This week marked a significant milestone in National Health Service reforms. Yesterday, the deadline passed for the chief executives of trusts and health authorities to designate the managers they want to lead the implementation of the service’s emerging controls assurance framework.
Within the private sector, controls assurance and corporate governance are nothing new. Witness the publication of Nigel Turnbull’s report on corporate governance for directors of listed companies. Risk assessment and internal controls are gaining significance in business.
The public sector has been sluggish to adopt the concept, although the NHS itself is something of a guiding light. Managers are already taking on board the need for controls assurance to manage themselves effectively, meet objectives and protect staff, the public and other stakeholders against all kinds of risk.
Driving this process forward is the NHS Executive, led by Colin Reeves, head of finance and performance. The Executive has placed emphasis on controls assurance and Reeves has billed the move as ‘the final piece of the corporate governance jigsaw’, taking it beyond the Turnbull requirements.
A fundamental component of this is continuous self-assessment to ensure objectives are met and risks are controlled.
The benefits of controls assurance are fivefold. It offers a reduction in exposure to risk by targeting resources more effectively. It also allows improvements in economy, efficiency and effectiveness by reducing the frequency and severity of incidents.
Controls assurance also means health bodies can demonstrate compliance with applicable laws and regulations, which in turn enhances their public reputation. Ultimately, these factors lead to increased public confidence in the quality of service the NHS provides.
To achieve these benefits, the NHS Executive has issued guidance on controls assurance, which requires chief executives of health bodies to nominate ‘accountable officers’ who will report back on matters of internal control.
NHS officials involved in drawing up the new guidelines said nominations for accountable officers could come from FDs rather than chief executives, signalling a shift in governance and monitoring roles to FDs.
‘We are witnessing the start of a transfer of professional expertise into the guts of business and that gives finance people an enormous opportunity,’ one official said.
The move is the natural step stemming from an initiative by Reeves’ predecessor Gordon Greenshields, which he set in motion in 1992.
Under the proposals, FDs would see their responsibilities expanded from the traditional role. Today, only 12% have finance as the lone component of their portfolios. This has, however, boosted FDs’ clout and encouraged them to move into general management.
Training will be increased to boost NHS bodies’ ability to undertake self-assessment of risk. Internal auditors are well-versed in such methods, but the number of internal audit groups in the NHS has already been halved.
So can it work? Reeves believes the proof is in the pudding, referring to the fact that the consolidated NHS accounts have remained unqualified for the past four years.
He claims the number of internal auditors has remained unchanged – personnel have just been reshuffled. ‘The quality and cost effectiveness has improved.
Two years later, around 75% of trusts said the quality of audit had improved,’ he points out.
‘We need people like internal auditors to play a greater role. It is important to be able to respond to the terms of the Turnbull report in the future. Senior auditors have received further training.’
Training and implementation are already happening as a controls assurance statement must accompany every organisation’s 1999/2000 report. Clinical systems will be included in annual reports the following year.
Reeves is urging accountants to ensure their organisations have the systems in place to meet his objectives.
‘The potential for improved management and cost saving are substantial and it is important that finance directors take this initiative seriously in the future,’ Reeves explains.
The NHS is also intending to publish a comprehensive set of standards which will describe the internal controls required to protect the interests of all who come into contact with it.
There is much debate within the NHS as to which personnel should manage implementation. It is not a traditional finance function to review the management and control of non-financial areas, but finance people, and particularly auditors, are the ones who have been trained in the concept of risk management and control. It is they who will inevitably embrace the concept, a message Reeves is keen to emphasise.
‘If finance directors have this responsibility, it is a further example of the need to have an integrated approach to management and realise finance is important, but it is not the only approach to management.’
COMPULSORY ACTION FOR NHS BODIES
As a minimum, NHS trusts and health authorities will be required to:
– ensure the appropriate structures are in place within their organisations for implementing controls assurance, taking account of linkages with clinical governance and, where applicable, NHS risk pooling schemes;
– from October 1999, conduct a baseline self-assessment of compliance with risk management and organisational controls standards;
– formulate a prioritised action plan with clearly assigned responsibilities in the light of the assessment;
– provide an assurance statement within their annual report for 1999/2000; and
– ensure appropriate arrangements are in place to verify the assurance statement.
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