Annual Audit Letter. Buckinghamshire Hospitals NHS Trust Audit 2008/09 September 2009

Transcription

1 Annual Audit Letter Buckinghamshire Hospitals NHS Trust Audit 2008/09 September 2009

2 Contents Key messages 3 Financial statements and statement on internal control 7 Use of resources 9 Closing remarks 11 Appendix 1 ALE key findings and conclusions 12 Appendix 2 Action plan 21 Status of our reports The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors/ members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to: any director/member or officer in their individual capacity; or any third party.

3 Key messages Key messages This report summarises the findings from our 2008/09 audit. It includes messages arising from the audit of your financial statements and the results of the work I have undertaken to assess your arrangements to secure value for money in your use of resources. Audit Opinion 1 I issued an audit report including an unqualified opinion on the financial statements on 12 June 2009 and this met the NHS deadline for reporting on your accounts. Financial Statements 2 I considered the treatment of an agreement to sell a piece of land at the Stoke Mandeville hospital site as a disposal of fixed assets and concluded that the sale should be removed from the accounts. The net impact on the Income and Expenditure Account is 2.9m and moved the Trust from surplus to deficit. This was caused solely by the detailed technical accounting treatment of the land sale which was not fully concluded until the final stages of the audit. 3 The draft financial statements were prepared and submitted in accordance with new reporting timetable. A number of other amendments were agreed which relate to presentation and note disclosure and where required to meet the requirements of the NHS Trust Manual for Accounts. 4 There were two material amendments made to the financial statements, the first being the removal of a conditional land sale of 2.9m as described in paragraph 2 above, and second was an amendment to the cash flow statement as 15m cash from the sale of a piece of land at Stoke Mandeville had been treated incorrectly as a movement in revenue debtors, and should have been reflected as a receipt from sale of tangible fixed assets. Sale of land at Stoke Mandeville Hospital site 5 The land sale that I refer to in paragraph 2 was, at the time I issued my opinion, in progress. I understand that the planning application for the proposed development on this piece of land has been delayed. We need to review the current position and potential impact on the Trust's financial position and will be conducting work on this and the Buckinghamshire health economy position in the coming year - see comments on financial position below. 3 Buckinghamshire Hospitals NHS Trust

4 Key messages Use of resources 6 I issued a value for money conclusion stating that the Trust had adequate arrangements to secure economy, efficiency and effectiveness in the use of resources, except that it did not put in place adequate arrangements to ensure that it's spending matches its available resources. This 'except for' conclusion is caused solely by the detailed technical accounting treatment of a land sale that was not fully concluded until the final stages of the audit. Financial position 7 The removal of the land sale from the Trust's financial statements highlighted that it was relying on this income to achieve financial break-even. In needed to do this because the local PCT had imposed a cap on the income it was willing to pay the Trust and this meant that the Trust was not being paid for all the work it had done. 8 The financial position of the Trust in 2009/10 is also challenging as there remain difficulties in the Buckinghamshire health economy. The Trust is yet to agree its 2009/10 contract with its local PCT, instead a Heads of Agreement is in place which shares the risks and means that the Trust's year end surplus will not be in excess of 1.2m but the Trust is guaranteed a minimum breakeven position. The PCT wants to reduce the payments its makes to the Trust and for the Trust to do less work. The indications are that the Trust will find it difficult to reduce output and costs and is reporting at month 3 that over performance is at 3m. 9 The Trust has also set itself challenging cost improvement programmes (CIPs) totalling 11.5m. At month 3 the Trust is behind target by 1.7m but is reporting that action is being taken to address the shortfall with all unallocated savings targets now devolved to divisions. 10 To achieve the Trust's cash forecast the Trust is reporting it will need to deliver on its CIPs and the local PCT will need to pay for work done under payment by results (PbR). In addition the Trust may need to restrict supplier payments. If these actions do not achieve the required cash savings the Trust may need to consider a loan facility to support its working capital needs. 11 The Buckinghamshire health economy is in a difficult position and this is impacting on the financial standing of the Trust and local PCT. We will complete a review in this area in the coming year to gain our assurance around the actions being taken to ensure financial stability. Buckinghamshire Hospitals NHS Trust 4

