SHA/PCT Financial Close Project Instructions for Receiver Organisations – Quick reference guide Department of Health December 2013 High level principles for receiver acceptance balances Cannot reject non substantive unsupported balances Can query allocation of balance but not value Receiver acceptance of balances Incorrect allocation can be reallocated only if substantive Cannot reject on grounds of: misstatement, negative impact on performance or requires cash payment What the legacy team have done prior to transfer Payment of suppliers from 1 April to 31 August Notify suppliers of successor organisation Allocation of PCT and SHA assets & liabilities Legacy team responsibilities Provide archiving data sets to SBS Print and sticker all outstanding invoices as at 31 August Upload working papers on QuickR Completion of detailed transaction form Receiver Responsibilities Review 1 April balances transferred to ensure appropriate and complete Liaise with auditors early Ensure adjustments to funding are recorded in statutory accounts and consolidation schedules. Use property Transfer Scheme for substantive misallocated balances Receiver Responsibilities Include legacy transactions in agreement of balances from month 9. Review full pack of legacy information and consider impact on accounting disclosure notes. Ensure all invoices received for open balances as at 31 August and assume responsibility for payment/ collection. Working Papers – What you need to consider and check When agreeing balances in Detailed Transaction Form outputs to supporting working papers receivers should consider the following. Is there sufficient information in the form outputs about each balance to allow identification of relevant working papers? Has a working paper been provided for each asset or liability allocated to my organisation? Do the balances recorded as having transferred to my organisation per the Detailed Transactions Form output files appear complete? Does the amount in the working paper equal the amount in the form output? Is the working paper clear and detailed to enable the nature of the balance to be understood and managed going forwards; and to withstand audit scrutiny? Does the balance appear valid and in compliance with accounting standards and your organisation’s accounting policies? Does the balance transferred to your organisation create a need to reassess the nature or value of the balance or to create new balances? Does the balance transferred to your organisation suggest there may be an associated disclosure note impact you need to calculate? Based on your review of working papers, do all balances allocated to your organisation relate to your organisation? Action to take if balances have been incorrectly allocated NO Accept balance Is the issue substantive? YES Identify correct receiver with reference to DH guidance & Property Transfer Scheme Discuss and obtain mutual agreement with the potential new receiver that the balance should be transferred. Initial receiver accounts for balance in Month 9 accounts Official legacy balances reallocation process takes place January 2014. Frequently asked questions Question Response What basis was used for transferring balances? Balances will generally transfer in line with legal ownership which is denoted in Property Transfer Schemes. The high level principles for identifying the correct receiver are: Balances follow function, with the Property Transfer Schemes (including any subsequent modifications REFERENCE TO LMT GUIDANCE ON MOD PROCESS) being the legal mechanism by which functions are transferred to receivers. Clinical balances transfer mainly to NHS England (but see FINMAN guidance 18 June 2013 and NHSE clarifications). Staff related assets/liabilities transfer to the organisation where the member of staff now works. If the individual left the system on or before 31 March 2013 DH is the successor organisation. Capital items transfer to the organisation specified in the transfer scheme, e.g. land and buildings transfer to NHS Property Services or Community Health Partnerships. In some cases, the capital item may be being used by another party, and the terms of that arrangement need to be accounted for using the relevant accounting guidance (e.g. FREM, Manual for Accounts). All cash balances transfer to DH. Property Transfer Schemes provide the definitive answer as to where functions transfer, and should be held by the corporate governance section of your organisation. Guidance is available on FINMAN detailing the key principles of functions transfers. Annex B also contains summary information on where the main types of balance sheet item will transfer. Frequently Asked Questions Question Response From what date do legacy balances transfer to me? All balances transfer to receivers on 1 April 2013. Can I query the allocation of a balance? Receivers may query the allocation of a 1 April balance between receivers (i.e. whether it has been transferred to the correct receiver organisation). Can I query the value of balances transferred? No. Where the value of the balance is known to have been misstated by the transferor at 31 March 2013, it must be transferred into the receiver’s accounts on 1 April 2013 via modified absorption accounting at this amount and subsequently adjusted to the correct value via a 2013-14 in-year transaction. Can I reject a balance? Receivers cannot reject a balance on grounds that it is a) misstated; b) has a negative impact on their financial performance or c) remains outstanding and requires cash payment by the receiver organisation. What do I do with an unsupported balance? Receivers (excluding