1. Financial Management for Budget Holders
January 2015

2. Contents An overview of NHS Structure Who we are and what we do
An overview of NHS Finance
Budget holder responsibilities
Budgeting
Forecasting
Interpreting Finance, Establishment, Nominal roll & Group Finance
reports
Raising Purchase Orders and Authorisation Limits
Cost Improvement Programme (CIP)
Audit
Overview of Contracting and Commissioning
Overview of Payment by Results (PbR)
Overview of Service Line Reporting (SLR)

3. An overview of NHS Structure

4. Contracting and Service
Who we are and what we do
Chief Finance
Officer
Gail Nolan
Deputy Chief
Finance Officer
Susan Rollason
Director of
Performance &
Programme
Management
Office (PPMO)
Jonathan Brotherton
Associate Director
of Private Finance
Initiatives
Steve Noon
Associate Director
of Finance
Corporate Services &
Financial Governance
Alan Jones
Associate Director
of Finance
Operations
Antony Hobbs
Associate Director
of Finance
Contracting and Service
Line Reporting
Craig Cook
Head of
Financial Planning
Jonathan Gamble
Private Finance
Initiatives (PFI)
Team
Financial Services
Teams
Financial
Management
Teams
Contracting,
Commissioning
and Costing Teams
Financial
Planning Team
Performance &
Programme
Management Team

5. An overview of NHS Finance
Do you know…….
The age of the NHS?
How many employees work in the NHS?
The size of the NHS budget?
How many organisations are in the NHS?
What UHCW’s total budget is?
How many patients are treated by the NHS in a 36 hour window?
Answers
The NHS was founded in 1948 and has been in existence for 66 years (this being the 66th year)
The NHS employs more than 1.7m
Circa £100bn
Number of NHS Organisations approx 500 [101 NHS Trusts; 147 NHS Foundation Trust Status; 212 NHS England and Counterparties (CCG’S);
UHCW total budget for is £537m
1m patients every 36 hours

6. Budget Holder Responsibilities
Understand and manage your budget
Keep finance managers up to date with developments and issues
Identification of efficiencies (CIP) & cost pressures
Participate in budget setting and forecasting
Validate financial information (e.g. nominal roll, establishment, reports)
Operate within financial policies
Budget holders have a duty to break even but we recognise that there may be cost pressures outside of your control, therefore it is your responsibility to manage your budget as best as you can – inform your finance manager of any issues or developments that they need to be aware of for reporting and budget setting purposes. Regular meetings with your finance team are crucial for identifying both cost efficiencies and pressures affecting your area.

7. What is a Budget?
It is a ‘plan’ or envelope of resources required to deliver an agreed level of output.
Usually the first year of an agreed 3-5 year plan and are determined by the amount of income a Trust earns.
Budgets allow improved financial planning and monitoring of performance against the plan.
A typical financial plan includes:
- Pay budget (£’s and WTE)
- Non Pay budget
- Income target
Notes:
A budget is a financial plan of resources to deliver a level of output.
Analogy: Just like at home we budget for how much we are going to spend on our holiday, shopping and household expenditure.
In a hospital environment we have to set budgets at the start of the financial year and split into 3 categories:
Pay – Budgets for Pay are based on staffing levels.
Non Pay- Budget for non pay is based on expected usage of Consumables, maintenance, stationary
Income: Level of income the hospital will receive from CCG’s, Private Patients, Research Bodies & Other Stakeholders.
Accurate budget setting allows for greater financial planning – so we know what we can spend and save (efficiencies).
This allows budget holders to identify prioritises and to better utilise their resources.
Budget holders are involved in the budget setting process so they understand how budgets are set and agreed.
Measure Performance
Budgets allow for the trust to monitor areas that are doing well and those that are over spending. This allows the trust to monitor how well it is doing against its annual target.
Authorise Expenditure & Control
Budgets allow budget manager's to authorise expenditure up to their designated limit. Whether this be purchase orders, expenses, claim forms. Budgets are prepared to ensure only the amount authorised is spent. Any expenditure above or below this level should be monitored corrective action can be taken.

