Bedford Hospital NHS Trust

Transcription

1 Bedford Hospital NHS Trust Government and Public Sector Report to those charged with governance Report to the Audit Committee on the audit for the year ended 31 March 2015 (ISA (UK&I)) 260) June 2015

2 Statement of Responsibilities of Auditors and of Audited Bodies In April 2010 the Audit Commission issued a revised version of the Statement of responsibilities of auditors and of audited bodies. It is available from the Chief Executive of each audited body. The purpose of the statement is to assist auditors and audited bodies by explaining where the responsibilities of auditors begin and end and what is to be expected of the audited body in certain areas. Our reports and management letters are prepared in the context of this Statement. Reports and letters prepared by appointed auditors and addressed to members or officers are prepared for the sole use of the audited body and no responsibility is taken by auditors to any Member or officer in their individual capacity or to any third party. Contents Executive summary 1 Audit approach 2 Significant audit and accounting matters 9 Internal controls 23 Risk of fraud 29 Appendices 30 Appendix 1: Summary of uncorrected misstatements 31 Appendix 2: Letter of representation 33 Appendix 3: Draft audit opinion 39 Appendix 4: Referral letter to be issued to the Secretary of State 43 This Statement is still applicable for the financial year 2014/15 under the Audit Commission successor body arrangements. PwC Contents

3 An audit of the financial statements is not designed to identify all matters that may be relevant to those charged with governance. Accordingly, the audit does not ordinarily identify all such matters. Executive summary Background This report tells you about the significant findings from our audit. We presented our plan to you in March 2015; we have reviewed the plan and concluded that it remains appropriate. Audit Summary We have completed all of our audit work and have issued an unqualified audit opinion on the financial statements. We have included an emphasis of matter in our opinion on the accounts, drawing the reader s attention to the Trust s disclosures within the Annual Report, Annual Governance Statement ( AGS ) and financial statements regarding the Trust s assessment of its going concern status, given the financial position of the Trust and its future deficit forecasts. We are required to conclude on the adequacy of the Trust s arrangements to secure economy, efficiency and effectiveness in its Use of Resources. To form this conclusion we are required to follow the Audit Commission s guidance. We have given a qualified conclusion on the Trust s Use of Resources for 2014/15 due to the financial position of the Trust. Please note that this final version of this report will be sent to Public Sector Appointments Limited in accordance with the Audit Commission transition requirements and to the National Audit Office as auditors of the Department of Health s Resource Accounts. We remain committed to providing you with a high quality service and will work with your incoming auditors to ensure a smooth transition. Clive Everest and Kim Buckland attended the Audit Committee meeting on 28 May 2015, during which the draft version of this report was discussed with those charged with governance. We thank the management and staff of the Trust for their cooperation and assistance during the course of our term of appointment. We are also required to issue a referral to the Secretary of State as a consequence of the Trust s failure to achieve its statutory cumulative break even duty. This referral was issued on 3 June This is the final year of the Audit Commission framework contract and therefore our final year as your external auditor. PwC 1

4 Our audit approach meets the requirements of all ISAs (UK&I). Audit approach The PwC Audit consists of: Smart people; A Smart approach; and Our audit approach was set in our audit plan which we presented to you in March As detailed in our audit plan, our audit approach consists of smart people, a smart approach and smart technology. Smart Approach Data auditing We use technology-enabled audit techniques to drive quality, efficiency and insight. Smart technology. Smart People We continue to deploy an experienced team on your audit, supported by a substantial investment in training and in our industry programme. 1. Client acceptance & independence 2. Deep business understanding 3. Relevant risks 4. Intelligent scoping 5. Robust testing 6. Meaningful conclusions PwC s audit is built on a foundation of smart people, a smart approach and smart technology. This together with our six-step audit process, results in an audit that is robust, insightful and relevant. In 2015, our work included testing manual journals through data analysis, to identify and focus our testing on those entries we deem to have the highest inherent risk. Centre of Excellence We have a Health Centre of Excellence in the UK - a dedicated team of specialists which advises, assists and shares best practice with our audit teams in more complex areas of the audit. Our team has been working side by side with the Centre of Excellence to ensure we are executing the best possible audit approach. Delivery centres We use dedicated delivery centres to deliver parts of our audit work through a protocol arrangement agreed with the Audit Commission and its successor bodies. The delivery centres undertake routine audit work and work that can be done by teams dedicated to specific tasks; for example these include confirmation procedures, preliminary independence checks and consistency and casting checks of the financial statements. Benefits for the audit The key benefits of our approach for your audit have been: PwC 2

5 Continuity of staff Staff who are familiar with your systems, processes and controls and therefore work in partnership with your finance team. Use of the delivery centres freed up time for your audit team to concentrate earlier on more complex areas of accounting. Smart Technology We have designed processes that automate and simplify audit activity wherever possible. Central to this is PwC s Aura software, which is a powerful tool, enabling us to direct and oversee audit activities. Aura s risk-based approach and workflow technology results in a higher quality, more effective audit and the tailored testing libraries allow us to build standard work programmes for key NHS audit cycles. Smart people Smart approach Smart technology The PwC Audit PwC 3

6 We have summarised below the significant and elevated risks we identified in our audit plan and the audit approach we took to address them. Our audit work has addressed the significant risks we set out in our audit plan. There have been no changes to the audit risk assessment or approach since we presented our audit plan. Risk Categorisation Audit approach Risk of management override of controls Significant ISA (UK&I) 240 requires that we plan our audit work to consider the risk of fraud, which is presumed to be a significant risk in any audit. This includes consideration of the risk that management may override controls in order to manipulate the financial statements. We have performed the following procedures: Tested the appropriateness of journal entries using Computer Assisted Audit Techniques; Reviewed accounting estimates for bias and evaluated whether circumstances producing any bias, represent a risk of material misstatement due to fraud; Evaluated the business rationale underlying significant transactions; Confirmed bank balances independently to third parties; and Performed unpredictable procedures. We did not identify any issues through our testing. Risk of fraud in revenue recognition Significant Under ISA (UK&I) 240 there is a (rebuttable) presumption that there are risks of fraud in revenue recognition. We have obtained an understanding of, and evaluated, key controls over fraud in revenue recognition. We have evaluated and tested the accounting policy for income recognition to ensure that it is consistent with the requirements of the NHS Manual for Accounts. We have reviewed intra NHS confirmations of balances and investigated differences and any disputed amounts to consider any implications on your accounts. In doing so we have considered any implications of complex revenue recognition arrangements in the Trust s funding. We have considered the results of our journal testing above. We have also performed detailed testing of revenue transactions, including deferred revenue, focussing on the areas we considered to be of greatest risk. We are satisfied that revenue amounts recognised within your accounts are materially correct and that disclosures are in line with the Manual For Accounts. PwC 4

7 Risk Categorisation Audit approach Risk of fraud in expenditure recognition Significant We have obtained an understanding of, and evaluated, key controls over fraud in expenditure recognition. We have evaluated and tested the accounting policy for expenditure recognition to ensure that it is consistent with the requirements of the Manual for Accounts. We have reviewed intra NHS confirmations of balances and investigated differences and any disputed amounts to consider any implications on your accounts. We have considered the results of our journal testing above. We have also performed detailed testing of expenditure transactions, focussing on the areas we considered to be of greatest risk. We are satisfied that expenditure amounts recognised within your accounts are materially correct and that disclosures are in line with the Manual for Accounts. PwC 5

8 Risk Categorisation Audit approach Going concern Significant Additional work as part of the Management Override of Controls significant risk as detailed above. We reviewed the Trust s five year financial plans, including a high level assessment of key judgements used in order to understand the Trust s projected future position. We performed a post balance sheet date events review for indications of events which may impact the application of the going concern basis of preparation. We reviewed the and communications with regulators, and the letter of support issued by the TDA on 14 May 2015 which confirmed its intention to make sufficient cash financing available to the organisation over the next 12 month period such that the Trust is able to meet its current liabilities. We considered sceptically the financial impact of the loss of the MSK contract as part of our testing of income, PPE and provisions, to consider any material financial implications. We reviewed the Trust s CIP delivery in the current year and plans for future years. We consulted with a panel of PwC senior partners and subject matter experts on the Trust s financial resilience as part of our consideration on whether to include an emphasis of matter in the accounts, and to qualify the VFM conclusion. Through assessment of the above procedures we have confirmed that it is appropriate for the Trust s accounts to be prepared on a going concern basis, and that there are no material uncertainties regarding the Trust s ability to continue as a going concern in the foreseeable future, in part due to the support to be provided by the TDA. The Annual Report, AGS and financial statements contain adequate disclosure of this, and we have included an emphasis of matter, which is not a modification, within our audit opinion directing the reader to these disclosures. See page 16 for further details of our going concern assessment. PwC 6

