The Annual Audit Letter for Chorley and South Ribble Clinical Commissioning Group

Transcription

1 The Annual Audit Letter for Chorley and South Ribble Clinical Commissioning Group Year ended 31 March 2016 June 2016 Fiona Blatcher Engagement Lead T E fiona.c.blatcher@uk.gt.com Gareth Winstanley Manager T E gareth.j.winstanley@uk.gt.com Peter Buckley Executive T E peter.g.buckley@uk.gt.com 2016 Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June 2016

2 Contents Section Page 1. Introduction Audit of the accounts Value for Money Working with the CCG 15 Appendices A Reports issued and fees Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

3 Introduction Purpose of this letter Our Annual Audit Letter (the Letter) summarises the key findings arising from the work that we have carried out at Chorley and South Ribble Clinical Commissioning Group (the CCG) for the year ended 31 March The Letter is intended to communicate key messages arising from our work to the CCG and external stakeholders, and to highlight issues that we wish to draw to the attention of the public. In preparing the Letter, we have followed the National Audit Office (NAO)'s Code of Audit Practice and Auditor Guidance Note (AGN) 07 'Auditor Reporting'. We reported the detailed findings from our audit work to those charged with governance of the CCG in the Audit Findings Report on 24th May Our responsibilities We have carried out our audit in accordance with the NAO's Code of Audit Practice, which reflects the requirements of the Local Audit and Accountability Act 2014 (the Act). Our key responsibilities are to: give an opinion on the CCG's financial statements assess the CCG's arrangements for securing economy, efficiency and effectiveness in its use of resources (the value for money conclusion). Our work Financial statements We provided an unqualified opinion on the financial statements which gives a true and fair view of the CCG's financial position as at 31 March 2016 and of the net expenditure recorded by the CCG for the year. As well as an opinion on the financial statements, we are required to give a regularity opinion on whether expenditure has been incurred 'as intended by Parliament'. Failure to meet statutory financial targets automatically results in a qualified regularity opinion. We are pleased to report that, based on our review of the CCG's expenditure we gave an unqualified regularity opinion. We did raise some issues around the need to improve the clarity of any financial risk sharing arrangements between the CCG and Greater Preston CCG and with other partners as greater collaborative working takes place across Lancashire. Further details are set out later in this report. Use of statutory powers We did not identify any matters which required us to exercise our additional statutory powers. In our audit of the CCG's financial statements, we comply with International Standards on Auditing (UK and Ireland) (ISAs) and other guidance issued by the NAO Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

4 Value for money (VfM) conclusion We did not identify any significant weaknesses in respect of the CCG's arrangements for securing economy, efficiency and effectiveness in its use of resources. future developments within the sector and where we can, to work alongside the CCG as it develops its responses to these challenges. We would like to record our appreciation for the assistance and co-operation provided to us during our audit by the CCG's staff. Certificate We certify that we have completed the audit of the accounts of Chorley and South Ribble CCG in accordance with the requirements of the Code of Audit Practice. Working with the CCG Going forward the CCG continues to operate in an increasingly financially challenging environment. The CCG has responded appropriately to this challenge during the year and has a clear view of what needs to be done going forwards. Grant Thornton UK LLP June 2016 Looking ahead, the five year Sustainability and Transformation Plans being developed for the wider health economy will need to be supported by strongly defined and clear governance arrangements. The CCG is working towards agreeing the appropriate arrangements to support this. Clarity over the detailed reporting and monitoring arrangements at the outset will be a key requirement of these new arrangements. We look forward to working collaboratively with the CCG, sharing information on 2016 Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

5 Audit of the accounts Our audit approach Materiality In our audit of the CCG's financial statements, we use the concept of materiality to determine the nature, timing and extent of our work, and in evaluating the results of our work. We define materiality as the size of the misstatement in the financial statements that would lead a reasonably knowledgeable person to change or influence their economic decisions. We determined materiality for the audit of the CCG's financial statements to be 4.490m, which is 1.8% of the CCG's gross revenue expenditure. This benchmark is considered the most appropriate because we consider users of the CCG's financial statements to be most interested in how it has expended its revenue and other funding. We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 70% of financial statement materiality for the audit of the financial statements. We also identified certain items below these levels where detailed audit testing was required due to their sensitivity, such as cash, senior officer remuneration, auditors remuneration and related party transactions. We determined the threshold at which we would communicate misstatements to the Audit Committee to be 250,000. Overview of the scope of our audit Our audit involves obtaining enough evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes assessing whether; the accounting policies are appropriate, have been consistently applied and adequately disclosed; the significant accounting estimates made by management are reasonable; and the overall presentation of the financial statements gives a true and fair view. We also read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. We conducted our audit in accordance with ISAs (UK and Ireland) and the NAO Code of Audit Practice. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach was based on a thorough understanding of the CCG's business and is risk based. We identified key risks and set out in Table 1 is the work we performed in response to these risks and the results of our work Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