those receivers within the NHS England Group) may reallocate unsupported balances to DH but only where these balances are deemed substantive (either individually or in aggregate). As it would be unusual for a substantive level of unsupported balances to transfer to a receiver, reallocation of any unsupported balances to DH is expected to be exception. Non-substantive unsupported balances cannot be rejected by receivers. Rather they must transfer the balance into their accounts on 1 April 2013 via modified absorption accounting and write-off (i.e. reverse in full) the balance via a 2013-14 in-year transaction if it cannot be substantiated, recording any associated income or expenditure impact against their 2013-14 budget. Frequently Asked Questions Question Response If a balance has been incorrectly allocated can it be reallocated? Where a balance has been incorrectly allocated, i.e. it has been recorded against the wrong receiver organisation in the Detailed Transactions Form when compared to the Property Transfer Scheme (and any subsequent modifications); the issue must be substantive to warrant reallocation of the balance to the correct receiver. A substantive issue is one where failure to reallocate the balance would either: 1) Result in a significant misstatement of a receiver’s statutory accounts; for example a misstatement which may result in the qualification of those accounts or where Management/the organisation’s Audit Committee deem leaving the misstatement as unadjusted to be unacceptable; and/or 2) Result in insurmountable cash/budgetary issues for the receiver organisation; for example where accepting an incorrectly allocated balance would result in breaches of control totals or (where relevant) would adversely affect Monitor’s Continuity of Service Risk Rating (CoSRR). What work has been done in advance of me being notified of the balances being transferred? Please refer to slide 2 and Page 5 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. What information will I receive? Please refer to Page 7 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. What are my responsibilities on receiving these balances? Please refer to slide 3 and Page 8 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations Frequently Asked Questions Question Response Will I receive all of the information at the same time? No. DH will issue the information in batches based on when the forms are received from Legacy Teams and pass DH’s data quality checks. DH started issuing files to receivers during October and will continue in to early December until all are issued. Where do I find information to support the balances transferred? The majority of these working papers will be in your specific receiver room on QuickR however as some may have been transferred to you via email or in hard copy format. What do I do if I cannot obtain evidence to support a balance? If enhanced information or supporting evidence is not available receivers should consider alternative approaches to supporting their balances. Examples are listed on page 10, paragraph 1.5 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. What do I need to consider when reviewing the detailed transaction form? Please refer to slide 4 and page 11 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. Frequently Asked Questions Question Response What actions do I need to take if balances have been incorrectly allocated? If you believe a 1 April balance has been included on your Detailed Transactions Form output that does not relate to a function that has transferred to your organisation and is not related to a function or contract referred to in the relevant Property Transfer Scheme, you must first consider whether the issue is substantive per the principles detailed previously. If the issue is not substantive you should accept the balance. If a balance is going to be reallocated what is the process? Please refer to Page 14 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. What are the bookkeeping entries for unsupportable balances? If an unsupported payable of £100k was allocated to a receiver they would account for it as follows: At 1 April 2013: Dr General fund – modified absorption accounting loss £100k Cr Payable £100k Subsequent 2013-14 in-year transaction: Dr Payable £100k Cr Expenditure £100k Can unsupported balances be reallocated? Note that this credit to expenditure will score in the receiver’s 2013-14 budget. Where the level of unsupported balances is deemed substantive (either individually or in aggregate) and the receiver is not part of the NHS England Group, the receiver may reallocate unsupported balances to DH. Frequently Asked Questions Question Response What are the criteria for DH accepting unsupported balance reallocations? Please refer to Page 16 of the SHA/PCT Financial Close Project Instructions for Receiver Organisations. Where do I record details of unsupported balances that I wish to reallocate to DH? Receivers should use data input cell for “Unsupported balances reallocated to DH” in the M9 FIMS forms/consolidation schedules to record any substantive unsupported balances they wish to reallocate to DH, and as such need not account for these in their M9 accounts. DH’s acceptance of these unsupported amounts will only be confirmed during the legacy balances reallocation process in January 2014 however, and as such, any balances rejected by DH at that stage must be accounted for by the receiver in advance of year-end when the figure will be locked into their FIMS form/consolidation schedule. What are the bookkeeping entries for recording a balance that is incorrect? Where a