Annual Audit Letter North West Ambulance Service NHS Trust 13 July 2016

Transcription

1 Annual Audit Letter North West Ambulance Service NHS Trust 13 July 2016

2 Contents The contacts at KPMG in connection with this report are: Page Introduction 3 Amanda Latham Director Tel: amanda.latham@kpmg.co.uk Headlines 6 Appendices A. Key recommendations 15 Jon Cohen Senior Manager Tel: jon.cohen@kpmg.co.uk B. Summary of our reports issued 16 Jessica Boothroyd Manager Tel: jessica.boothroyd@kpmg.co.uk Reena Ghelani Assistant Manager Tel: reena.ghelani@kpmg.co.uk This report is addressed to North West Ambulance Service NHS Trust (the Trust) and has been prepared for the sole use of the Trust. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. External auditors do not act as a substitute for the audited body s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. We are committed to providing you with a high quality service. If you have any concerns or are dissatisfied with any part of KPMG s work, in the first instance you should contact Amanda Latham, the engagement lead to the Trust, who will try to resolve your complaint. If you are dissatisfied with your response please contact the national lead partner for all of KPMG s work under our contract with Public Sector Audit Appointments Limited, Andrew Sayers (on , or by to andrew.sayers@kpmg.co.uk). After this, if you are still dissatisfied with how your complaint has been handled you can access PSAA s complaints procedure by ing generalenquiries@psaa.co.uk, by telephoning or by writing to Public Sector Audit Appointments Limited, 3rd Floor, Local Government House, Smith Square, London, SW1P 3HZ. 2

3 Introduction

4 Introduction Background This Annual Audit Letter (the letter) summarises the key issues arising from our audit at North West Ambulance Service NHS Trust (the Trust). Although this letter is addressed to the directors of the Trust, it is also intended to communicate these issues to external stakeholders, such as members of the public. It is the responsibility of the Trust to publish the letter on the Trust s website at In the letter we highlight areas of good performance and also provide recommendations to help the Trust improve performance. We have included a summary of our key recommendations in Appendix A. We have reported all the issues in this letter to the Trust during the year and we have provided a list of our reports in Appendix B. Scope of our audit The statutory responsibilities and powers of appointed auditors are set out in the Local Audit and Accountability Act Our main responsibility is to carry out an audit that meets the requirements of the National Audit Office s Code of Audit Practice (the Code) which requires us to report on: Financial Statements including the Annual Governance Statement Use of Resources (UoR) We provide an opinion on the Trust s accounts. That is whether we believe the accounts give a true and fair view of the financial affairs of the Trust and of the income and expenditure recorded during the year. We also confirm that the Trust has complied with the Department of Health (DoH) requirements in the preparation of its Annual Governance Statement. We also confirm that the balances you have prepared for consolidation into the Whole of Government Accounts (WGA) are not inconsistent with our other work. We conclude on the arrangements in place for securing economy, efficiency and effectiveness (value for money) in the Trust s use of resources. Adding value from the External Audit service We have added value to the Trust from our service throughout the year through: Attendance at meetings with members of the Executive Team and Audit Committee to present our audit findings, broaden our knowledge of the Trust and to provide insight from sector developments and examples of best practice; A proactive and pragmatic approach to issues arising in the production of the financial statements to ensure that our opinion is delivered on time; Building a strong and effective working relationship with Internal Audit to maximise assurance to the Audit Committee, avoid duplication and provide value for money; and Sharing documentation on financial governance based on our work as reporting accountants at an aspiring Foundation Trust. 4

5 Introduction (cont.) Fees Our fee for was 69,682 excluding VAT ( : 92,909). This fee was in line with that highlighted within our audit plan agreed by the Audit Committee in January Our fees are set nationally by Public Sector Audit Appointments Ltd and reflect significant 25% reductions made nationally to scale fees. We perform the Charitable Funds Audit as a separate engagement and there is a separate fee of 450 payable for this work. The Charitable Funds Audit work will take place in August We have also completed the following piece of work at the Trust during the year. NHS 111 governance arrangements This was a review of governance arrangements in relation to the procurement of sub-contractors to deliver the NHS 111 contract. This was additional detailed work undertaken at the Trust s request to provide assurance over the governance of the NHS 111 bid relating to the appointment of subcontractors. As such it complements our Value for Money opinion and does not threaten our independence as auditors. The fee for this work was 17,700. Acknowledgement We would like to take this opportunity to thank the officers of the Trust for their continued support throughout the year. 5

