'--,+NHS Lot hian LOTHIAN HEALTH BOARD ANNUAL ACCOUNTS for the YEAR ENDED 31 MARCH 2004 LOTHIAN HEALTH BOARD ANNUAL ACCOUNTS AND NOTES FOR YEAR ENDED 31 MARCH 2004 DIRECTORS' REPORT I. Accounting convention The Annual Accounts and Notes have been prepared under the historical cost convention modified to reflect changes in the value of fixed assets and in accordance with the Resource Accounting Manual issued by HM Treasury. 2. Accounting policies 'The statement of the accounting policies, which have been adopted, is shown at Note 1.O. From I April 2002, the NHS Board has complied with the Resource Accounting Manual (RAM issued by HM Treasury with the Operating Cost Statement replacing an Income and Expenditure Accol-lnt and the General Fund replacing capital and revenue reserves on the Balance Sheet. Lothian Urliversity Hospitals NHS Trust was dissolved on 1 January 2004. The assets and liabilities of the Trust were transferred to Lothian NHS Board at that date. This transfer has been accounted for using merger accounting, as directed by the Resource Accounting Manual. The main effect of this is that the results and cash flows of the Trust for the period ended 31 March 2004 are brought into account from the start of the financial year as if the transfer had occurred on that date and the prior year comparatives have been restated as if the transfer had occurred at the start of that year. Prior to the introduction of resource accounting, Health Boards accounted for early retirement costs which arose prior to 1 April 1995 in the years in which the costs arose and did not reflect the full lifetime liability arising from the decision to allow early retirement. With the introduction of resource accounting this long term liability requires to be shown. Accordingly a prior year adjustment has been shown in those. accounts in order to reflect the long term liability arising from 1 April 1995 early retirements. Under Accounting Standards and the Resource Accounting Manual, NHS bodies are required to revalue their land and buildings at least every five years. A professional valuation should be carried out in accordance with the Appraisal and Valuation Manual produced jointly by the Royal Institution of Chartered Surveyors (RICS) and Incorporated Society of Valuers and Auctioneers (ISVA) and the Institute of Revenues Rating and Valuation (IRRV). The estate of NHS Scotland was last valued in 1999, and a national contract to revalue the estate as at 31 March 2004, was let to the Valuation Office Agency. The valuation of fixed assets for land and buildings is incorporated in the attached accounts in accord with the report received. In accordance with Scottish Executive direction on the application of Best Value, NHS bodies have an ongoing and mandatory requirement to seek continuous in~provementin the use of resources. Consistent with the requirements of Generally Accepted Accounting practice (GAAP) and the Resource Accounting Manual, the valuation of fixed assets will be kept under review. Principal activities and review of the year The NHS Board was established in 1974 and is responsible for commissioning health care se~cesfor the residents of Edinburgh and .the Lothians, a total population of 783,600. In December 2000, the Scottish Executive published "Our National Health: A Plan for Action, A Plan for Change" (the Scottish Health Plan), which recognised the need to simplify, improve and rationalise local decision making arrangements. As a result, from 30" September 2001, 15 single unified NHS boards were established. In the case of the 12 mainland board areas, these new unified NHS boards replaced the separate structures of NHS Boards and Trusts. These new NHS boards form a local health system, with single .governing boards responsible for improving the health of their local populations and delivering the healthcare they require. The overall purpose of the unified NHS Board is to ensure the efficient, effective and accountable governance of the local NHS system and to provide strategic leadership and direction for the system as a whole. The role of the unified NHS Board is to: - improve and protect the health of the local people; - improve health services for local people; - focus clearly on health outcomes and people's experience of their local NHS system; - promote integrated health and comm~~nityplanning by working closely with other local organisations; and - provide a single focus of accountability for the performance of the local NHS system. The functions of the unified NHS Board comprise: - strategy development; - resource allocations; - implementation of the Local Health Plan; and - performance management. -NHS Lotl-lian again met all its financial targets in 2003104 supported by a partnership approach both within