5 Key messages Economic downturn and pressure on the public sector 12 The economic downturn and banking crisis is having a significant impact on public finances and the bodies that manage them. The impact in some areas has been immediate but there are wider and longer term impacts on the ability of public sector bodies to fund service delivery and capital programmes, including pressure on income streams. The NHS is unlikely to escape these financial pressures and it is important that the Trust is well prepared to meet these challenges and that the medium term financial plans are reviewed to ensure they reflect any changes in the local health economy. Implementation of IFRS 13 We assessed your preparation for IFRS as being on track and we will follow our initial assessment of your arrangements when we come to audit the restatement of your opening balances in the autumn of Audit Fees 14 In our original audit plan, the estimated fee of 178,235 including opinion audit of 112,810 and performance audit of 65,425. This was based on our best estimate at the time. We have undertaken additional work on the land sale and we will need to charge an additional fee for this work of 10,000. A comparison of the changes in the audit fee is shown in Table 1. Table 1 Audit fees Actual Planned Variance Opinion work 122, ,810 10,000 Value for money work 65,425 65,425 0 Total audit fees 188, ,235 10,000 Non-audit work Total 188, ,235 10,000 Actions 15 Recommendations are shown within the body of this report and have been agreed with the audited body. 5 Buckinghamshire Hospitals NHS Trust

6 Key messages Independence 16 I can confirm that the audit has been carried out in accordance with the Audit Commission s policies on integrity, objectivity and independence. Recommendations R1 The Trust need to ensure that any proposed transactions that might have a material impact on the financial position of the Trust and are outside the norm are discussed with us well in advance of 31 March R2 The Trust needs to sign an agreement with its local PCT for 2009/10 as a matter of urgency. R3 The Trust must continue to keep its Medium Term Financial Strategy up to date to reflect changes in the local health economy. Buckinghamshire Hospitals NHS Trust 6

7 Financial statements and statement on internal control Financial statements and statement on internal control The Trust s financial statements and statement on internal control are an important means by which the Trust accounts for its stewardship of public funds. Significant issues arising from the audit 17 I considered the treatment of an agreement to sell a piece of land as a disposal of fixed assets and concluded that the sale should be removed from the accounts. The net impact on the Income and Expenditure Account is 2.9m and moved the Trust from surplus to deficit. This was caused solely by the detailed technical accounting treatment of the land sale which was not fully concluded until the final stages of the audit. 18 I also considered the receipt of 15m cash from the sale of a piece of land at Stoke Mandeville had been treated incorrectly as a movement in revenue debtors, and should have been reflected as a receipt from sale of tangible fixed assets. The cashflow statement has been amended for this item. 19 The Trust received 1m cash from South Central Ambulance Trust for CRL services. The Trust is to repay the cash during 2009/10. The Trust is not accounting for the transaction as a loan - instead it is included as a creditor. In my view this would be better disclosed as a loan. Trust management disagreed with this view and did not wish to amend for this item and therefore set out the reasons for not amending in the letter of representation made to me. Material weaknesses in internal control 20 No material weaknesses in internal control have been identified. I have reviewed your statement of internal control and have concluded that it accords with proper practice and is consistent with my knowledge of the Trust. Accounting Practice and financial reporting 21 I considered the qualitative aspects of your financial reporting and these are set out in Table 2. 7 Buckinghamshire Hospitals NHS Trust

8 Financial statements and statement on internal control Table 2 Working papers Issue or risk Working papers Significant issues Finding My team has received a prompt and positive response from requests for additional information and are appreciative of this. To improve performance it would be helpful to have a full set of indexed and cross referenced working papers available at the start of the audit. The land sale was not raised with us during our meetings with the Trust in preparation for the accounts process or when we set out our key risks for the Trust to consider. The contract was included in a pack of asset working papers but not highlighted. It is recommended in future that any significant issues are raised with us early on in the process. Recommendations R4 The Trust should prepare a full set of indexed and cross referenced working papers to be made available at the start of the audit. R5 The Trust should raise significant issues with us as they arise to ensure a timely response can be achieved. Buckinghamshire Hospitals NHS Trust 8

