Enhancing financial management and accountability in market-orientated public services in England
Submitting InstitutionUniversity of Bristol
Unit of AssessmentBusiness and Management Studies
Summary Impact TypePolitical
Research Subject Area(s)
Medical and Health Sciences: Public Health and Health Services
Commerce, Management, Tourism and Services: Accounting, Auditing and Accountability
Summary of the impact
Sheila Ellwood (at Bristol from 2006) examined how managerial freedoms created through the
trend to decentralise public service organisations need to be tempered through `better' accounting.
Her research has led to her appointment as a non executive director (2000-2005) and a Treasury
Panel member (2009-11). The research impacts on both national policy and local financial
management. Her impact is seen in the financial reporting policy in local public bodies; the policy
on auditing local public bodies and in the costing/ pricing of healthcare. Her work has been used in
UK parliamentary committees and incorporated into government accounting manuals. International
recognition includes dissemination of her work by the Chinese Treasury.
Ellwood`s research has three underpinning strands which overlap chronologically:
a) The introduction of `commercial' accounting regimes and their adaptation for local public
Ellwood's evidence from local government, health and central government (2000-02) shows the
diversity in accounting practice across the UK public sector . How the commercial approach was
modified was investigated in depth when she was a non executive director at Worcestershire Acute
Hospitals NHST (2000-05). The accounting standards are adjusted by government and account
preparers to `fit' the public setting — notable accounting modifications relate to hospitals built under
the Private Finance Initiative (PFI) and financial transfers to alleviate hospital deficits . Following
the adoption of International Financial Reporting Standards (IFRS) in the UK public sector in 2009
Ellwood was invited to be the only academic member on a UK Treasury panel examining the
accounting under IFRS for the NHS and related charities. The panel advised on the interpretation
of international accounting standards for application throughout the NHS (England, Wales,
Scotland and Northern Ireland). Ellwood and Garcia-Lacalle1 (Zaragoza University) analysed the
introduction of IFRS in NHS Foundation Trusts from 2010. They showed how the change in
accounting regime impacted on the reported performance of Foundation Trusts; there were large
winners and losers (the financial performance of one FT changed from a deficit of £11.8m to over
£35m for the same financial year), but a third of FTs showed an improvement in their annual
financial surplus .
b) The audit of local public bodies (2001-04 and 2011-13)
Ellwood, together with Basioudis (Aston University), examined the audit arrangements for NHS
trusts 2001-04 . In 2011, Ellwood with Garcia-Lacalle extended the work into NHS Foundation
Trusts . The Audit Commission appoints the auditors of local authorities and NHS bodies
excluding Foundation Trusts. Prior to 2012, appointments were either from its in-house auditors or
from accredited large audit firms. The Commission's role is to control fees and monitor audit quality
as well as to provide specialist auditors. (A similar model for companies followed the Enron
accounting scandal in the USA).The studies analysed the extent to which audit in the NHS was
controlled in terms of price (auditor remuneration) and quality (audit independence and approach).
c) Healthcare costing and pricing
The introduction of the internal market in 1991 required the costing of healthcare services for
pricing. Ellwood's surveys and case studies on NHS costing (1995 & 1996) and analysis of patient
referral patterns under GP fund-holding (1997), sponsored and published by CIMA (Chartered
Institute of Management Accountants), called for changes in costing protocols and identified
problems in healthcare pricing . She is currently working on a large research study (2012-2015)
on the use of patient level information and costing systems (PLICS). The study is unique in being
the first NIHR project with a NHS finance director (Salford Royal FT) on the project board.
Ellwood's experience in working with health service finance directors has established strong
relationships with NHS boards of directors (e.g. South Warwickshire FT) and with the regulator,
Monitor. She is involved in current negotiations between local organisations and Monitor in
determining how cost and price information can be used in `risk transfer arrangements' that set
aside national tariffs, particularly in integrated services for frail older people, a case study in the
NIHR research project .
References to the research
Key academic Outputs
 Ellwood S.M. (2003), Bridging the GAAP across the UK Public Sector, Accounting and
Business Research, 33 (2) 105-121. DOI: 10.1080/00014788.2003.9729638
 Ellwood S.M. and Basioudis I.G. (2005), External audit in the National Health Service in
England & Wales: A study of an oversight body's control of auditor remuneration, Journal of
Accounting and Public Policy, 24 (3) 207-241. DOI: 10.1016/jaccpubpol.2005.03.003
 Ellwood S.M. (2008), Accounting for public hospitals: a case study of modified GAAP, Abacus,
44 (4) 399-422. DOI: 10.111/j.1467-6281.2008.00269.x
 Ellwood S.M. (2009) Accounting for (a) public good: public healthcare in England, Financial
Accountability and Management, 25 (4) 411-433. [John Perrin Prize] DOI: 10.1111/j.1468-
 Ellwood S.M. and Garcia-Lacalle J. (2012), Old wine in new bottles: IFRS adoption in NHS
foundation trusts, Public Money & Management, 32 (5) 335-342. DOI:
 Ellwood S.M. and Garcia-Lacalle J. (2012), Local public audit - the changing landscape, Public
Money & Management, 32 (5) 389-392. DOI: 10.1080/09540962.2012.692554
Key research Grant
 NIHR £467,685 (2012-2015) Patient Level Information and Costing Systems (PLICS): Current
practice and future potential for the NHS health economy. Research team: Profs. Llewellyn (PI)
and Chambers, Manchester Business School and Dr Adhil, Department of Health; Tony Whitfield,
Finance Director of Salford Royal FT. Ellwood takes the lead on case study work.