balance is found to be incorrect it should be transferred into the receiver’s books at the value in the PCT/SHA 31 March closing balance sheet (i.e. the misstated value) and subsequently adjusted to correct for any error. For example, if a £100k provision is overstated by £20k because of a mathematical error in its calculation (this is evident from the working paper that has been reviewed) then it should be accounted for as follows: At 1 April 2013: Dr General fund – modified absorption accounting loss £120k Cr Provisions – transfers under modified absorption accounting £120k Subsequent 2013-14 in-year transaction: Dr Provisions – provisions not required written back £20k Cr Expenditure £20k Frequently Asked Questions Question Response What do I need to do with invoices that are still outstanding as at 31 August 2013? Where balances remain outstanding at 31 August 2013 these will need to be paid/recovered by the appropriate receiver organisation to which the associated function has transferred using their own cash. There will be no further use of DH cash to settle payables/receivables on behalf of receivers after 31 August 2013 and no further issue of “funding” to cover any subsequent payments made by receivers. Worked example: PCT1 has the following assets and liabilities recorded in its 31 March 2013 SoFP: What accounting entries should be recorded on the transfer of balances as at 1 April 2013? £1,000,000 Land (with an associated revaluation reserve balance of £200,000) £400,000 Payable £500,000 Cash The PCT reviews its Property Transfer Scheme and concludes that the full land and payables balances should transfer to NHS England as they relate to a function which transferred to NHS England. The Legacy Team for this PCT therefore allocates the entirety of the land and payables balances to NHS England in its Detailed Transactions Form. NHS England is notified of these balances through receipt of the Detailed Transactions Form output relating to PCT1. 1 April 2013 accounting entries NHS England accounts Dr Land £1,000,000 Cr Payable £400,000 Cr General fund – modified absorption gain £600,000 Cr Revaluation reserve £200,000 Dr General fund £200,000 Frequently Asked Questions Question Response What transactions will be shown in the detailed transactions forms sent by DH with respect to cash payments made by the legacy team in the period to 31 August 2013? Following on from the example above in 2013-14 the PCT1 Legacy Team settles the payable in cash. The amount of cash required to settle the payable was £500,000 (i.e. the payable in the PCT1 31 March 2013 SoFP was understated by £100,000 as it was based on an estimate). 2013-14 accounting entries I am from an NHS Trust/ NHS Foundation, how do I account for payables transferred to me? NHS England accounts Dr Payable £400,000 Cr General fund – grant in aid £500,000 Dr Expenditure £100,000 Dr Payable £400,000 Cr PDC reserve £500,000 Dr Expenditure £100,000 I am from NHS property services, how do I account for payables transferred to me? Dr Payable £400,000 Cr Equity – share capital £500,000 Dr Expenditure £100,000 Frequently Asked Questions Question Response The receipts collected by the legacy team to 31 August 2013 exceed the payments made, how do I account for this? A negative funding transactions will be recorded (using the same example as before but in reverse): The receipts collected by the legacy team to 31 August 2013 exceed the payments made, how do I account for this? Following the transfer of legacy balances I now have a significant deterioration in financial performance, what do I do? Cr Receivable £400,000 Dr Cr General fund – grant in aid - £500,000 Cr Income £100,000 A negative funding transactions will be recorded. I.e. for an NHS Trust/NHS Foundation Trust the entries would be as follows (using the same example as before but in reverse): Cr Receivable £400,000 Dr Cr General fund – grant in aid - £500,000 Cr Income £100,000 It is correct that the impact of legacy balances should form part of a receiver organisations 2013-14 reported financial position as the balances and associated transactions relate to functions now owned by that organisation. Receiver organisations are strongly advised to use separate coding (for example a separate cost centre or cost centres) to record the financial impact of legacy transactions and balances, as this will enable them to explain the impact of legacy balances on their reported financial position to their internal Management. Frequently Asked Questions Question Response Following the transfer of legacy balances I now have a liquidity issue, what do I do? The Department has minimised the cash impact of legacy on receivers by paying invoices on their behalf between 1 April and 31 August 2013 and issuing funding to the value of the net payment (payments less receipts) rather than recovering the cash. As such, the vast majority of legacy payments will not require cash clearance by receivers; however any genuine payables still outstanding at 31 August will require payment using receiver cash. The Department will not issue funding or any other form of financial support to cover legacy payments, however, if a receiver suffers severe liquidity issues as a result of legacy balances (e.g. is at risk of being unable to pay its creditors) it should follow standard procedures. I.e. if the organisation was an NHS Trust it should approach the Department requesting a public dividend capital (PDC) issue. The level of PDC requested/issued should reflect the financial need of the organisation and will not necessarily equal the value of the legacy balances requiring cash payment.