SUPPORTING PAPER (ACTION REPORT) AUDIT COMMITTEE

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SUPPORTING PAPER (ACTION REPORT) AUDIT COMMITTEE Date of meeting: Tuesday, 7 th June 2011 Title of paper: Presented by: Purpose: Going Concern Report Head of Financial Services This paper is

1 SUPPORTING PAPER (ACTION REPORT) AUDIT COMMITTEE Date of meeting: Tuesday, 7 th June 2011 Title of paper: Presented by: Purpose: Going Concern Report Head of Financial Services This paper is presented in line with the Committee s Terms of Reference and its duties under section 12.2: Financial Reporting The Going Concern Report is providing the Committee with assurance that the accounts have been produced in such a way as to anticipate future operations, i.e. that they are produced under the appropriate accounting standards and that disclosures are clear. Executive Summary: The Trust is required to prepare its accounts on a going concern basis, i.e. that the Trust will continue its operations for the foreseeable future. The attached report (based on the un-audited accounts) therefore assures the Audit Committee that management have produced the accounts on a going concern basis, prepared such that they anticipate continuing operations. Recommendations/and or actions required: The Audit Committee is asked to agree with management that the Trust has produced its accounts on a going concern basis as evidenced in the attached report and make similar recommendations to the Board. Consultation and/or PPI involvement process: Risks attached to this project/initiative: Finance Directorate staff None Resources Required: None Legal issues: Equality Impact Screening: CQC Essential Standards of Quality and Safety Domain: None n/a Involvement and Information Personalised care, treatment and support Safeguarding and safety Suitability of staffing Quality and management Suitability of management Committed, Professional & Accountable Shaping the future VALUES Showing we care Working together Delivering consistently What NEAS Goal does this paper support: STRATEGIC GOALS To lead in the provision of emergency care To be a key partner in urgent care reform To transform our patient transport services To be a first-rate employer To have sound financial health b b To be well governed and accountable b b

2 Author: Martin Rutter Date: 31 st May 2011

3 NORTH EAST AMBULANCE SERVICE NHS TRUST GOING CONCERN REPORT REPORT BY: Head of Financial Services Introduction The Audit Committee is requested to consider and approve the attached report that presents the case that the North East Ambulance Service NHS Trust has prepared its accounts on a goingconcern basis. The Committee is also requested to recommend this view to the Trust Board at the time it adopts the audited Accounts for 2010/2011. Background NHS Bodies are statutorily obliged to comply with the determination and directions given by the Secretary of State for Health in the preparation of their annual accounts and report. This direction is provided within the Manual for Accounts which also takes into consideration International Accounting Standard conventions. One such requirement is that the accounts are prepared on a going-concern basis. This is defined in the public sector as follows:- the anticipated continuation of the provision of a service in the future, as evidenced by inclusion of financial provision for that service in published documents. The fundamental principle used is that in the preparing the financial statements, this is done such that they show the entity as continuing in business for the foreseeable future. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business. Key Issues to Consider Historical and Current Financial Performance North East Ambulance in its current configuration has only been operational since 1 st July However current and previous financial performance has always shown a surplus as follows:- Year 2006/ / / / /1 1 Surplus , ,352 Future Planned Financial Performance In terms of future financial performance the Trust prepares long term financial model s (LTFM) as well as Financial Strategies to Board. Following Monitor s update to its financial assumptions the Trust has submitted a revised long term financial model (LTFM) on 31 st May and the Trust plans to make surpluses in each of the five years as detailed below Year 2011/ / / / /16 Surplus 2,600 1,700 1,400 2,200 3, All the assumptions on which the plan is based are detailed in the Integrated Performance Report, however some key assumptions to delivering the plan are as follows:-

