Taking the different sectors of the NHS in turn, in December 2005:

• Local Health Boards were projecting that, in the main, they would meet their 2005/2006 resource limits, with an overall net surplus of some £4 million;
• Most NHS trusts were forecasting that they would not break even in 2005/2006 and were expecting to be some £26 million overspent by the end of the financial year.
• Health Commission Wales, which is an agency of the Welsh Assembly Government, was forecasting a further deficit of almost £10 million.

At the time of writing this report, Welsh Assembly Government officials were satisfied that there was sufficient cash available within the NHS system to meet the day-to-day commitments of local NHS bodies up to the end of the year to March 2006. This has apparently since proved to be the case.

The year end estimates in December 2005 showed an improvement on previous months’ forecasts, but still represented a total expected net deficit of some £32 million for 2005/2006. Although forecasts from a number of NHS bodies remained stable during the year, others’ forecasts have varied significantly, which raise questions over the effectiveness of financial management and the ability of some bodies to forecast accurately.

The report concludes that if the underlying reasons for the financial difficulties are not managed successfully then the situation will get worse for the NHS in 2006/2007. This is because some trusts and LHBs will have to start making repayments which will place an additional pressure on organisations with underlying deficits.

While trusts will be getting more money from the Welsh Assembly Government via its annual allocation for 2006/2007, to recognise extra pressures such as rising energy prices, NHS trust Finance Directors claim that the overall increase of 4.5% will fall short of anticipated cost pressures.

The report also questions whether there have been effective links between the strategic direction of the NHS in Wales - set out in ‘Designed for Life’ - and the implementation of local plans to meet statutory requirements – such as Strategic Cost and Efficiency requirements (SCEPs) and the annual Service and Financial Framework (SaFF). It found that previous SCEPs, put in place to return some health communities to service and financial balance, have not fully met their objectives, which casts doubt on the effectiveness of existing financial recovery proposals.

The report makes four recommendations for improvement:

• An analysis should be carried out of the reasons for non-delivery of previous SCEPs before agreeing future plans;
•  In their risk assessments, new SCEPs should take into account the potential impact of service review;
• SaFFs should only be approved by the Welsh Assembly Government where there are clear plans and accountability for managing residual risks;
• An all-Wales analysis is needed of the quality and effectiveness of NHS performance and financial management. The Auditor General intends to work closely with Assembly officials as they consider how best to take this forward.

Auditor General for Wales, Jeremy Colman said today:

“While the exercise of financial control has improved, there is a worrying downward trend in the financial position of the NHS in Wales. Recovery plans must be realistic with effective reporting procedures. It must be quite clear where responsibilities for action lie and who is accountable for delivery. Most of all, the underlying reasons for the deficit must be addressed.”   

Notes to Editors:

This report examines whether the NHS in Wales is managing within its available financial resources.

•  The Auditor General reports annually on NHS finances in Wales. However, this is the first year where projected forecasts for the following financial year are considered.
• Designed for Life is a 10 year strategy for health and social care in Wales. It was launched in May 2005 by the Welsh Assembly Government’s Health and Social Services Minister, Dr Brian Gibbons AM.
•  The Wales Audit Office is independent of government and is responsible for the annual audit of some £19 billion of annual public expenditure.
• Its mission is to promote improvement, so that people in Wales benefit from accountable, well-managed public services that offer the best possible value for money. It is also committed to identify and spreading good practice across the Welsh public sector.
•  The Wales Audit Office was created in April 2005 through the Public Audit (Wales) Act, 2004, which expanded the functions of the Auditor General for Wales and enabled the transfer of staffs from the Audit Commission in Wales and National Audit Office in Wales to his employment.

For more information please contact Rachel Harries (Communications and Media Officer) on 02920 262 675 or email rachel.harries@wao.gov.uk