9 Risk Categorisation Audit approach Accounting for property, plant and equipment. Elevated Valuation of PPE We have reviewed the accounting treatment for new capital schemes and material additions in 2014/15. We have used our valuations experts to review the assumptions used by the Trust s external valuers (District Valuers) in determining the fair value of assets recorded within the Trust s financial statements and confirmed that the valuations have been appropriately recognised in the financial statements. We have reviewed the appropriateness of the Trust s approach to depreciation, including useful economic lives and component depreciation. We have performed physical verifications of a sample of assets held by the Trust and equipment and agreed property, plant and equipment additions in the year to appropriate supporting documentation. We identified one asset, Beeden House where the value was not determined based on the specialist nature of the building. A SUM adjustment has been raised within Appendix 1. We have not identified any other issues in our testing of property valuations. Recording of PPE We reviewed the process that the Trust has undertaken to cleanse its accounting records for PPE including: review of the data migration from the spreadsheet to the new fixed asset register as of 1 April 2014, and for additions and other movements in year which were processed late in FY15; review spreadsheet calculations to check their logic and calculations are materially correct; considered the results of the physical verification exercise performed by the Trust in 2014/15; understand and evaluate the controls relating to the new fixed asset system and test their operating effectiveness; and tested the entries in the new fixed asset system for depreciation and impairments and reconcile this system to the general ledger and accounts. No issues were identified through completion of the above audit procedures. PwC 7

10 Risk Categorisation Audit approach Non-financial statement risk Financial resilience Significant value for money risk We continued to assess the Trust s plans for its future and discuss proactively with management any potential accounting implications. We monitored the Trust s financial performance for 2014/15 and the outturn at the year end. We understood the extent of any financial support received from commissioners, and confirmed the TDA s intention to provide additional funding to their letter dated 14 May We reviewed the completeness of the Trust s Cost Improvement Plans for 2015/16 and the effect of its financial position on its cash-flow forecast for 2015/16. We considered the status of the musculoskeletal contract to understand the effect of any decisions on impairments on assets, TUPE or redundancies and financial resilience. The Trust has not yet entered into any subcontracting agreement in respect of these services with Circle, the provider, however is still delivering services on a non-contractual basis. Therefore the income from this (c. 10 million pa) is not predictable or guaranteed. We consulted with a panel of PwC senior partners and subject matter experts to confirm we should qualify our VFM opinion.. We also considered our other responsibilities, including our public interest reporting responsibilities under section 8 and section 19 of the Audit Commission Act in relation to the Trust s financial standing. The Trust breached its statutory duty to break even during the year, and is projecting a deficit for at least the next five years in its current format. In addition, the Trust does not have sufficient cash to meet its liabilities without significant additional funding. Based on completion of the above audit procedures, we intend to issue a qualified conclusion on the Trust s arrangements to achieve value for money due to issues noted with the Trust s financial resilience. See page 17 for further details of our value for money assessment. As the Trust has breached its statutory break even duty under Section 5 of the NHS Act 2006 we are also required to make a referral to the Secretary of State under s19 of the Audit Commission Act. Our draft referral letter is included in Appendix 4. PwC 8

11 Significant audit and accounting matters ISAs (UK&I) require us to tell you about relevant matters relating to the audit of the financial statements sufficiently promptly to enable you to take appropriate action. We have set out in this section the significant matters arising from our audit as well as the current outstanding matters. Accounts We have completed our audit of the Trust s accounts in accordance with ISAs (UK&I). We have issued an unqualified audit opinion on the Trust s financial statements. PwC 9

12 We have reviewed, and tested, the material disclosures in the financial statements. Accounting issues The qualitative aspects of the Trust s accounting practices are set out below. Fixed asset accounting Accounting records In 2014/15 the Trust implemented a new Fixed Asset Register to replace the previous manual spreadsheet to assist in a more long term solution to the recording of fixed assets. Work has been performed as part of the audit in the current year to verify the completeness and the accuracy of the migration of the fixed asset register. We have not identified any issues in this testing. Considerable work has been undertaken by the Trust s Capital Accountant in cleansing the data throughout the financial year. This entailed performing a range of procedures, predominantly aggregating assets capitalised individually into the relevant existing block assets. Our work has reconciled these blocks to the District Valuer s report issued in 2014/15 with no issues identified. PPE movements for additions and disposals were maintained external to the Fixed Asset Register during the year with a year-end upload to the register. Our PPE movements testing did not identify any capitalisation of expenditure, revaluation and impairment or disposal accounting treatment exceptions. However we noted that the new register, based on DH FMA forms, places restrictions on the Trust s ability to recognise intangible assets as under construction. These must be classified as tangible assets per the system. Once the asset is completed, it is not possible to transfer the assets from tangibles to intangibles in the year of capitalisation. Our testing identified 1.9m of assets which are intangible by nature which were disclosed within tangible assets in the financial statements. A SUM adjustment has been proposed within Appendix 1 to reclassify these amounts to intangible asset and a control point has been included on page 23 given that a manual adjustment should have been posted to the financial statements regardless of system limitations. With the implementation of the asset register, the Trust has alleviated future concerns in retaining data, however some accumulated historic issues still exist. As reported in previous audits, the Trust does not hold reliable records detailing historic transactions against assets, such as the amounts held in the revaluation reserve for the asset or previous impairments recognised in expenditure. For example, in the prior year a 907,000 impairment was posted to expenditure for Endsleigh House however there is no easily available record of this in the Trust s systems. Due to this, the Trust may not be able to identify when a revaluation/impairment should be recognised in reserves or income/expenditure. Given the upwards movements in valuations over time and that the current year revaluations have been recognised almost entirely in the revaluation reserve, we do not believe there is a risk of material misstatement in the current year accounts, however it is recommended that the Trust complete a historic exercise to rebuild their asset records and the make up of the revaluation reserve. Valuation The Trust's land and buildings have been subject to valuation by the District Valuer (DV) as at 31 March The valuation has been undertaken in accordance with IFRS, HM Treasury guidance, International Valuation Standards and the RICS Valuation Standards. The valuation of each property is based on market value. For non-specialised properties this is an Existing Use Value (EUV) and for specialised properties this is Depreciated Replacement Cost (DRC) on a modern equivalent asset basis. Our review of the valuation exercise performed by the District Valuer in the current year has focussed on verifying the underlying base data and assessing the assumptions applied by the valuer in conjunction with our own valuations experts. PwC 10

13 We identified that one asset, Beeden Housse, has been valued as a finance lease. However, as raised in the previous year, this asset is specialised as it is used to provide acute medical services on the Trust s site. The District Valuer has recalculated the valuation for this property on a specialised basis, with the result being a net reduction in the value of 255,000, which has been included within the SUM in Appendix 1. Physical verification and disposal of PPE As reported to the Committee in prior year, the Trust s fixed asset register does not contain sufficient information to facilitate the physical verification of certain individual items of property, plant and equipment without the need to consult relevant departments. While some improvements have been made in this area, a control weakness remains in that it is not possible to trace assets to/from the fixed asset register itself. Our review of the fixed asset register identified assets with a gross cost of 8.7 million which are fully depreciated as at year end, which indicates they are no longer in use by the Trust and should be removed from the fixed asset register. A control point has been raised regarding this on page 23 of this report. Maternity deferred income As part of the agreement of balances exercise testing ( AoB, see below) a difference of 823,000 and 272,000 in accounts receivable and accounts payable respectively between the Trust and Bedfordshire CCG. The net impact of this is a 1.1 million overstatement in amounts due from the CCG in the Trust s records per the AoB exercise. Upon further investigation it was identified that the CCG had misreported in the AoB reports, and we have received an updated mismatch report directly from the CCG which gives a difference of 1.0 million in the accounts payable balance, where the CCG has an additional 1.0m due from the Trust compared to the Trust s submission. This difference is due to a discrepancy in the treatment of income relating to maternity pathways, whereby the CCG has reported the difference as being a prepayment due to maternity pathways not having been completed in the year. The Trust has accounted for the income on a receipts basis as part of the agreed block contract with the CCG for 2014/15. The Trust has accounted for the balance in this way as they have reached a full and final settlement with Bedfordshire CCG in both 2013/14 and 2014/15 and a block contract was in operation for maternity care in both years. In 2013/14 there was no mismatch as the CCG had not allocated the prepayment correctly in the AoB exercise. Under the 2014/15 Manual of accounts and finman website guidance: There is a need to consider the requirements of IAS 18. The most appropriate treatment is income from the rendering of services. Paras 20 and 21 of IAS 18 state: When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. Under this method, revenue is recognised in the accounting periods in which the services are rendered. The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period. IAS 11 also requires the recognition of revenue on this basis. This treatment is deemed the most appropriate for the lead provider to follow, because even though they have received all of the cash, they have yet to provide some of the services and therefore should not recognise all of the income up front. Under IAS 11 principles the new maternity pathway arrangements fall under the definition of a fixed price PwC 11

