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Financial and non-financial reporting in the health sector

Author: ICAEW Insights

Published: 24 Nov 2022

Legislative delays, new statutory bodies and the introduction of IFRS 16 are all adding to the challenges facing health sector finance teams.

A delay in legislation to establish new Integrated Care Boards (ICBs) to replace Clinical Commissioning Groups (CCGs) in the National Health Service is causing major challenges for healthcare finance teams and auditors.

Scheduled to change on 1 April this year – the start of the NHS’s financial year – policymakers didn’t push through the new legislation until 1 July, resulting in accountants having to compile two different sets of financial accounts for the new ICBs and the old CCGs for 2022/23.

Because the two entities are separate statutory bodies, accountants have had to prepare three-month accounts for the old CCGs and will have to prepare nine-month accounts for the new ICBs.

“From the accountants’ perspective that was a challenge. They put the 2021/22 accounts to bed and had to start again on the three-month set of accounts. That was hard work,” says Debbie Paterson, Senior Technical Manager, Healthcare Financial Management Association (HFMA), the professional body for finance staff in healthcare.

The added complication for NHS accounts is that the different sets of accounts will have to be consolidated together at the Department of Health and Social Care level.

Alison Ring, Director, Public Sector and Taxation, ICAEW, says: “By delaying the introduction of the legislation, the government has created additional work for NHS finance teams and their auditors. Rather than one set of accounts covering the whole year, finance teams will have to prepare a three-month set of accounts for CCGs and a nine-month set of accounts for ICBs, and auditors will have to carry out two audits.”

Add into the mix the fact that the new ICBs do not always directly map the former CCGs. For example, in some instances multiple CCGs came together to form one ICB. And there are a small number of instances where part of a CCG has gone to one ICB, while most of a CCG’s components have been absorbed into a different ICB, “to better align with local authority boundaries”.

The other issue with three-month and nine-month accounts is that it reduces materiality, meaning extra work for the accountants and auditors, Paterson says.

A further challenge for accountants preparing healthcare accounts this year is that they are required to apply accounting standard IFRS 16 Leases into the three-month set of accounts for the CCGs, although Paterson hopes that the experience of applying the leasing financial reporting standard will be useful when all NHS bodies apply the standard to the 2022/23 accounts whether they are nine-month accounts for ICBs or a full year for NHS providers.

“Mostly the finance teams have picked up the leases that they now need to bring on to the balance sheet. They’re happy with or they are going through the process of making the judgments and assessments to bring leases onto the balance sheet. I think the bit that no one has quite got a handle on yet is the forward-looking issues; how we embed this into day-to-day working practices,” Paterson says.

The other big issue is auditing two different sets of accounts. Auditors didn’t have the capacity to audit the three-months set of accounts over the summer because they were auditing local government accounts.

Paterson says: “Getting the Department's accounts audited over the past two years because of COVID has taken longer. The audit has been much more difficult because the longer you get away from the year end the harder it is.”

Most auditors have had to put that set of accounts to one side and aim to complete them before Christmas. This is likely to result in extra adjustments and therefore much more work for the finance teams.

“Until they are audited those accounts aren’t going to stop moving, and that's going to make for a difficult year end this year. They'll have two sets of accounts to do – at least one set of CCG accounts and one set of ICB accounts,” Paterson says.

As for non-financial reporting, the government’s greening commitments apply to the Department but do not apply directly to other NHS bodies as they have to meet the requirements of the greener NHS programme. This means that the Department’s annual report only covers its own emissions rather than the impact of the NHS as a whole.

Paterson says the NHS England estates team are exploring ways the NHS can reduce emissions, but it has yet to become a priority for the finance teams to report on non-financial matters. “Finance staff tend to be good at bringing together numbers and are also the people that understand that you can't just report a number, you need some assurance over it. I think that's where the reporting will probably sit, but I don't think we're there yet.”

Finance teams working in public healthcare have experienced a tumultuous two years under covid, but it appears that there will be little let-up in the next few years as myriad challenges combine to test the teams. Moreover, the NHS is also facing difficulties particularly in hiring auditors. “The pressure on finance teams is a really big issue,” Paterson says. A sentiment that mirrors the challenges that the NHS currently faces operationally, too.

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