The Care Act will have major implications for local authorities' financial forecasting and reporting, but it also offers an opportunity to improve the financial management of social care costs
The Care Act represents the most significant reform of social care in more than 60 years. Its broad intention, of putting people and carers in control of their care and support, is undoubtedly a valiant one. However, its implementation comes at a time of enormous and unprecedented strain on local authority finances. Finance functions will need to ensure that they fully appreciate the impact of the Act’s implementation, including the pressure it will create in relation to effective monitoring, forecasting and reporting. However, authorities should also see the Act as an opportunity to enhance the way they undertake the financial management of social care costs.
From a total expenditure perspective, there are a number of key considerations for authorities. Firstly, the cap on care (effective as of April 2016) will mean that more people will benefit from funded social care. Estimates suggest that when the cap comes into effect, 35,000 more people will be entitled to help with their care costs, rising to a potential 100,000 extra people becoming eligible for funded care and support by 2024/25. Secondly, the Act will test the existing commercial arrangements that authorities have with providers. Contracts, designed for an era prior to the Act’s existence, will run the risk of being inefficient and ineffective in the new environment. It is also acknowledged that the sheer increase in assessments, along with the likely increase in complexity, will draw heavily on authority resources.
Authorities need to react to these pressures in a number of ways to ensure the on-going effective financial management of social care costs. The enforced changes will make it much more difficult for an authority to determine its total commitments and potential liabilities at a given point in time. The idea of bespoke, personalised care will mean that authorities need to understand a much more complex array of cost drivers. Supplementary to this, there will also be financial pressure derived from an increase in assessments and carer support that authorities will need to understand. These present a number of challenges with regards to the effective forecasting of cost both in the shorter term and the longer term.
The majority of authorities have, in recent years, undertaken initiatives to involve the front line service more heavily in determining accurate forecasts. Whilst incorporating the insights that front line staff can bring to forecasting cost undoubtedly has advantages, the implementation of the Care Act will bring greater complexity. Therefore the finance function must maintain a firm grip on the potential cost impact of forecast activity; the input of front line staff to forecasting must be focused on units of activity, not cost. Let the front line service determine what the subsequent months will bring, in units most familiar to them. It is then the role of finance to determine what this means in terms of liability and cost.
Reporting should be tailored to support this transition. Utilising generic financial reports designed prior to the implementation of the Care Act is unlikely to be suitable for the complex environment in which authorities must now operate. Reporting must be much more forward looking, providing shrewd forecasts that allow authorities to react to impending risks and opportunities. With such a significant change in the way that social care cost bases behave, reports that predominantly focus on historic analysis will have limited value to an organisation struggling with increasing demand within strained budgets. Improvements to reporting will be made all the more effective via the inclusion of insightful non-financial information, ensuring that the finance function forms the vital link between how changes in the activity of the service translate into increased or decreased cost.
To further support this, authorities should seize the opportunity provided by a step change in the way that their cost base behaves to undertake a zero based budgeting exercise to support the implementation of the Care Act. This will provide the finance function with valuable insight into what drives cost within the service and will present an opportunity to ensure that the implementation of the Care Act is based on a foundation of efficiency from the outset, as opposed to basing the implementation on an incremental budget designed for a wholly different era of social care provision. A zero based budgeting exercise will also facilitate the generation of robust activity data to enable activity based service forecasting and move away from focussing purely on raw cost.
The 2014 Care Act represents a significant step towards ensuring that care and support is focused on the individual as opposed to the service and is expected to bring a wealth of benefits to care users and carers alike. For finance functions, it presents a significant challenge at a time of unprecedented pressure. However, it should also herald a new era of financial management in social care, driving insightful reporting and accurate forecasting to help local authorities deliver improved care sustainably and efficiently, allowing for recurrent improvements to service provision for many years to come.
Marcus Richards is associate director of KPMG's local government financial management practice. Andrew Hine is a partner and UK head of public sector and healthcare at KPMG.