14 contract. The key considerations for recognising revenue are therefore set out in paras 22 and 36 of IAS 11: When the outcome of a contract can be estimated reliably, contract revenue and contract costs associated with the contract shall be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognised as an expense immediately. The trust may calculate the percentage of services delivered in respect of each ongoing pregnancy at the year end and recognise that proportion of the income, while deferring the rest. The Trust is not currently recognising deferred income in respect of the partially completed maternity pathways. This is consistent with the 2013/14 year end treatment, however this was not detected as part of the AoB exercise due to the related prepayment having been miscoded by the CCG. We have considered the year on year impact on revenue recognised in the Statement of Comprehensive Income, and agreed this as being a trivial value given that maternity patient rates and related income have not varied significantly year on year therefore the amount released from deferred income had an opening balance be held would not be materially different from the deferral required at year end. This does however misstate the net assets, and as it is not material in 2013/14 the full 1m would need to be taken through the statement of comprehensive income in 2014/15. As part of the AoB exercise, the CCG has disclosed a difference in total expenditure for the year with the Trust of 397,000. We have confirmed that this is an error on the part of the CCG to subsequent correspondence between the Trust and the CCG, however given the final submission of the AoB data has been made it cannot be formally amended. A SUM adjustment has been included in Appendix 1 to create the 1 million deferred income as of 31 March Payroll controls In previous years the audit approach applied to give comfort over the payroll related balances involved testing of controls surrounding the starters, leavers and amendments processes. As part of our interim audit we performed this testing however issues were identified in both our original and extended sample of leavers, where overpayments had been made to three of our 45 sampled leavers. Given the exception rate we were not able to place reliance on this control, and have revised our audit approach to a fully substantive test of details. This was a more in depth test and therefore more labour intensive than our standard approach. A significant control deficiency has been raised on page 23 of this report relating to the control failure leading the change in our audit approach. This was reported to you at the March 2015 Audit Committee meeting as part of our Audit Plan. We have also identified a number of other control deficiencies in the payroll process, which have been reported on page 23. The detailed testing has not highlighted any accounting exceptions above the SUM deminimis level of 164,000. Agreement of balances mismatches Under the NAO group reporting procedures we are required to report all differences with other NHS bodies resulting from the second submission of the NHS agreement of balances exercise in excess of 250,000. A summary of the differences above the reporting threshold has been included below. With the exception of the Bedfordshire CCG balances discussed in the Maternity deferred income section of this report, we have confirmed the Trust s balances to our PwC 12

15 detailed testing populations and have not identified any items which require adjustment in the Trust s accounts. AoB mismatch report summary Entity Partner Receivable / Income Amount Income and expenditure Payable / Expenditure Amount Difference RC1- Q56-East Anglia 9,926 10,284 (358) RC1-06F-NHS BEDFORDSHIRE CCG 122, ,157 (397) RC1-04F-NHS MILTON KEYNES CCG 2,998 2, FRV3-Central & North West London NHS Foundation Trust RC RC1- FRP6-Moorfields Eye Hospital NHS Foundation Trust 3,969 3, FRP6-Moorfields Eye Hospital NHS Foundation Trust RC1-7,781 8,156 (375) Accounts receivable and accounts payable RC1- Q58-Hertfordshire and the South Midlands RC1-06F-NHS BEDFORDSHIRE CCG 2,181 1,358 (823) RC1- FRP6-Moorfields Eye Hospital NHS Foundation Trust 888 1, FRV3-Central & North West London NHS Foundation Trust RC (583) 06F-NHS BEDFORDSHIRE CCG RC (272) Each of the above will be reported within our NAO group reporting opinion. PwC 13

16 Provision for locum staff The Trust is currently holding a provision in respect of potential liabilities due for previously employed locum staff of 248,000. The Trust has performed an exercise in the year to identify potential liabilities relating to payments to previously employed locums. The Trust identified 29 locums potentially impacted, and has contacted each of these to confirm that they have paid met the applicable criteria employment at the Trust. The Trust has received responses for 18 of these to date, with no issues identified. The provision held relates to the full potential liability for the 11 remaining locums. We believe, based on the lack of historic issues in this area and that there have been no obligating events, this provision does not meet the definition of a liability under the Manual for Accounts. We have included a judgemental SUM adjustment within Appendix 1 of this report to reverse this provision. Stock controls The Trust employed an external stock counter to complete the year end stock take of theatre stores. PwC attended this count and performed a sample of test counts with no issues identified. As part of our year end stock testing procedures we attempted to perform a reconciliation from our test counts to the detailed listings reflected in the year end stock balance held on the statement of financial position, however of the sixty items tested discrepancies were identified in three items whereby the total we counted did not agree to the detailed listing. Upon further investigation it was identified that this was due to manual adjustments which were made to the pre-populated count sheets not having been recognised in the final stock listings. A control point has been raised regarding this on page 23. Our audit procedures have confirmed that this issue is limited to only the manual adjustments and does not give rise to a misstatement above the SUM deminimis posting level of 164,000. Non-consolidation of charitable funds The Trust has control over Bedford Hospital Charitable Funds ( the Charity ), and therefore it meets the definition of a subsidiary under the Manual for Accounts. The Trust has opted not to consolidate the Charity on the basis of materiality. We have confirmed the Charity is not material to the Trust as part of our audit procedures, and have included a specific point asserting this on the management representation letter included in Appendix 3 of this report. Donated assets Through our review of expenditure codes we identified capital items totalling 213,000 which related to donated assets received by the Trust. An adjustment had been posted to recognise these items within PPE, however due to the accounting treatment applied by the Trust the related income and expenditure balances were overstated by 213,000. An adjustment has been proposed within Appendix 1 to reduce both income and expenditure by this amount. The net impact of this adjustment on the deficit for the year is nil. Classification of invoice accruals Through review of accounts payable and accruals we have identified that the Trust is holding an accrual for invoices which were received by the Trust pre year end, but due to not having been sent on to the Finance team before the year end close were not posted to accounts payable. Given the nature of these balances, in that the invoices have been received pre year end, these should be classified as accounts payable rather than accruals. An adjustment has been proposed within Appendix 1 of this report to reclassify the total value of these accruals, 2,135,993, to accounts payable. Misstatements and significant audit adjustments We have to tell you about all uncorrected misstatements we found during the audit, other than those which are clearly trivial. PwC 14

17 ISA (UK&I) 450 (revised) requires that we record all misstatements identified except those which are clearly trivial i.e. those which we do not expect to have a material effect on the financial statements even if accumulated. As part of our audit planning procedures we identified that all misstatements less than 164,000 (2013/14: 160,000) could be classed as clearly trivial and we agreed this threshold with the Audit Committee in March See Appendix 1 for a listing of the uncorrected misstatements. We also bring to your attention the following misstatements which are listed in Appendix 1 to this report which have been corrected by management but which we consider you should be aware of in fulfilling your governance responsibilities. Significant accounting principles and policies Significant accounting principles and policies are disclosed in the notes to the financial statements. We will ask management to represent to us that the selection of, or changes in, significant accounting policies and practices that have, or could have, a material effect on the financial statements have been considered. Please refer to the management representation letter in Appendix 3. Judgements and accounting estimates The Trust is required to prepare its financial statements in accordance with the NHS Manual for Accounts, which specifies in many areas the accounting policies and estimation techniques that must be applied. Nevertheless, there are still many areas where management need to apply judgement to the recognition and measurement of items in the financial statements. These include: Assessment of useful economic lives of assets; Assessment of whether properties are specialised or non-specialised; Assumptions of what a modern equivalent asset would be; Income: Recognition of accrued and deferred revenue balances ; Whether to raise a debtor for healthcare contract activity judgement on the amounts due; and Expenditure - the need to recognise provisions and accruals of expenditure at year-end. As part of our work over the relevant areas of the financial statements and the management override of controls significant risk we have reviewed the basis for material estimates recognised in the year. Our testing has not identified any areas of material misstatement or bias in accounting estimates. Financial statement and remuneration report disclosures As part of our audit work we have reviewed, and tested, the material disclosures in the financial statements. We identified no significant issues as part of this work. Property plant and equipment: Which costs to capitalise; PwC 15

