The Reluctant Armchair Auditor

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NHS reform and the armchair auditor

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The Health and Social Care Bill provides only a few clues on the detail of audit arrangements for the new GP consortia. Ensuring the scope of the audit of these new organisations includes value for money is welcome news for armchair auditors. The mechanism for appointing auditors after the abolition of the Audit Commission is yet to be announced. It should include an independent appointment process to prevent threats to auditor independence. The reforms will demand more of auditors during their implementation and this is likely to increase costs at least until the new organisations find their feet. That’s likely to be unwelcome news to everyone.

The publication of the gargantuan Health and Social Care Bill (360 odd pages, 12 Parts, 281 clauses and 20 schedules) will spark all sorts of debates about NHS privatisation, costs of reform and alleged broken election promises. What it almost certainly will not do is to generate heated debate about audit arrangements.

Luckily I see that as part of the remit of the Reluctant Armchair Auditor.

It is only right to pen a gargantuan post in response to such a large document.

I am going to focus though on the audit arrangements for the GP commissioning consortia. Around £80 billion of public money will be spent by these organisations so audit is an important issue for every English taxpayer – the devolved governments are of course considering their own reforms.

So what does the Bill say about how these new bodies will be audited? Well you need to rummage through to page 230 (that’s part 2 of schedule 2) to find the following –

Accounts and audits

12 (1) A commissioning consortium must keep proper accounts and proper records in relation to the accounts.

(2) A commissioning consortium must prepare annual accounts in respect of each financial year.

(3) The Board may, with the approval of the Secretary of State, direct a commissioning consortium to prepare accounts in respect of such period or periods as may be specified in the direction.

(4) The Board may, with the approval of the Secretary of State, give directions to a commissioning consortium as to—

(a) the methods and principles according to which its annual or other accounts must be prepared, and

(b) the form and content of such accounts.

(5) The annual accounts and, if the Board so directs, accounts prepared by virtue of sub-paragraph (3) must be audited in accordance with the Audit Commission Act 1998 by an auditor or auditors appointed in accordance with arrangements made by the Board for the purposes of this paragraph.

(6) The Comptroller and Auditor General may examine—

(a) the annual accounts and any records relating to them, and

(b) any report on them by the auditor or auditors.

(7) A commissioning consortium must send its audited annual accounts, and any audited accounts prepared by it by virtue of sub-paragraph (3), to the Board by no later than the date specified in a direction by the Board.

(8) The Board may direct a commissioning consortium to send its unaudited annual accounts, and any unaudited accounts prepared by it by virtue of sub-paragraph (3), to the Board by no later than the date specified in a direction by the Board.

(9) Nothing in this paragraph requires a commissioning consortium to keep accounts or records, or to prepare annual accounts, in respect of anything done by it as trustee.

(10) For the purposes of this paragraph “financial year” includes the period which begins on the day the consortium is established and ends on the following 31 March.

There’s much to interest armchair auditors here particularly the appointment of auditors.

Currently the Audit Commission appoints auditors to PCTs. The words,

‘ … auditor or auditors appointed in accordance with arrangements made by the Board …’

do not clarify whether the Board will arrange to have this done centrally or if consortia will get the freedom to appoint auditors themselves. As I have written before having audit appointments managed at arm’s length from the organisation being audited has been an important principle of the public audit framework here for some time. It’s also a direction being explored by the EU for business in the wake of the crisis in the financial system.

The National Audit Office has published what it calls a Landscape Review of the NHS which clarifies slightly what is planned. This is what its says about audit arrangements for local NHS organisations.

2.37  On 13 August 2010, the Secretary of State for Communities and Local Government announced plans to disband the Audit Commission. This is significant for NHS bodies as many have auditors appointed by the Audit Commission or, in the case of Foundation Trusts who appoint their own auditors, choose to use the Audit Commission’s audit practice. The intention is to have new arrangements in place for auditing England’s local public bodies by 2012-13.

2.38  The Audit Commission’s responsibilities for overseeing and delivering local audit and inspections will stop, as will their research activities. The audit work will move to the private sector. The Audit Commission is responsible for the 2011-12 audit of local public bodies and is expected to close in December 2012. This timetable has yet to be confirmed and depends on the necessary legislation being passed. To help the National Audit Office provide assurance to Parliament on NHS bodies’ use of public money, the Department of Health and the Department for Communities and Local Government are working together with the National Audit Office to develop effective arrangements for independent external audit. These arrangements will need to address both financial and value for money audit within the planned new health structures. (My emphasis)

So the invocation of the Audit Commission Act 1998 in the Bill really does signal that the scope of the audit of GP consortia is to be wider than simply sticking an opinion on the financial statements.

There has been a long-standing convention in policy making around public audit that the taxpayers’ interest requires a wider focus for audit of the spending of taxpayers’ money. Not just that the books are right but that public money has been well spent. That’s a more burdensome form of audit but it’s one familiar to the UK’s public sector. Armchair auditors should welcome the retention of this principle amongst the change.

A wider scope of audit requires auditors to consider the effectiveness of arrangements in key areas such as procurement and commissioning. Private sector organisations working on behalf of consortia may well be subject to scrutiny by auditors at a level they may not have experienced before.

Independent appointment of auditors given all the other change in the system would provide an additional safeguard to taxpayer interests. Those of us who remember GP Fundholding though will recall the tensions created when independent business men and women (GPs) found themselves the object of attention from auditors. This is bound to happen again. Some clinicians may find the burden of public audit unwelcome. Their smart new private sector partners may find it even harder to bear.

The final issue here is around numbers. Any audit requires a minimum amount of time to complete the tasks needed in accordance with professional standards. It’s true there are variations in audit fees and there always will be but there is an irreducible minimum amount of work that needs to be done. Clearly the number of audits will depend on the number of consortia. There is still no news on that front.

The amount of audit work in an engagement is also a function of the auditor’s understanding of the entity being audited and the risks he or she identifies. New organisations working in a new operating environment will almost certainly be viewed as inherently high risk and will need more audit work. That should reduce when the consortia have a track record of good governance and internal control.

So just making the changes raises audit costs that are then compounded by any increase in the number of organisations being audited.

Providing assurance to taxpayers will require significant audit work and that is not work that we armchair pundits can undertake. We simply are not equipped to or resourced to make sound judgements about the value for money of healthcare services. We need suitably qualified and independently minded people to do that on our behalf.

In case you doubt that have a look at this Public Interest Report from an independently appointed auditor about the financial failings of an NHS Trust in the current regime. Would an auditor solely reliant on his or her appointment by the Trust Board and management have written such a report?

Jury’s out on that one I think.


Written by reluctantarmchairauditor

January 21, 2011 at 4:19 pm