The Board is asked to note progress against the current key challenges in relation to the financial performance:

Transcription

1 Agenda item /67 Board Meeting 31 August 2011 SUBJECT: Financial Performance Report for period to 31 July Purpose of the report The purpose of this report is to advise the Board of the financial performance of Healthcare Improvement Scotland as at 31 July Recommendation The Board is asked to: note the financial position of Healthcare Improvement Scotland as at 31 July 2011 note the challenges as outlined under Section 3 below note progress against statutory financial targets note the forward financial challenge including initial proposals to manage this currently being considered by the Executive Team as detailed in Appendix 2 3. Background The Finance Strategy and budget allocation proposals 2011/12 were approved by the Board of Healthcare Improvement Scotland at the meeting held on 27 April The Financial Strategy requires to evidence that Healthcare Improvement Scotland will achieve the following statutory targets: operate within our agreed revenue resource and capital resource limits and meet our cash requirement maximise cash efficiencies to invest in frontline services The Board is required to review progress against the financial targets, ensuring that appropriate arrangements are in place to deliver against organisational objectives and imperatives. The Board is asked to note progress against the current key challenges in relation to the financial performance: Finalising the formal in year budget allocation process with budget holders. This process has now been concluded with all allocated budgets formally signed off by budget holders. Finalising plans to allocate from corporate reserves in line with organisational redesign, strategy development and decision making in relation to new work. There are a number of allocations formally ear marked now within the corporate reserves. The reserves will be subject to continuous review by the Head of Finance to ensure appropriate allocation in year. This will include an assessment of the potential increase in our management costs as a result of the structural changes anticipated later this financial year. Ensuring the clear link with spend and strategy this financial year and across the spending review period. A formal mid year review will be completed based on the September outturn. At this stage budget holders will be required to determine areas for potential disinvestment to allow reallocation of budget to support emerging priorities and to start building plans to deliver against the forward savings challenge in 2012/13 as set out in Appendix 2. File Name: Version: 1.0 Date: Produced by: MMcG Page: 1 of 11 Review Date: None

2 Delivering against planned efficiency savings in 2011/12. The Head of Finance has commenced the development of the business case to support the Shaping our Future Programme. This is critical to support the significant future financial challenge. An initial plan is set out in Appendix Strategic objectives/work programme The resource plans for the organisation are integrated with and underpin the Strategic Plan. Scrutiny of all resource plans, including review of the necessary controls, to ensure that resources are allocated correctly is monitored through both the Executive Team and the Finance and Performance Committee. 5. Measures for improvement The Board will receive a financial report at each meeting. 6. Resource implications No additional resource implications other than those outlined in the Financial Strategy and this progress report. 7. Legal implications The Healthcare Improvement Scotland Board has a legal responsibility to ensure sound financial governance is in place across the organisation. 8. Governance and risk implications Failure to adequately monitor the financial position of the Board and to take appropriate action could result in financial targets set by Scottish Government not being met and would indicate a weakness in the financial governance arrangements. The Board is currently on track to meet its key financial targets as follows: Statutory Target Revenue outturn Capital outturn Efficiency savings Position as at 31 July 2011 Full Forecast Year Risk Assessment* Reference 0.034m surplus Balanced Low Annex 1 Section 2 Balanced Balanced Low Annex 1 Section m Medium Annex 1 Section 6 9. Consultation The Financial Strategy was consulted on through the previous Healthcare Improvement Scotland Transitional Executive and Transitional Governance Groups. It was then approved by the Healthcare Improvement Scotland Board on 27 April Progress against the in-year targets is routinely reviewed by both the Executive Team and the Finance and Performance Committee. 10. Equality & Diversity The Financial Strategy will be subject to an Equality & Diversity impact assessment. 11. Implementation plan, timeline and Lead Officer The Board is assured that Healthcare Improvement Scotland is on track to meet all of its statutory financial targets by the year end. There are challenges within this which will Produced by: MMcG Page: 2 of 11 Review Date: None

3 require close monitoring and active management by all budget holders in year. The Head of Finance will lead on delivery of this work. Dr F M Elliot Chief Executive Margo McGurk Head of Finance Appendix 1: Financial Performance report for the period to 31 July 2011 Appendix 2: Forward Look The Impact of Emerging New Work and the Forward Financial Challenge Produced by: MMcG Page: 3 of 11 Review Date: None