9 Use of resources Use of resources I considered how well the Trust is managing and using its resources to deliver value for money and gave a scored Auditors Local Evaluation (ALE) judgement. I also assessed whether the Trust put in place adequate corporate arrangements for securing economy, efficiency and effectiveness in its use of resources. This is known as the value for money (VFM) conclusion. ALE judgements 22 The Trust's overall use of resources score will be confirmed by the Care Quality Commission. The scored judgements in this report are made following the Audit Commission's own quality and moderation processes. 23 The overall score will be disappointing for the Trust reflecting as it does its failure to achieve break even. However the scored judgements in a number of other areas remain high reflecting continued strong performance in those areas. 24 In forming my scored ALE judgements, I have used the methodology set out in the 'ALE for Trusts' guidance. Judgements have been made for each key line of enquiry (KLOE) using the Audit Commission s current four point scale from 1 to 4, with 4 being the highest. Level 1 represents a failure to meet the minimum requirements at level I have also taken into account, where appropriate, findings from previous ALE assessments (updating these for any changes or improvements) and any other relevant audit work. 26 The Trust's ALE scores for the five key areas are shown in Table 3. The key findings and conclusions for the five areas, and the underlying KLOE, are summarised in Appendix 1. Table 3 ALE scores Key area d judgement Financial reporting 2 Financial management 3 Financial standing 1 Internal control 3 Value for money 3 9 Buckinghamshire Hospitals NHS Trust

10 Use of resources 27 The ALE scores at the Trust have been significantly impacted by the Trust's failure to achieve breakeven. The importance attached to the Financial Standing KLOE 3.1 means that it over rides all others and means that if it is scored as a 1 then that becomes the overall ALE score for the Trust. 28 There were also two material errors in the financial statements of the Trust ( 2.9m on balance sheet and 15m on cashflow) and although they were subsequently corrected this resulted in a score of 1 for KLOE 1.1 on financial statements. 29 The Trust did not produce a full set of indexed and cross referenced working papers at the start of the audit. We did receive a prompt and positive response from requests for additional information and are appreciative of this. 30 The impact of the financial standing score can mean that the good scores achieved elsewhere by the Trust could be overlooked. However it should be noted that the Trust maintained it's previously achieved good scores in a number of areas. Of special mention is the level 4 score for 5.2 and the recognition of the notable practice highlighted in the training delivered by the training sessions "Treat me not my knee" for patients with learning difficulties and special needs. Recommendation R6 The Trust should focus on the KLOE's where they scored below 3 to achieve improvements in these areas. VFM Conclusion 31 I assessed your arrangements to secure economy, efficiency and effectiveness in your use of resources against criteria specified by the Audit Commission. My conclusions on each of the areas are set out in Appendix I issued a value for money conclusion stating that the Trust had adequate arrangements to secure economy, efficiency and effectiveness in the use of resources, except that it did not put in place adequate arrangements to ensure that it's spending matches its available resources. This 'except for' conclusion is caused solely by the detailed technical accounting treatment of a land sale that was not fully concluded until the final stages of the audit. Buckinghamshire Hospitals NHS Trust 10

11 Closing remarks Closing remarks 33 I have discussed and agreed this letter with the Chief Executive and the Director of Finance. I presented this letter at the Audit Committee on 17 September 2009 and will provide copies to all board members. 34 Further detailed findings, conclusions and recommendations in the areas covered by our audit are included in the reports issued to the Trust during the year. Table 4 Report Date issued Audit Plan May 2008 Audit Committee workshop January 2009 Review of Internal Audit April 2009 to CEAC August 2009 to Trust Interim audit memorandum May 2009 Annual governance report June 2009 Auditor s report giving the opinion on the financial statements June 2009 Final accounts memorandum August 2009 IFRS Part 1 August 2009 Improvement investigator work September 2009 Governance report August 2009 Annual audit letter September The Trust has taken a positive and constructive approach to our audit. I wish to thank the Trust staff for their support and co-operation during the audit. Maria Grindley Engagement Lead September Buckinghamshire Hospitals NHS Trust

12 Appendix 1 ALE key findings and conclusions Appendix 1 ALE key findings and conclusions The following tables summarise the key findings and conclusions for each of the five key areas. Financial reporting Overall score 2 The Trust's performance in this area was adversely affected by the two material areas we identified during our audit of the financial statements. We also identified that the Trust would benefit from producing a full set of indexed working papers at the start of the audit but we were pleased by the prompt response for requests for further information. The Trust performed well in the area of promoting external accountability. KLOE 1.1 (annual accounts) 1 There were two material errors in the financial statements of the Trust ( 2.9m on balance sheet and 15m on cashflow) and although they were subsequently corrected it means that the Trust will be a 1 for this KLOE. The Trust did not produce a full set of indexed and cross referenced working papers available at the start of the audit. On the positive side we did receive a prompt and positive response from requests for additional information and are appreciative of this. Buckinghamshire Hospitals NHS Trust 12