6 Audit of the accounts Conclusion We gave an unqualified opinion of the CCG's financial statements on 27th May Preparation of the accounts The CCG presented us with draft accounts in accordance with the national deadline and good quality working papers were made available from the start of the audit fieldwork. Issues arising from the audit of the accounts We reported the key issues form our audit to the CCG's Audit Committee on 24th May In addition to the key audit risks reported in Table 1, a small number of disclosure changes were amended for within the CCG's financial statements. Regularity opinion Achievement of the targeted surplus was aided by the draw down of monies through informal risk sharing arrangements with Lancashire County Council and Greater Preston CCG. We understand that risk sharing is expected to be in place going forwards across a wider grouping of CCGs as they work together to enable transformation of health services across the health economy. It is therefore important that such arrangements are underpinned by a clear formal agreement at the outset. Governance arrangements are currently being developed to facilitate the transformation and we recommended that such arrangements include a clear and more formalised agreement over any financial risk sharing. Annual Report and Annual Governance Statement Our review of your Annual Report did not identify any inconsistencies with the audited statements. Our work on the CCG's Annual Governance Statement found that it reflected the requirements of NHS England guidance, and was succinct, readable and in line with our knowledge of the CCG. The use of risk sharing agreements is supported within the regulatory framework for commissioning bodies and is indeed a key enabler of collaborative commissioning. However related guidance is very clear that each individual partner remains responsible for achieving their own statutory financial targets and other statutory responsibilities. Where risk sharing agreements exist, clear governance arrangements should be in place to ensure there is a clear and transparent agreement at the outset about how the risk pool will work and the decision making processes around it. Such clarity over the risk sharing agreements did not exist Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

7 Audit of the accounts Our assessment of risk Before arriving at our opinion on the financial statements, we responded to the following risks of material misstatement that, in our judgement, had the greatest effect on our audit : Table 1: Audit risks Risks identified in our audit plan 1. Management override of controls Under the ISA's there is a presumed risk that management could over-ride the internal controls of the CCG's financial reporting systems. This risk is present in all entities and we have determined that the risk is more likely to occur in the main accounting system via inappropriate journal entries. 2. Accounting arrangements for the Better Care Fund (BCF) The CCG had entered into a s75 pooled budget arrangement as of 1 April 2015 with Lancashire County Council and other CCGs to procure services from within the Lancashire health economy. The accounting arrangements for this are complex and there was a risk of material misstatement and the potential for irregular expenditure. Work completed As part of our audit work we: documented our understanding of the CCG's system for initiating and recording journal entries and evaluating the design of the associated internal controls; evaluated the CCG's transactions to identify if any journal entries appeared to have been made outside of the CCG's normal internal control processes; reviewed significant accounting estimates, judgements and decisions made by management; and reviewed unusual significant transactions. We did not identify any issues to report. As part of our audit work we: obtained the s75 agreement governing the pooled budget and gained an understanding of the CCG's assessment of where control lies and the expected accounting entries to be made by the CCG; documented and reviewed the operating effectiveness of the CCG's controls over the BCF pooled budget; tested the accounting entries made in respect of the BCF pooled budget to check they were consistent with our understanding of the arrangement and that transactions and balances recorded were consistent with those recorded by counterparty organisations. We did not identify any issues in respect of the accounting of the Better Care Fund. Some additional disclosures were requested and made to more fully describe the arrangement within the financial statements Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

8 Audit of the accounts Table 1: Audit risks (continued) Risks identified in our audit plan 3. Valuation of secondary healthcare expenditure Over 76% of the CCG's expenditure is derived from contracts for the supply of secondary healthcare. Such contracts are subject to significant estimation at year end and activity variation and contractual adjustments throughout the year. Given the scale of this expenditure stream to the CCG, we considered this to be an area of risk of material misstatement in the financial statements. Work completed As part of our audit work we: documented and identified the process and key controls in the CCG's secondary healthcare commissioning cycle; walked through procedures to confirm our understanding; reviewed the CCG's most significant secondary healthcare contracts to understand their basis and to develop expectations relating to year end expenditure; examined month 12 intra-nhs agreement of balances; sample tested payments to ensure they were in line with contracts; sample tested adjustments to ensure they were appropriate and that year-end transactions accounted for correctly; sample tested items of expenditure to ensure they were valid payments; and reviewed and tested April 2016 payments to ensure they were allocated to the correct financial year. We did not identify any issues to report Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