18 We ask management to represent to us on specific matters regarding the financial statements. Management representations The final draft of the representation letter that we ask management to sign is attached in Appendix 3. Financial standing The following material uncertainties related to events and conditions that may cast significant doubt on the Trust s financial standing: The Trust reported a deficit of 20.2 million for the 2014/15 financial year. The Trust is projecting that it will make a deficit for at least the next five years if it retains its current structure and responsibilities. As a result of the above, the Trust is heavily reliant on receiving additional funding from the TDA in order to meet its financial obligations. In 2015/16 the Trust is expected to need approximately 1.5m of financial support per month in addition to the income contracts with the CCGs. The Trust s original financial plan for 2014/15 was to outturn with a deficit of 6.5m, compared to a deficit of 9.5m in 2013/14. The Trust identified that they were significantly behind plan after Q1, and subsequently completed a reforecasting exercise. The result of this was a projected deficit of 20.7m. The actual deficit achieved per the draft accounts was 20.3m. Following identification of the need to reforecast, the Trust commissioned Baker Tilly to perform an independent review of the financial recovery plan. This found that the original budget was unrealistic due to the budget setting method adopted by the Trust. There were no comments included regarding financial mismanagement of the Trust. The key reasons for the decline in the deficit during the year, in summary, are: 9.6m of penalties incurred with the Trust s main commissioner, Bedfordshire CCG: o 1.3m due to avoidable readmissions o 5.9m due to marginal rate threshold o 0.2m due to follow up outpatients above the NTFU threshold o 0.5m due to 18-weeks breaches o 1.0m other penalties, such as A&E performance, ambulance turnaround times and Cancer waiting time breaches o 0.7m underachievement on CQUIN to the end of quarter 3 15% increase in non-elective services, for which only a 7% increase in income was received. This also reduced the Trust s ability to deliver further income generating elective services. Pay costs 6.6m above plan. Driven by increased demand for services and difficulties in recruiting qualified staff, therefore increasing the use of agency staff. Non-pay costs 1.2m above plan. Driven by 2.6m of additional clinical supplies costs offset by reduction in spend on drugs, services from non NHS healthcare providers and a review of the bad debt provision. It should be noted that an increase in the level of financial challenge is being reported across the NHS as a whole this year, due in part to increasing operational challenges including increased demand for services and capacity constraints. The Trust s cash position at year end was 1.2m (2013/14: 1.0m). The Trust received 3m of additional funding as a (loan) from DH in March 2015 and additional PDC of 17.7m, without which the Trust would not have been able to meet their commitments to pay creditors as they fell due. PwC 16

19 Net current liabilities presented are 2.2m, compared with 2.5m in the prior year. The Trust has reported a cumulative net deficit (excluding PDC reserve) of 8.7m (being 41.9m retained earnings offset by 33.2m revaluation reserve) in 2014/15, being the first year the Trust has breached its statutory duty to cumulatively break even. The Trust achieved CIPs of 6.5m versus the budgeted 8.1m. All areas across the Trust failed to deliver on their targets, with the most notable shortfall being in Patients Flow, with nil achieved against a target of 843k. The Trust has submitted its annual plan to the TDA showing a projected deficit for the 2015/16 financial year of 16.2m. Per the Trust s long term financial model, the following deficits have been projected for the next five years, assuming services were to continue as they are: Deficit projections m 2014/15 actual / / / / / The 2015/16 forecast includes a contingency of 3.6m. This is to address the following risks to delivery of the plan: 2.7m to cover potential penalties from commissioners (compared to 9.6m penalties received in 2014/15). 900k to cover potential CIPs under-delivery, based on past performance of the Trust delivering approximately 80% of CIPs targets. 2015/16 CIPs target is 7.4m (3.9% total expenses). The Trust has identified projects to deliver the 7.4m target. The following risks have also been identified by the Trust in delivering the 2015/16 plan: Cash flow General increase in demand for services, impacting for example escalation beds and related staffing requirements. Recruitment risk the Trust is currently focusing on increasing staffing numbers through overseas recruitment, therefore forecasting a decrease in agency spend. Risk regarding both recruitment and retention of staff. The Trust s former Musculo Skeletal Contract has been awarded to Circle, which previously generated annual revenue of c. 10m for the Trust. This work was previously done in part by the Trust, and may be sub-contracted to them in whole or part by Circle. The Trust has yet to sign any subcontract with Circle, however it continues to provide services on a noncontractual arrangement basis, meaning cash flow from this activity is not guaranteed or predictable. The Director of Finance estimates the Trust will have a monthly cash shortage of c. 1.5m. 4.5m of additional funding has already been received in 2015/16, with the anticipation that the Trust will submit a request for an additional 4.5m from the TDA in July Following the conclusion of the local health economy review detailed in the background section of this paper, the Trust will apply for longer term financing. The Trust believes they will be granted PwC 17

20 the additional funding given the TDA s approval of the 2015/16 plan which includes the funding gap. Cash flow forecasts as taken from the 2015/16 plan and long term financial model: Cash position at end of period m 2014/15 actual / These balances are taken 2016/ from the Trust's LTFM 2017/ and do not incorporate outside funding. The 2018/ /16 plan projects a 2019/ year end closing cash position of 1m including TDA funding. The Trust has developed plans for the continuity of its services, which is dependent on receiving external funding. These conditions, together with the other matters, are explained in note 1 to the financial statements and the annual report. The Trust has had indicators from Monitor, the TDA and NHS England that it is not seen as financially viable in the long term therefore in order to achieve foundation trust status, the Trust will be required to merge or put forward an alternative service delivery model. A large scale review of the Bedfordshire and Milton Keynes health economy was completed by McKinsey in 2014, where it was confirmed that the current area model was not sustainable. This report is publically available through the Bedfordshire CCG website ( The report included a number of solutions regarding how services could be merged to create a financially viable model. A subsequent review has been performed investigating these in detail, and from the original report two models have been favoured, being: a) A Milton Keynes and Bedfordshire combined model, with Bedford Hospital being the hub and Milton Keynes acting as a secondary site. b) A Milton Keynes and Bedfordshire combined model, with Milton Keynes Hospital being the hub and Bedford Hospital acting as a secondary site. A further option has also been evaluated, being: c) An integrated care model across the region with input from Addenbrookes Hospital. The finalised version of this report is not scheduled to be published until summer Discussions are still being undertaken between the TDA, Monitor and DH regarding the preferred model. It is anticipated that once decided, this would come into effect during the 2016/17 financial year. The TDA has committed to financially support the Trust for at least the next 12 months. This has been confirmed to a letter of support from the TDA dated 14 May 2014, in which it states, I can confirm that it is reasonable for the Directors of to assume that the NHS Trust Development Authority will make sufficient cash financing available to the organisation over the next 12 month period such that the organisation is able to meet its current liabilities. On this basis I fully support your view that the NHS organisation accounts are prepared on a Going Concern basis. PwC 18

21 We are not aware of any relationships which may reasonably be thought to bear on our independence and objectivity. While this letter is not legally binding, it provides sufficient audit evidence to confirm the TDA s intention to support the Trust. In addition, the Government has a statutory obligation to provide health services to the local population, therefore health services will continue in some form regardless of the outcome of the local health economy review. Under the NHS Manual for Accounts, a Trust should only be considered to not be a going concern if there is a prospect of services ceasing altogether. In our opinion these conditions do not constitute a material uncertainty and it is appropriate to prepare the Trust s accounts on a going concern basis. We have included an emphasis of matter in our audit opinion, which is not modified, directing the reader s attention towards the Trust s disclosures on going concern within the Annual Report, AGS and financial statements. Our draft audit opinion is included in Appendix 2 of this report. Related parties In forming an opinion on the financial statements, we are required to evaluate: (Revised) Integrity, objectivity and independence and UK Ethical Standard 5 (Revised) Non-audit services provided to audited entities issued by the UK Auditing Practices Board ( APB ES ). Together these require that we tell you at least annually about all relationships between PricewaterhouseCoopers LLP in the UK and other PricewaterhouseCoopers firms and associated entities ( PwC ) and the Trust that, in our professional judgement, may reasonably be thought to bear on our independence and objectivity. For the purposes of this report we have made enquiries of all PwC teams whose work we intend to use when forming our opinion on the truth and fairness of the financial statements. Relationships between PwC and the Trust We are not aware of any relationships between PwC and the Trust that in our professional judgement, may reasonably be thought to bear on our independence and objectivity. Relationships and Investments We have not identified any potential issues in respect of personal relationships with the Trust or investments in the Trust held by individuals. whether identified related party relationships and transactions have been appropriately accounted for and disclosed; and whether the effects of the related party relationships and transactions cause the financial statements to be misleading. Employment of PwC staff by the Trust We are not aware of any former PwC partners or staff being employed, or holding discussions in respect of employment, by the Trust as a director or in a senior management position covering financial, accounting or control related areas. Audit independence We are required to follow both the International Standard on Auditing (UK and Ireland) 260 (Revised) Communication with those charged with governance, UK Ethical Standard 1 Business relationships We have not identified any business relationships between PwC and the Trust. PwC 19

