Briefing / Year-end survey 2023/24

Introduction

In July 2024, the HFMA surveyed its members about the year-end process to see whether there were any lessons that could be learned. The survey was circulated to auditors as well as those preparing the annual report and accounts.

We will use the results of the survey to inform our work programme in 2024/25 as well as to provide feedback to the Department of Health and Social Care (DHSC), NHS England and the National Audit Office (NAO).

Summary of feedback

The survey received 89 (2022/23: 101) responses from NHS bodies and auditors (table 1).

Not all individuals answered every question, and the percentages referred to are percentages of respondents answering the specific question. Some tables may not add up to 100% due to rounding.

As part of the year-end survey, we asked respondents whether they were responding on a personal basis or on behalf of an organisation:

• 46 personal responses (2022/23: 46)
• 13 responses on behalf of their organisation (2022/23: 11)
• 29 responses were a combination of both (2022/23: 37)
• one did not respond to this question.

Our survey focused on the process of producing the annual report and accounts rather than the output. Therefore, the results of this survey do not provide any information on whether deadlines were met, the quality of the annual report and accounts produced or whether the auditor made any report or referral.

The survey revealed the following key points:

• 2023/24 was a relatively straightforward year from a reporting perspective as there were minimal new requirements. Reporting changes affected the annual report, some survey respondents would welcome guidance for those preparing the annual report as they are not usually based in the finance teams.
• The timing of the 2024/25 planning submissions was a particular issue this year as it is usually the same staff that prepare the accounts and the planning returns – the impact on the wellbeing of those staff was mentioned by several respondents.
• Most audits went well but NHS finance teams continue to be concerned about the length of time between submission deadlines for the draft and final accounts. This, coupled with the planning submissions and business as usual, means that the first quarter of the financial year is particularly difficult for financial accountants. Accounting for leases is less of a concern in the second year after the adoption of IFRS 16 but managing leases against the capital departmental expenditure limit is a big concern.

Preparing the annual report and accounts

Guidance and third-party information

Most respondents were satisfied that all, or pretty much all, of the guidance and templates they needed from third parties were available when they needed them (tables 2 and 3). 

Many of the comments related to information that was provided by auditors – including delays to NHS bodies receiving lists of documents to be provided by the NHS body (also known as provided by client or PBC  lists), auditor checklists and resolving issues. 

NHS bodies would always like accounting manuals and accounts templates  earlier. Respondents noted that, in 2023/24, the Group accounting manual (GAM) and NHS FT annual reporting manual (FT ARM) were late which caused problems particularly with the annual report. Respondents commented that the planning guidance being issued in April had a knock on effect on the preparation of the annual report and accounts.

‘It would really help if we can have the accounts template much earlier, it all comes when we are closing down the ledgers and we don't have a huge capacity to be able to deal with everything at one time. We also still struggle to locate all the guidance, we waste time searching for guidance, templates etc as it is not always logically stored.’

Respondents would like to receive allocation information as early as possible – particularly when it must be spent in year.

’Generally, allocations received in March are problematic – not least from a cash flow forecasting perspective but often the allocations are contingent upon the related expenditure being accounted for in the current financial year which isn't always appropriate from an accounting standards perspective.’

Several respondents noted that information from their valuers was late this year. In some cases, they had engaged new valuers which was possibly the reason for the delay.

Some respondents noted that pension information was delayed, particularly where there were queries. 

Issues impacting on the preparation of the accounts

Only one issue affected over half of the survey respondents – the planning requirements for 2024/25 made the preparation of the accounts more difficult for 37 (62%) of respondents. Three respondents said that the planning guidance made the preparation of the accounts easier.

‘Planning - all deadlines should be pulled forward, national assumptions issued before Christmas. This really needs to improve to enable FINAL versions in February, so it doesn't keep creeping into March and April.’

