The Annual Audit Letter for University Hospitals of North Midlands NHS Trust

Transcription

1 The Annual Audit Letter for University Hospitals of North Midlands NHS Trust. Year ended 31 March 2015 July 2015 Jon Roberts Partner T E jon.roberts@uk.gt.com Emily Mayne Manager T E emily.j.mayne@uk.gt.com David Roper Assistant Manager T E david.t.roper@uk.gt.com 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

2 Contents Section Page 1. Executive summary 3 2. Audit of the accounts 6 3. Value for Money Other audit related services Non-audit related services 15 Appendices A Reports issued and fees Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

3 Section 1: Executive summary 01. Executive summary 02. Audit of the accounts 03. Value for Money 04. Other audit related services 05. Non-audit related services 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

4 Executive summary Purpose of this Letter Our Annual Audit Letter (Letter) summarises the key findings arising from the following work that we have carried out at University Hospitals of North Midlands NHS Trust (the Trust) for the year ended 31 March 2015: auditing the accounts (Section two) assessing the Trust's arrangements for securing economy, efficiency and effectiveness in its use of resources (Section three) other audit related services carried out for the Trust during the year reviewing the Trust's Quality Account (Section four) other non-audit related services carried out for the Trust during the year relating to the review of the Long Term Financial Model (LTFM) and employer tax services (Section five). The Letter is intended to communicate key messages to the Trust and external stakeholders, including members of the public. We reported the detailed findings from our audit work on the accounts and arrangements for securing economy, efficiency and effectiveness in its use of resources to those charged with governance in the Audit Findings Report on 4 June 2015 and reported the detailed findings from our work on the Trust's Quality Account in our separate Quality Account Report on 26 June Responsibilities of the external auditors and the Trust This Letter has been prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission ( The Trust is responsible for preparing and publishing its financial statements, accompanied by an Annual Governance Statement. It is also responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources (Value for Money). Our annual work programme, which includes nationally prescribed and locally determined work, has been undertaken in accordance with our Audit Plan issued on 21 January 2015 and was conducted in accordance with the Audit Commission's Code of Audit Practice (the Code), International Standards on Auditing (UK and Ireland) and other guidance issued by the Audit Commission. Audit conclusions The audit conclusions which we have provided in relation to 2014/15 are as follows: an unqualified opinion on the accounts which give a true and fair view of the Trust financial position as at 31 March 2015 and the Trust's income and expenditure for the year a qualified "except for" conclusion in respect of the Trust's arrangements for securing economy, efficiency and effectiveness in its use of resources due to performance against financial targets and financial planning. The Trust was non compliant against its statutory break even financial target although it did report a surplus position in year. In 2014/15 the Trust also received an additional 17 million support for healthcare activities. Further cash receipts are planned for 2015/16. The Trust continues to develop its medium term financial planning. Financial plans are currently in place until 31 March Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

5 Executive summary (continued) This is an improved position from the adverse opinion reported in 2013/14. Further detail of our work on Value for Money is set out in section three of this report. We also issued an unqualified limited assurance report in respect of the Trust's Quality Account in relation to this separate engagement. Non audit related services We were asked by the Trust to review its Long Term Financial Model in August Our review was reported to the Director of Finance in July We have supported the Trust to reach an agreeable settlement with HMRC following HMRC s review of their employment taxes processes and controls with respect to payments made to Junior Doctors. We were able to substantially reduce the employment taxes liability originally proposed by HMRC at the conclusion of their review. We also agreed with HMRC that any statutory penalties to be levied by HMRC should be suspended. Key areas for Trust attention 2014/15 has been an extremely challenging year for the Trust, mainly due to the significant transfer of clinical services and assets from Mid Staffordshire NHS Foundation Trust which the Trust has managed well. This has been a key focus for the Board, but they have remained vigilant in also managing their financial position and the quality of care delivered. The Trust has continued to deliver savings in line with its financial plan and although received additional income in 2014/15 to achieve breakeven, the Trust has delivered against its CIP programme as well as delivering a substantial capital programme to facilitate the improvements to both the Royal Stoke University Hospital and County Hospital in Stafford which will enable the movement of clinical services to deliver further savings and improve the quality of care delivered to patients. Overall, there is significant risk to the 2015/16 programme in respect of unidentified CIP of 13.6 million and the number of identified schemes that have high or medium risk assessment. Work continues to ensure that further schemes are verified to close the unidentified gap. Improving the emergency pathway remains the greatest challenge for the Trust. This impacts on capacity and patient flow through the hospital. Occupancy remains too high and the Trust is working to improve discharges back into the community or other appropriate setting. Service reconfiguration is also being undertaken on and between sites to provide space to allow for improvements in service delivery and the patient experience. This is moving the Trust to a position where it should be able to ease patient flow within the acute setting. This coupled with the improving relationships within the local health economy are providing an indication that acute capacity is improving. Acknowledgements This Letter has been agreed with the Director of Finance. We would like to record our appreciation for the assistance and co-operation provided to us during our audit by the Trust's staff. Grant Thornton UK LLP July Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

