This review from the Audit Commission has demonstrated both the weaknesses in the current system and the need for change. Many of the flexibilities that enabled bodies to meet their statutory duties not to overspend, have either been eroded or have disappeared for good reason. Over time there has also been less of a focus on financial management both nationally and in some organisations. In some cases financial problems have been obscured. A growing number of organisations have incurred deficits of increasing size, which has resulted in the NHS overall overspending by 536 million pounds according to the unaudited accounts for 2005/06. It appears to be increasingly hard for organisations to recover financially.The Commission’s recommendations include scrapping resource accounting and budgeting and replacing it with a financial regime that gives greater emphasis to cash and liquidity and has transparent arrangements for borrowing for both investment and working capital. There should be a more effective and swifter mechanism for identifying and dealing with financial distress, with clear trigger points and matched intervention strategies. Specific steps should also be taken to improve the skills of finance staff and the capacity and capability of boards.
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