The impact of the planning process on the well-being of finance team members was also picked up later in the survey. Comments included:

‘Late planning submissions and two month ends really impacts the ability of the whole team to complete them, plus business as usual (BAU) and the audit with the same resources – we are not looking after our teams’ wellbeing. Planning needs to be completed by December/January to allow time for the teams to then focus on BAU and year end/ audit.’

‘The elongated annual planning process/submissions clashing with annual accounts audit remains a concern and significantly impacts on stress and wellbeing of key staff.’ 

‘It would be great if you could focus on the year-end process and not be caught up in planning submissions and returns for the following financial year. This creates a lot of pressure and stress on the finance teams.’

As set out in table 3 pension disclosures for senior managers made the preparation of the annual report and accounts more difficult for some. This was reported by 26 (44%) respondents. 

‘NHS Pensions were unable to provide an explanation why the McCloud remedy impacted people in very different ways (even though similar age/ career path). This meant we were unable to articulate this adequately to 'senior managers' and in the remuneration report.’

Agreement of balances

The majority of respondents (44, 75%) reported that the exercise was about the same as last year with only nine (10%) reporting an improvement.

An auditor summed up all of the comments made by respondents:

‘The current operation of the agreement of balances process has a number of key issues:

1. The agreement of balances is of limited value, as many bodies ‘hide’ balances in the ‘bodies outside of government’ column, in order to protect their commercial position. While this has been historically common practice between NHS bodies, 

a. we do not consider this to be appropriate practice between public bodies, or consistent with the Nolan principles of transparency

b. we note in some instances the linkage between consolidation schedules and accounts means that bodies also have misstatements in their related parties notes

c. in some instances, bodies present balances incorrectly in other ways, impacting the financial statements as well.

2. Many bodies do not engage meaningfully on the agreement process, and do not respond to try and resolve differences between entities. From an audit perspective, even when they do, there is typically limited documentation between parties of discussions or resolution. We would recommend having some simple format of agreement between bodies that can be followed for this, clearly setting out any disputes and any agreed actions for the update of the position.’ 

Delegated commissioning

Integrated care boards (ICBs) took on the delegation of pharmaceutical, general ophthalmic services and dentistry (POD) from 1 April 2023 and some took on specialised commissioning from 1 April 2024. We therefore asked some questions to ICBs specifically about this:

• five ICBs noted that POD delegation had introduced new material balances, for two it did not and three did not know
• three ICBs expect that specialised commissioning will introduce new material balances, while two do not and six did not yet know
• six ICBs reported that they had the necessary guidance on accounting for delegation – for one of those it was not available when needed . Only one body reported that they did not have necessary guidance but four did not know
• five respondents were able to provide sufficient audit evidence in relation to POD delegation, while three bodies reported that they were not able to provide sufficient evidence and another three did not know.

Delegation is expected to affect all primary financial statements and mainly note 2 revenue and note 5 operating expenditure and associated accruals. 

Respondents would like the following guidance from NHS England:

• clarity on Compass balances for agreement of balances, as these need journalling correctly to score against the providers for community dental
• more backing/ explanation for the accounting treatment so that this can easily be explained to auditors
• confirmation re accounting for income from patient charges.

Other comments were:

‘The ICB received its only unadjusted misstatement as a result of a lack of appropriate contractual documentation to support the accruals for POD. The value was immaterial, however it would have been if the ICB had delivered a small surplus.’

‘I had access to download journals but wasn't able to answer specific queries. It would be helpful to have a dedicated contact for audit queries going forward.’

‘Our auditors asked for an additional disclosure note on fees and charges associated with POD. As this is a GAM requirement it would have been helpful to make sure ICBs were aware of it and refer to it in the statutory accounts template.’

‘We took POD from ICB creation - the analytical review documents did not help particularly as they compared 3 months CCG + 9 months ICB vs 12 months ICB, when POD delegation meant they were not comparable. If tools could be developed to run an extract of the ICB template for just certain cost centres, it would help aid comparability.’