6 Section 2: Audit of the accounts 01. Executive summary 02. Audit of the accounts 03. Value for Money 04. Other audit related services 05. Non-audit related services 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

7 Audit of the accounts Audit of the accounts The key findings of our audit of the accounts are summarised below: Preparation of the accounts The Trust presented us with draft accounts in accordance with the national deadline. Appropriate working papers were made available from the start of the audit fieldwork. This is a particular achievement for the Trust considering the challenging acquisition from Mid Staffordshire NHS Foundation Trust and the management of the legacy balances from the demised Foundation Trust. Annual Governance Statement and Annual Report We read the Annual Governance Statement to confirm whether it was consistent with our knowledge of the Trust. We confirmed that the disclosures were in line with the requirements of the Manual for Accounts and also reflected other key documents reported within the Trust's governance framework, e.g. the Board Assurance Framework, Corporate Risk Registers and the Head of Internal Audit Opinion. There are no issues which we are required to report to the Trust in relation to our review of the Annual Governance Statement. Issues arising from the audit of the accounts We did not identify any adjustments that affected the Trust's retained surplus position. The draft financial statements for the year ended 31 March 2015 recorded a retained surplus of 3,782k. We have proposed a number of adjustments to improve the presentation of the financial statements. The key messages arising from our audit of the Trust's financial statements were: the draft financial statements presented for audit built upon improvements made in previous years working papers were provided covering all areas of the financial statements revenue working papers reflected the increased complexity in revenue as a result of the Mid Staffordshire NHS Foundation Trust acquisition and the large unwinding of NHS credit notes and provisions made in 2013/14 which were not utilised We read the Annual Report to confirm whether it was consistent with our knowledge of the Trust. We also confirmed that the disclosures were in line with the requirements of the Manual for Accounts. Detailed work was undertaken on specific financial information, e.g. the Senior Manager salary and pension disclosures. Following the requested amendments, there are no issues with the Annual Governance Statement or Annual Report which we are required to report to the Trust. Remuneration Report The information disclosed within the remuneration report marked as subject to audit and referenced within the opinion is subject to appropriate audit procedures. Our work confirmed that disclosures made within this report were accurate and supported by payroll data. Our work identified no issues which we were required to report to you on this matter Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