22 We have not provided any additional services to the Trust nor to its Directors and/or Senior Management. We have reviewed the Trust s Annual Governance Statement and considered whether the Trust has exercised its functions economically, efficiently and effectively. Services provided to the Trust The audit of the financial statements is undertaken in accordance with the UK Firm s internal policies. The audit is also subject to other internal PwC quality control procedures. We have not provided any additional services to the Trust. Fees An analysis of our audit fees was presented as part of the Audit Plan issued in March Services to Directors and Senior Management PwC does not provide any services e.g. personal tax services, directly to directors, or senior management. Gifts and hospitality We have not identified any significant gifts or hospitality provided to, or received from, a member of Trust s Board, Directors, senior management or staff. We would ask the Audit Committee to consider the matters in this document and to confirm that they agree with our conclusion on our independence and objectivity. Annual Governance Statement You are required to produce an Annual Governance Statement ( AGS ) for inclusion in the Annual Report and Accounts. The aim of the AGS is to give a sense of how successfully the Trust has coped with the challenges it faced, drawing on evidence on governance, risk management and controls. We reviewed the AGS and considered whether it complied with the relevant Trust Development Authority s guidance and whether it was misleading or inconsistent with what we know about the Trust. Economy, efficiency and effectiveness Our value for money ( VFM ) code responsibility requires us to carry out sufficient and relevant work in order to conclude on whether the Trust has put in place proper arrangements to secure economy, efficiency and effectiveness in the use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements. The Audit Commission guidance (which has been adopted by the relevant successor body) includes two criteria: The organisation has proper arrangements in place for securing financial resilience; and The organisation has proper arrangements for challenging how it secures economy, efficiency and effectiveness. We determine a local programme of VFM audit work based on our VFM audit risk assessment, informed by these criteria and our statutory responsibilities. The Code of Audit Practice issued by the Audit Commission and applicable to the financial year 2014/15 requires us to report to you our conclusion relating to proper arrangements, having regard to the relevant criteria outlined above, as specified by the Audit Commission in October We are required to consider whether a report in the public interest and/or a referral to the Secretary of State is needed. We can confirm that referral was required for the Trust due to it breaching its statutory break even duty during the year. PwC 20

23 We anticipate issuing a modified value for money conclusion due to the following significant matters identified as part of our work. The Trust s financial position has deteriorated in the year and there are no plans to return the Trust to a break even position in its current format in at least the next five years. We have considered the Trust s financial position as part of our work performed over going concern, as set out on page 16. We intend to qualify our Value for Money conclusion on the basis of financial resilience and that the Trust has breached its statutory break even duty under Section 5 of the NHS Act Our draft audit opinion is presented within Appendix 2 of this report. Quality Account You have a duty to publish an annual Quality Account which must contain the elements required by regulations. The Department of Health agreed with the Audit Commission that Trust auditors would carry out work on the Quality Account in 2014/15 and issue a limited assurance report on whether anything has come to our attention that leads us to believe that: 1 the Quality Account has not been prepared in line with the requirements set out in the Regulations; 2 the Quality Account is not consistent with the requirements set out in the guidance; and 3 the two performance indicators reviewed as part of our work are misstated. Our work on the Trust s Quality Account is scheduled to be performed in June 2015, and our limited assurance opinion issued in line with the filing deadline of 30 June The conclusions from our testing will be presented to you in a separate longform report. Reports in the public interest As part of our audit, we need to consider: whether anything coming to our attention is sufficiently important that we should issue a separate report on the matter, for consideration by the Trust s members or so that the matter can be brought to public attention; and whether the public interest in the matter is such that we need to issue a report immediately rather than at the end of the audit. We have considered whether the Trust s current financial position gives rise to the need to issue a Public Interest Report. Our conclusion is that given information regarding the Trust s financial position has been adequately disclosed in the Annual Report, AGS and financial statements, alongside the information in the public domain regarding the local health economy review, our duty is fulfilled through our audit reporting, being this report and our Annual Audit Letter which will be made publically available. As the Trust has breached its statutory breakeven duty we are required to make a s19 referral to the Secretary of State, which is detailed below. Referrals to the Secretary of State Section 19 of the Audit Commission Act 1998 states that auditors have a legal duty to report a matter to the Secretary of State where the Trust or one of its officers: PwC 21

24 is about to make, or has made, a decision which involves or would involve the Trust spending money unlawfully; or We confirm that we have complied with the requirements of the NAO for non-sampled components. We have complied with the requirements of the NAO as group auditors. is about to take, or has taken, a course of action which, if pursued to its conclusion would be unlawful and likely to cause a loss or deficiency. Given the Trust has breached its statutory break even duty under Section 5 of the NHS Act 2006 during the year we are required to make a referral to the Secretary of State under s19. We will issue this as of the date of our audit opinion. Our referral letter is included in Appendix 4 of this report. Additional procedures for the National Audit Office The National Audit Office ( NAO ) issued procedures via the Audit Commission for the financial year 2014/15 in respect of two aspects of their audit of the Department of Health resource accounts. As auditors we are required to follow the group instructions issued under ISA(UK&I) 600; and adhere to specific audit procedures to provide the NAO with additional assurance over amounts recorded in the Whole of Government Accounts schedules within the Summarisation schedules (where full group audit procedures are applicable). For 2014/15, the NAO has introduced a revised group audit approach which focusses primarily on significant components. Trusts are not deemed to be significant components within the DH group however each year the NAO selects a sample of non-significant components that will include some Trusts. Auditors are required to apply more detailed group audit procedures for sampled non-significant components. Reduced group audit procedures are required for nonsignificant components. PwC 22

25 We consider management systems of internal financial control as part of our audit of the financial statements. Internal controls Accounting systems and systems of internal control Management are responsible for developing and implementing systems of internal financial control and to put in place proper arrangements to monitor their adequacy and effectiveness in practice. As auditors, we review these arrangements for the purposes of our audit of the financial statements and our review of the annual governance statement. The significant matters that we wish to bring to your attention are detailed below, alongside the other control deficiencies we have encountered during our audit procedures. Reporting requirements We have to report to you any deficiencies in internal control that we found during the audit which we believe should be brought to your attention. Summary of significant and other internal control deficiencies Deficiency Recommendation Management s response Significant deficiencies Payroll leavers controls As part of our standard audit approach we seek to rely upon starters, leavers and amendment controls. During our interim audit we tested a sample of 45 leavers during the 2014/15 financial year and identified that: 10 leavers forms were authorised after the employees leaving dates. Two leavers were not automatically removed from the payroll system on a timely basis, resulting in overpayments to these employees. One amendment to an employee s details was not processed in a timely manner, resulting in an overpayment to that employee. The total value of overpayments in our sample was 18,000. One of the three overpayments has been fully recovered however two remained outstanding at the date of our testing. Given the high error rate within our sample, we were not able to place reliance on the leavers processing controls, and have therefore amended our audit approach to being fully substantive. Training regarding leavers processing to be provided to department managers, and budgetary/disciplinary procedures implemented to prevent untimely processing of leavers documentation. Agreed. Actions to be implemented: Additional training to be provided to managers Enhanced monitoring of leaver notifications Regular increased communication to managers about the timetable for payroll processing and the level of overpayments List of authorising officers to be reviewed so managers can be reminded of their responsibilities in respect of staff changes and leavers PwC 23

26 Deficiency Recommendation Management s response Manual journals authorisation Journals posted by the management accounts team were not authorised during the year other than in M9 and M12. While this is an improvement from the prior year, a process should be implemented for approval of in-year journals. This should be done on a risk basis if it is not feasibly possible to review all journals. Other control weaknesses Other payroll control weaknesses Our testing of payroll controls identified the following weaknesses in addition to the leavers processing control deficiencies above: No formal reconciliations were performed in 2014/15 between the payroll figure per the McKesson s payroll reports and the payroll balance recognised in the financial statements. Three accruals have been recognised in the year end financial statements relating to non-compliance with contractual employment terms, which are indicative of wider control issues within the payroll processing giving rise to the need for these provisions. The total value of these is 700,000. Two related to additional payments were required where department staff have failed to communicate details of staff passing through gateways or when preceptorship payments are required on to the payroll department. The final provision related to non-compliance with annual leave legislation where the Trust has not been considering overtime on the calculation of annual leave entitlements. We performed sample testing over 48 employees, whereby we agreed their gross pay to supporting documentation. For two employees sampled, payments were being made at an incorrect rate for several years. The total value of these underpayments over time is 19,000. The current year impact is considered trivial to our testing. Sample testing was performed over 22 new starters within the 2014/15 financial year. Of the 22 sampled, starters forms were not authorised prior to adding the individual to the payroll system for Management should develop a risk based approach to the review of manual journals if it is not feasible to review all journal transactions. The Trust has already introduced a regular reconciliation between payroll costs within the financial statements and the Mckesson payroll reports. Introduce a routine sample check of employee pay against contract. Training regarding starters and amendments processing and budgetary/disciplinary procedures implemented to prevent untimely and inappropriate processing of starter or amendment documentation. Agreed. Actions to be implemented: A senior manager in the Finance department will approve all journals generated by the management accounts team at M9 and M12. In all other months the senior manager will review and approve all journals with a balance sheet leg and all journals with a control total in excess of 150,000 PwC 24

