Policy paper

Annex A: finance and accounting

Published 25 August 2022

This was published under the 2019 to 2022 Johnson Conservative government

This annex provides additional detail on the finance and accounting arrangements for NHS Digital.

Annual Expenditure Limits

The Secretary of State will give NHS Digital its budget for the year in a formal budget allocation letter to be sent to the NHS Digital Chief Executive.

The Secretary of State will give NHS Digital grant-in-aid funding for the year. The grant-in-aid will normally be paid monthly. NHS Digital will comply with the general principle, that there is no payment in advance of need.

Cash balances accumulated during the course of the year from grant-in-aid or other Exchequer funds shall be kept to a minimum level consistent with the efficient operation of NHS Digital.

Grant-in-aid not drawn down by the end of the financial year shall lapse. Subject to approval by Parliament of the relevant estimates provision, where grant-in-aid is delayed to avoid excess cash balances at the year-end, the department will make available in the next financial year any such grant-in-aid that is required to meet any liabilities at the year end, such as creditors.

NHS Digital will be subject to a quarterly consolidation reporting schedule, for determining cover, and making any in-year changes to budgets, and will provide monthly updates to the Department of Health and Social Care (DHSC) Finance Business partners in meetings organised by the Digital Oversight Team.

As accounting officer (AO), the chief executive must ensure that, in any financial year, NHS Digital’s spending in each of the following categories does not exceed the limit set by the Secretary of State for that year:

• revenue (non ring-fence)
• revenue (ring-fence)
• capital
• annually managed expenditure

The AO must also ensure that:

• NHS Digital’s total spending on administration in any financial year does not exceed the budget provided without specific agreement from DHSC
• in any given year the cash usage of NHS Digital does not exceed the cash limit (allotment) for NHS Digital plus any payments received which are used to offset expenditure that would have otherwise scored against this limit - where this is possible, the DHSC Finance Business Partners and Digital Oversight Team must be alerted

In addition to their specific financial responsibilities, the NHS Digital Board have a shared responsibility to facilitate the effective financial management of the health and social care system, including delivery of the controls imposed upon the system by HM Treasury.

Information systems: charging

NHS Digital is able to charge NHSE a reasonable fee in respect of the cost of complying with a direction given by NHSE for NHS Digital to establish and operate an information collection or analysis system under section 254 of the 2012 Act. Similarly, if NHSE gives a direction to NHS Digital under regulation 32 of the National Institute for Health and Care Excellence (Constitution and Functions) and the Health and Social Care Information Centre (Functions) Regulations 2013, S.I. 2013/259, requiring NHS Digital to exercise such systems delivery functions of NHSE as are specified in the direction, the direction must permit NHS Digital to charge NHSE a reasonable fee in respect of the cost of complying with the direction. If the Secretary of State gives NHS Digital a direction under regulation 32 requiring NHS Digital to exercise a systems delivery function of the Secretary of State, the direction may include provision about payments to NHS Digital for things done in carrying out the direction.

NHS Digital may charge for anything it does pursuant to its additional functions in section 270 of the 2012 Act.

Where NHS Digital responds to a direct request from other commissioners, such as NHSE, either as a result of a direction or otherwise, it must notify the Digital Oversight Team if there is any potential conflict with, or impact upon, statutory requirements, Remit Letter deliverables, or any priority activity; NHS Digital is expected to manage the risks associated with additional work undertaken.

Business planning

NHS Digital will produce a business plan each year, reflecting the objectives of the remit. Indicative financial budgets for both administration and programme funded activity will be discussed from the outset of business planning, incorporating any requirement to deliver overall efficiencies relevant to DHSC and its ALBs. The plan will include the funding for which NHS Digital is directly responsible.

The business plan will need to identify detailed revenue, capital and cash forecasts for grant-in-aid funded activity, and also equivalent expenditure associated with any other income sources. It will need to clearly identify the distinction between costs and income falling inside and outside the administration budget regime.

Accounts

In relation to financial reporting, the department is required by HM Treasury to report in-year financial performance and forecasts for all its arm’s length bodies, by estimate line, and in a specified format, to a strict timetable. NHS Digital is required to comply with departmental plans and schedules which enable the department to meet HM Treasury deadlines, and the department’s overall financial planning to meet HM Treasury spending controls through the Shared Financial Planning Agreement.