13 Appendix 1 ALE key findings and conclusions KLOE 1.2 (external accountability) 3 Our work has confirmed that a score of 3 is appropriate. The annual report is produced in accordance with statutory requirements; and the key reports are made available to the public in appropriate formats and contain information which is understandable by members of the public and available in many formats. The annual report includes trends and projections, environmental footprint information and clear explanations of key financial information and technical terms. The Trust have consulted with a wide range of users and used this to update its reporting and publishing of annual report and other key reports. 13 Buckinghamshire Hospitals NHS Trust

14 Appendix 1 ALE key findings and conclusions Financial management Overall score 3 The Trust has continued to perform well in this area and to consolidate performance over the management of its fixed assets needs to ensure that the updated Estates Strategy is presented and approved by the Board. KLOE 2.1 (financial strategy and budgets) 3 The Trust has provided evidence that: there is a medium-term financial strategy linked to key strategic objectives; the corporate business plan (that sets out its aims and objectives) is linked to financial planning and management; budgets and the capital programme are based on robust medium-term financial projections and risk assessments; and savings are identified, and supported by plans which are discussed and consulted on with key partners within the local health economy. This confirms that the Trust has maintained performance in this area. Buckinghamshire Hospitals NHS Trust 14

15 Appendix 1 ALE key findings and conclusions KLOE 2.2 (managing performance against budgets) 3 The Trust has provided good evidence that: there are arrangements in place for monitoring performance against budgets and taking corrective action where appropriate; senior officers and the board receive regular budget monitoring information; the financial performance of partnerships is regularly reviewed; and progress in achieving planned savings is regularly reported and monitored. This confirms that the Trust has maintained performance in this area. KLOE 2.3 (asset base) 2 The Trust has provided evidence that: there is an estate strategy linked to the Medium Term Financial Strategy; there is an up to date asset register; and the Trust reports to the board on asset management. However the Trust has not been able to produce an up to date estates strategy which reflects the requirements of the Local Delivery Plan and has been agreed with key stakeholders and users and approved by the board. The Trust has produced a version dated March 2009 but this has not been approved by the Board. 15 Buckinghamshire Hospitals NHS Trust

16 Appendix 1 ALE key findings and conclusions Financial standing Overall score 1 The audit of the financial accounts identified a material error which when corrected turned the Trusts planned surplus to an actual in year deficit of over 2.7m. This has therefore resulted in a assessed score of 1. KLOE 3.1 (managing within available resources) 1 No The Trust had managed its finances tightly through to year end with much hard work done in consultation with the local SHA and PCT. The final outturn resulted from an adjustment we made to exclude the proceeds from an agreement to sell a piece of land. Buckinghamshire Hospitals NHS Trust 16

17 Appendix 1 ALE key findings and conclusions Internal control Overall score 3 The Trust has provided sufficiently robust evidence to confirm that performance remains strong in this area and that a score of 3 is appropriate. The Audit Committee is providing good leadership and challenge. KLOE 4.1 ( significant business risks) The Trust has provided evidence that: there is an assurance framework in place; there is a risk management process in place that is reviewed annually; risk management is embedded in the organisation s corporate business processes; and staff and Non Executive Directors have received risk management training. This confirms that the Trust has maintained performance in this area Buckinghamshire Hospitals NHS Trust

18 Appendix 1 ALE key findings and conclusions KLOE 4.2 (internal control) The Trust has provided evidence that: the trust reviews and reports on its system of internal control; there is an audit committee and an internal audit function; and partnership arrangements are regularly reviewed. This confirms that the Trust has maintained performance in this area. KLOE 4.3 (probity and propriety) The Trust has provided evidence that: there are codes of conduct in place and arrangements to monitor compliance; there is a counter fraud policy that is subject to regular review and is clearly communicated throughout the organisation; and there is LCFS function that reports to the audit committee. This confirms that the Trust has maintained performance in this area. 3 3 Buckinghamshire Hospitals NHS Trust 18