27 Deficiency Recommendation Management s response eight employees. Sample testing was performed over 25 amendments to employee details. Of these, eight were not signed as authorised before the amendment was processed on the system. General ledger assurance report The General ledger is managed by a third party - COA Solutions, who manage the controls governing the general ledger. There is no service organisation auditor report available in 2014/15. The Trust should request COA Solutions obtain a 3 rd party assurance report. Agreed. Stock controls There is no formal inventory system in place at the Trust with the exception of the Pharmacy department. This was raised as a significant deficiency in the prior year as the manual counting process led to casting and pricing errors (not material). In response to this, the Trust have used the services of an external stocktake firm to perform the Theatres and stores stock takes. These counts were performed at M9 and M12. Therefore documentation from these counts are improved and in a usable format. There are still however other areas of stock (Catering, domestics, audiology, oil) where counts are performed in house and provided in or pdf form to the Finance team. This holds the risk of further casting errors and for the areas with large numbers of stock lines (catering and domestics) it is not possible to manually recast the values. There is still no formal system by which to monitor stock during the year and therefore the controls in this area are still deemed deficient. Not all stock lines counted during the year end Theatres stock count were uploaded onto the year end stock listing used to feed into the financial statements, and therefore the stock value will be understated. Out of a total sample of 60 stock lines tested, 3 did not appear on the year end detailed stock listing. All of these related to stock items which had been manually written on the pre-populated count sheets during the YE count. The error arose due to movement of stock from expected locations, counter picking up inaccurate stock reference numbers and human error in the manual uploading of stock lines. The error is isolated to those lines which were manually added during the count, with no issues noted regarding the prepopulated count sheets. Attendance at the year end inventory count identified that stock is continually moved during the count process, making it difficult to confirm the completeness of the stock testing and the accuracy of the results. This was highlighted by the outsourced count team as well as by PwC representative. Although most count sheets were pre-numbered, when additional sheets were needed these were added manually with no numbering system. This A clinical supplies stock system should be considered to be put in place if feasible. Revision of stock procedures and/or guidance to assist with stock count. Basic training provided in line with revised guidance for relevant officers. Agreed. BHT will continue to make improvements in this area. PwC 25

28 Deficiency Recommendation Management s response therefore leads to the risk of incompleteness of the counting process. Stock has been valued by using latest price lists, rather than historic purchase invoices. As a result, stock has been valued using future prices, rather than historic cost to the Trust. It has been confirmed that there is no misstatement as the price increases occur on 1st April and therefore likely to not be held in stock at the year end date. as the majority of stock is held for less than 3 months. This control point was also raised in the PY, however there have been no changes to the approach used. PPE controls The Trust have historically experienced control weaknesses in a number of PPE areas. In 2014/15 they replaced their asset management process using spreadsheets and implemented an off the shelf package Fixed asset register (CARS). An exercise was undertaken to transfer all 13/14 closing balances across to the new system and this was reviewed at our interim audit with no issues. During the 2014/15 year, the Trust maintained additions and disposals spreadsheets separate from the FAR to assist in further cleansing their asset register. This was uploaded in CARS for the year end and has been reviewed per our PPE EGAs. As a consequence of completing the year end EGAs, the following control weaknesses exist: Trust should undertake an exercise to rebuild historic data Develop a robust system for identifying assets and tracing back to asset register, enabling a reconciliation between the asset register and departmental records. Year end procedures to include a review of appropriateness of classification in asset register and review of accuracy of information provided to the DV. Agreed. Action: Further work to be undertaken in the area of revaluation reserve assignment and physical verification. There is no reliable record of asset impairments or the writing down / out of assets where the transaction has been posted to the Income and Expenditure Account rather than the revaluation reserve and therefore the entity will not be able to identify where impairment/write down reversals should go through the I&E rather than the revaluation reserve. Eg. We identified a specific c. 900,000 impairment to the Income statement posted in 2013/14 that was not recorded anywhere in this 2014/15 FAR or other records. There is still limited supporting evidence retained in relation to the historical cost of certain assets. However with the implementation of the new FAR, the Trust has begun to retain historical data as evident by excess depreciation calculations in Fixed asset register. Physical verification exercise in 2014/15 has resulted in the identification of significant disposals. Howvever there is still an issue that asset ID's are not all readily available by the Trust Finance team, relying on the knowledge of other Trust staff when verifying assets. This is particularly evident within the PPE classifications excluding land, buildings, and P&M. Again as in 2013/14 we identified that an asset revalued by the DV was on the basis of incorrect classification - this was in relation to PwC 26

29 Deficiency Recommendation Management s response Beedon house of which was originally valued as non-specialised but should have been valued as a specialised asset - a revaluation led to a reduction in PPE balance of c 255,000. Information provided to the DV should be accurate. Accounting for donated assets Review of expenditure codes and separate operating expense testing identified capital items. Further investigation found that these items related to assets purchased using donations and accounted for as donated assets. However the Trust's treatment did not remove the capital items from expenditure and due to the treatment for donated assets, led to an overstatement of both income and expenditure. This was a total value of 212,615 as agreed to donated assets additions in year per Fixed Asset Register and Financial statements PPE note. We are comfortable that there are no other instances of this treatment through the review of other expenditure codes for items that should be capitalised. Regular review of expenditure items for potential capitalisation ensuring that capital expenditure is removed when capitalised. Agreed. Lease record maintenance Per our lease review and testing, it was identified that through discussion with management that there was no formal management of leases, leases were eventually recognised per Trust's own review of transactions in year. In support of this lack of process of identifying leases, we identified a lease in excluded from the operating lease disclosure. Expenditure is regularly monitored to capture other potential leases. Agreed. Action: Head of Procurement to review the completeness of the lease records. Timely processing of invoices Accounts receivable From testing of non-nhs receivables it was noted that one invoice related to delivery of goods from Aptil September These were not invoiced until December 2014, and were therefore not accrued for within the 2013/14 accounts. The total invoice value is approximately 27k. This invoice remained unpaid at 21/05/2015 and there was no follow up from 01/12/14 until 29/04/2015 to see the status of the invoice and the likelihood of it being settled. If invoices are not raised and chased on a timely basis, there is the risk that they will not be fully settled. Accounts payable As in the prior year, we have identified several invoices within our accruals testing which were received by departments at the Trust in year but not passed to Finance in time to be processed as creditors. We identified nine invoices within our non-nhs testing, out of which seven were dated early March 2015, one in August 2014 and one in March The March 2014 invoice should therefore have been accrued for in PY. We identified one invoice within our NHS testing, which was dated mid March This AR: Introduce a process to regularly monitor goods and services delivered to ensure these are appropriately and timely charged for. AP: Introduce a process to maintain records of invoices and the dates received by departments and pursue processing of these invoices after a set period of time. A record of disputed invoices and explanations should be maintained. Agreed. PwC 27

30 Deficiency Recommendation Management s response increases the risks of late payments, and inaccurate creditor/ accrual positions. Deferred income provision The Trust currently holds a deferred income provision of 1.3 million relating to potential future redundancy payments of staff TUPE d to the Trust. As raised in our 2013/14 ISA260, the contractual terms under which these monies can be released are not clear, and could lead to this amount being carried in perpetuity. The Trust should investigate with the counterparty appropriate contractual amendments so that the future use and ownership of these funds is clearly understood. The Trust should investigate with the counterparty appropriate contractual amendments so that the future use and ownership of these funds is clearly understood. Not agreed. The terms around the ringfenced fund are clear. BHT is to hold a reserve equivalent to the value of the redundancy costs for the listed staff. There have been no changes to the agreement signed by Peterborough PCT, PCC and BHT. Related parties Through research performed by PwC, three entities were identified which were controlled by Directors at the Trust, and therefore should have been included in the related party declaration provided to PwC. We have confirmed with management that no transactions were undertaken with these parties during the year. However, by not having a complete list of RPs there is a risk that management would not identify related party transactions going forwards. Revised guidance to be provided to the directors and senior management completing declaration of interests to ensure all related parties are included for subsequent assessment by the Trust of its treatment. Agreed. PwC 28

31 We are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. Risk of fraud International Standards on Auditing (UK&I) state that we, as auditors, are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. The respective responsibilities of auditors, management and those charged with governance are summarised below: Auditors responsibility Our objectives are: to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. Management s responsibility Management s responsibilities in relation to fraud are: to design and implement programmes and controls to prevent, deter and detect fraud; to ensure that the entity s culture and environment promote ethical behaviour; and to perform a risk assessment that specifically includes the risk of fraud addressing incentives and pressures, opportunities, and attitudes and rationalisation. Responsibility of the Audit Committee Your responsibility as part of your governance role is: to evaluate management s identification of fraud risk, implementation of anti-fraud measures and creation of appropriate tone at the top ; and to investigate any alleged or suspected instances of fraud brought to your attention. Your views on fraud In our audit plan presented to the Audit Committee in March 2015 we enquired: Whether you have knowledge of fraud, either actual, suspected or alleged, including those involving management? What fraud detection or prevention measures (e.g. whistle-blower lines) are in place in the entity? What role you have in relation to fraud? What protocols / procedures have been established between those charged with governance and management to keep you informed of instances of fraud, either actual, suspected or alleged? We ask that the Audit Committee considers these questions again. We ask for your confirmation that there have been no changes to your view of fraud risk and that no additional matters have arisen that should be brought to our attention. A specific confirmation from management in relation to fraud is included in the letter of representation in Appendix 3. PwC 29