6 Headlines

7 Headlines This section summarises the key messages from our work during Overall financial results and other key messages Use of Resources conclusion The financial position reflected in the Trust s 2015/16 financial statements represents a 1.062m retained deficit for the year. This is due to a variety of factors including external pressures and the in year mobilisation costs relating to the commencement of the NHS 111 Contract. After excluding adjusting items, including 1.190m impairment of fixed assets, the Trust has reported an adjusted retained surplus for 2015/16 of 135K. During the year the Trust increased its Cost Improvement Programme by 3.686m, from 8.055m to m. The revised CIP target was exceeded, with the full year figure being m m of these CIPs were non-recurrent. One of the risks identified in the year which could have impacted on the delivery of the planned outturn was the potential for performance penalties relating to PES response tines. However, Commissioners have confirmed that the penalties payable for 2015/16 will be re-invested in the Trust and that, as such, no financial transaction will take place. The Trust has forecast to be in a break-even position within the MTFP (Medium Term Financial Plan) for 16/17, taking into account further pressures in the health sector. The Trust has recognised two risks relating to Failure to achieve the 2016/17 financial plan in their Board Assurance Framework, and are monitoring these risks and the mitigating actions at Board level on an ongoing basis. The reported outturn was an improvement on the revised plan, and we did not identify any factors which would indicate poor decision-making, budgetary control issues or poor oversight. Consequently the Trust s financial position has not impacted on our ability to provide a clean VfM opinion for 2015/16. We concluded that the Trust has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. 7

8 Headlines (cont.) Use of resources risk areas We undertook a risk assessment as part of our VFM audit work to identify the key areas impacting on our VFM conclusion and considered the arrangements you have put in place to mitigate these risks. Our work identified the following four significant risks: Risk 1 NHS 111 Service the risk that the Trust had not put in place proper arrangements to secure economy, efficiency and effectiveness in relation to the new NHS 111 Contract. Our response to this Value for Money Risk included: We considered the information provided to the Board to support the process for responding to the invitation to tender. We interviewed key staff to understand the NHS 111 tender response activity. We reviewed the Terms of Reference, minutes and action logs of the 111 Bid Programme Panel. We reviewed Trust Board minutes and supporting papers relating to the ITT submission. We conducted early work on the arrangements to secure appropriate sub-contractors to support the tender. We reviewed the governance arrangements in place during the contract mobilisation phase, including both external oversight and internal groups. We assessed the reporting to the Board of the mobilisation activity, and of performance reporting following the phased go live in October/November We reviewed performance information demonstrating the position against the four contract KPIs from November 2015 to January We considered the Trust s response to the performance issues identified, and reviewed the Trust s Remedial Action Plan which was agreed with Commissioners at the January Contract Performance Notice meeting. We reviewed correspondence with Commissioners including the Performance Notice Letter from January We reviewed the performance and financial information reported to the Performance Committee and to the Board, and assessed the oversight of the actions being taken by the Trust to improve contractual KPI performance. We reviewed KPI performance up to the date of our report and compared this with the trajectories agreed in the Remedial Action Plan. We reviewed the NHS 111 budget and outturn figures for 2015/16, and the five year financial forecast provided to the Board. We concluded that the Trust Board had appropriate oversight of the 111 Tender response, and that work to secure appropriate sub-contractors was undertaken in a timely manner and without significant issues. The Trust has recognised, understood and quantified the key causes of in-year performance issues, and has set out in response a Remedial Action Plan, with progress against delivering this plan being monitored appropriately. There is an approved budget for the NHS 111 contract which covers the full 5 years and which projects a net contribution over the life of the contract, including recovering the set up and mobilisation costs. Performance against this budget is appropriately monitored by the Board and its Committees. Our overall conclusion in relation to this Risk is that the Trust has proper arrangements in place to secure economy, efficiency and effectiveness in relation to the new NHS 111 Contract. 8

9 Headlines (cont.) Use of resources risk areas Risk 2 Financial Standing the risk that the Trust had not put in place proper arrangements to secure economy, efficiency and effectiveness across the organisation. Our response to this Value for Money Risk included: We assessed whether financial reporting arrangements to the Board were sufficient to support informed decision making. We reviewed the arrangements in place to deliver the forecast deficit, with a focus on the arrangements in place to deliver the CIP. We reviewed correspondence with Commissioners about the financial penalties in relation to the non-achievement of NHS111 KPIs. We considered how the Trust has engaged with wider stakeholders to support the delivery of efficiencies. We assessed whether future financial standing risks are appropriately recognised and monitored at Board level. We reviewed the Trust s Medium Term financial plan, and assessed the Trust s future position. We reviewed the Trust s Board Assurance framework as at April We concluded that the reported outturn was an improvement on the revised plan, and we did not identify any factors which would indicate poor decision-making, budgetary control issues or poor oversight. Consequently the Trust s financial position has not impacted on our ability to provide a clean VfM opinion for 2015/16. Risk 3 PTS Contract the risk that the Trust had not put in place proper arrangements to secure economy, efficiency and effectiveness in relation to the new PTS Contract. Our response to this Value for Money Risk included: We considered the information provided to the Board to support the process for responding to the invitation to tender. We interviewed key staff to understand the PTS tender response activity. We reviewed the Terms of Reference, minutes and action logs of the Bid Steering Group and the Bid Project Team. We reviewed Trust Board minutes and supporting papers relating to the ITT submission. We reviewed the Terms of Reference of the Mobilisation Steering Group, and the reporting arrangements for each of the project work-streams. We reviewed the reports of the Mobilisation Steering Group to the Performance Committee, and the progress reports presented to the Board. We concluded that the Trust Board had appropriate oversight of the PTS Tender response, and the Extraordinary Board held in August 2015 reviewed sufficient appropriate information to make an informed decision to approve the tender response prior to submission. The Trust has appropriate working groups to manage mobilisation activities. The Board maintains an oversight of mobilisation activity through regular reporting from the Performance Committee. 9

