The report reflects on three financial periods and shows that the overall financial performance of NHS trusts in 2006-07 improved compared to 2005-06 but the performance of LHBs worsened. In 2007-08 further significant progress was made with all NHS bodies except one meeting their financial duty to break even. There are still financial challenges to overcome in some parts of Wales - for example, through meeting cost pressures  such as for continuing healthcare and drug prescribing  and the need for some Trusts to finalise plans to remain in financial balance.

Key messages on LHBs:

• Up to December 2007, 14 of the 22 LHBs were forecasting that they would exceed their resource limits, some by considerable margins;
• at the 2007-08 year-end, and following the management and provision of further resources, all LHBs met their resource limit. £24 million was made available to LHBs late in 2007-08 to address the increasing costs of providing continuing care; 
• the impact of increasing costs in respect of continuing care been recognised in the 2008-09 allocation to LHBs. However, some LHBs will need to repay funds received at the 2007-08 year end from resources allocated for the current year.

Key messages on NHS trusts:

• By the end of 2007-08, the net NHS Trust deficit was £3million, a notable improvement from the deficits of £14million in 2006-07 and £26m in 2005-06;
• only one trust, Ceredigion and Mid Wales, failed its statutory duty to break even; 
• NHS trusts did not require significant levels of additional resources leading up to the end of 2007-08 - although some extra funding was provided to harmonise accounting arrangements at merging trusts and to address some issues arising from the implementation of Agenda for Change.

As well as financial performance, today’s report also examines the way NHS bodies manage their finances. This follows a systematic self assessment and external audit assessment of financial management arrangements at Welsh NHS bodies using an assessment tool developed by the Chartered Institute of Public Finance (CIPFA). It found that most NHS bodies score well in terms of how they account for their resources but identified that improvements were needed to support service improvements and modernisation.

Many NHS bodies need to improve their medium term financial planning and ensure that board members and business managers have the right financial skills, that robust budgets are prepared and then monitored in a way that better links the services provided to resources used. With the NHS entering a period of restructuring together with the need to change the way services are provided, financial management itself needs to be evolve to support the achievement of these challenging tasks.

The report makes six recommendations for improvement, including:

• Local NHS bodies should ensure that staff responsible for managing delegated budgets have appropriate financial management competencies;
• The Assembly Government should review the medium-term financial plans of local NHS bodies as an integral part of its financial monitoring regime; and
• Merged or merging bodies should review their financial management capacity to better support improvement and modernisation.

Auditor General for Wales, Jeremy Colman said today:
“My latest diagnosis of the financial position of the NHS in Wales is much improved from my last report in 2006. But there are still areas for concern and the pace and scale of current changes present additional short term risks which need careful managing. These changes also present new opportunities for improved financial management and my recommendations around areas such as financial planning, reviewing and monitoring are designed to encourage NHS bodies in this direction.”
 
Notes to Editors:

• This report examines the overall effectiveness of the devolved system of financial management in the NHS.
• A wide-ranging review of the structure of the NHS in Wales is underway. Some trusts have recently merged and some further mergers will take place in the current year. Consultation on the future composition of LHBs and community services has taken place and responses are currently subject to Ministerial consideration. This includes a review of the function and structure of Health Commission Wales. A report was also commissioned by the Minister to explore options for mental health services in Wales. For further information on all these changes, please visit the Welsh Assembly Government website.
• Agenda for Change was a new single pay and grading system, which was put in place in 2004, for all NHS staff across the United Kingdom.
• 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.