Comment / Reading the signs

Difficulties in comparing financial performance across different organisations will boost the importance of benchmarking 

Recent progress by the NHS and its finance function has been tracked by the Audit Commission’s auditors’ local evaluation (ALE) assessments. Since a low of 2005/06 when nearly 40% of organisations were rated weak, there has been yearly improvement.

The 115 authorised FTs give us further evidence of improvement, the rigorous assessment to which they are subjected adding to the financial rigour.

And so to this year’s assessments. We should perhaps have expected further improvement, given 2008/09’s surplus of £2.3bn across trusts, PCTs and FTs. For trusts this is mirrored in their latest ALE results. Some 93% (116 trusts) met or exceeded minimum standards, with nearly 70% performing well (level 3) or strongly (level 4) despite ‘better performing’ trusts moving to foundation status.

But for PCTs there is a more complicated message. This year ALE has been replaced for them by use of resources (UOR) – described by the Audit Commission as a ‘more demanding assessment’. Even so, PCT results were described as a ‘good result’.

While including three separate assessment criteria (finances; governing arrangements; and management of assets and people), most finance managers will be looking at the managing finances theme. This score will feed into the annual health check as the quality of financial management score. In this theme, just 53% of PCTs (80) scored above minimum, with 46% (70) only meeting the minimum.

The difficulty comes in making comparisons. The Audit Commission warns against comparing UOR for PCTs either with trusts’ scores under ALE this year or with PCTs’ own ALE scores in previous years. This would be impossible anyway, given the lack of an overall UOR score for PCTs, but the same is true if you confine analysis to managing the finances. This is a new assessment and straight comparisons with different assessment regimes are inappropriate.

The picture is further complicated by foundation trusts. Their financial assessment under the health check is a direct read across from Monitor’s risk rating, where the focus is mainly on cash and EBITDA rather than systems and financial governance.

All this creates a system where it has become virtually impossible to compare performance between different types of NHS organisation. The value, arguably, is in the detail – comparing how bodies might improve reporting or planning. But when the Care Quality Commission produces its health check of NHS organisations, all this complexity will be reduced to one word, with organisations’ quality of financial management classed as excellent, good, fair or weak. At this point, the granularity of the individual assessments is lost. Will commentators and the media acknowledge real changes in the scoring mechanism or different bases for assessment?

Now, more than ever, NHS organisations must ensure their financial systems and governance are robust. If assessment systems can’t fully compare organisations, we run the risk of missing real problems or focusing on wrong issues.

The time is right to focus on benchmarking financial performance and systems, particularly as spending constraints will create a renewed focus on back office services. Finance departments will have to demonstrate how they add value against a background of constrained resources. If they can’t, greater outsourcing cannot be ruled out.

We must therefore take the initiative and show how, as finance professionals, we drive forward governance, improve performance, deliver value and contribute to sustainable organisations.