Technical / HFMA year-end survey: looking backwards to look forward

The full report will be published later in September, but there are two main themes emerging.

The first is that the change in the financial regime had a major impact on the preparation and audit of the accounts.

The second is that the difficulties in the audit market that we highlighted in our briefing – The NHS external audit market: current issues and possible solutions – in February remain a problem.

As expected, 2020/21 was a difficult year. In 2019/20, the first lockdown had an impact on the practical arrangements for preparing and auditing the accounts, but had very little effect on the numbers in those accounts.

The whole of the financial regime was completely revised during 2020/21 – not once, but several times – so there were few parts of the accounts that were unaffected.

The role of the national bodies changed as some arrangements, such as the procurement of personal protective equipment (PPE), were centralised. This led to some very specific issues around accounting for centrally procured stock and assets.

If central procurement continues, then the process of agreeing the volume and value of transactions will have to be undertaken on a more frequent basis and cannot be left to the year end.

Block contracts became the order of the day for most of the year. On a positive note, half of those who responded to the survey said that the agreement of balances process was better than previously because of the reduction in transactions.

However, for 12% of those who responded, the process was worse this year than before.

This was mainly due to lack of communication between bodies and difficulties agreeing balances and transactions with NHS England and NHS Improvement. It is clear that the agreement of balances exercise remains a challenging part of the year-end process.

As the financial regime for 2021/22 has not returned to the pre-pandemic normal, there are some lessons that can be learnt.

As noted above, arrangements introduced as emergency measures have become business as usual, so the accounting and reporting arrangements also need to be formalised and not a year-end only exercise.

Transactions between NHS bodies have also changed as a result of the lack of contracts, which means that documentation and assessment of the substance of the transaction become more important. This is likely to continue into 2022 and beyond as system working becomes commonplace.

Another positive from the survey is that the revised guidance, both in the Group accounting manual and in guidance to auditors on going concern, was well received.

However, both commissioners and their auditors noted that further guidance will be needed in 2021/22 to reflect the enactment of the Health and Care Bill.

Given that 2020/21 was the second year that was audited remotely, some lessons had been learnt. But the general consensus is that communication is slower and issues are more difficult to resolve remotely than in person.

One issue that will need to be resolved ahead of 2021/22 year-end is the closedown timetable. NHS bodies are generally in favour of returning to pre-Covid timescales – they see the extension of the timetable as giving auditors more time for additional work as well as taking the attention away from the current financial year.

However, auditors are struggling to meet the additional regulatory requirements, while catching up with the delayed audits in other sectors, particularly local government.

This seems to have been made worse by the lack of interim audits in 2020/21 at some NHS bodies, as well as the introduction of the new value-for-money requirements.

At least in 2021/22, the work on value for money can take place earlier in the year, as the guidance is now available.

Each year is different so, no doubt, there will be fresh issues to contend with in 2021/22. But learning some of the lessons from the previous year may make the process a little less difficult.

Debbie Paterson is the HFMA’s policy and technical manager