9 Value for Money Scope of our review We have undertaken our review in accordance with the Code of Audit Practice, having regard to the guidance on the specified criteria issued by the Comptroller and Auditor General in November 2015, as to whether the CCG had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. The Comptroller and Auditor General determined these criteria as those necessary for us to consider under the Code of Audit Practice in satisfying ourselves whether the CCG put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2016, and to report by exception where we are not satisfied. We planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we undertook such work as we considered necessary to form a view on whether, in all significant respects, the CCG had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Key findings We carried out further work only in respect of the significant risks we identified from our initial and on going risk assessment, as detailed in Table 2 on pages The CCG is now operating in a much more financially challenging environment and going forwards this appears to be increasing. Overall the CCG responded appropriately to the changing financial environment during the year and had a clear view of what needs to be done. It achieved its 1% surplus through the use of non-recurrent means and is now in a position where contingencies are very limited. The CCG has changed the way it works both internally and with partners to address the challenge and continues to do so. An emphasis on the following will be helpful in this respect: challenging the realism of any planned savings initiatives; challenging the appropriateness and effectiveness of any planned investments; further enhancing reporting of operational and financial performance to ensure there is complete clarity over this and the linkages between the two; and building a common understanding between all commissioners and providers. The CCG is already working on all of the above and has demonstrated its commitment to deliver against the significant challenges it faces. Looking ahead, the five year Sustainability and Transformation Plans being developed for the wider health economy will need to be supported by strongly defined and clear governance arrangements. Work is on going to agree the appropriate arrangements to support this. Clarity over the detailed reporting and monitoring arrangements at the outset will be a key requirement of these new arrangements. Overall VfM conclusion On the basis of our work, and having regard to the guidance on the specified criteria published by the Comptroller and Auditor General, we were satisfied that in all significant respects the CCG put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

10 Value for Money Key findings We set out below our key findings against the significant risks we identified through our initial risk assessment and further risks identified through our on going review of documents. Table 2: Value for money risks Significant risk Work to address Findings and conclusions Financial outturn and sustainability The CCG faces increased financial challenges to allow it to deliver its forecasted surplus of 2.38m. This alongside financial health concerns of its main provider has led to the CCG submitting a future sustainability plan to NHS England. We have reviewed the CCG's arrangements for putting together and agreeing its operational and financial plans including its sustainability plan, identification of savings plans and its arrangements for monitoring and managing delivery of its budget and savings plans for 2015/16. The CCG met its target surplus of 2.38m. Meeting this target has been a huge challenge during the year. In particular of the 9.3m planned productivity and efficiency savings, only 3.9m, (42%) were achieved, leaving a shortfall of 5.4m. When taken together with other variances from budget, the CCG has used 4.2m of non-recurrent funds to achieve the final surplus. Key challenges around the planned savings have included : under-estimating the time needed to benefit from changes in patient pathways; unrealistic targets for prescribing which didn't reflect on the historical savings already achieved; and in some cases under-estimating the time needed to secure the change in patient referral patterns. During the year a Joint Finance Delivery Group was created at the suggestion of the Audit Committee to enable more detailed consideration of the financial position and the related actions by officers and finance lay members. Reporting during the year has clearly highlighted the issues from an early stage and actions were taken to address the short term issues, whilst also beginning more detailed planning to address the underlying deficit going forwards. Work began on a sustainability plan for both Chorley and South Ribble and Greater Preston CCGs in November 2015 and this has subsequently fed into the work on the 5 year Sustainability and Transformation Plan being developed for the wider Lancashire health economy. This work is beginning to set out the scale of the financial challenge facing the health economy and will set the framework for working with partners to address the issues. The CCG has followed NHSE planning guidance in setting its 2016/17 Operational Plan and has factored in reasonable assumptions for known local factors, such as the impact of City Deal on population growth. The CCG needs to deliver efficiency and productivity savings of 9.6m being their share of the combined total of 18.7m for both CCG's to enable it to deliver a 1% revenue surplus. We reviewed a sample of efficiency and productivity schemes totalling 4m which have been prepared on a reasonable and prudent basis, involving clinical professionals as appropriate. However the 18.7m includes 'stretch' savings proposals totalling 9.5m which are yet to be developed into clear deliverable schemes Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

