Mark Ash


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Mark Ash

  1. 1. Governance Mark Ash Director of Finance September 2008
  2. 2. Structure <ul><li>Setting the scene! </li></ul><ul><li>Legal position on governance </li></ul><ul><li>Governance in the Public Sector </li></ul><ul><li>Governance in the NHS </li></ul><ul><li>Aim to cover: </li></ul><ul><ul><li>What do we mean by governance? </li></ul></ul><ul><ul><li>Key elements of governance </li></ul></ul><ul><ul><li>Hopefully it won’t be new! </li></ul></ul>
  3. 3. Setting the scene <ul><li>If we say Governance what do we all think of? </li></ul>
  4. 4. Setting the scene <ul><li>If we say Governance what do we all think of? </li></ul><ul><li>First thing that comes into your head? </li></ul>
  5. 5. Setting the scene <ul><li>Scandals </li></ul><ul><ul><li>GE; Johnson & Johnson </li></ul></ul><ul><ul><li>AOL; Merck; and Xerox </li></ul></ul><ul><ul><li>Enron, Andersen, </li></ul></ul><ul><ul><li>WorldCom; Tyco </li></ul></ul><ul><li>Scrutiny over their accounting practices </li></ul><ul><li>Criminal proceedings </li></ul>
  6. 6. When it goes wrong - WorldCom <ul><li>Bernard Ebbers </li></ul><ul><li>He co-founded the telecommunications company WorldCom and is a former CEO of that company. </li></ul><ul><li>In 2005, he was convicted of fraud and conspiracy in the largest (to date) accounting scandal in United States history, as a result of WorldCom's false financial reporting, and subsequent US$11-billion loss to investors. He is currently serving a 25-year prison term at Oakdale Federal Correctional Complex in Louisiana. </li></ul>
  7. 7. Setting the scene <ul><li>Such events send a ‘shockwave’ through the accounting world and corporate governance </li></ul><ul><li>How easy is it to forget? </li></ul>
  8. 8. Setting the scene <ul><li>2001 </li></ul><ul><li>“ Enron’s success shows that well-run, innovative global corporations are rewarded in a competitive market, thus benefiting all”. </li></ul><ul><li>2002 </li></ul><ul><li>“ Enron’s failure shows that poorly run, corrupt corporations cannot survive in a competitive market.” </li></ul><ul><li>On March 7, 2002 the President announced his &quot;Ten-Point Plan to Improve Corporate Responsibility </li></ul>
  9. 9. Setting the scene <ul><li>What happens then? </li></ul><ul><li>Corporate Governance reforms – really? </li></ul><ul><li>What is the legal position? </li></ul>
  10. 10. Legal position <ul><li>No legal precedents in the UK </li></ul><ul><li>Best practice </li></ul><ul><ul><li>The 2003 Combined Code of Corporate Governance </li></ul></ul><ul><ul><li>The Companies Act 2006: the first part including the Seven Non-exhaustive Director’s Duties went live in October 2007 </li></ul></ul>
  11. 11. Corporate Governance Codes <ul><li>UK Board Conformance </li></ul><ul><ul><li>Combined codes of the London Stock Exchange </li></ul></ul><ul><ul><li>(Cadbury; Greenbury; Hampel; Higgs Review 2003 </li></ul></ul><ul><li>UK Board Performance </li></ul><ul><ul><li>Turnbull; Myners; Tyson </li></ul></ul><ul><li>All now included in UK Combined Code of Corporate Governance in 2006 – 17 main principles </li></ul><ul><li>Others </li></ul><ul><ul><li>King Commission 2 (South Africa) </li></ul></ul><ul><ul><li>Sarbanes-Oxley Act (US) – draconian measures </li></ul></ul>
  12. 12. Legal position <ul><li>The Companies Act 2006 </li></ul><ul><ul><li>good corporate governance, particularly the importance of independent thinking and challenging questioning by company directors, can substantially advance the ability of companies to improve their social and environmental performance </li></ul></ul>
  13. 13. Government Intentions? <ul><li>The push to become more “business like” </li></ul><ul><li>Currently legal status of Directors in the private sector compared to the public sector is different – Companies Act 2006 </li></ul><ul><li>Governments are re-considering the legal status? – NHS Foundation Trusts in England </li></ul>