‘It was a learning experience for the ICB, collaborative commissioning hub, and auditors as to what information was needed to support final audit and provide the necessary assurance.’ 

Adopting IFRS 16 Leases

2023/24 was the second year that IFRS 16 was applicable.

The process seems to be getting easier – table 4 below summarises the responses from those who expected the process to be difficult.

On the other hand, four reported that preparing the IFRS 16 sections of the accounts was better than they expected and eight found the audit of those numbers better than expected. 

This year, we asked for respondents’ expectations in relation to managing the impact of leases against the capital departmental expenditure limit (CDEL). Six respondents said that they expected it to be difficult, but it was worse than they expected, another 10 found it to be as difficult as they expected. Five respondents expected the process to be OK but found that it was worse than expected. This was reflected in the comments:

‘Managing the impact on CDEL will be more difficult in 2024/25’

‘CDEL – it was a half way house this year and I anticipate it will be difficult for when we are actually held to account on it as there are so many variables not within our control’

‘Treasury needs to engage with the simple issue that new leases are lumpy not straight line – how can capital limits reflect this?’

‘Remeasurements arising from inflation are not within our control and yet impact on CDEL’

‘We have to forecast the potential impact months before we know the actual impact’.

Auditors noted that some NHS bodies have not yet embedded an effective process for managing leases and had not untaken proper consideration of changes in the lease portfolio year on year.

Application of IFRS 16 to PFI liabilities

IFRS 16 was applied to PFI liabilities for the first time in 2023/24. This only affected NHS provider bodies with PFI schemes. 18 respondents were affected – five found the process straight forward, 15 had some difficulties getting the numbers right, but three reported it was extremely hard.

Four respondents recognised that the excellent support that they had from the teams at NHS England and the DHSC made the transition as easy as it could have been. One organisation engaged an external organisation to support the process. 
One auditor noted that disclosures were not always in line with requirements as NHS bodies had interpreted IFRS 16 and the GAM differently. This was specifically an issue in relation to the disclosure of future commitments.

Looking ahead

We asked what guidance would be helpful in relation to IFRS 16 going forward. Most of the comments related to managing the CDEL allocations for leases – clarity on how allocations are determined and early sight of what the allocations are for the year as well as guidance on how the lease element of CDEL can be managed with the overall CDEL for each body.

In relation to the PFI liabilities, additional training would be helpful particularly for those organisations that have unusual arrangements. 

One respondent asked for additional guidance on valuation as the approach seems to vary between auditors.

The audit of the accounts

Preparers’ perspective

More NHS bodies are reporting that the audit is better or the same as last year (see table 5). Only 12 provider bodies reported that the audit remains an issue or was worse than the previous year. 

This may not be a surprise as 2022/23 was a particularly difficult year for ICBs as they prepared part year accounts. 

Issues raised included:

• new auditors without a clear audit plan
• inexperienced audit staff 
• issues being raised late in the process.

The main issue raised was the length of time for the audit to be completed. In particular, the fact that the submission deadline is treated as the date for the audit to be completed. This results in audit issues being resolved late in the process which makes reporting to the NHS body’s board difficult.

This is summarised in the following comments:

‘We have an issue in that auditors view the 28 June deadline as the date to finish auditing. This results in reports being issued to the NHS body with only a day or so to check, challenge errors (there are always many errors in first draft audit reports) and take through audit committee and board whilst trying to get errors corrected/ removed and so on. 

The process could potentially be improved if there was a deadline set for 'audited position' i.e. final audited TACs submission date, and then a date perhaps two weeks later for final audit reports and annual report.

The reality is that as the draft audit reports are issued to us with a day to the deadline, we end up accepting recommendations or comments that should be challenged simply because we have run out of time.’

‘Audit firms have too few staff and have introduced multiple levels of partner review once the fieldwork is complete, meaning it takes way too long to get the accounts signed off, and means long delays in being able to get the final position reached.’