8. What is a Forecast?
“The use of historic data to determine the direction of future trends.”
Benefits
Provides a forward look of resources & spend
To identify and reduce risks
Allows valuable decision making
Aids budget setting
What information should budget managers provide?
Predicted changes in their services
Upcoming pressures
Up to date recruitment plans
Purpose of forecasting:
(Ask the audience what is it and what’s the purpose? Make a joke about it not being a weather forecast!!!!)
In finance, we use forecast to estimate the year end financial position based on current trends of expenditure and activity with the addition of management information. We also have to think about how this links in with workforce, activity and capacity. E.g. with increasing emergencies, we may need more beds, staffing and consumables for example.
Forecasting allows for the hospital to monitor its performance against budget and what the likely impact will be at year end.
This then allows the group to identify and reduce any potential risks of not achieving targets and to take action to ensure corrective decisions are made to achieve targets.
For example – reduce the expenditure on locums costs to ensure that the department recruits a substantive member of staff to reduce premium costs.
What can budget managers do to ensure an accurate forecast?
Investigate budget variances to understand and explain why they are occurring and if they are likely to continue.
Provide useful information that can help construct an accurate forecast: - dates of staff leavers, -dates of new starters, predicted changes to your service that might affect the finances, e.g. opening of a day unit or more elective surgery? Remember the impact that service changes might have on income and costs
expenditure incurred in year not likely to be incurred again.
expenditure incurred which will allow for stock for several months.
any future expenditure that is likely to be incurred.
any risk of potential non payment of income ( such as cease of external income)

9. Stop and Think 1. Suggest examples to be included in a forecast; Pay
Non pay
Income
2. What are the possible impacts of an incorrect forecast?

10. This includes other operating income (e.g. teaching and training)
Interpreting Finance Report
This includes other operating income (e.g. teaching and training)
NON PAY
Expenditure – Expenditure incurred through invoices paid for non stock requisitions and stock requisitions (Recharges and payroll)
Annual, Monthly and Cumulative (Year to Date/YTD) Budget is shown on the report. Budget is usually phased (split) equally over 12 months.
Monthly and Cumulative Spend is provided on the Budget Report which then gives the Monthly and Cumulative Variance (Position).
(Negative) = OVERSPEND
Non Pay Variances – Activity related / Price related / Budget Setting related / New lines
Pass through items – recharged to commissioners
Mid Year Review Funding
Variances are analysed to understand operational and performance issues that need to be addressed in order to improve the financial performance.
INCOME (Non Contract)
Income received into Expenditure budgets is “non contract”. This Includes:
Recharges / SLAs – with other organisations NHS/Non NHS
Non Contract income – sponsorship/screening income etc
Education and Training – SIFT and MADEL
Ad hoc / Miscellaneous income – examples – Audiology Lost Aids
Drill down ability
Pay – individuals pay elements – arrears/overtime. Agency invoices and timesheets
Non Pay – invoices/orders
Income – invoices/payments received
The Budget Report should be reviewed on a monthly basis and all variances investigated

11. Interpreting Nominal Roll

12. Interpreting Establishment Report
Establishment (Excel Spreadsheet)
Provides details of:
Total Funded Establishment, Total Staff in Post, Total Vacancies
Establishment, In post and vacancies by staff grade/type
Staff details – WTE (Hours), Band/Grade, Assignment Number, Position Number
Should be checked and updated on a monthly basis

13. Interpreting a Group Report
Talk about the KEY Numbers on this page i.e.
year to date variance,
forecast variance,
annual budget
CIP
reasons for variances and why the position has worsened in the year to go.

14. Stop and Think
Reading the budget reports, can you spot the issues and suggest possible reasons for the variances?
Reading the establishment, can you spot the issues and suggest possible reasons for the variances?
Reading the nominal roll, can you spot the issues and suggest any possible solutions or reasons?
Discuss the Group Finance Summary. Why is the position getting worse in the latter part of the year?

15. Raising Purchase Orders
The Trust’s Standing Financial Instructions (SFIs) state all goods and services require an official order
Orders can be raised (in order of preference) via:
Integra
NHS Supply Chain
Requisition form
Process:
- Complete order prior to commencement of service
Obtain authorisation and forward to Supplies
An SFI waiver must be completed for orders more than £10,000
For further assistance, contact Supplies Department

16. Authorisation Limits Scheme of Reservation & Delegation
All budget holders should be aware of their authorisation limits
Delegated levels
List of Officers
Limits
Level 4 officers
Trust officers (budget holders)
£10,000
Level 3 officers
Modern matrons
General managers
Service managers
£10,000 to £49,999
Level 2 officers
Clinical Directors
Director of Pharmacy (pharmaceuticals)
Head of corporate departments
Direct reports to an executive director#
Director of Operations (Pathology)
Associate/assistant directors
£50,000 to £99,999
Level 1 officers
Executive directors# for their own departments/areas
£100,000 to £499,999
Executive directors#
£500,000 to £999,999
Chief Executive Officer with Chief Finance Officer
Over £1,000,000
For further assistance please contact your finance team