NHS Digital must prepare annual accounts for each financial year ending 31 March, and interim accounts for shorter periods if required. In relation to these accounts, NHS Digital must:

• ensure that accounts are prepared according to the form, content, methods and principles prescribed by the Secretary of State in his annual group accounting instructions
• submit these accounts (both unaudited and audited) to the department by a date to be specified by the Secretary of State
• submit the final accounts by a date to be specified by the Secretary of State, to the Secretary of State and the Comptroller and Auditor General (C&AG)

NHS Digital must publish an annual report of its activities together with its audited accounts after the end of each financial year. Information on performance against key financial targets is within the scope of the audit and should be included in the notes to the accounts. The report and accounts are to be signed by NHS Digital’s Accounting Officer and laid before Parliament by NHS Digital and made available on NHS Digital’s website, in accordance with the guidance in the Government Financial Reporting Manual (FReM). A draft of the report should be submitted to the department in line with the published timetable.

The AO must also ensure that NHS Digital participates fully in all agreement of balances exercises initiated by the department, and in the form specified by the department, and that it agrees income and expenditure and payables and receivables balances both with other organisations within the department’s resource accounting boundary and, for the purposes of the Whole of Government Accounts (WGA), with other government bodies outside that boundary. In doing so, NHS Digital should seek to agree all outstanding balances but, in any case, should keep within any level of materiality set by the department.

Audit

To meet the requirements for internal audit, NHS Digital must:

• ensure the department is satisfied with the competence and qualifications of the Head of Internal Audit and the requirements for approving appointments in accordance with Public Sector Internal Audit Standards
• prepare an audit strategy, taking into account the department’s priorities, and forward the audit strategy, periodic audit plans and annual audit report, including NHS Digital’s Head of Internal Audit’s opinion on risk management, control and governance as soon as possible to the department
• keep records of fraud and theft suffered by NHS Digital and notify the department of any unusual or major incidents as soon as possible

The department is committed to the development of a group assurance model for DHSC and its arm’s length bodies. NHS Digital will engage with the department in the development of the group assurance model.

The Government Internal Audit Agency will provide the audit service (including having access to all previous audit documentation).

For external audit, the Comptroller and Auditor General (C&AG) audits NHS Digital’s annual accounts. In the event that NHS Digital has set up and controls subsidiary companies, NHS Digital will, in the light of the provisions in the Companies Act 2006, ensure that the C&AG is appointed auditor of those company subsidiaries that it controls and/or whose accounts are consolidated within its own accounts. NHS Digital shall discuss with the department the procedures for appointing the C&AG as auditor of the companies.

The C&AG:

• will consult the department and NHS Digital on whom – the National Audit Office or a commercial auditor – shall undertake the audit(s) on his behalf, though the final decision rests with the C&AG
• has a statutory right of access to relevant documents including, by virtue of section 25(8) of the Government Resources and Accounts Act 2000, those held by another party in receipt of payments or grants from NHS Digital
• will share with the department information identified during the audit process and the audit report (together with any other outputs) at the end of the audit, in particular on issues impacting on the department’s responsibilities in relation to financial systems within NHS Digital
• will, where asked, provide the department and other relevant bodies with regulatory compliance reports and other similar reports which the department may request at the commencement of the audit and which are compatible with the independent auditor’s role

The C&AG may carry out examinations into the economy, efficiency and effectiveness with which NHS Digital has used its resources in discharging its functions. For the purpose of these examinations the C&AG has statutory access to documents as provided for under section 8 of the National Audit Act 1983. In addition, NHS Digital is to provide, in conditions to grants and contracts, for the C&AG to exercise such access to documents held by grant recipients and contractors and sub-contractors as may be required for these examinations; and is to use its best endeavours to secure access for the C&AG to any other documents required by the C&AG which are held by other bodies.

Delegated authorities

Paragraph 9.5 of the Framework Agreement requires NHS Digital to abide by any relevant cross-Government efficiency controls. These controls will be communicated to NHS Digital.

Once the budget has been approved by DHSC, and subject to the Secretary of State’s instructions and any other processes set out in this document, NHS Digital has authority to incur expenditure approved in the budget without further reference to the department, on the following conditions:

• NHS Digital will comply with its delegated authorities, which cannot be altered without the prior agreement of the department, noting that authority to approve novel, contentious or repercussive proposals cannot be delegated from HM Treasury
• inclusion of any planned and approved expenditure in the budget will not remove the need to seek formal departmental approval where any proposed expenditure is outside the delegated limits or is for new schemes not previously agreed

NHS Digital must obtain the department’s prior written approval before entering into any undertaking to incur expenditure outside its delegations or not provided for in its business plan as approved by the department. In addition, the department’s prior written approval is required when:

• incurring expenditure for any purpose that is or might be considered novel or contentious, or which has or could have significant future cost implications
• making any significant change in the scale of operation or funding of any initiative or particular scheme previously approved by the department
• making any change of policy or practice which has wider financial implications that might prove repercussive or which might significantly affect the future level of resources required
• carrying out policies that go against the principles, rules, guidance and advice in Managing Public Money

For major projects, NHS Digital will participate in the department’s common assurance and approval process.