19 Appendix 1 ALE key findings and conclusions Value for money Overall score 3 The Trust has been able to demonstrate strong performance in a number areas and in particular strong performance was identified at 5.2 with this KLOE scoring a 4 with the work for Treat me not my knee being selected for inclusion on the national data base for notable practice. Our initial assessment of 5.4 was that a score of 2 was appropriate however after discussion with the Trust further evidence was provided but didn't provide sufficient assurance of processes being fully embedded. KLOE 5.1 (strategic objectives) The Trust has systematic and embedded arrangements for securing strategic and operational objectives. There are sound practises for setting, reviewing and implementing strategic and operational objectives. There is a clear commitment to business planning throughout the Trust with a defined "golden thread" and plans in place to addresses recognised shortfalls where present. The arrangements in place enable the Trust to confidently plan and deliver business objectives in the short and longer term. KLOE 5.2 (services) The Trust has effective arrangements for meeting the needs of patients and tax payers. There are sound communication systems and clear evidence that the Trust is engaging well with the wider community and through public and patient engagement. The use of real time customer feedback linked to improvements in services represents good practise. Work on specific hard to reach groups such as patients with learning difficulties areas such as the Treat me not my knee programme has gained national recognition. The work in place enables the Trust to reach and communicate with key stakeholders in a sustained and meaningful manner. Notable practice discussed and agreed at moderation Buckinghamshire Hospitals NHS Trust

20 Appendix 1 ALE key findings and conclusions KLOE 5.3 (data quality) The Trust has provided evidence that: it has arrangements for monitoring and scrutiny of performance, to identify potential variances against strategic objectives, standards and targets, for taking action where necessary, and reporting to the Board; it has arrangements in place to monitor the quality of its performance information and to report the results to board members; and it has sound data quality arrangements in place. KLOE 5.4 (managing resources) The Trust has provided evidence that it has systems in place which manage and improve value for money. However our initial assessment was that the evidence provided suggested a score of 2. Following discussion with the Trust further evidence was provided for (Reference costs: The Trust can demonstrate that reviews of reference cost data or service line reporting have led to specific improvements) and (Corporate back office: The Trust has delivered savings and more efficient working practices in its corporate/back office functions) but this did not convince us that the process was fully embedded and a score of 2 was therefore considered appropriate. 3 2 Buckinghamshire Hospitals NHS Trust 20

21 Appendix 2 Action plan Appendix 2 Action plan Page no. Recommendation Priority 1 = Low 2 = Med 3 = High Responsibility Agreed Comments Date Annual Audit Letter 2008/09 Recommendations 6 R1 The Trust need to ensure that any proposed transactions that might have a material impact on the financial position of the Trust and are outside the norm are discussed with us well in advance of 31 March R2 The Trust needs to sign an agreement with its local PCT for 2009/10 as a matter of urgency. 6 R3 The Trust must keep its Medium Term Financial Strategy up to date to reflect changes in the local health economy. 8 R4 The Trust should prepare a full set of indexed and cross referenced working papers to be made available at the start of the audit. 3 Director of Finance Regular meeting between the finance and audit team are in place and any such issues arising coming to our attention will be raised. 3 Director of Finance The Trust is working with the local PCT to achieve a satisfactory resolution of the issue. 3 Director of Finance The Trust will ensure that financial plans reflect the local financial position. 2 Director of Finance The Trust will agree with us a pragmatic and practical approach to producing a full set of cross referenced working papers. October 2009 October 2009 October 2009 March Buckinghamshire Hospitals NHS Trust

22 Appendix 2 Action plan Page no. Recommendation Priority 1 = Low 2 = Med 3 = High Responsibility Agreed Comments Date 8 R5 The Trust should raise significant issues with us as they arise to ensure a timely response can be achieved. 10 R6 The Trust should focus on the KLOE's where they scored below 3 to achieve improvements in these areas. 3 Director of Finance Regular meeting between the finance and audit team are in place and any such issues arising coming to our attention will be raised. 2 Director of Finance The Trust will look to improve areas that did not score a 3. October 2009 October 2009 Buckinghamshire Hospitals NHS Trust 22

23 The Audit Commission The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the 200 billion spent by 11,000 local public bodies. As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people. Copies of this report If you require further copies of this report, or a copy in large print, in Braille, on tape, or in a language other than English, please call Audit Commission 2009 For further information on the work of the Commission please contact: Audit Commission, 1st Floor, Millbank Tower, Millbank, London SW1P 4HQ Tel: , Fax: , Textphone (minicom):