Details of the impact
Ellwood's work has impacted on government policy on accounting throughout the NHS; been
discussed in UK parliamentary committees on the audit regime for local public bodies; and fed into
discussions with regulatory bodies on financial arrangements to facilitate improved healthcare
Financial reporting policy in local public bodies
Ellwood's early work on accounting for public bodies  led to her invitation to be academic
commentator on the UK Accounting Standards Board's panel on reinterpreting the UK Statement
of Principles for Financial Reporting for Public Benefit Entities and her later appointment to the HM
Treasury Panel on the financial reporting of the NHS (a) and its linked charities (2010-11). The
panel's report was issued by the government's Financial Reporting Advisory Board (b) and the
panel's recommendations were incorporated into the accounting manuals and guidance issued to
NHS trusts and foundation trusts. Ellwood was the only academic member, she was appointed to
the panel alongside senior financial representatives from Treasury, Charity Commission, the
Department of Health and the devolved administrations (Wales, Northern Ireland and Scotland).
Since 2012, the Panel's recommendations have been put into effect in the Annual Reports &
Financial Statements of hundreds of NHS organisations that have been extended to include all
healthcare bodies within NHS control.
Policy on audit of local public bodies
The research work of Ellwood and Basioudis on audit arrangements of NHS trusts  showed the
Audit Commission to be operating effectively in controlling total auditor remuneration. However,
Ellwood's study with Garcia-Lacalle  of the audit arrangements of Foundation Trusts (where FTs
were given the freedom to appoint their own auditor i.e. not overseen by the Audit Commission),
showed evidence of premium fees paid to private firms, particularly large (Big4) firms. Ellwood's
work with Basioudis  and with Garcia-Lacalle  was used in evidence to parliamentary
committees investigating the effect of the Audit Commission following its announced abolition in
August 2010 by Eric Pickles (Secretary of State for Communities and Local Government). Ellwood
and Basioudis  was cited in the Communities and Local Government Select Committee 7th
February 2011(c); Ellwood and Garcia-Lacalle  was used by Professor David Heald, (Aberdeen
University and former academic member of the Government's Financial Reporting Advisory Board
`FRAB') when presenting evidence to the meeting of the Public Accounts Committee, December
2012(d). Although the work of the Audit Commission's in-house auditors was awarded to private
sector auditors in 2012, the Audit Commission is now likely to continue in a reduced role for at
least another five years.
Policy on costing/ pricing of healthcare
The NIHR research project  with Professors Llewellyn and Chambers from Manchester
University continues Ellwood's long standing work in NHS costing and pricing. Ellwood's early work
on NHS costing and pricing was widely disseminated in accounting and medical journals and
published as three research monographs by the Chartered Institute of Management Accountants
(cost-based pricing, costing for healthcare contracts and GP fund-holding). In line with Ellwood's
findings, the NHS later introduced NHS costing standards and produced comparative `Reference
costs' from 2007 which were used to inform the NHS tariff (prices) for healthcare under the
Payments by Results system (phased in from 2004). Under the NIHR project 2012-15  she
examines the benefits of sophisticated patient costing systems for hospitals but also considers how
financial arrangements may need to change to facilitate greater integration of hospital, community
and social services. As part of this work, she is lead researcher with South Warwickshire FT, and is
investigating how the FT and other health and social care providers can integrate the care of frail
older people. She is working with Monitor, the independent regulator for Foundation Trusts, on how
to form new financial arrangements for the care of older people that facilitate integrated care and
enhanced community services. This will require changes to the current national tariff (pricing/
commissioning arrangements) to encourage improved patient care in appropriate settings.
Ellwood's work has also informed government financial management and accounting
internationally. Her earlier research visits to USA, Australia, New Zealand and Brazil were
sponsored by health authorities and professional accounting bodies. Impact in China is now
starting to occur. The Chinese Ministry of Finance translated and published a paper presented by
her and Andy Wynne from the Association of Certified Chartered Accountants in 2009 (e).
Sources to corroborate the impact
(a) Chris Wobschall, Head of Assurance and Financial Reporting Policy, HM Treasury.
Invitation to join HM Treasury Panel June 2010 and oversight of the Panel's work.
(b) The Report of the Review Group on NHS linked Charities (March 2011).
Report to HM Treasury, Department of Health, Monitor and the Devolved Administrations.
(c) Minute 18 of the Communities and Local Government Select Committee 7th February 2011,
House of Commons citing Ellwood's research. The Committee considered the abolition of
the Audit Commission, Ellwood's earlier work with Basioudis was discussed. Her current
work with Garcia-Lacalle also informed the debate.
(d) Professor David Heald, Aberdeen University, academic member of FRAB (Financial
Reporting Advisory Board) 2004-2009. He used Ellwood's research when giving oral
evidence to the parliamentary committee on the Local Audit Bill, 30 October 2012.
(e) Edited by the National Treasury Division, Ministry of Finance (China): Ellwood S.M and
Wynne A. (2009), `The World of Accruals: questioning the universal validity of accrual
accounting' in International Trends and Experiences in Government Accounting, Published
in Chinese by China Finance and Economics Publishing House. ISBN 9787509513330
(f) Some senior executives within government and NHS organisations with evidence of:
Contribution changing operational service managers' financial management (David Moon,
Head of Value for Money Audit (NHS), National Audit Office); Contribution changing NHS
costing and pricing practice (Board members of South Warwickshire Foundation Trust e.g.
Glen Burley, Chief Executive and Ian Philp, Medical Director, and Monitor, the independent
regulator for foundation trusts, e.g. Adrian Masters, Director of Strategy).
(g) The Chair of the Government's Financial Reporting Advisory Board (FRAB), Kathryn
Cearns wrote a debate response to  above on local public audit in the next issue of
Public Money and Management 32 (6) 396-7 (December 2012). DOI:
PhD examinee 2010