Monitor's proposed regime for monitoring compliance by NHS Foundation Trusts
Comments from ACCA
January 2005
Responses to Specific Questions
1. Do you agree with Monitor's overall philosophy and approach to compliance? Are there any significant omissions or unnecessary elements? Does it give enough scope for innovation and development of services?
In general, we agree with Monitor's overall philosophy and approach to compliance. The proposed regime does appear to be at odds with the �financial freedoms' and �light touch approach' promised to Foundation Trusts but some regulation is essential for all publicly funded organisations.
We believe that there are two main omissions in the overall philosophy and approach to compliance. The first of these relates to lack of clarity around the role of Internal Audit in the compliance regime and the second is the lack of reference to an organisation's Statement of Internal Control and the Assurance Framework; both of which might contain information that would assist Monitor in its regulatory role.
We are concerned that the philosophy and approach to compliance will not give sufficient scope for innovation and development of services. Innovation generally requires taking some initial risk but the approach to compliance seems likely to restrict risk taking.
2. Is the content of the Annual Plan submission reasonable?
We consider that the proposed content of the Annual Plan submission is reasonable.
We were surprised, however, that NHS Foundation Trusts will not also be required to provide detailed financial projections on planned capital expenditure. Many Foundation Trusts will have major capital programmes which are likely to impact on planned service developments and will therefore introduce risk. These risks may not be easily identifiable from just the financial commentary.
We also consider that, in addition to the points listed in Appendix D, the board of directors should provide details of its management structure and the board objectives.
3. Is the proposed timeline for annual reporting reasonable? Are the specifics achievable? For example, will an NHS Foundation Trust have sufficient time to close its books and lay its audited accounts before Parliament prior to the summer recess (22 July in 2004)?
We consider that the proposed timetable is reasonable.
4. Should Monitor require NHS Foundation Trusts to seek independent third party opinions on the contents of the Annual Plan?
Assuming that �third party opinion' is not intended to mean Internal Audit then we do not believe that Monitor should require NHS Foundation Trusts to seek independent third party opinions on the contents of the Annual Plan.
The requirement to seek a third party opinion would increase both the administrative and financial burden on NHS Foundation Trusts and would not be in the spirit of increased freedom.
5. Do you agree with the provision of risk ratings by Monitor?
We agree with the provision of risk ratings by Monitor.
We note, however, that there are a number of bodies, in addition to Monitor, that have powers to monitor, intervene or enforce statutory obligations on NHS Foundation Trusts. We are concerned that these bodies will all develop unique rating systems based on different criteria which, if published, might confuse rather than inform the public. It would also create an unnecessarily administrative burden on NHS Foundation Trusts.
We consider therefore that all bodies with the power to monitor, intervene or enforce statutory obligations on NHS Foundation Trusts should work towards developing a consistent approach to the rating of NHS Foundation Trusts.
6. Should risk ratings be made public?
We consider that the risk ratings should be made available to the public but are concerned that, unless published with detailed guidance on how they were constructed, there is a danger that they will confuse rather than inform.
We would therefore suggest that the risk ratings are shared with members and only made available to the general public on request.
7. Is the proposed approach to assessment of financial risk reasonable, including the metrics chosen, the balance between actual and projected performance, and the thresholds for moving into a different risk category?
We consider that the proposed approach to assessment of financial risk is a reasonable starting point but believe that, in time, issues may arise around elements of subjectivity built into the framework. Further developments or refinements may therefore be needed in the future.
Although we agree with the balance between actual and projected performance we are concerned that all metrics, with the exception of EBITDA, are derived from year 1 projections. We question whether this is sufficient as, with activity streams likely to change under payment by results and Choice, an NHS Foundation's financial position today may be very different to its forecast financial position for a few years on. We believe, therefore, that the forecast long term position of the NHS Foundation Trust should also be considered when deriving the risk rating.
8. How should Monitor assess an NHS Foundation Trust's duty of co-operation with other parties?
We would suggest that Monitor assesses an NHS Foundation Trust's duty of co-operation with other parties by: requiring the NHS Foundation Trust to provide evidence that the annual plan has been consulted on amongst the local community and also by requiring the annual plan to contain a formal letter of support from either the Chief Executive of the host commissioner or the chair of the NHS Foundation Trust. This will help ensure congruence between the annual plan and the LDP and should not increase the overall administrative burden.
We would also suggest that, as part of their governance arrangements, NHS Foundation Trusts put in place a stakeholder strategy. The board should be aware at all times of its relationship with its key stakeholders but a stakeholder strategy would help increase this awareness.
If there are serious problems around co-operation with other parties then the governing body, which includes representatives from all key stakeholders, should be aware of the problem and, if the issues remain unresolved, then the governors should communicate their concerns to Monitor.