  14. 14. Governance in the Public Sector
  15. 15. Scandals only in private sector? <ul><li>NO? </li></ul><ul><li>Remember </li></ul><ul><ul><li>WDA; Wessex and West Midlands Regional Health Authorities; Westminster City Council </li></ul></ul><ul><ul><li>“ Cash for questions affair” </li></ul></ul><ul><ul><li>Other public sector bodies?? </li></ul></ul><ul><li>Standards of public behaviour outlined by the Nolan Committee in 1995 </li></ul>
  16. 16. Seven Principles of Public Life <ul><li>Selflessness </li></ul><ul><li>Integrity </li></ul><ul><li>Objectivity </li></ul><ul><li>Accountability </li></ul><ul><li>Openness </li></ul><ul><li>Honesty </li></ul><ul><li>Leadership </li></ul><ul><li>Source: Nolan Committee on Standards of Public Life </li></ul>
  17. 17. What do we mean by Governance? <ul><li>Over 400 years good governance, public and private, has been built on three fundamental corporate values: </li></ul><ul><ul><li>Accountability </li></ul></ul><ul><ul><li>Probity (honesty) </li></ul></ul><ul><ul><li>Transparency (openness to the owners) </li></ul></ul>
  18. 18. What do we mean by Governance? <ul><li>Concerns the appropriate board structures, processes and values which drives the organisation forward to achieve its purpose whilst keeping it under prudent control </li></ul><ul><li>Responsibility of: </li></ul><ul><ul><li>Government </li></ul></ul><ul><ul><li>Organisation </li></ul></ul><ul><ul><li>Individual(s) </li></ul></ul><ul><ul><li>Auditors(s) </li></ul></ul>
  19. 19. Governance in the Public Sector <ul><li>Principles of good governance (CIPFA) – 6 core principles </li></ul>
  20. 20. Governance in the NHS <ul><li>History </li></ul><ul><ul><li>Originated in the private sector </li></ul></ul><ul><ul><li>Cadbury Committee report – systems of internal control </li></ul></ul><ul><ul><li>Turnbull report – assurance statement (SIC) </li></ul></ul><ul><ul><li>NHS response in late 90’s – controls assurance framework </li></ul></ul><ul><ul><li>Aware of the scandals – Enron et al </li></ul></ul>
  21. 21. Governance In NHS in the 90’s Clinical care The environment of care Financial resources CLINICAL GOVERNANCE ORGANISATIONAL CONTROLS FINANCIAL CONTROLS Organisational Assurances (Annual Report) Clinical Assurances (Clinical Governance Report/Annual Report ) Financial Assurances (Annual Accounts )
  22. 22. Corporate Governance Corporate Governance Controls Assurance (Audit Cttee) Clinical Governance
  23. 23. Elements of Corporate Governance <ul><li>Corporate Governance Framework </li></ul><ul><ul><li>Standing Orders </li></ul></ul><ul><ul><li>Standing Financial Instructions </li></ul></ul><ul><ul><li>Code of Conduct and Accountability </li></ul></ul><ul><ul><li>Code of Practice on Openness in the NHS </li></ul></ul><ul><li>Controls Assurance </li></ul><ul><ul><li>WRMS </li></ul></ul><ul><ul><li>Statement of Internal Control </li></ul></ul><ul><ul><li>Internal Audit </li></ul></ul><ul><li>Clinical Governance </li></ul><ul><ul><li>Strategy </li></ul></ul><ul><ul><li>Clinical audits et al </li></ul></ul><ul><li>Risk Management </li></ul><ul><ul><li>Risk register </li></ul></ul><ul><li>Fraud and corruption </li></ul><ul><ul><li>Strategy </li></ul></ul><ul><ul><li>Proactive exercises </li></ul></ul><ul><ul><li>PPV </li></ul></ul><ul><li>Other </li></ul><ul><ul><li>Financial governance </li></ul></ul><ul><ul><li>Information governance – data protection & caldicott guardian </li></ul></ul>
