Technical / Understanding the agreement of balances exercises

01 October 2014

While there are lots of challenges in preparing annual accounts, many accountants point to the agreement of balances exercise as the most arduous. And October is when this exercise gets serious with the month 6 agreement of balances. The October (quarter 2) exercise is the first of the three times the exercise is undertaken in a year. It also takes place in January (quarter 3) and April (year-end).

The exercise is vital to the Department of Health’s job of consolidating all NHS organisations’ accounts into group accounts for the whole NHS. For this to provide a true and fair view of all NHS finances, all transactions and balances between organisations need to be eliminated. Put simply, if a trust says it has been paid £x by a commissioner, there should be a matching payment in the commissioner’s accounts to that provider. Similarly, if a trust is expecting payment from a commissioner, there should be a matching payable in the commissioner’s accounts. This way, the NHS avoids double counting or misrepresentation of the true financial position.

The aim is to support the consolidation process, but there are local benefits too, as the exercise should provide assurances to local bodies about their financial position. Equally, it should help identify disputes at an early stage.

It sounds a simple process but proves technically difficult and time-consuming each year. The HFMA’s Agreement of balances guide, updated in January 2014, cites many anecdotal reasons for this complexity: substantial numbers of transactions between organisations for which there are no formal contracts; too many invoices raised late in the year; and differences in accounting treatments among organisations, which can cause difficulties, particularly concerning the recharges of staff and other costs.

The quarter 2 and year-end exercises focus just on balances (payables and receivables) between bodies. The quarter 3 exercise also includes income and expenditure, on the basis that there is more time in January and positions shouldn’t change too much in the final quarter.

The Department, Monitor and NHS England classify mismatches into two categories:

Net – these are genuine differences where organisations disagree about the amount owed. Guidance suggests CCGs should use provider body numbers, but this doesn’t always work. There is a column in the returns for disputes, but it can only be used in specific circumstances.
Gross – these are mismatches in the schedules but which agree in total. So a CCG has put that it owes trust A £x but actually owes it to trust B. Or, more often, trust A has shown the amount due as notified, but the CCG shows it as disputed. Most mismatches fall into this category as there are hundreds of NHS bodies (which don’t stay the same) and each balance could be included in one of four classification columns: notified, disputed, adjustments or accrued.

As the process is so complicated, the guidance is updated and refined each quarter. It is critical that all NHS bodies keep up to date with the guidance and don’t assume the same process can be followed year in year out. This September, the Department confirmed that providers should now send statements to the different sub-entities in NHS England – last year there was simply one statement for the whole of NHS England. So separate statements will be sent to area teams, regional teams, commissioning support units and the NHS England central team.

Although this may increase the levels of mismatches at month 6, the Department says there should be benefits overall – with the process not depending on dissemination of invoices to the correct team. It also believes that queries will be answered more quickly.

Technical support provided by Debbie Paterson, HFMA technical editor

NICE update: Self-test clotting monitor could unblock clinic demand

A number of conditions can result in people having an increased risk of thrombosis and treated with long-term vitamin K antagonist (VKA) therapy. These include atrial fibrillation and heart valve disease. Thrombosis is the formation of a blood clot inside a blood vessel, obstructing the flow of blood through the circulatory system. Antagonists of vitamin K are anticoagulants that work to prevent the clotting of blood and warfarin is the anticoagulant normally used in these cases. Atrial fibrillation (AF) is the most common heart arrhythmia, affecting about 800,000 people in the UK. People with AF are five to six times more at risk of stroke – 12,500 strokes are directly attributable to AF every year. Treatment with warfarin reduces this risk by 50%-70%.

Despite its effectiveness, warfarin treatment has to be monitored by blood testing for the international normalised ratio (INR), a measure of how long it takes blood to clot.

In diagnostics guidance (DG14), published in September, NICE recommended the use of point-of-care test the CoaguChek XS system to monitor the clotting tendency. Intended for people on long-term VKA therapy, the system comprises a meter and test strips that can analyse a blood sample to calculate the prothrombin time and the INR.

INR monitoring is usually managed in primary care, with some clinics in secondary care offered in hospital. People attending local anticoagulant clinics may be able to use Coaguchek. In primary care, the device costs about £300, with training costs of £90 and £180 for self-testing and self- management respectively. The recurring costs are £230 and £130. The cost impact can’t be estimated nationally as uptake varies between areas. However, there are recognised benefits from using the system. Self-monitoring allows more frequent INR monitoring, so more appropriate dosage of oral anticoagulants. This can reduce rates of stroke or major haemorrhages and future treatment. Self-monitoring may also reduce demand for anti-coagulation clinics.

Stephen Brookfield is senior costing analyst at NICE

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