18 November 2005
A Yorkshire-based NHS trust repeatedly ignored Audit Commission warnings not to inflate its asset values in order to hide deficits totalling £4.5m, it emerged this week.
The district auditor who scrutinised annual accounts at the troubled Scarborough and North East Yorkshire NHS Trust has accused the organisation's finance team, including finance director Bernard Flynn, of having 'compromised the integrity' of the NHS accounting process by misreporting its financial health.
Following the publication of a public interest report on the trust on November 14, district auditor Mark Kirkham said: 'Financial balance was reported to the [trust] board and [local] strategic health authority in the knowledge that the accounts would not be acceptable for audit.'
He added that he had 'not been given a credible explanation' of why that had happened.
However, sources close to discussions between commission officials and the trust said that Scarborough had indicated it was considering seeking foundation trust status. Until recently, that would have required a three-star rating from the Department of Health – it is currently a two-star trust.
A spokeswoman for Scarborough told Public Finance: 'We have recently started the foundation trust diagnostic analysis.'
Kirkham this week published figures correcting 'serious mis-statements and errors' in Scarborough's 2004/05 accounts and unearthed a £4.5m deficit at the trust, which officials had attempted to show had met the statutory duty to break even.
The deficit emerged despite a £10m medium-term loan from the North Lincolnshire Strategic Health Authority.
Kirkham's report reveals that he warned the trust's finance team several times against covering up large overspends by reclassifying medical instruments such as scalpels and forceps, purchased over the previous 15 years, as stock and fixed assets.
Flynn 'chose to disregard our view that the “accounting adjustments” proposed would be contrary to accounting standards', and he also chose not to seek a second opinion on the matter, Kirkham reports.
It is the second time in two years that the trust's executives have been reprimanded by the commission.
In 2003, a spot check by the watchdog revealed that officials massaged waiting list figures during the ten-year reign of a former chief executive.
Scarborough's current chief executive, Alison Guy, was this week on annual leave, while Flynn was unavailable for comment. Kirkham is due to meet the trust's board next week to discuss an action plan to correct the £4.5m deficit.
Trust chair Richard Grunwell said that potential financial remedies had already been undertaken. He said: 'NHS finances are complex and there will always be room for discussion about how certain elements should be treated, and to establish that the methods employed are appropriate, or to advise if this is not so, as happened in this instance.
'Clearly we fully accept the auditor's opinion and recommendations,' Grunwell added.
The Audit Commission published a second public interest report this week, outlining the 'daunting' problems faced by Hillingdon Primary Care Trust, which reported an overspend of £13.5m for 2004/05. The trust has a projected deficit of £31m next year.
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