11 Value for Money Table 2: Value for money risks continued Significant risk Work to address Findings and conclusions Financial outturn and sustainability The CCG faces increased financial challenges to allow it to deliver its forecasted surplus of 2.38m. This alongside financial health concerns of its main provider has led to the CCG submitting a future sustainability plan to NHS England. We have reviewed the CCG's arrangements for putting together and agreeing its operational and financial plans including its sustainability plan, identification of savings plans and its arrangements for monitoring and managing delivery of its budget and savings plans for 2015/16. Reporting to the finance delivery group is clear about the financial risks and looks to quantify the level of financial risks wherever possible, as well as reporting on the actions being taken to address them. In March 2016, the estimated net risk was quantified to be at 5.8m. By May 2016, whilst some risks had been reduced through the agreement of contracts with providers, new risks had also been identified which has significantly increased the level of quantified risk to delivery against plan. Reporting on both operational and financial performance is complicated by the number of initiatives and related targets which are being pursued and measured. This can make, presenting a clear overall picture difficult which will impact on effective decision making and is a strain on the capacity of officers to deliver on so many schemes. Overall the CCG has responded appropriately to the changing financial environment during the year and has a clear view of what needs to be done going forwards. It achieved its 1% surplus through the use of non-recurrent means and is now in a position where contingencies are very limited. The CCG has changed the way it works both internally and with partners to address the challenge and continues to do so. An emphasis on the following will be helpful in this respect: challenging the realism of any planned savings initiatives challenging the appropriateness and effectiveness of any planned investments further enhancing reporting of operational and financial performance to ensure there is complete clarity over this and the linkages between the two building a common understanding between all commissioners and providers. The CCG is already working on all of the above and has demonstrated its commitment to deliver against the significant challenges it faces Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

12 Value for Money Table 2: Value for money risks continued Significant risk Work to address Findings and conclusions Better Care Fund The CCG has committed 11.3m to the Lancashire Better Care Fund, (BCF), to improve the integration of health and social care provision across the Lancashire area. This is the first year of the related governance arrangements and plans between the constituent entities. We have reviewed the CCG's s75 agreement and the CCG's commitments within it, including how it monitors the effectiveness of the Partnership in delivering improvements to services. Appropriate governance structures are in place for the delivery of the Better Care Fund across Lancashire and at a local CCG level. The Lancashire Health and Wellbeing Board (HWB) takes overall accountability for the implementation of the Better Care Fund, and is supported by a BCF Steering Group and Programme Managers group. Meetings are held frequently and with appropriate representation from all concerned. The groups appear to be an effective forum for working through specific issues together, although there has been a lack of financial monitoring and performance reporting during the year. This has been recognised by both groups and is expected to be addressed early in 2016/17. Of the 11.3m committed to the BCF by this CCG, 7.9m is delegated to the CCG to commission directly from providers and is monitored and reported on through the CCG's normal financial and performance monitoring arrangements. As expected, within the first year the BCF arrangements are evolving. Gaps in the arrangements have been recognised and are being addressed. On this basis we concluded that the risk was sufficiently mitigated and the CCG has proper arrangements to work with other parties to deliver strategic priorities. Looking ahead, the five year Sustainability and Transformation plans being developed for the wider health economy will need to be supported by strongly defined and clear governance arrangements. Work is ongoing to agree the appropriate arrangements to support this. Clarity over the detailed reporting and monitoring arrangements at the outset will be a key requirement of these new arrangements Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

13 Value for Money Table 2: Value for money risks continued Significant risk Work to address Findings and conclusions Urgent Care Centre The Urgent Care Services pilot ended during the year and the procurement of the new service was launched in November. This is a significant procurement exercise which involves inherent risks of potential conflicts of interest. CQC inspection of main acute provider The CQC carried out an inspection of Lancashire Care Foundation Trust (LCFT) in June 2015 which rated the Trust as "requiring improvement". An action plan is in the process of being agreed, which will be monitored across the health economy. A group is being established to help produce and monitor the improvement plan. We reviewed the tender evaluation arrangements including the reporting and transparency of the decision making process. We have reviewed the CCG's arrangements for reviewing and monitoring the performance of Lancashire Care Foundation Trust (LCFT) against its action plan. The tender for the Urgent Care Service has been merged with a number of services to form the Integrated Urgent Care Service tender. Based on our review of the tender documentation to date, it is clear that the CCG has put a tender process in place that is well planned, has clear timelines for action, and also includes an evaluation panel with dedicated roles and responsibilities for the various stages of the evaluation process. The use of a wide range of staff/experts as part of the various stages in the tender evaluation process, including external experts with no prior knowledge or association with the CCG, is enabling the CCG to mitigate against the risk of any potential conflicts of interest, as well as assisting in the design of an appropriate service requirement. Appropriate arrangements have been put in place to create an open, transparent and auditable tendering process. A Quality Improvement Board (QIB) was established in December 2015, which is chaired by NHS England, and which has representatives from providers, the CCG and Monitor/TDA. The purpose of the Board is to review LCFT's Action Plan, ensuring it addresses all CQC recommendations, that action is implemented effectively and in a timely manner. The Board receives assurances from the Trust that the actions arising from the plan have been undertaken and embedded. The action plan was in place by December and is being carefully monitored accompanied by a separate validation process. Progress on the action plan is discussed at LCFT's Quality and Performance Group and Contract Management Executive Group meetings, as well as at the CCG's Governing Body meeting and Quality and Performance meetings. By February 2016, there was clear evidence of good progress against the agreed actions. The CCG has proper arrangements to review and monitor the performance of Lancashire Care FT against its action plan Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

