosed in Board reports? Types of Risk cont.:- External - relationships between PCTs / Trusts / SHA / Monitor - relationships with patients / public - relationships with staff Clinical -Quality All have an impact on financial risk Board reports should highlight relevant issues relating to risk.

17 How can financial risk be mitigated? Know the types and extent of risk Good comprehensive plans Recovery plans with contingencies Quality management able to deliver Quality environment to deliver appropriate care

18 Examples of questions for NEDs to ask Understand factors causing the deficit Question the robustness and comprehensiveness of savings / recovery plan Question forecast variances:- Income Activity, Price, Casemix, change in trend Expenditure Pay Expenditure Non Pay Volume, Price Question the proposed actions Expect to see regular / monthly update reports

19 Sources of further information HFMA, Introductory Guide to NHS Finance. HFMA, Introductory Guide to NHS Foundation Trust Finance and Governance. HFMA/Audit Commission, Accounts Guides for Non-Executives.

Annual Audit Letter. Buckinghamshire Hospitals NHS Trust Audit 2008/09 September 2009

Annual Audit Letter. Buckinghamshire Hospitals NHS Trust Audit 2008/09 September 2009 Annual Audit Letter Buckinghamshire Hospitals NHS Trust Audit 2008/09 September 2009 Contents Key messages 3 Financial statements and statement on internal control 7 Use of resources 9 Closing remarks