Clearly trivial

For the first time, we asked what clearly trivial threshold auditors were using (table 6).

One auditor noted that the clearly trivial threshold is capped at this amount due to requirements of the NAO’s group instructions – it would be higher if it was related to the audited bodies’ materiality.

Most NHS bodies did not find it an issue. However, a couple of respondents noted that it meant that auditors focus on issues that are not material, they are also concerned that extrapolating errors creates a distorted picture. 

Auditors’ perspective

Auditors were split on the quality of the draft annual report and accounts:

• one reported that the draft annual report and accounts was better than last year
• four reported that it was about the same and that was fine
• another four reported that it was about the same but that is an issue
• one reported that it was worse than last year.

Comments were:

‘NHS bodies need to be following the guidance for the annual report (the accounts were generally okay) and ensure that they set and deliver to a timetable that allows adequate time for auditor review and feedback.’

‘Again, varied across providers. Some well prepared, others needed a lot of work.’

‘There is increasing strain on NHS finance team capacity, which adversely impacted the 2023/24 financial reporting and close down process, quality of preparation of working papers for audit, and responsiveness to audit questions. In some cases, this has reflected difficulty in recruiting suitable staff. In other cases, we have seen examples of trusts not filling finance posts as part of cost saving programmes.’

‘In some cases, NHS bodies are not taking external audit findings and control recommendations sufficiently seriously and are not responding to them on a timely basis. For example, issues continue to be identified from bodies not fully implementing IFRS 15, IFRS 9, or IFRS 16 in their finance processes and systems. 

In some cases, trust NEDs are not sufficiently strong to challenge the management on the approach taken. This can reflect awareness of NHS specific issues such as Managing public money or the rules around special severance payments, or an acceptance of management statements on ‘accepted practice’ in the NHS, for example, in capital accounting.

A number of trusts continue to make use of vesting certificates, without apparent commercial rationale or consideration against the requirements of Managing public money. We would welcome clear analysis (whether from DHSC/ NHSE or from HFMA) of which circumstances, if any, the use of vesting certificates is acceptable under Managing public money. 

We welcome the HFMA publication on ethics for NHS finance staff, which we think is increasingly important as the pressure on NHS budgets becomes more significant. We suggest HFMA consider whether a corresponding publication for boards and/or audit committees, or even just a letter to audit committee chairs, setting out expectations and good practice in how finance functions can be supported to behave ethically, and the responsibility of the audit committee for challenging management (including on changes in approach helping achievement of control totals, unusual transaction structures or those designed to achieve particular accounting results, and adherence to Managing public money and the Nolan principles more widely).

Greater central guidance around the centrally provided services and ISAE 3402 reports would be beneficial, including:

• sharing a clear set of expected entity-side controls that should be in place so that can be documented by entities in year (this is in the ISAE 3402 reports, but this is only available to bodies late in the year)
• expectations on entity review of reports
• if exceptions reported, central guidance on how bodies should be responding to the findings (rather than needing to identify individually).

There are increasing instances of shared service provision between NHS bodies (not via the central routes). Greater clarity on expected oversight and assurance between bodies would be helpful, as there is wide divergence in the approach adopted.’

Looking ahead

This is the first year that accounting for leases has not been the topic that respondents would like more guidance on. Instead, the remuneration report and areas of judgement are at the top of the list (table 7).

While IFRS 17 insurance contracts is third on the list, we asked whether the standard had had any impact on the 2023/24 accounts. Only two respondents indicated that it had impacted on the disclosures that they made around commitments and contingent liabilities, and one noted that it had impacted on the audit of commitments and contingent liabilities. This is not surprising given that it is not applicable until  2025/26.

Other issues raised included:

• value for money – audit opinions, types of qualifications and how the report is produced
• accounting for provision for irrecoverable receivables
• fixed assets valuation methodology
• fair pay multiple assessment is complicated, additional guidance would be valued.