Trim Reference DH1/10/ For Action by: The Director of Finance of each HSC Trust, HSCB and BSO

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1 Subject Funding cash settlements for Clinical Negligence claims For Action by: The Director of Finance of each HSC Trust, HSCB and BSO For Information to: The Chief Executives of each HSC Trust, HSCB and BSO Summary of Contents: This circular explains the new arrangements to be implemented in respect of funding cash settlements for clinical negligence and the related changes required to account for the claims. Circular Reference: HSC(F) 58/2010 Date of Issue: 22 December 2011 Trim Reference DH1/10/ Related documents: HSC (SQSD) 5/10 Superseded Documents: HSS(F) 19/2000 HSS(F) 29/2004 HSS(F) 40/2007 Expiry Date: N/A Enquiries: Any enquiries about the contents of this Circular should be addressed to: Julie Ramsey Financial Accounting Unit DHSSPSNI Room D3.12 Castle Buildings Stormont BELFAST BT4 3SQ Status of Contents: Action Implementation: Additional Copies: Julie Ramsey Tel:

2 BACKGROUND 1. The purpose of this circular is to explain the revised cash funding arrangements in respect of clinical negligence settlements and the related changes in the accounting treatment. 2. As a result of new budgetary arrangements for the HSC, following changes in HM Treasury budgeting guidance, cash funding to HSC bodies is now treated as grant in aid, and financial performance is measured with reference to a Revenue Resource Limit. The relevant changes were first introduced to Trust accounts in 2008/09, and then to the HSCB accounts in 2009/ However, as a result of the specific circumstances and more complex accounting arrangements relating to clinical negligence transactions and balances, the Department obtained dispensation from DFP which allowed HSC bodies to continue to cover clinical negligence costs by match funding. This meant that HSC bodies were not required to draw funds to cover clinical negligence costs as grant in aid and therefore continued to reflect debtor balances with the Department and the Business Services Organisation (BSO) to match the movement in the provision and the settlement costs. 4. This was managed through the clinical negligence Central Fund ( administered by BSO), such that reimbursements receivable from the Central Fund in respect of clinical negligence provisions and liabilities were accounted for as income and reflected within debtors. 5. The dispensation covered the 2 financial years ending on 31 March 2010, and therefore revised arrangements are now being implemented for the current financial year. REVISED ARRANGEMENTS FOR DEALING WITH SETTLEMENTS 6. The Central Fund will no longer be used to administer settlement of clinical negligence claims. HSC bodies will continue to pay their clinical negligence settlements as they arise, in accordance with HSC (SQSD) 05/10, but, in future draw cash to cover clinical negligence settlements as grant in aid directly from the Department. 7. HSC bodies should no longer seek reimbursement from the Central Fund for any settlements made. Therefore, with immediate effect, no further invoices should be issued to the BSO. Action to deal with transactions 8. All transactions which have taken place during the current year to date must be reversed out. This will involve the repayment of cash drawn by Trusts and HSCB to the BSO and cash drawn by the BSO to the Department. Trusts should refer to the attached excel spreadsheet (appendix 1) which details the amount of cash repayable to the BSO. This amount should be repaid by end

3 January The BSO will be co-ordinating the repayment process and you will need to agree repayment arrangements with Simon McGrattan in the BSO. NON CASH REVENUE RESOURCE LIMIT (RRL) 9. As a result of the above, HSC organisations will no longer be required to include matching funding to cover either the movement in the clinical negligence provision or the cash costs of settling the provision. 10. The cost of clinical negligence provisions will be covered by the issue of non cash RRL from the Department. The cash requirement arising from the settlement will be covered as part of the normal day to day draw down procedures. 11. Please note that for budgetary purposes it is now extremely important that the forecast information relating to movements in the clinical negligence provision included in the monitoring returns to the Department (and to the HSCB in the case of trusts) are as accurate as possible. Forecast Utilisation of Provisions 12. This is particularly important in relation to forecasts for utilisation of provisions, as the cash payments for such utilisations score directly against the Department s DEL Other Resources budget. Therefore, any unexpected payments for utilisations over and above those already forecast have the potential to cause the Department to breach HMT controls on expenditure within individual DEL budget categories or even to breach the department s overall DEL (Departmental Expenditure Limit). 13. Trusts are therefore expected to keep forecasts for utilisations under continual review, and inform the Department of any material changes to forecasts as soon as possible. 14. HSC bodies will no longer be required to complete the year end clinical negligence schedules traditionally submitted to BSO. Rather the information on the monitoring returns will be used as the prime source of information. The final monitoring return must reflect as far as possible the draft accounts. RESTATEMENT OF PRIOR YEAR INFORMATION 15. As the new arrangements represent a change in the accounting policy, it will be necessary to restate the relevant figures for the comparative period. The following notes will be affected: Accounting policies see Annex A Income note - Reimbursements receivable in respect of provisions (HSCB and Trusts only) Trade receivables and other current assets Trade payables and other current liabilities (BSO only) Financial Performance Targets (RRL) (HSCB and Trusts only)

