Annual Audit Letter Year ending 31 March 2018 NHS Isle of Wight CCG 19 June 2018
Contents Section Page 1. Executive Summary 3 2. Audit of the Accounts 5 3. Value for Money arrangements 9 Appendices A Reports issued and fees Your key Grant Thornton team members are: Iain Murray Director T: 020 7728 3328 Iain.g.murray@uk.gt.com Sam Harding Senior Manager T: 0117 305 7874 sam.g.harding@uk.gt.com Nick Slack Audit Executive T: 01173 057840 Nick.slack@uk.gt.com 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 2
Executive Summary Purpose Our Annual Audit Letter (Letter) summarises the key findings arising from the w ork that w e have carried out at NHS Isle of Wight Clinical Commissioning Group (the CCG) for the year ended 31 March 2018. This Letter is intended to provide a commentary on the results of our w ork to the CCG and external stakeholders, and to highlight issues that w e w ish to draw to the attention of the public. In preparing this Letter, w e have follow ed the National Audit Office (NAO)'s Code of Audit Practice and Auditor Guidance Note (AGN) 07 'Auditor Reporting'. We reported the detailed findings from our audit w ork to the CCG's Audit Committee as those charged w ith governance in our Audit Findings Report on 23 May 2018. Respective responsibilities We have carried out our audit in accordance w ith the NAO's Code of Audit Practice, w hich reflects the requirements of the Local Audit and Accountability Act 2014 (the Act). Our key responsibilities are to: give an opinion on the CCG's financial statements and regularity assertion (section tw o) assess the CCG's arrangements for securing economy, efficiency and effectiveness in its use of resources (the value for money conclusion) (section three). In our audit of the CCG's financial statements, w e comply w ith International Standards on Auditing (UK) (ISAs) and other guidance issued by the NAO. Our work Materiality We determined materiality for the audit of the CCG's accounts to be 4.74 million, w hich is 2% of the CCG's gross revenue expenditure. Financial Statements opinion We gave an unqualified opinion on the CCG's financial statements on 25 May 2018. As w ell as an opinion on the financial statements, w e are required to give a regularity opinion on w hether expenditure has been incurred 'as intended by Parliament'. Failure to meet statutory financial targets automatically results in a qualified regularity opinion. Based on our review of the CCG's expenditure w e gave an unqualified regularity opinion. NHS Group consolidation template (WGA) Use of statutory pow ers We also reported on the consistency of the accounts consolidation template provided to NHS England w ith the audited financial statements. We concluded that these w ere consistent. We did not identify any matters w hich required us to exercise our statutory pow ers. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 3
Executive Summary Value for Money arrangements We w ere satisfied that the CCG put in place proper arrangements to ensure economy, efficiency and effectiveness in its use of resources except for in relation planning finances effectively to support the sustainable delivery of strategic priorities and maintain statutory functions. We therefore qualified our value for money conclusion in our audit report to the members of the Governing Body on 25 May 2018 Certificate We certify that w e have completed the audit of the accounts of NHS Isle of Wight CCG in accordance w ith the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice. Working with the CCG During the year w e have delivered a number of successful outcomes w ith you: An efficient audit w e delivered an efficient audit w ith you in May. Understanding your operational health through the value for money conclusion w e provided you w ith assurance on your operational effectiveness. Worked w ith your finance team to identify areas w here the financial statements presentation could be streamlined, including the removal of accounting polices w here you had no material transactions. Sharing our insight w e provided regular audit committee updates covering best practice. We also shared our thought leadership reports. Annual report w e benchmarked your 2016/17 annual report to identify areas for improvement in 2017/18. Governance w e provide audit committee Chair s events during the year for Hampshire and the Isle of Wight enabling Chair s to netw ork and discuss topical issues. We w ould like to record our appreciation for the assistance and co-operation provided to us during our audit by the CCG's staff. Grant Thornton UK LLP June 2018 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 4
Audit of the Accounts Our audit approach Materiality In our audit of the CCG's financial statements, w e use the concept of materiality to determine the nature, timing and extent of our w ork, and in evaluating the results of our w ork. We define materiality as the size of the misstatement in the financial statements that w ould lead a reasonably know ledgeable person to change or influence their economic decisions. We determined materiality for the audit of the CCG's accounts to be 4.74 million, w hich is 2% of the CCG's gross revenue expenditure. We used this benchmark as, in our view, users of the CCG's financial statements are most interested in w here the CCG has spent its allocation in the year. We also set a low er level of specific materiality for senior officer salary disclosures. We set a low er threshold of 236k, above w hich w e reported errors to the Audit Committee in our Audit Findings Report. The scope of our audit Our audit involves obtaining enough evidence about the amounts and disclosures in the financial statements to give sufficient assurance that they are free from material misstatement, w hether caused by fraud or error. This includes assessing w hether: the accounting policies are appropriate, have been consistently applied and are adequately disclosed; the significant accounting estimates made by management are reasonable; and the overall presentation of the financial statements gives a true and fair view. We also read the remainder of the Annual Report to check it is consistent w ith our understanding of the CCG and w ith the accounts included in the Annual Report on w hich w e gave our opinion. We carry out our audit in accordance w ith ISAs (UK) and the NAO Code of Audit Practice. We believe that the audit evidence w e have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach w as based on a thorough understanding of the CCG's business and is risk based. We identified key risks and set out overleaf the w ork w e performed in response to these risks and the results of this w ork. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 5