4 Appendix 1 Financial Performance report for the period to 31 July Revenue Resource Limit Outturn The table below gives a summary of the revenue position to 31 July and the forecast year end position. At 31 July there is a small under spend of 0.034m with a forecast balanced position at year end. At 31 July the spend of 5.5m represents 27% of the annual budget 20.3m. A straight line approach to budget phasing would suggest that 33% ( 6.8m) of the budget should have been spent or committed by this date. The actual budget phasing is straight line for elements of cost but not all hence the difference, this is not unusual with elements of cost being incurred and therefore budgeted for at the appropriate time during the financial year. The budget phasing for the year does anticipate that the total budget of 20.3m will be allocated by the year end. The overall risk assessment rating assigned to the delivery of the revenue target is low with no significant issues emerging at this stage. There are however a number of issues arising specifically in relation to the delivery of efficiency savings and the impact of new work which are currently being assessed. The table below gives a summary position at directorate level. Table 1 Summary of Position as at 31 July 2011 Full Year Budget YTD Budget YTD Actuals YTD Variance Underspend / (Overspend) Forecast Year End Underspend / (Overspend) Chief Executive 913, , ,026 (558) 0 Corporate Provisions 1,405,280 56,689 48,541 8,148 0 Guidance & Standards 2,793, , ,822 4,923 0 HEI 923, , ,663 5,828 0 Implementation & Improvement Support 3,627, , ,213 (14,664) 0 Medical Director 449, , , Performance Assessment 1,559, , ,716 (6,612) 0 Performance & Resource Mgt 2,905, , ,863 13,383 0 Property Costs 1,485, , ,667 3,520 0 Scottish Health Council 2,788, , ,289 9,445 0 SMC 1,436, , ,164 10,746 0 Healthcare Improvement Scotland 20,289,048 5,554,290 5,519,989 34, Allocation from Corporate Reserves Within Corporate Provisions there are a number of specific reserves as agreed in the financial strategy approved by the Board in April. There have been a number of formal allocations to date from these reserves and a number of requests which are currently being considered. These reserve funds are non recurring and should only be used to fund non recurring in year cost pressures or, in relation to the Voluntary Redundancy and Severance reserve, to help reduce recurring staffing costs in future years. 3. SGHSCD Revenue Allocation Produced by: MMcG Page: 4 of 11 Review Date: None

5 The total forecast revenue allocation matches the level of budget set at Table 1 and is detailed as follows. Income Analysis - Revenue Resource Limit '000 Local Delivery Plan Submission March 2011 Core Allocation Anticipated Non Recurring & Ear Marked 2367 Total Allocation Confirmed April Increase to Anticipated Non Recurring & Ear Marked 708 Total Allocation Confirmed July SGHSCD Capital Allocation The total forecast capital allocation is detailed as follows. Formal plans have yet to be agreed in relation to the utilisation of the capital resource limit. It is anticipated however that any spending in relation to property and ICT will be closely linked with the strategies currently being finalised in relation to both these areas. The risk assessment rating assigned to the delivery of the capital resource limit target is low with no significant issues emerging at this stage. Income Analysis - Capital Resource Limit '000 Local Delivery Plan Submission March 2011 Elliott House Relocation Minor Works 25 Equipment Minor Acquisitions 50 ICT Minor Acquisitions 100 Intangible Assets Minor Acquisitions 75 Total Allocation Confirmed April Increase to Anticipated Allocation 0 Total Allocation Confirmed July Efficiency Savings As part of the Scottish Government Efficiency Program the Board is required to monitor and report on our Cash Releasing Efficiency Savings (CRES). The target for 2011/12 is 0.906m. The risk assessment rating assigned to the delivery of the efficiency savings target is medium with some risk noted in relation to the staffing savings. We will deliver this target through reductions in spend in the following areas: Produced by: MMcG Page: 5 of 11 Review Date: None