17. Cost Improvement Programme (CIP)
Demand for NHS services is rising and funding is not increasing
at the same rate.
NHS needs to save £20bn by 2015
UHCW’s target for 2014/15 is £33.5m.
Groups are monitored on a weekly basis on:
- Value of opportunities identified
- Forecast delivery
Group’s responsibilities are to:
- Identify and deliver efficiency schemes such as reducing
waste, increasing income and productivity
- Regular meetings with your finance team to monitor
progress
Annually the trust has to find cost savings and efficiencies as part of the need for the NHS to save £20 billion by 2015.
The trust will face a reduction in income as result, so in turn trusts must reduce their expenditure or find more efficient ways of providing services.
This is to ensure that we are spending public monies efficiently and ensuring its best use.
A successful CIP may not necessarily be about reducing costs but could include growth in services, short or long term plan to improve patient care, satisfaction and safety.
The target is split between the groups of the trust and each group is responsible for identifying and delivering its cost improvement target. (circa 10% of budgets)
CIP are reported weekly and as part of the monthly finance reporting to the Trust. Meaning that CIP identification and delivery is under heavy scrutiny and is closely monitored.
Budget managers and Group managers are responsible for delivering CIP and efficiencies with support from Finance and other Core functions.
Examples of services improvements can include:
Improved coding and counting of activity
Negotiation with suppliers to bring down costs of supplies consumables
Reconfiguration of staff and duties to ensure efficiencies.
Redesigning services that create new income streams for new or existing patients. e.g hot clinics
Review rotas or job plans
Review the use of drugs, consumables and ordering tests and investigations
Reducing waste and premium costs such as agency, locum and bank expenditure
All budget manager will be set up on the Online CIP reporting tool where all plans and performance of CIP’s are recorded and monitored and evaluated.

18. Stop and Think Can you suggest a possible CIP for; Pay? Non Pay?
Increases in Non contract Income?

19. Audit
Internal and External Audit are key elements in every NHS organisations
Governance Framework.
Internal Audit ‘provides independent assurance to an organisation that its risk management, internal control and governance are operating effectively and helping it in achieving its objectives’.
External Audit ‘carry out annual check on organisation’s accounts and give an opinion on whether they give a true and fair view of the financial position’ .
Governance Framework is a framework of systems, procedures and controls underpinning everything the organisation does and how its run. pp
Inter

20. Overview of Commissioning and Contracting
Who’s involved?
Commissioners – Clinical Commissioning Groups (CCGs) & Specialist Commissioning Groups (SCGs)
Healthcare Providers – Trusts (e.g. UHCW)
Roles & Responsibilities
Both parties agree ‘volumes’ and ‘budgets’ for patient care as part of an annual planning process.
Consider size and demographics of the population
Agree funding of new service developments.
For further information contact the Commissioning Team
Priorities for healthcare are shaped by things like :-
National Policies and Government reforms – attempting to address health inequalities
Quality of care - e.g. 18 week targets
NHS Frameworks – e.g. Renal Services
Public health priorities - Coronary Heart Disease, Cancer
Demographics and local health needs of patients
Research and best practice – e.g. Diabetes
Collaborative working between healthcare organisations (!!!)
National Policy indicates a drive towards providing integrated health and social care packages

21. Overview of Payment by Results (PbR)
Money follows the patient
Hospital services are paid for by either a locally agreed price or the national tariff
Prices and payments are based on the type of procedure and appointment type (day case, outpatient, emergency)
Adjustments are made depending on the complexity of care e.g. length of stay.
Further incentives for meeting best practice and quality indicators
Commissioning for Quality and Innovation (CQUIN) – penalties if not met
Quality, Innovation, Productivity and Prevention (QIPP) – admission avoidance schemes
For further information contact the Contracting and Commissioning Team
CQUIN – Commissioning for Quality and Innovation
About 2.5% of value of bottom line contract value re-invested in the Trust if we achieve specific schemes (50% local schemes; 50% national schemes).  There is a financial penalty incurred if not achieved
QIPP- Quality, Innovation, Productivity and Prevention.
Commissioner led set of hospital activity avoidance schemes intended to result reduction in hospital activity .  The risk lies with the commissioners not the trust to achieve the schemes. No penalty incurred by Trust if not met. E.g. the number of GP referrals.  More can be done by the GP to avoid the patient being seen at UHCW therefore reducing our activity.
HRG – Health Resource Group

22. “SLR is a measure of the profitability of a service.”
Overview of Service Line Reporting (SLR)
“SLR is a measure of the profitability of a service.”
Measured at either;
- Group
- Specialty
Consultant
Healthcare Resource Groups (HRG)
Point of delivery
Patient level (PLICS)
Income generated less the costs of delivering the service including overheads.
UHCW reports this information using a system called ‘Qlikview’
For further information contact the Costing Team

23. Example of Qlikview / SLR

24. Example of Qlikview / SLR

25. Stop and Think
If we were to open an new ward, what do you think the impact will be on;
Pay?
Non Pay?
Contract Income?
When might a hospital service not be paid?
What do you think are the benefits of SLR?
Money follows the patient therefore, what would you expect to see in a patient level costing?

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27. Financial Management Contacts