10 Headlines (cont.) Use of resources risk areas Financial Statements audit opinion Financial statements audit work undertaken Risk 4 Board Turnover the risk that new Board Members are not providing effective challenge and oversight to secure Value for Money. Our response to this Value for Money Risk included: We reviewed the skills and backgrounds of the new Executive and Non Executive Directors appointed during 2015/16 and considered whether they are appropriate individuals to hold Board level posts. We considered the training and development activities undertaken by the Board of Directors and the level of attendance at these. We reviewed meeting minutes as well as attending Audit Committee meetings during the year. We also met with the Director of Finance and the Chief Executive on several occasions during 2015/16. We concluded that the new Executive and Non Executive Directors all have relevant backgrounds and experience. The Board of Directors undertakes regular development activities to enhance understanding and awareness of particular issues. These activities are well attended. There have been appropriate levels of challenge from all Directors during 2015/16, including the three new Non Executive Directors. We issued an unqualified opinion on the Trust s accounts on 26 May This means that we believe the accounts give a true and fair view of the financial affairs of the Trust and of the income and expenditure recorded during the year. There were no material adjusted or unadjusted audit differences identified as part of the audit. There were no significant matters which we were required to report to those charged with governance. We identified a number of presentational changes required to the draft Annual Report, which we discussed with management. We reviewed the final version of the Annual Report, and confirmed that presentational changes we discussed with management following our feedback on the first draft had been implemented and that the Annual Report complies with the Manual for Accounts disclosure requirements. We are required to apply the concept of materiality in planning and performing our audit. We are required to plan our audit to determine with reasonable confidence whether or not the financial statements are free from material misstatement. An omission or misstatement is regarded as material if it would reasonably influence the user of financial statements. Our materiality for the audit was 5m (2014/15: 5m). We identified the following risk of material misstatement in the financial statements as part of our External Audit Plan 2015/16: Risk 1 Valuation of land and buildings In order to gain assurance over the valuation within the financial statements of the Trust s land and building assets, we completed the following procedures: We reviewed the information provided by the Trust to the valuer to support the desk top exercise, and agreed this to the Trust s fixed asset register. We tested a sample of assets acquired during 2015/16 back to supporting documentation, in order to obtain assurance that the assets exist and have been appropriately capitalised and accurately recorded. 10

11 Headlines (cont.) Financial statements audit work undertaken We assessed the competence, capability, objectivity and independence of the Trust s external valuers, to obtain assurance that appropriate experts have been engaged to perform the desktop review. We reviewed the assumptions used by the valuer in their desktop review, and assessed these for compatibility with the valuation requirements in the Manual for Accounts. We did not identify any indications that any inappropriate revaluation bases had been used, so we did not engage our property team experts to assess the revaluation. We reconciled the impairment value of 1,248k disclosed in the Trust s financial statements to the report provided by the valuer, dated November Of this charge, 58k relates to changes in market price and has been charged to Other Operating Expenses, with the remaining 1,190k impairment charge separately disclosed on the face of the Statement of Comprehensive Income. We reviewed the presentation of the net upward revaluation of 243K within the Property, Plant and Equipment note to the accounts for consistency with disclosure requirements in the Manual for Accounts. We did not identify any issues or errors in connection with this significant risk for 2015/16. Risk 2 Lease Accounting Our planning work had identified a risk around ensuring the correct disclosure of the proposed 5m lease with Greater Manchester Fire and Rescue Service (GMFRS) regarding a lease on GMFRS premises. The proposed lease with GMFRS was not in fact entered into during 2015/16. In order to gain assurance over leases disclosures within the Trust s financial statements, we completed the following procedures: We reviewed the Operating Lease disclosure breakdown for 2015/16 and identified new leases entered into during 2015/16. We tested a sample of new leases, and agreed the lease payment to supporting documentation. We confirmed that the leases we tested comply with the IAS 17 operating lease definition. Our testing identified very minor differences, which were below our Audit Differences Posting Threshold. Risk 3 Provisions In order to gain assurance over the valuation of provisions within the Trust s financial statements, we completed the following procedures: We assessed the completeness of provisions by comparing a breakdown of 2015/16 provisions to our expectation, which we based on both prior year experience and current year risk assessment procedures. 11