4 A baseline of 365,000 incidents has been agreed for 2011/12 though the Trust anticipates activity exceeding those levels and has budgeted for 367,000 incidents The Trust s baseline income has reduced by 1.5% as per the Operating Framework 2011/12 The Trust assumes that it is able to retain all existing PTS contracts during the planning period Applying for FT status in 2011/12 New or development of existing NHS projects will continue over the period e.g. Hazardous Response Team (HART), 111 pilot, Durham Dales, Durham Urgent Care Contract Total pay cost pressures of 2.7% in 2011/12 and 2012/13, increasing to 4.2% in 2015/16. Contributions from Commercial Services rising to 5% in 2015/16. The Trust meets its Cost Improvement Programme of 4.5% in 11/12, rising to 5.0% in 2015/16 The Trust achieves its Capital Investment and service development strategies and revenue implications The attached list provides details of conditions that if not met could pose a business risk to the organisation. These risks are detailed below with the Trusts position also detailed. Financial Risks Net asset or net current liability position. Necessary borrowing facilities have not been agreed (including agreed financial support). Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment or excessive reliance on short-term borrowings to finance long-term assets. Major debt repayment falling due where refinancing is necessary to the trust s continued existence. Major restructuring of debt. Indications of withdrawal of financial support by debtors and other creditors. Negative operating cash flows indicated by historical or prospective financial statements. Adverse performance against Monitor key financial ratios. Substantial operating losses. Major losses or cash flow problems which have arisen since the balance sheet date. Arrears or suspension of PDC payments. Trust Position Net current asset position of 4,520K No borrowing facilities have been required other than Finance Leases. No fixed term borrowing approaching maturity. No loans in use. No reliance on borrowings to fund long-term investments. No major debt requiring refinancing. No restructuring of debt required or predicted. No financial support required. No historical negative cash flows and none anticipated. Not applicable at present, although this is monitored through submissions of the LTFM. Financial Risk Ratios are planned to remain at a minimum of 3 over the next 5 years. No operating losses sustained, surpluses have been made in the past and predicted in the future. No such losses or cash flow problems. All PDC payments made by due dates. Inability to pay creditors on due dates. Trust pays creditors on due dates as demonstrated by BPPC compliance. The Trust is also a member of the Prompt Payment Code

5 Inability to comply with the terms of loan agreements. Reduction in normal terms of trade credit by suppliers. Change from credit to cash-on-delivery transactions with suppliers. Inability to achieve Cost Improvement Targets Operating Risks:- Loss of key management without replacement. Loss of key staff without replacement. Staffing difficulties or shortages of important supplies. Other Risks:- Non-compliance with capital or other statutory requirements. Pending legal or regulatory proceedings against the trust that may, if successful, result in claims that are unlikely to be capable of being satisfied. Changes in legislation or government policy expected to adversely affect the entity. No loan in use by the Trust. No changes made Trust has excellent BPPC performance. No changes made with suppliers. The Trust has plans in place to meet cost improvement targets over the next 5 years Staff side involvement is being secured visa representation on the Trust s Improvement Steering Group and improvement workshops. All key management staff are replaced as required. All key staff are replaced as required. None anticipated. All statutory targets met. There are no legal claims that if successful could not be met. All potential claims are planned for. The Trust operates in an environment where the commissioning landscape is expected to change over the coming years. The proposed NHS structural changes have already been acknowledged within our long term financial model. It also includes the potential for increased competition in the Patient Transport sector and the mitigation of this risk. Conclusions When approving the accounts, the Audit Committee and Board must consider which of the three scenarios detailed below is the most appropriate the body is clearly a going concern and it is appropriate for the accounts to be prepared on the going concern basis; the body is a going concern but there are uncertainties regarding future issues which should be disclosed in the accounts to ensure the true and fair view; the body is not a going concern and the accounts will need to be prepared on an appropriate alternative basis. From the assessment undertaken it is management s view that based on the following:- the Trust has a history of excellent financial performance future financial plans suggest a profitable and liquid organisation

6 there are no significant financial, operational or other risks that would jeopardise the Trusts continuing operation (as supported by the current and previous Assurance Framework) that the Trust is clearly a going concern and its accounts have been produced on that basis. Recommendations The Audit Committee is requested to approve this report and recommend to the Board that the Accounts have been prepared on a going concern basis. Martin Rutter Acting Head of Financial Services 31 st May, 2011

One such requirement is that the accounts are prepared on a going-concern basis. This is defined in the public sector as follows:-

One such requirement is that the accounts are prepared on a going-concern basis. This is defined in the public sector as follows:- NORTH EAST AMBULANCE SERVICE NHS TRUST GOING CONCERN REPORT Introduction The Audit Committee is requested to consider and approve the attached report that presents the case that the North East Ambulance