8 Audit of the accounts (continued) Agreement of Balances and Whole of Government Accounts (WGA) Our audit work identified a number of variances in the NHS agreement of balances (AoB) process. Whilst the variances were not material to the Trust's financial statements, we were required to report them in our assurance letter to the National Audit Office (NAO) for Whole of Government Accounts purposes. Duty to report to the Secretary of State As the appointed auditor for the Trust we have a responsibility to report to the Secretary of State under section 30 of the Local Audit and Accountability Act 2014 if we believe that a body is about to take or has begun to take a course of action which, if followed to its conclusion would be unlawful. Paragraph 2(1) of Schedule 5 of the National Health Service Act 2006 requires each NHS trust must ensure that its revenue is not less than sufficient, taking one financial year with another, to meet outgoings properly chargeable to revenue account. This duty is known as the break even duty. The phrase taking one year with another has been interpreted by the Department of Health and HM Treasury as meaning that the duty is met if revenue equals or exceeds expenditure over a three year rolling period, or exceptionally a five year rolling period with the agreement of the NHS Trust Development Authority (TDA). In May 2013 and April 2014 referrals were made to the Secretary of State under section 19 of the Audit Commission Act 1998 which was the previous legislation covering this requirement. We reported on 12 May 2015 under section 30 on the basis that the Trust had a cumulative deficit position and was planning to be in deficit for three years from 2013/14 to 2015/16, thereby breaching the breakeven duty. This letter also highlighted the fact that the Trust: has a significant savings targets of approximately 6% of annual turnover, received 17 million revenue support in 2014/15 and has agreement of further cash support of million during 2015/16, understands that service reconfiguration is required across the two sites following the acquisition of services from Mid Staffordshire NHS Foundation Trust. This will involve joint working with its commissioners and other partners to ensure that the Trust is paid appropriately for the services it delivers and any changes which are proposed. Conclusion Prior to giving our opinion on the accounts, we are required to report significant matters arising from the audit to 'those charged with governance' (defined as the Audit Committee at the Trust). We presented our report to the Audit Committee on 4 June 2015, which forms the basis of the messages set out in this Letter. We issued an unqualified opinion on the Trust's 2014/15 accounts on 4 June 2015, meeting the deadline set by the Department of Health (DH). Our opinion confirms that the accounts give a true and fair view of the Trust's financial affairs and of the income and expenditure recorded by the Trust Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

9 Financial performance 2014/15 The Trust's Performance against its financial targets is set out in the table below: Surplus/ (deficit) Capital cost absorption rate Capital resource limit External finance limit Target Actual Met? Breakeven million surplus Yes 3.5% 3.5% Yes Not to exceed million Not to exceed million million Yes million Yes The Trust produced an out-turn financial surplus of 3.7 million. To achieve this the Trust delivered a significant cost saving programme of 30m (28.4 million recurrently) and receiving 17 million of income from the Department of Health to support a breakeven position. The magnitude of the cumulative deficit is still, however, significant. The Trust met its other financial duties as planned. The Trust has funding for 29 months from the date of transfer to support the Mid Staffordshire NHS Foundation Trust transaction. The Trust delivered significant over-performance at year end due to the initial CCG contracts not having agreed contract variations. However, relationships between the Trust and the four main CCGs have developed and year end agreements were settled in April This is a considerable move forward within the health economy. Looking forward The Trust requires savings of 90 million over three financial years with 2014/15 being year million was delivered recurrently in 2014/15 and 23.8 million has been identified against a target of 36.0 million for 2015/16. Work continues to close this financial gap. This is an ambitious savings programme going forward which equates to approximately 6% of annual turnover. In 2014/15 KPMG was commissioned to deliver a report on the Staffordshire health economy following it being identified as one of the eleven failing health economies in England. Whilst the report has not been officially published, there is an acceptance on all sides that the issues raised need to be addressed. The Board has recognised capacity within the back office functions as a potential issue once the services from Mid Staffordshire NHS Foundation Trust are transferred. The Board will also need to ensure that the Finance team remains strong and maintains its current performance with the departure and pending departure of key individuals Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

10 Section 3: Value for Money 01. Executive summary 02. Audit of the accounts 03. Value for Money 04. Other audit related services 05. Non-audit related services 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