12 Headlines (cont.) Financial statements audit work undertaken We reviewed a letter from the Commissioners confirming that financial performance target penalties payable will be re-invested in the Trust and that, as such, no financial transaction will take place and no provision is required in relation to this issue. We conducted early testing around the change to the Trust s methodology around its Personal Injury Benefit provision, which represents the largest single provision with the financial statements. We assessed the revised assumptions which have led to the significant decrease in the provision in the year, and tested a sample of cases back to supporting evidence to ensure that their recognition and valuation is in line with relevant accounting guidance. We performed an analytical procedure to compare other provisions balances against the associated balance from 2014/15, and we sought explanations and corroborative evidence where we identified significant variances. We did not identify any issues or errors in connection with this significant risk for 2015/16. Risk 4 Fraud risk from management override of controls Professional standards require us to communicate the fraud risk from management override of controls as significant because management is typically in a unique position to perpetrate fraud because of its ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Our audit methodology incorporates the risk of management override as a default significant risk. In line with our methodology, we carried out appropriate controls testing and substantive procedures, including testing over journal entries, accounting estimates such as accruals and provisions and significant transactions that are outside the normal course of business, or are otherwise unusual. We also tested the Trust s register of interests, and considered the appropriateness of related party transactions and their disclosure within the financial statements. Our testing did not identify any fraudulent activity. Our testing did identify a control deficiency in relation to segregation of duties for journals authorisation and we raised a medium priority recommendation in relation to this issue which is detailed in Appendix A. For each of the journals impacted on by the control deficiency, we reviewed supporting evidence to obtain assurance that no fraudulent activity was perpetrated. Revenue Recognition Professional standards require us to make a rebuttable presumption that the fraud risk from revenue recognition is a significant risk. For NHS bodies, we do not consider this to be a significant risk as there is unlikely to be an incentive to fraudulently recognise revenue. As such, we rebutted this risk. 12

13 Headlines (cont.) Annual Governance Statement We have also confirmed that the Trust have complied with the Department of Health requirements in the preparation of the Trust s Annual Governance Statement. No significant adjustments were required to the Annual Governance Statement. Recommendations We have raised one medium priority recommendation as a result of our audit work. This is detailed in Appendix A. There were no recommendations raised during Public Interest Reporting We have a responsibility to consider whether there is a need to issue a public interest report or whether there are any issues which require referral to the Secretary of State. We did not issue a report in the public interest or refer any matters to the Secretary of State in

14 Appendices

15 Appendix A Key recommendations Recommendations raised in No. Risk Issue, impact and recommendation Management response/responsible officer/due date 1 Medium Journals Segregation of Duties The Trust have amended their journals procedure during 2015/16, to allow staff at Band 8a or above to authorise their own journals. There is consequently an increased risk of management override of controls due to the lack of segregation of duties. We have performed the audit procedures below to satisfy ourselves that no inappropriate journal postings have occurred in year. - We obtained a list of all staff who have access to post journals to the general ledger. - We identified those staff who have journal posting access who are Band 8a and above. - We reviewed a full listing of all journals in year to identify which journals had been posted by staff at Band 8a and above. - We requested supporting corroborative evidence for the seven journals in total which had been posted by these staff. We obtained sufficient appropriate evidence to conclude that these journals were appropriate. To strengthen the control environment, we recommend that the Trust reinstate the requirement for all journals to be authorised by a separate person prior to being posted. Management Response: Agreed. Responsible Office: Director of Finance Due Date: 30 June 2016 Recommendations from previous year There were no recommendations raised in 2014/15. 15

16 Appendix B Summary of our reports issued Audit Plan (January 2016) The Audit Plan set out our approach to the audit of the Trust s Use of Resources and Financial Statements (including the Annual Governance Statement) January February March Audit Report (May 2016) The Audit Report provides our audit opinion for the year, the Value for Money conclusion, and our Audit Certificate. April May June July August Audit Highlights Memorandum (May 2016) Annual Audit Letter (July 2016) The Audit Highlights Memorandum provides details of the results of our audit for including key issues and recommendations raised as a result of our observations. We also provided the mandatory ISA260 declarations as part of this report. This Annual Audit Letter provides a summary of the results of our audit for September October November December 16

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