6 Efficiency Savings Plan '000 Local Delivery Plan Submission March 2011 Procurement 156 Staffing 750 Total LDP Savings Confirmed April Increase to Savings 0 Total LDP Savings Confirmed July Staff Savings The Board has now identified and confirmed recurring staff savings of 0.673m with a remaining 0.077m yet to be agreed. Procurement A review has commenced to deliver savings across a number of procurement areas. Progress is being made specifically in relation to spend on consultancy and events delivery and management. The Executive Team anticipates being able to quantify and measure the impact of this work by the mid year. At this stage the Board has yet to achieve the cash releasing target for this financial year. The areas being targeted this financial year are detailed as follows: Category Consultancy/Training Events Travel - Air Stationery Savings Plans Increase use of compeitive tenders, implementing multi-year contacts Utilise national contact with Expotel from Sept 2011 Utilise national contact with Expotel from Jan 2011 (restriction on using it before then) New national contract in place from 1st Sept 6. Information to be published under the Freedom of Information (Scotland) Act 2002 Under the Public Services Reform (Scotland) Act 2010, Healthcare Improvement Scotland must publish a statement of any expenditure it has incurred during the previous financial year in connection with: public relations overseas travel hospitality and entertainment, and external consultancy. A separate paper from the Head of Communications details the information which will be provided in relation to the above. Produced by: MMcG Page: 6 of 11 Review Date: None

7 7. Conclusion The Board is on track to meet all of its statutory financial targets by the year end. There are challenges within this which will require close monitoring and active management by all budget holders in year. This will be overseen by the Executive Team. Produced by: MMcG Page: 7 of 11 Review Date: None

8 Forward Look Appendix 2 This section gives an overview of the impact of new work emerging for the Board and the significant forward financial challenge in terms of the efficiency savings challenge for 2012/ The Impact of New Work A number of potential new areas of work were highlighted in the financial strategy presented to the Board In April. The financial impact of this work is assessed as follows: 2. Caring for Older People In Scotland Plan for Inspection Building on the inspection methodology in relation to HEI the Board has been requested to commence inspection of care services for older people in hospital. This work has commenced and will require additional resources in relation to funding, skills and experience. The Board is developing the inspection process and has submitted a draft financial profile which in the current year indicates additional costs of 0.140m with a recurring cost of 0.270m from 2012/13. The Board is in discussion with SGHSCD in relation to securing funding to support this work; however there is an expectation that the Board will make a contribution to the delivery of this work during 2011/12 by accessing the General Development Reserve. The contribution is likely to be to the order of 0.070m and has been factored into our reserves position. It is key however that the Board secures a formal funding agreement for the remainder of the 2011/12 cost and the recurring cost going into next financial year. 3. Prisoner Healthcare Discussion is continuing in relation to the potential transfer of staff from the Scottish Prison Service. The Board requires to confirm whether the transfer of the staff involved will be required to cover the work transferring to our organisation. The financial strategy makes it very clear that this transfer should only occur where the activity transferring is supported within the Board s strategic plan and where recurring funding is secure and formally agreed between the Justice Department and the Directorates of Health and Social Care. There are a number of risks which require to be considered including; Does the activity transfer fall within the corporate objectives of the Board Is the associated funding recurring Will the funding come with a commitment to fund any potential severance or redundancy costs associated with this staff grouping Will the staff transferring add to the senior management cohort within our organisation, given that the Board has a specific reduction target in this area, how will the Board manage this within the overall savings targets 4. Health Technologies and Knowledge Management Development The Board has recognised a need to review the current levels of support in relation to Health Technologies and Knowledge Management. The Shaping our Future Programme also highlighted the need to ensure that the skills in these areas across Knowledge Management, SIGN, SMC and SHTG are flexible and resilient across the organisation. A recent review was commissioned which makes recommendations in this area and is currently being considered by the Executive Team. The latter refers only to Health Economist and Financial Analyst support. Produced by: MMcG Page: 8 of 11 Review Date: None