4 ITEMS TO BE INCLUDED WITHIN THE CLINICAL NEGLIGENCE PROVISION 16. There are no changes to the nature of the items that should be included, therefore the following list has been included for reference purposes: Settlement amount Plaintiff s Solicitors fees (including VAT) Plaintiff s Counsel fees (including VAT) Plaintiff s expert reports/witnesses/opinions (including VAT) Defendant s Counsel fees Defendant s expert reports/witnesses/opinions Payments made to Compensation Recovery Unit DLS have confirmed that they include all the above in their estimates. DEFENCE LEGAL COSTS 17. HSC organisations are advised that legal costs in defence of a clinical negligence claim must not be included in the provision. Budget cover for these costs is included within the block contract with BSO. Should you have any queries with this circular, please contact either myself at paula.shearer@dhsspsni.gov.uk or Julie Ramsey at Julie.ramsey@dhsspsni.gov.uk Paula Shearer Financial Accounting Unit

5 ANNEX A Accounting Policies note 1) Provisions note remains unchanged. 2) Remove note on clinical negligence costs 3) New note required for change in accounting policy; For HSC Trusts/HSCB Change in Accounting Policy / Prior Year Restatement Clinical negligence As a result of new budgetary arrangements for the HSC, following changes in HM Treasury budgeting guidance, cash funding to HSC bodies is now treated as grant in aid, and financial performance is measured with reference to a Revenue Resource Limit (RRL). The relevant changes were first introduced to Trust accounts in 2008/09, and then to the HSCB accounts in 2009/10. However, as a result of the specific circumstances and more complex accounting arrangements relating to clinical negligence transactions and balances, the Department obtained dispensation from DFP which allowed HSC bodies to continue to cover clinical negligence costs by match funding. This was managed through the clinical negligence Central Fund such that re-imbursements receivable from the Central Fund in respect of clinical negligence provisions and liabilities were accounted for as income and reflected within debtors. Clinical negligence provision continues to be fully funded but rather than being re-imbursed by Central fund, it is now matched by RRL non cash cover. The Central Fund will no longer be used to administer settlement of clinical negligence claims, rather HSC bodies will draw cash to cover clinical negligence settlements as grant in aid directly from the Department. HSC bodies are now required to adopt this policy in full and have therefore restated any debtors in respect of amounts reimbursable from the Central Fund. The prior year totals have been restated in the accounts to reflect this change in treatment. The effect of this change in prior year is shown in the table below: Income RRL Receivables Reserves 09/10 000

6 For BSO Change in Accounting Policy / Prior Year Restatement Clinical negligence As a result of new budgetary arrangements for the HSC, following changes in HM Treasury budgeting guidance, cash funding to HSC bodies is now treated as grant in aid, and financial performance is measured with reference to a Revenue Resource Limit (RRL). However, as a result of the specific circumstances and more complex accounting arrangements relating to clinical negligence transactions and balances, the Department obtained dispensation from DFP which allowed HSC bodies to continue to cover clinical negligence costs by match funding. This was managed through the clinical negligence Central Fund. The Clinical Negligence Central Fund, administered by the BSO, (previously Central Services Agency (CSA)), was established to manage the payment of clinical negligence settlements. Under the arrangements, HSC bodies were required to pay their clinical negligence settlements as they arose and then access the Central Fund for reimbursement. The BSO ( previously CSA), as administrator of the Central Fund, was required to reflect a creditor with the HSC bodies in respect amounts reimbursable from the Central fund, and a corresponding debtor with the Department of Health, Social Services and Public Safety in respect of funds to be drawn to meet clinical negligence expenditure. With this change in accounting treatment, the Central Fund will no longer be used to administer settlement of clinical negligence claims, rather HSC bodies will draw cash to cover clinical negligence settlements as grant in aid directly from the Department. Therefore the BSO will no longer reimburse HSC bodies for any clinical negligence settlements made, nor will it draw down cash from the Department in respect of clinical negligence. Consequently the BSO have therefore restated any receivables and payables in respect of amounts reimbursable from the Central Fund. The prior year totals have been restated in the accounts to reflect this change in treatment. The effect of this change in prior year is shown in the table below: Receivables Payables 09/10 000