NHS Lothian and elsewhere across NHS Scotland in respect of tertiary services. Other highlights of the year included: The dissolution of Lothian University Hospitals NHS Trust on 1 January 2004 and its incorporation as an operating division of the Board Exceeding the target set for delayed discharges : Monitoring the progress made previously and demonstrating further progress towards achieving the attainment of the Outpatient Waiting Times national target by 2005 Achieving 100% compliance with the 48 hour access target by December 2003 In 2002103 the Board accounts were qualified in regard to a limitation in : the scope of audit work due to difficulties in.identifying the level of fraud for exemption claims made by patients. As a result, and following . '. criticism that the process was not statistically robust, Counter Fraud Services reviewed the process of checking for fraud within these claims. Both statisticians and Audit Scotland have approved the revised : process. As a result of these revised procedures no qualification is required for 2003104. Through the work undertaken by Counter Fraud Services, a sample of claims for patient exemption within NHS Lothian has been tested for validity. Based on the level of fraud within the sample, a projected figure of f1,688k has been identified as being the potential total fraud committed against NHS Lothian in 2003104. Where fraud is known (and detected through the sampling process), recoveries are made wherever possible. For financial year 2003104, a total of £6,466 has been recovered. The accounts disclose an underspend against the Revenue Resource Limit of £ 13,207k. 4. Financial targets The Scottish Executive set 3 budget limits at health board level on an annual basis. These limits are: + Revenue resource limit - a resource budget for ongoing operations; + Capital resource limit - a resource budget for new capital investment; and + Cash requirement - a financing requirement to fund the cash consequences of the ongoing operations and the new capital investment. Health boards are expected to stay witl- in these limits, and will report on any variation from the limits as set. 5. Performance against financial targets As agreed Actual Variance with Outturn (0ver)lUnder Funding bodies roo0 f '000 f'000 (1) (2) (3) 1 Revenue Resource 923,381 910,174 13,207 limit 2 Capital Resource 9,912 9,912 - Lirr~it 3 Cash Requirement 838,904 827,650 11,254 This underspend which substantially reflects timing differences on a number of planned projects, but also reflects an improved operating ..performance by Lothian University Hospitals Operating Division in the final quarter of the year, is fully committed against activity in 2004105. While the operati~gperforniance of Lothian University Hospitals Division showed a marked improvement in the final quarter of the year, the Division returned a deficit off8,727k for the full year. As part of the Board's five year planning process it was identified in 2001102. that to enable a number of internal efficiency measures to be put in place to ensure that the Board achieved sustainable balance by 2007108 additional funding would be required up to 2006107. This was agreed with the Scottish Executive and in accordance with this agreement, brokerage off 13.8m was received in 2003104. 6. Payment policy The board endeavours to comply with the principles of the CBI prompt payment code by processing suppliers invoices for payment without unnecessary delay and by settling them in a timely manner. In 200312004 average credit taken was 33 days. In 2003104 the Board paid 76.9% by value and 81% by volume within 30 days. 7. Board membership Under the terms of the Scottish Health Plan, the unified board is a board of governance whose membership will be conditioned by the functions of the board, as set out in paragraph 3 above. Members of unified boards are selected on the basis of their position - such as a trust chair or chief executive - or the particular expertise which enables them to contribute to the decision making process at a strategic level. The unified board has collective responsibility for the performance of the local NHS system as a whole, and reflects the partnersl~ip approach, which is essential to improving health and health care. Chair: Mr Brian Cavanagh - to 31 July 2005 Non-Executive Directors: 'Mr Michael Walker, Vice Chair Professor Patricia Peattie, Chair, Lothian University Hospitals NHS Trust - to 31 December 2003 Mr Garth Morrison, Chair, Lothian Primary Care NHS Trust Mr Stuart Smith, Chair, West Lothian Healthcare NHS Trust Mr Stuart Smith, Interim Chair, NHS Lothian - University Hospitals Division - 5 January 2004 - 31 March 2004 Mr Stuart Gray, Chief Executive, Lothian University Hospitals NHS Trust - to October 2003 Mr David