Healthier, wealthier and wiser

Public sector finance: Paul Gosling on moves to change the internal audit system in the NHS

The NHS is pushing ahead in developing more effective internal audit and control systems. Not only are NHS trusts taking notice of the wider debate on corporate governance, but they also have to demonstrate probity and good conduct in the spending of public money.

While the Cadbury committee was drawing up a new corporate governance code for the private sector, the NHS was being grilled by the House of Commons Public Accounts Committee over the way that large information technology contracts had been awarded by the Wessex and West Midlands health authorities. The result of these dual pressures has been that trusts are now required by the NHS Executive to have internal audit committees, and non- executive directors are encouraged to take a strong role in reviewing corporate governance.

But the debate is moving forward. The Healthcare Financial Management Association (HFMA), which represents trust finance directors and accountants, will next month publish a report on control assurance and risk management in the NHS. This is expected to argue that internal audit is not just about probity but must also be about maximising efficiency.

John Flook, director of finance at the County Durham Health Authority, chairs the HFMA's corporate governance committee, which is preparing the control assurance report. "Internal audit practice does still vary," concedes Mr Flook. "You will find some weak internal auditors, some weak internal audit committees and some chief executives who only pay lip service, but it is a minority and there is no hiding place for them. They will be picked up and brought up to scratch."

There were many reasons why the internal audit function had to change within the NHS. One factor was the creation of the purchaser/provider split, and the recognition that there were problems for the same person to audit both parties to a contract. Equally important, many of the internal auditors who had been employed were simply not up to the job.

"We had one man and a dog servicing trusts, who were not robust enough, and did not have enough skills," says Mr Flook. "Now we are seeing many more consortia being established to service a range of organisations."

But, in the short term, this tougher approach is expected to show up more scandals, particularly related to primary healthcare fraud, as internal audits are toughened up across the country, and root out old malpractice.

What is needed now, the HFMA believes, is a comprehensive approach to risk assessment and management, driven by the new realities. Changed factors include the loss of Crown immunity, a generally more litigious society - with hospitals in the firing line - and insurance premiums rising in line with perceived risk. The role of the internal auditor has to broaden in line with these pressures, examining health and safety, for example, in radiology, environmental impact and local pay arrangements. Pay must be pitched at the right level to ensure a trust is competitive.

"We are just beginning to clarify the remit of internal auditors," says Mr Flook. But he rejects the idea that this might mean internal auditors intervening in clinical decisions. While internal auditors can point out the areas of risk, it remains the responsibility of management to translate this into changes in clinical practice.

"It is not for an internal auditor to say you are screwing up on clinical procedures," Mr Flook explains. "What the auditor should be saying is that you don't have appropriate systems in place to ensure that nothing untoward is happening in your theatres." He adds that it is important to respect the experience and judgement of professional health staff.

But the right balance is needed between the influences of the clinical and non-clinical professions, which trust boards must satisfy themselves has been achieved. And the responsibilities on boards is likely to be added to in the coming months. The NHS Executive is overseeing two pilot studies that have introduced tougher corporate governance and annual reporting standards, which could lead to new procedures for all trusts.

This ties in with proposals put forward last week by the National Association of Health Authorities and Trusts and the Health Services Management Centre at Birmingham University. These suggest that health authorities should annually audit local performance on the basis of equity, efficiency and responsiveness, and publish the results alongside the financial accounts.

"How else can local people know if the health authority is doing a good job?" asks Chris Ham, director of the Health Services Management Centre, and one of the authors of the report. "The health authority alone has that responsibility to the local population."

While the question of equity - the access of all members of the local population to good quality health care, and a review of the health of local people - would apply solely to health authorities, the annual audit of efficiency and responsiveness should also be adopted by the trusts, Professor Ham believes. "The duties of efficiency and responsiveness do apply to trusts, and they have an obligation to publish their costs, productivity and efficiency performance."