NHS board financial governance — Five simple steps towards averting an unanticipated financial crisis has been saved
NHS board financial governance — Five simple steps towards averting an unanticipated financial crisis
Is your organisation ready?
A Deloitte point of view which sets-out five steps, together with a self-assessment, which will enable your board to review the strength of its financial governance and preparedness to avert an unanticipated financial crisis.
- The underlying deficit for the NHS was over £1 billion in 2018/19. These financial pressures are unlikely to ease any time soon as NHS providers grapple with continuing funding constraints, burgeoning costs and unrelenting demand for NHS services.
- Even the strongest boards are susceptible to financial difficulties which could ultimately cast doubt over their long term financial sustainability. However, those with strong financial governance, who closely monitor, pre-empt and actively manage their financial situation, will have the greatest chance of thriving.
- Unfortunately, we have observed several instances where weaknesses in financial governance have led to a financial crisis, surprising unsuspecting board members. Our experience shows that these NHS organisations share many similar characteristics, with the same mistakes made time after time.
- As a result, we have identified five key steps which, if followed, whilst not eliminating the possibility of a financial crisis occurring, can strengthen financial governance and reduce the risk that a board will find itself facing an unexpected financial crisis.
Our key finding
- There should be joint executive accountability for financial performance - All Executive Directors (EDs) have a corporate responsibility for the finances and it is critical that the CEO, with support from the Chair, sets the tone and expectations regarding joint responsibility for the finances. This should include actively encouraging wider ED accountability for financial performance in board, committee and executive forums. Financial training should also be provided to EDs where required. This will promote a culture of joint-accountability and also ensure all EDs have good awareness regarding the financial position.
- Finance should be covered by the full board - It is critical that the quality of verbal and written reports from the finance committee chair are crisp, clear and unambiguous and the finance agenda receives appropriate attention at board meetings (public and private), and board seminars, to provide sufficient visibility to all Non-Executive Directors (NEDs). Specifically, NEDs not sitting on the finance committee should ensure they have access to the monthly finance report, which should be discussed formally in reasonable detail at every board meeting.
- Be prepared to challenge and change board financial reporting - It is critical that financial reports serve the needs of a diverse range of non-financial board members and clearly set-out a concise snapshot of the provider’s financial health, addressing the various points highlighted above. If they do not then board members need to be prepared to challenge and change.
- The board should think underlying position and cash flow - It is critical that one-off earnings adjustments and cash flow management techniques being used are made explicit to the board. This should include ongoing analysis of underlying financial performance and the timeliness of payments to creditors.
- Actively seek ‘soft’ intelligence regarding financial performance - It is imperative that NEDs find opportunities to engage with staff to gain ‘soft intelligence’ regarding pressures within the organisation. This should include general staff engagement activities but also chairs of the audit and finance committees periodically meeting with members of staff from the finance department to gauge sentiment.
While relentless financial pressures have become a fact of life in the NHS, following the five steps in this point of view will strengthen your financial governance and significantly increase the probability that your organisation will successfully identify and manage the problem before it becomes a crisis.
In our experience there is a wide variation in how proactively these steps are followed. The self-assessment will provide you with an indication of how strong your financial governance is and how prepared your board is to pre-empt a looming financial crisis.
Deloitte expert viewpoint
‘We have observed several instances where weaknesses in financial governance have led to a financial crisis, surprising unsuspecting board members. By which point it was too late to tackle the sources of the deficit effectively, and required emergency intervention and support from regulators. It also led to a breakdown in trust amongst board members and dysfunctional boards at a time when they needed to be operating at their best’.