32 Appendices PwC 30

33 We report to you a summary of uncorrected misstatements for your consideration. Appendix 1: Summary of uncorrected misstatements We found the following misstatements during the audit that have not been corrected by management. You are requested to consider these formally and determine whether you would wish the accounts to be amended. If the misstatements are not corrected we will need a written representation from you explaining your reasons for not making the corrections. Uncorrected misstatements No Description of misstatement (factual, judgemental, projected) Statement of Comprehensive Income Statement of Financial Position Dr 000 Cr 000 Dr 000 Cr Release of provision for locum staff accrual J Dr accruals 248 Cr operating expenses (248 2 Recognition of deferred income for partially completed maternity pathways 1,069 (1,069) Total uncorrected misstatements 1,069 (248) 248 (1,069) Net uncorrected misstatements 821 (821) PwC 31

34 Corrected misstatements No Description of misstatement (factual, judgemental, projected) Statement of Comprehensive Income Statement of Financial Position Dr Cr Dr Cr 1 Reclassification of intangible assets held within Property, Plant and Equipment F Dr intangible assets Cr PPE 1,894 (1,894) 2 Reversal of overstatement of income and expenditure in relation to donated assets F Dr income Cr expenses 213 (213) 3 Overstatement of Beeden House valuation J Dr revaluation reserve 255 Cr PPE (255) 4 Reclassification of unpaid purchase invoices received pre year end recognised in accruals as opposed to accounts payable Dr accruals Cr accounts payable J 2,136 (2,136) Total uncorrected misstatements 213 (213) 4,285 (4,285) Net corrected misstatement PwC 32

35 We ask David Meikle to sign a letter on behalf of the Trust. Appendix 2: Letter of representation [On Trust headed paper] Dear Sirs This representation letter is provided in connection with your audit of the financial statements of Bedford Hospital NHS Trust (the Trust ) for the year ended 31 March Your audit is conducted for the purpose of expressing an opinion as to whether the financial statements of the Trust give a true and fair view of the Trust s affairs as at 31 March 2015 and of its income and expenditure and cash flows for the year then ended and have been properly prepared in accordance with the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. We acknowledge that the Chief Executive has been designated as the Accountable Officer for the Trust by the Secretary of State and that the following requirements included in the Accountable Officer Memorandum have been complied with: You have a particular responsibility for ensuring that expenditure by the Trust complies with Parliamentary requirements. The basic principle which must be observed is that funds should be applied only to the extent and for the purpose authorised by Parliament As the Accountable Officer you have a responsibility to see that appropriate advice is tendered to the Board on all matters of financial probity and regularity If the Board or the Chairman is contemplating a course of action which you consider would infringe the requirements of propriety and regularity, you should set out in writing to the Chairman and the Board your objection to the proposal and the reasons for it. We confirm that the following representations are made on the basis of enquiries of management and staff of the Trust with relevant knowledge and experience and, where appropriate, of inspection of supporting documentation sufficient to satisfy ourselves that we can properly make each of the following representations to you. We confirm, for all directors at the time the directors report is approved, to the best of our knowledge and belief, and having made the appropriate enquiries, the following representations: Financial Statements We acknowledge as directors our responsibilities under the National Health Service Act 2006 for preparing financial statements of the Trust which give a true and fair view, in accordance with the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England and for making accurate representations to you. All transactions have been recorded in the accounting records and are reflected in the financial statements. PwC 33

36 Significant assumptions used by us in making accounting estimates, including those surrounding measurement at fair value, are reasonable. All events subsequent to the date of the financial statements for which the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England require adjustment or disclosure have been adjusted or disclosed. The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole. A list of the uncorrected misstatements, grouped by category, is attached to this letter. [see appendix 1] The financial statements disclose all matters of which we are aware that are relevant to the Trust s financial standing. The Trust also has the intent and ability to take actions necessary to meet its financial targets. Regarding the valuation of land and buildings, an accounting estimate that was recognised in the financial statements: We used appropriate measurement processes, including related assumptions and models, in determining the accounting estimate in the context of the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. Measurement processes were consistently applied from year to year. The assumptions appropriately reflect our intent and ability to carry out specific courses of action on behalf of the Trust, where relevant to the accounting estimates and disclosures. Disclosures related to accounting estimates are complete and appropriate under the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. No subsequent event requires adjustment to the accounting estimates and disclosures included in the financial statements. Using the work of experts We agree with the findings of the District Valuer, experts in evaluating the valuation of land and buildings and have adequately considered the competence and capabilities of the experts in determining the amounts and disclosures used in the preparation of the financial statements and underlying accounting records. We did not give or cause any instructions to be given to experts with respect to the values or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had an impact on the objectivity of the experts. Information Provided Each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that you (the Trust's auditors) are aware of that information. We have provided you with: Access to all information of which we are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; Additional information that you have requested from us for the purpose of the audit; and Unrestricted access to persons within the Trust from whom you determined it necessary to obtain audit evidence. PwC 34

37 So far as each director is aware, there is no relevant audit information of which you are unaware. Fraud and non-compliance with laws and regulations We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud. We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the Trust and involves: Management; Employees who have significant roles in internal control; or Others where the fraud could have a material effect on the financial statements. We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the Trust s financial statements communicated by employees, former employees, analysts, regulators or others. We have disclosed to you all known instances of noncompliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements. Related party transactions We confirm that the attached appendix to this letter is a complete list of the NHS Trust s related parties [refer to signed letter for full listing]. All transfer of resources, services or obligations between the NHS Trust and these parties have been disclosed to you, regardless of whether a price is charged. We are unaware of any other related parties, or transactions between disclosed related parties. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. We confirm that we have identified to you all members of key management, as defined by IAS 24, and included their remuneration in the disclosures of key management compensation. Employee Benefits We confirm that we have made you aware of all employee benefit schemes in which employees of the Trust participate. Contractual arrangements/agreements All contractual arrangements (including side-letters to agreements) entered into by the Trust have been properly reflected in the accounting records or, where material (or potentially material) to the financial statements, have been disclosed to you. The Trust has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory PwC 35

38 authorities that could have a material effect on the financial statements in the event of non-compliance. We have disclosed all material agreements that have been undertaken by the Trust in carrying on its business. Litigation and claims We have disclosed to you all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements and such matters have been appropriately accounted for and disclosed in accordance with the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. Additional written representations about the financial statements The selection and application of accounting policies are appropriate. The following have been recognised, measured, presented or disclosed in accordance with the Department of Health Manual for Accounts. Plans or intentions that may affect the carrying value or classification of assets and liabilities; Liabilities, both actual and contingent; Title to, or control over assets, liens or encumbrances on assets, and assets pledged as collateral; and Aspects of laws, regulations and contractual agreements that may affect the financial statements. measurements or classification of assets and liabilities reflected in the financial statements. In our opinion, on realisation in the ordinary course of the business the current assets in the balance sheet are expected to produce no less than the net book amounts at which they are stated. We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value. The Trust has satisfactory title to all assets and there are no liens or encumbrances on the Trust s assets, except for those that are disclosed in the financial statements. We confirm that we have carried out impairment reviews appropriately, including an assessment of when such reviews are required, where they are not mandatory. We confirm that we have used the appropriate assumptions with those reviews. Details of all financial instruments, including derivatives, entered into during the year have been made available to you. Any such instruments open at the year-end have been properly valued and that valuation incorporated into the financial statements. When appropriate, open positions in off-balance sheet financial instruments have also been properly disclosed in the financial statements. We confirm that all significant assumptions made in relation to fair value measurement and disclosures are reasonable and appropriately reflect management s intent and ability to carry out specific courses of action on behalf of the Trust where relevant to the fair value of measurements or disclosures Assets and liabilities We have no plans or intentions that may materially alter the carrying value and, where relevant, the fair value PwC 36