14 Value for Money Table 2: Value for money risks continued Significant risk Work to address Findings and conclusions Primary Care Co-Commissioning From 1st April 2015 the CCG assumed full delegated responsibility for commissioning general practice, (GP), services. We reviewed the work of the Delegated Commissioning Committee in relation to the arrangements for reviewing the commissioning of the GP services existing contract, and the preparedness for the future cocommissioning arrangements. The Delegated Commissioning Committee includes a number of lay members and is chaired by a lay member to assist with potential conflict of interest issues. Examples were noted of effective management of potential conflict of interest issues during the year and of reviews being undertaken of the existing contractual arrangements in preparation for the award of 16/17 contracts, linking in with the CCG's wider strategy around primary care services. The recent NHSE report into conflicts of interest highlighted a small number of recommendations relating to the work of the Delegated Commissioning Committee at the CCG. It is pleasing to note that the CCG has identified lead officers and implementation dates for all of the actions. Members of the Committee has received briefings to support them in their role. Discussions within the Committee demonstrate a good understanding of the risk and issues around primary care commissioning and has enabled the CCG to respond to the changing environment within primary care. For example, the CCG has developed principles to aid estate investment prioritisation decisions in recognition of the need to invest in primary care infrastructure and the increasing role the CCG will have around this in future The CCG has appropriate arrangements in place for the management of its new primary care commissioning responsibilities Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

15 Working with the CCG Working together We will maintain regular liaison with the CCG's officers throughout the coming year and will continue to share our insights into the current key issues facing the sector and the solutions being adopted across the country, drawing on sector insight as the external auditor to around 40% of clinical commissioning groups (CCGs), through the regular issuing of our key issues for CCG's bulletins. We will also introduce to the CCG relevant colleagues from across Grant Thornton who can share experiences of work being done nationally addressing some of the challenges that you are also facing over the next year or so, for example the development of Healthcare and sustainability plans across health economies. We will provide training on key technical areas through our annual programme of accounting workshops and will facilitate joint learning and sharing on areas of wider common interest through regionally based topical workshops. Working with you in 2016/17 We will continue to work with you and support you over the next financial year. Nationally we are planning the following events: Health and Social Care Integration we are working with the Manchester authorities so that we are able to share insight into how best to integrate health and social care. We will share the outcome of our work early in Thought leadership we are preparing thought leadership reports on Future of Primary Care and on NHS commercial structures. Audit updates - we will continue to provide regular audit committee updates covering best practice and emerging issues in the sector. Providing training we will continue to provide financial accounts and annual reporting training. Improving your annual reporting we will benchmark your annual report and highlight potential areas for improvement. Providing insight we will update our Health and Well Being analysis and share our information on key health conditions and lifestyle needs in your area. Locally our focus will be on continuing to deliver to you an efficient audit and working with you to address any issues that arise at an early stage. We will also share with you best practice and have insightful conversations about how the CCG can continue to support first class patient care services Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

16 Appendices Appendices 2016 Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

17 Appendix A: Reports issued and fees We confirm below our final fees charged for the audit. Fees Planned Actual fees Statutory audit 45,000 45,000 Fees for other services Service Fees None Nil Reports issued Report Date issued Benchmarking your 2014/15 annual report February 2016 Audit Plan March 2016 Audit Findings Report May 2016 Annual Audit Letter June Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June

18 2016 Grant Thornton UK LLP The Annual Audit Letter for Chorley and South Ribble CCG June 2016