Does Monitor have a procedure in place to deal with complaints it receives about NHS Foundation Trusts from third parties?
9. Do you agree with the proposed approach to Governance and Mandatory Services risk assessments?
We agree that the proposed approach should be based on self-assessment but do not agree that the risk rating should be based on a traffic light system. We consider that rating an organisation green, amber or red is not an appropriate measure for risk management purposes as it does not aid understanding or identification of the real issues that might be facing an NHS Foundation Trust.
Many of the risks facing an NHS Foundation Trust will relate to core operations. We believe that the scope of the Governance risk assessment may need to be widened to ensure that it is fully integrated covering both core operational (clinical risk) and corporate risk.
10. Specifically, do you agree with Monitor's proposal to assess Governance and Mandatory Services risk primarily through self-assessment by NHS Foundation Trusts? Should Monitor be monitoring these areas more directly?
We agree with Monitor's proposal to assess Governance and Mandatory Services risk primarily through self-assessment - so long as the self-assessment is underpinned by Internal Audit. Self-assessment fits with the �hands off' approach and minimises the administrative burden to NHS Foundation Trusts.
11. Do you agree with splitting the risk rating into three component parts or should there be a single, amalgamated risk rating incorporating finance, governance and mandatory services?
We agree that the risk rating should be composed of three separate parts. We believe that any attempt to amalgamate the ratings would introduce elements of subjectivity which would then dilute the value of a single rating.
12. Is the content of the in-year monitoring reasonable?
We consider the content of the in-year monitoring to be reasonable.
We believe, however, that the first paragraph of section B on page 19 should be amended to say: �NHS Foundation Trusts need to report to Monitor in-year any material, actual or prospective changes which may significantly affect their ability to comply with any aspect of their Authorisation, and which have not been previously notified to Monitor'.
13. Are the proposed timelines for quarterly reporting reasonable and actionable?
We do consider the proposed timelines for quarterly reporting to be both reasonable and actionable.
14. Does the proposed in-year monitoring regime impose reasonable administrative and regulatory burdens on NHS Foundation Trusts and other organisations, such as PCTs?
In general, we consider that the proposed in-year monitoring regime does impose reasonable administrative and regulatory burdens on NHS Foundation Trusts and other organisations, such as PCTs. NHS Foundation Trusts will have set up systems for producing this information when they applied for FT status so the regime should not prove onerous.
15. Is the proposed interpretation of a significant breach of the Terms of Authorisation reasonable?
The proposed interpretation is sufficiently flexible to enable Monitor to assess each incidence of failure on a case by case basis; therefore we do consider it to be a reasonable method for identifying a potential or existing breach of authorisation.
We expected, however, that the governance risk rating criteria would match the criteria for governance risk intervention but have identified what appear to be inconsistencies between Diagram 6, Governance risk rating, and Diagram 10, Governance risk intervention. Diagram 6, for example, describes the implications for a Foundation Trust with an Amber rating as �Supplementary information or action may be required e.g. external auditors may be asked to provide an opinion on an area which the Foundation Trust has not been able to self-certify' whereas Diagram 10 says that the implications of an Amber rating will include �Request for additional information on causes of risk', �Letter outlining issues to resolve and timeframe for action' and, in cases of non-cooperation, �Monitor may decide to publicise the issue'.
A similar discrepancy arises between Diagram 7, mandatory services risk rating and Diagram 11, mandatory services risk intervention.
16. Does the proposed intervention regime strike the right balance between pre-emptive action and use of statutory powers of intervention to address a significant failure?
Overall we believe that the proposed intervention regime does strike the right balance between pre-emptive action and the use of statutory powers.
We consider, however, that there needs to be further clarification around the roles and liabilities of governors when intervention is imminent.
17. How should Monitor use its intervention powers to ensure a significant failure can be prevented, when it can be anticipated with a degree of certainty (e.g. financial risk)?
We would suggest that Monitor adopts a graduated approach of intervention. This might begin with a mentor approach where a third party works alongside the board with progression in stages to full intervention.
There is a need for more clarity around board liability.
18. Is the list of other bodies with monitoring or intervention powers over NHS Foundation Trusts comprehensive?
We would suggest that NICE be added to the list of bodies in Appendix C that Foundation Trusts might choose to co-operate with.
We note that NHS Foundation Trusts are only required to co-operate with the NHS Business Services Authority. This appears to be at odds with the rest of the NHS, who are covered by Secretary of State directions.
We consider that all the bodies listed, including the bodies that lack statutory powers to monitor, intervene or enforce statutory obligations on Foundation Trusts, could hold information on an NHS Foundation Trust that may be of interest to Monitor.