9 There is an emerging requirement to strengthen our teams and knowledge management systems in these areas, planning has commenced to advise on the necessary developments required. 5. Patient Safety Initiatives The financial strategy recognises the strategic and ongoing importance of patient safety in NHS Scotland and Healthcare Improvement Scotland s role in this area of work. To ensure the correct resources were in place at this stage for the SPSP (Adult) work, two substantive Patient Safety National Facilitators have been agreed. This is currently being funded by an allocation from the General Development Reserve however a request has been made to SGHSCD to support funding this development. Funding must be secured on a recurrent basis to cover the costs of these posts from 2012/13.Towards the end of this calendar year we will require a more detailed discussion with SGHSCD in relation to the longer term provision of the SPSP Programme and the funding required to support it and the broader safety portfolio e.g. primary care, paediatrics, mental health, maternity etc. 6. Death Certification The financial strategy includes recurring funding and matching recurring expenditure of 1m in relation to Death Certification from 2012/13 onwards. Both the income and expenditure assumptions supporting this work were included in the Local Delivery Plan (LDP). Whilst SGHSCD approved the LDP, the financial plan supporting the LDP has only been agreed for this financial year. Confirmation of the financial plan for 2012/13 onwards will be subject to further scrutiny by SGHSCD as part of the 2012/13 LDP submission. There are a number of risks which require to be considered including; Does the activity transfer fall within the corporate objectives of the Board Is the associated funding recurring It is likely that the staff engaged to deliver this service will add to the senior management cohort within our organisation, given that the Board has a specific reduction target in this area, how will the Board manage this within the overall savings targets 7. Children s Services Scrutiny of Integrated Children s Services Social Care and Social Work Improvement Scotland has been asked to lead on the multi agency scrutiny of integrated children s services and it is likely that the Board will be asked to lead on scrutiny of health care services for children. The scope of this work is as yet unclear however the Board will be liaising with SGHSCD to develop this potential future work stream over the coming months. 8. The Forward Financial Challenge Overview The Board is likely to receive a reduction to allocation in 2012/13 of at least 5% of the recurring allocation from SGHSCD. This will be a significant challenge for the Board to deliver. In 2011/12 the Board received a net reduction to allocation of 4% (1% uplift plus 5% efficiency savings target). This was more manageable in year as a result of the agreed carry forward of the Board underspend from 2010/11. The table below gives a high level indication of the savings challenge the Board will face and is expressed at this stage by indicating the best and worst case scenario. It is important to Produced by: MMcG Page: 9 of 11 Review Date: None

10 note that the figures presented below and the mechanisms suggested in relation to managing through the financial challenge represent a starting point for this discussion. Worst Case Best Case 2012/ /13 Directorate Staffing Costs 13,369,410 13,369,410 Directorate Non Pay Costs (Inc SPSP Technical Partner) 6,090,340 6,090,340 Centrally Managed Expenditure 228, ,883 Total Corporate Reserves 300, ,000 Potential Additional Management Costs 250,000 0 Total Expenditure 20,238,633 19,988,633 Total Income Allocation 18,820,990 18,820,990 Excess of Expenditure Over Predicted Income - Forward savings Challenge -1,417,643-1,167,643 Mechanisms Available to Support the Delivery of the Forward Efficiency Challenge There are a number of mechanisms which are being considered by the Executive Team to support the Board manage through the forward savings challenge whilst continuing to deliver the range of services within available budget. The list below is not exhaustive nor have specific targets been agreed against each mechanism. It is likely however that the proposed solution will be a balanced and measured approach using a mix of all mechanisms listed below. Reduction in senior management costs Improve on current income allocation assumptions Accommodation cost reduction Legacy work programme exit strategy Reduction in external secondments Reduction in non payroll expenditure Linked to SOF Programme Reduction in organisational headcount Linked to SOF Programme & Organisational Re-structure Application of the Board Voluntary Severance and Redundancy Reserve Executive Team - Review Process The Executive Team will commence a detailed assessment of the mechanisms proposed above and agree the forward plan to ensure the savings challenge is supported with the necessary organisational redesign to support its delivery. Integration with SOF Programme This section represents initial savings target proposals in relation to the improvement programmes agreed within the Shaping our Future Programme (SOF). Following presentation of the SOF outline plan to the Finance and Performance Committee, 3 August 2011, formal targets have been proposed. The following table is an initial assessment of the proposed targets which will now be discussed, reviewed and finalised through the Executive Committee and the SOF Programme Steering Group. Produced by: MMcG Page: 10 of 11 Review Date: None

11 Shaping Our Future Programme - Indicative Savings Targets 2012/13 Centralised project management office/front Door 250,000 Administrative Support Redesign 100,000 Redesign Support Services 300,000 Non Pay Expenditure (Consultancy and Events Management & Delivery) 150,000 Total 800,000 It should be noted that this savings profile is lower in total than the original PWC recommendation in terms of the savings potential. This level of saving will support the worst case overall savings challenge. The likelihood is that the final savings challenge will rest somewhere within the range of best and worst case. Should the final savings challenge prove to be closer to the best case there will be savings achieved over and above that required to cover the shortfall in funding, this will present an opportunity to reinvest internally where appropriate and/or embark on additional new work. Produced by: MMcG Page: 11 of 11 Review Date: None