  24. 24. Elements of Corporate Governance <ul><li>Standing Orders & SFIs </li></ul><ul><ul><li>Regulatory framework for the business conduct of the LHB </li></ul></ul><ul><ul><li>Performs a dual role: </li></ul></ul><ul><ul><ul><li>Protect LHB interests (e.g. all transactions maximise the benefit of the LHB) </li></ul></ul></ul><ul><ul><ul><li>Protect staff from accusations of acting less than properly (provided they follow the procedures outline) </li></ul></ul></ul><ul><ul><li>Board and staff need to aware of their existence and be familiar with the detailed provisions </li></ul></ul>
  25. 25. Elements of Corporate Governance <ul><li>Code of conduct and accountability </li></ul><ul><ul><li>LHBs statutory accountable to the Assembly </li></ul></ul><ul><ul><li>Executive Directors have corporate responsibility for all decisions of the Board </li></ul></ul><ul><ul><li>Chair role is leading the Board in discharging its responsibilities </li></ul></ul><ul><ul><li>Non-officer members contribute to the Board business </li></ul></ul><ul><ul><li>Declare any conflict of interests when conducting the business </li></ul></ul>
  26. 26. Elements of Corporate Governance <ul><li>Controls Assurance </li></ul><ul><ul><li>Provide assurance that LHB has effective internal control systems – SIC </li></ul></ul><ul><ul><li>Systems to identify risks relating to the achievement of aims and objectives – WRMS </li></ul></ul><ul><ul><li>Internal audit is an arm of management that have an element of independence – Audit Plan & reports </li></ul></ul>
  27. 27. Elements of Corporate Governance <ul><li>Clinical Governance </li></ul><ul><ul><li>….. continuously improving the quality of services & safeguarding high standards of care </li></ul></ul><ul><li>Risk Management </li></ul><ul><ul><li>Systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communication of risk issues </li></ul></ul><ul><ul><li>Risk register et al </li></ul></ul>
  28. 28. Elements of Corporate Governance <ul><li>Fraud and Corruption </li></ul><ul><ul><li>NHS Counter Fraud Service </li></ul></ul><ul><ul><li>Local Counter Fraud Specialists </li></ul></ul><ul><ul><li>LHB Strategy and annual plan </li></ul></ul><ul><ul><li>Fraud in NHS is unacceptable and needs to be reduced to a minimum – Proactive mgt. </li></ul></ul><ul><ul><li>Examples: loss of prescription income; patients; professionals; staff; etc. </li></ul></ul>
  29. 29. Role of the Audit Committee <ul><li>Core activities: </li></ul><ul><ul><li>Safeguard assets </li></ul></ul><ul><ul><li>Maintain proper accounting records </li></ul></ul><ul><ul><li>Reliable financial information </li></ul></ul><ul><ul><li>Independent and effective internal & external audit </li></ul></ul><ul><ul><li>Control environment (financial & non financial) </li></ul></ul><ul><ul><li>Effective management of risk </li></ul></ul><ul><li>On behalf of the Board </li></ul><ul><li>Oversee governance and assurance processes </li></ul><ul><li>Effective review functions – audits </li></ul><ul><li>Report annually on the effectiveness of the control environment (SIC) </li></ul>
  30. 30. Developments in Corporate Governance <ul><li>Consider integrated governance principles – role of Audit Cttee and Clinical Governance Cttee </li></ul><ul><li>Consider the Assurance Framework </li></ul><ul><li>Integrated Governance Working Group </li></ul><ul><ul><li>Healthcare Standards </li></ul></ul><ul><ul><li>Risk Management </li></ul></ul><ul><ul><li>Action Plans </li></ul></ul><ul><ul><li>Reports to Audit Cttee & Clinical Governance </li></ul></ul>
  31. 31. Last message <ul><li>“ As Board members you need to get into a mindset where you feel that it’s your organisation, it’s not there’s (i.e. the Department), it’s not the doctors’, it’s not the managers’, it’s not the nurses’ or anyone elses’, it’s your organisation and therefore it’s your accountability” </li></ul><ul><li>Professor Sir Ian Kennedy, 2004 </li></ul>
  32. 32. Setting the scene <ul><li>Literature </li></ul><ul><ul><li>‘ No director can afford to ignore this book’ — Sir Adrian Cadbury </li></ul></ul>