11 Value for Money Value for Money conclusion The Code describes the Trust's responsibilities to put in place proper arrangements to: secure economy, efficiency and effectiveness in its use of resources ensure proper stewardship and governance review regularly the adequacy and effectiveness of these arrangements. We are required to give our VfM conclusion based on the following two criteria specified by the Audit Commission which support our reporting responsibilities under the Code: The Trust has proper arrangements in place for securing financial resilience. The Trust has robust systems and processes to manage effectively financial risks and opportunities, and to secure a stable financial position that enables it to continue to operate for the foreseeable future. The Trust has proper arrangements for challenging how it secures economy, efficiency and effectiveness. The Trust is prioritising its resources within tighter budgets, for example by achieving cost reductions and by improving efficiency and productivity. Key findings Securing financial resilience We have undertaken a review which considered the Trust's arrangements against the three expected characteristics of proper arrangements as defined by the Audit Commission: Financial governance Financial planning Financial control. Our work highlighted that the Trust produced an out-turn financial surplus of 3,782k in 2014/15. The Trust also met its other financial duties. In 2014/15 the Trust planned a 16.9 million deficit but received 17 million funding to achieve breakeven. It has also received funding to support the acquisition of Stafford Hospital from Mid Staffordshire NHS Foundation Trust. The TDA has confirmed that this transaction will not negatively impact on the Trust's finances, as further support will be provided until March The Trust requires savings of 90 million over three financial years with 2014/15 being year 1. This is an ambitious savings programme going forward which equates to approximately 6% of annual turnover. The 2015/16 planned deficit of 16.8 million assumes delivery of internal savings of 36 million. As at May 2015, 23.8 million of savings have been identified providing a shortfall of 12.2 million. With the 1.4 million shortfall from 2014/15 brought forward, this presents a gap of 13.6 million Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

12 Value for Money (continued) Overall, there is significant risk to the 2015/16 programme in respect of unidentified CIP and the number of identified schemes that have high or medium risk assessment. Work continues to ensure that further schemes are verified to close the unidentified gap. Challenging economy, efficiency and effectiveness We have reviewed whether the Trust has prioritised its resources to take account of the tighter constraints it is required to operate within and whether it has achieved cost reductions and improved productivity and efficiencies. Our work highlighted that improving the emergency pathway is the greatest challenge for the Trust. This impacts on capacity and patient flow through the hospital. Occupancy remains too high and the Trust is working to improve discharges back into the community or other appropriate setting. Service reconfiguration is also being undertaken on and between Royal Stoke University Hospital and County Hospital in Stafford to provide space to allow for improvements in service delivery and the patient experience. This is moving the Trust to a position where it should be able to ease patient flow within the acute setting. This coupled with the improving relationships within the local health economy are providing an indication that acute capacity is improving. Overall VfM conclusion On the basis of our work, and having regard to the guidance on the specified criteria published by the Audit Commission, we are not satisfied that in all significant respects the Trust put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March We are proposing to issue an 'except for' VFM conclusion for the following reasons: the Trust achieved break even in 2014/15 but only after receiving 17 million in non recurrent revenue from the Trust Development Authority the Trust has a cumulative deficit of million the Trust has a deficit budget for 2015/16 of 16.8 million which relies upon the achievement of an ambitious savings programme. The cumulative and planned deficits are evidence of weaknesses in arrangements in respect of the Trust's strategic planning during 2014/15. The 'except for' qualification is an improvement from our previous 'adverse' conclusion and the improvement is commendable as the Trust has also coped with a significant and high profile transaction during the year Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

13 Section 4: Other audit related services 01. Executive summary 02. Audit of the accounts 03. Value for Money 04. Other audit related services 05. Non-audit related services 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

14 Other audit related services Quality Accounts For 2014/15 the Trust is required to obtain external audit assurance on its Quality Account. In order to provide this assurance we have undertaken limited assurance procedures in accordance with guidance issued by the Department of Health to assess whether: the Quality Account is prepared in all material respects in line with the criteria set out in the Regulations the Quality Account is consistent in all material respects with the sources specified in the NHS Quality Accounts Auditor Guidance 2014/15 issued by the Department of Health ('the Guidance') the indicators in the Quality Account identified as having been the subject of limited assurance, are reasonably stated in all material respects in accordance with the Regulations and the six dimensions of data quality set out in the Guidance. Conclusions We provided an unqualified limited assurance opinion on the Trust's Quality Account, in accordance with requirements, on 26 June The Trust has made good progress over the past twelve months in improving its data quality and reporting within the quality accounts for the indicators examined. Key findings We provided the Trust with a report setting out the detailed findings of our work on 26 June The key matters arising from our work are: we have issued an unqualified conclusion based on our limited assurance procedures the Trust has produced a good final draft report that presents information in a well structured and accessible style. The Trust has taken on board comments from external stakeholders as part of the consultation process on the draft report there are no recommendations arising for management resulting from this audit in particular, the Trust has improved its arrangements for VTE whilst dealing with the Stafford transfer Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

