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Smart Questions for Governors: how to get to know what you need to know.

Smart Questions for Governors: how to get to know what you need to know. Mark Brearley Director of Finance. Agenda. Background A little knowledge………… Challenging and holding to account Key financial metrics Monitor & it’s Risk Ratings Smart Questions. Background.

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Smart Questions for Governors: how to get to know what you need to know.

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  1. Smart Questions for Governors: how to get to know what you need to know. Mark Brearley Director of Finance

  2. Agenda • Background • A little knowledge………… • Challenging and holding to account • Key financial metrics • Monitor & it’s Risk Ratings • Smart Questions

  3. Background • Are Public Benefit Corporations the same as P.L.C.s? • Are FT Governors the same as Institutional Shareholders? • Approach of Board of Directors (and Executive Directors) • Clarity on your role

  4. Divided by a common language? • Finance is a technical area, accountants are trained to interpret…let them! • Don’t let jargon get in the way

  5. Hope this is helpful Thank you for bringing this to my attention I’m well aware that this is not helpful at all. Please don’t contact me again. Damn, I hoped nobody was going to mention/find out about that Civil Service jargon

  6. Please do not hesitate to contact me. Seeking your agreement Please do not ever contact me again. If you really insist, try in two weeks time when I am on leave Preparation is at an advanced stage, or it’s already happening. If you have any concerns, nobody wants to hear them Civil Service jargon

  7. A little knowledge……………. • How much information….human nature • Frequency • Data or information • Interpretation • Developing trust….…..a two way street

  8. Challenging & holding to account • A lot is said about ‘challenge’ • Constructive and destructive challenge • Agree in advance what information will be monitored and what represents adverse movement (scale and importance) • Seek an understanding of actions required in response to any adverse movements

  9. Key Financial Metrics • Initially view was ‘Cash is King’ (generates high cash balances) • Then it was I&E Surplus as well (increases high cash balances) • Now it includes Capital Investment plans (reduces high cash balances caused by first two ‘themes’)

  10. Monitor and it’s Risk ratings • Monitor uses formula-based approach to assess financial risk (Risk of Breach of Terms of Authorisation) • Rating is both backward and forward looking (Annual Risk Assessment and In-year) • FT will self certify the Financial Risk Rating • FT Governor’s needs can be met by monitoring FT self-certified Financial Risk rating

  11. Financial Risk Rating • Understand the requirements of Monitor’s Compliance Framework • Escalating information requirements (content and frequency) with increasing risk • Single rating for finance which weights key financial indicators

  12. Financial Risk Rating Financial Criteria • Achievement of Plan (10%) • Underlying I&E Performance (25%) • Financial Efficiency (40%) • Return on Assets and I&E Surplus Margin • Liquidity (25%)

  13. Financial Risk Rating • Rating 5 or 4 – Achieving weighted average score. No perceived risk of breach in the medium term • Rating 3 – Regulatory concerns in one or more components. Significant breach unlikely • Rating 2 – Risk of significant breach in the medium term, e.g. 12 to 18 months in the absence of remedial action • Rating 1 – High probability of significant breach of Authorisation in the short term, e.g. <12 months, unless remedial action taken

  14. Smart Questions High Level • What Financial Risk ratings were self-certified for Annual Plan, last two quarters (or months if low FRR)? • How stable is the underlying financial position (how much movement in recent FRRs)

  15. Smart Questions Low Level • What do the Financial Criteria show? • Liquidity rating (cash is likely to move downward more quickly than other components) • Is Liquidity affecting Capital Investment plans? Shows degree of confidence in handling problems

  16. Smart Questions Low Level • I&E Performance (would need to improve before underlying cash improves) • As 75% of expenditure is staff pay costs then ask about workforce measures and potential impact on clinical services

  17. Smart Questions from Governors? Mark Brearley Director of Finance

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