39 Disclosures Where appropriate, the following have been properly recorded and adequately disclosed in the financial statements: The identity of, and balances and transactions with, related parties. Losses arising from sale and purchase commitments. Agreements and options to buy back assets previously sold. Assets pledged as collateral. We have recorded or disclosed, as appropriate, all formal or informal arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances and line of credit or similar arrangements. We have recorded or disclosed, as appropriate, all liabilities, both actual and contingent, and have disclosed in the financial statements all guarantees that we have given to third parties, including oral guarantees made by the Trust on behalf of an affiliate, director, officer or any other third party. Retirement benefits All significant retirement benefits that the Trust is committed to providing, including any arrangements that are statutory, contractual or implicit in the Trust s actions, wherever they arise, whether funded or unfunded, approved or unapproved, have been identified and properly accounted for and/or disclosed. All settlements and curtailments in respect of retirement benefit schemes have been identified and properly accounted for. The Trust participates in the NHS pension scheme. We confirm that the Trust s share of the underlying assets and liabilities of this scheme cannot be identified and as a consequence the scheme has been accounted for as a defined contribution scheme. Provisions Provisions for depreciation and diminution in value including obsolescence have been made against fixed assets on the bases described in the financial statements and at rates calculated to reduce the net book amount of each asset to its estimated residual value by the end of its probable useful life in the Trust s business. In this respect we are satisfied that the probable useful lives have been realistically estimated and that the residual values are expressed in current terms. Full provision has been made for all liabilities at the balance sheet date including guarantees, commitments and contingencies where the items are expected to result in significant. Other such items, where in our opinion provision is unnecessary, have been appropriately disclosed in the financial statements. Litigation We are not aware of any pending or threatened litigation, proceedings, hearings or claims negotiations which may result in significant loss to the Trust. Transactions with directors/officers Except as disclosed in the financial statements, no transactions involving directors, officers and others requiring disclosure in the financial statements under the accounting policies directed by the Secretary of State with the consent of PwC 37

40 the Treasury as being relevant to the National Health Service in England have been entered into. Other representations We do not have plans to enter into any Private Finance Initiative schemes that might affect the financial statements for 2014/15. As minuted by the board of directors at its meeting on 3 June We do not have plans to implement any redundancy or early retirement programmes for which we should have made provision in the financial statements. We are not in negotiations to merge with any other NHS body or take on any other NHS body s functions in the next financial year. We confirm that we have recognised all income receivable in 2014/15 in the Statement of Comprehensive Income/operating cost statement except where this income relates to specific activity to be delivered in future years. The losses and special payments forms have been compiled in accordance with the direction of the Secretary of State and there are no outstanding items that have been omitted from the losses and special payments register. We are not aware of any reports from the Care Quality Commission or other regulators which have not been brought to you attention. To the best of our knowledge reported information on the quality of care, including mortality rates, is accurate and has been compiled and submitted in line with national guidance. The Trust s charitable funds have not been consolidated on the basis that they are wholly immaterial. PwC 38

41 Appendix 3: Audit opinion Independent auditors report to the Directors of the Board of Bedford Hospital NHS Trust Report on the financial statements Our opinion In our opinion the financial statements, defined below: give a true and fair view, of the state of the Trust s affairs as at 31 March 2015 and of its income and expenditure and cash flows for the year then ended; and have been properly prepared in accordance with the accounting policies directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. This opinion is to be read in the context of what we say in the remainder of this report. Emphasis of Matter the other matters, are explained in note 1 of the financial statements and page [x] of the Annual Report. Opinions on other matters prescribed by the Code of Audit Practice In our opinion: the information given in the Annual Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the part of the Remuneration Report to be audited has been properly prepared in accordance with the requirements directed by the Secretary of State with the consent of the Treasury as being relevant to the National Health Service in England. Other matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Code of Audit Practice issued by the Audit Commission requires us to report to you if: In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of disclosures made in note 1 (Accounting Policies) and note [XX] to the financial statements concerning the Trust s ability to continue as a going concern. The Trust has developed plans for the continuity of its services, which is dependent on receiving external funding. These conditions, together with in our opinion, the Governance Statement does not comply with the Trust Development Authority s Guidance or is misleading or inconsistent with information of which we are aware from our audit; or we issue a report in the public interest under section 8 of the Audit Commission Act PwC 39

42 We have made a referral to the Secretary of State under section 19 of the Audit Commission Act 1998 because the Trust has breached its statutory duty under Schedule 5 paragraph 2 of the NHS Act 2006 to maintain a cumulative break even position. We have also audited the information in the Remuneration Report that is subject to audit, being: the table of salaries and allowances and senior managers and related narrative notes on page [x]; What we have audited The financial statements, which are prepared by Bedford Hospital NHS Trust, comprise: the Statement of Financial Position as at 31 March 2015; the table of pension benefits of senior managers and related narrative notes on page [y]; and the table of pay multiples and related narrative notes on page [z]. the Statement of Comprehensive Income for the year then ended; the Statement of Changes in Taxpayers Equity for the year then ended; the Statement of Cash Flows for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in their preparation is the accounting policies directed by the Secretary of State for Health with the consent of the Treasury as being relevant to the National Health Service in England. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). An audit involves obtaining 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 an assessment of: whether the accounting policies are appropriate to the Trust s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we 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 PwC 40

43 audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the Statement of Directors Responsibilities set out on page [x] the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view in accordance with the accounting policies directed by the Secretary of State, with the consent of the Treasury, as being relevant to the National Health Service in England. Our responsibility is to audit and express an opinion on the financial statements in accordance with Part II of the Audit Commission Act 1998, the Code of Audit Practice 2010 for local NHS bodies issued by the Audit Commission and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Board of in accordance with Part II of the Audit Commission Act 1998 as set out in paragraph 44 of the Statement of Responsibilities of Auditors and of Audited Bodies (Local NHS bodies) published by the Audit Commission in April 2014, and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Basis for Qualified Conclusion In considering the Trust s arrangements for securing financial resilience, we identified that the Trust is forecasting to make an in year deficit for at least the next five years and does not have sufficient cash to meet its expense commitments without receiving significant levels of external funding. During 2014/15 the Trust breached its statutory duty under the National Health Service act 2006 to remain in a cumulative break even position, and has no current plans in place to return to a cumulative break even position. In addition it does not have plans to achieve positive net cash flow outturns and a sustainable net cash position in the long term. Qualified Conclusion On the basis of our work, having regard to the guidance on the specified criteria published by the Audit Commission on 15 October 2013, except for the matters reported in the Basis for qualified conclusion paragraph above, we are satisfied that, in all significant respects, has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March What a review of the arrangements for securing economy, efficiency and effectiveness in the use of resources involves We have undertaken our audit in accordance with the Code of Audit Practice, having regard to the guidance on the specified criteria, published by the Audit Commission on 13 October 2014, as to whether the Trust has proper arrangements for: securing financial resilience; and Conclusion on the Trust s arrangements for securing economy, efficiency and effectiveness in the use of resources challenging how it secures economy, efficiency and effectiveness. PwC 41

44 The Audit Commission has determined these two criteria as those necessary for us to consider under the Code of Audit Practice in satisfying ourselves whether the Trust put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 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 Trust had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Our responsibilities and those of the Trust The Trust is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements. We are required under Section 5 of the Audit Commission Act 1998 to satisfy ourselves that the Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires us to report to you our conclusion relating to proper arrangements, having regard to relevant criteria specified by the Audit Commission on 13 October Certificate We certify that we have completed the audit of the financial statements of in accordance with the requirements of Part II of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission. Clive Everest (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors St Albans 3 June 2015 (a) The maintenance and integrity of the Bedford Hospital NHS Trust website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. We report if significant matters have come to our attention which prevent us from concluding that the Trust has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. We are not required to consider, nor have we considered, whether all aspects of the Trust s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively. PwC 42

45 Appendix 4: Referral letter to be issued to the Secretary of State Dear Secretary of State Section 19 referral for NHS trust failure to achieve break even We are the auditor appointed to audit the accounts for for the year ending 31 March We are writing to you in accordance with section 19 of the Audit Commission Act Taking into account the NHS Finance Manual Guidance on Breakeven Duty and Provisions, we have reason to believe that Bedford Hospital NHS Trust is, in the financial year mentioned, in breach of the breakeven duty set out at paragraph 2(1) of Schedule 5 to the National Health Service Act The Trust s current forecasts indicate that they will not return to a cumulative break even position within the next five financial years as a minimum. We understand that this is a matter which is already known to the Secretary of State, hence the brevity of this referral letter. Please let us know if you need further information. Yours sincerely Clive Everest For and on behalf of PricewaterhouseCoopers LLP PwC 43

46 In the event that, pursuant to a request which has received under the Freedom of Information Act 2000, it is required to disclose any information contained in this report, it will notify PwC promptly and consult with PwC prior to disclosing such report. agrees to pay due regard to any representations which PwC may make in connection with such disclosure and shall apply any relevant exemptions which may exist under the Act to such report. If, following consultation with PwC, Bedford Hospital NHS Trust discloses this report or any part thereof, it shall ensure that any disclaimer which PwC has included or may subsequently wish to include in the information is reproduced in full in any copies disclosed. This document has been prepared only for and solely for the purpose and on the terms agreed through our contract with the Audit Commission. We accept no liability (including for negligence) to anyone else in connection with this document, and it may not be provided to anyone else PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details JA-UK