15 Section 5: Other audit related services 01. Executive summary 02. Audit of the accounts 03. Value for Money 04. Other audit related services 05. Non-audit related services 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015

16 Non audit related services Review of the LTFM We reviewed the process for producing the Trust's three LTFMs and challenged the assumptions within them with Management. Key findings We provided the Trust with a report setting out the detailed findings of our work on 17 July Our review identified areas where figures within the LTFMs were ambitious and so recommended that there was a strong understanding and supporting evidence to support these, particularly for income. We also identified that future iterations of the LTFMs developed by the Trust would include new service developments. Conclusion We provided a professional, independent view of the Long Term Financial Model at a point in time which supported the Trust's position in negotiations with the TDA prior to the transfer of services from Mid Staffordshire NHS Foundation Trust. Employer tax services We provided the Trust with support across a full range of employment taxes services. Key findings We have worked throughout the financial year to support the Trust in its discussions with HMRC to reach a settlement with respect to payments made to Junior Doctors. Our key findings were: updated employment taxes policies and systems were required to ensure statutory tax compliance; employment taxes procedures were out of date and followed many incorrect best practices; and opportunities for large annual recurring cost reductions were identified. The Trust now operates a set of employment taxes policies and procedures that are fully tax compliant and up to date for current best practices. The key internal stakeholder teams at the Trust are now more pro-active in managing the employment taxes obligations of the Trust and will seek relevant support where required. Conclusion Our work enabled a substantial reduction in the employment taxes liability originally proposed by HMRC. We also agreed with HMRC that any statutory penalties to be levied by HMRC should be suspended. The opportunities for cost reduction that have been identified as part of the support that we have provided should be explored in more detail to ensure that the trust maximises its financial position and the recruitment, retention and motivation of key members of staff Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

17 Appendices Appendices 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

18 Appendix A: Reports issued and fees We confirm below our final fees charged for the audit and non-audit services. Fees for audit services Per Audit plan Actual fees Trust audit (scale fee) 120, ,352 Increase in scale fee due to additional income and expenditure from Mid Staffordshire NHS FT TBC 31,117 Section 30 Report TBC 3990 Total audit fees 120, ,459 Charitable fund audit 4,740 TBC Additional scale fee for the main Trust audit has been agreed with the Director of Finance, Audit Committee and the Public Sector Audit Appointments (PSAA) Ltd. There is an anticipated increase in the fee for the Charitable Fund audit due to its increase in size, both organically and from the transfer of assets from Mid Staffordshire Hospitals Charity. This increase is yet to be agreed with the Director of Finance and Trustees. Once agreed with them, it will be formally approved by PSAA. Fees for other services Service Fees Audit related services Quality Accounts 10,000 Non-audit related services Review of the LTFM 15,000 Employer Tax Services 31,000 Reports issued to Those Charged with Governance (Audit Committee) Report Date issued Audit Plan 21 January 2015 Audit Findings Report 4 June 2015 VfM Financial Resilience Report 4 June 2015 Quality Account Report 26 June 2015 Annual Audit Letter 31 July Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July

19 2015 Grant Thornton UK LLP. All rights reserved. 'Grant Thornton' means Grant Thornton UK LLP, a limited liability partnership. Grant Thornton is a member firm of Grant Thornton International Ltd (Grant Thornton International). References to 'Grant Thornton' are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients. grant-thornton.co.uk 2015 Grant Thornton UK LLP Annual Audit Letter for University Hospitals of North Midlands NHS Trust July 2015