Audit of the Accounts Significant Audit Risks These are the significant risks w hich had the greatest impact on our overall strategy and w here w e focused more of our w ork. Risks identified in our audit plan How w e responded to the risk Findings and conclusions Improper revenue recognition Under ISA (UK) 240 there is a rebuttable presumed risk that revenue may be misstated due to the improper recognition of revenue. Management override of internal controls Under ISA (UK) 240 there is a non-rebuttable presumed risk that the risk of management over-ride of controls is present in all entities.. The CCG faces pressure to meet external targets, and this could potentially place management under undue pressure in terms of how they report performance. We identified management override of controls as a risk requiring special audit consideration. We rebutted this presumed risk for NHS Isle of Wight CCG because: revenue does not primarily involve cash transactions revenue is principally an allocation from NHS England We therefore do not consider this to be a significant risk for NHS Isle of Wight CCG. As part of our audit w ork w e completed; a review of accounting estimates, judgements and decisions made by management testing of journal entries a review of unusual significant transactions a review of significant related party transactions As w e w ere able to rebut this presumed risk, no specific audit procedures w ere required. Our audit w ork did not identified any evidence of management over-ride of controls. In particular, the findings of our review of journal controls and testing of journal entries did not identified any significant issues. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 6
Audit of the Accounts Significant Audit Risks These are the significant risks w hich had the greatest impact on our overall strategy and w here w e focused more of our w ork. Risks identified in our audit plan How w e responded to the risk Findings and conclusions Operating expenses purchase of secondary healthcare A significant percentage of the CCG s expenditure is on contracts for healthcare w ith NHS providers and non-nhs providers, such as operations and hospital care. This expenditure is recognised w hen the activity has been performed, w ith accruals raised at the year-end for completed activity for w hich an invoice has not been issued. We identified the accuracy and occurrence of contract variations as a risk requiring special audit consideration. We undertook the follow ing w ork in relation to this risk documentation of our understanding of processes and key controls over the transaction cycle w alkthrough of the key systems to confirm our understanding agreement of significant contracts to signed contracts and contract variations testing of the residual balance to ensure that variations and non-contracted activity has been treated correctly review of agreement of balances reports.. Our audit w ork did not identified any significant issues in relation to the risk identified. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 7
Audit of the Accounts Audit opinion We gave an unqualified opinion on the CCG's financial statements on 25 May 2018, in advance of the national deadline. As w ell as an opinion on the financial statements, w e are required to give a regularity opinion on w hether expenditure has been incurred 'as intended by Parliament'. Failure to meet statutory financial targets automatically results in a qualified regularity opinion. Based on our review of the CCG's expenditure w e gave an unqualified regularity opinion. Annual Report, including the Governance Statement We are also required to review the CCG's Annual Report and the Governance Statement included w ithin the Annual Report. It provided these on a timely basis w ith the draft accounts w ith supporting evidence. Certificate of closure of the audit We are also required to certify that w e have completed the audit of the accounts of NHS Isle of Wight CCG in accordance w ith the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice. Preparation of the accounts The CCG presented us w ith draft accounts in accordance w ith the national deadline, and provided a good set of w orking papers to support them. The finance team responded promptly and efficiently to our queries during the course of the audit. Issues arising from the audit of the accounts We reported the key issues from our audit to the CCG's Audit Committee on 23 May 2018 and the Governing Body on 25 May 2018. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 8
Value for Money arrangements Background We carried out our review in accordance w ith the NAO Code of Audit Practice, follow ing the guidance issued by the NAO in November 2017 w hich specified the criterion for auditors to evaluate: In all significant respects, the audited body takes properly informed decisions and deploys resources to achieve planned and sustainable outcomes for taxpayers and local people. Overall Value for Money conclusion We are satisfied that, in all significant respects, except for in relation planning finances effectively to support the sustainable delivery of strategic priorities and maintain statutory functions, the CCG put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2018. Key findings Our first step in carrying out our w ork w as to perform a risk assessment and identify the key risks w here w e concentrated our w ork. The key risks w e identified and the w ork w e performed are set out overleaf. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 9
Value for Money arrangements Key Value for Money Risks Risks identified in our audit plan Findings and conclusions Risk -Sustainable resource deployment The NHS continues to experience challenging financial conditions w ith an increasing number of CCGs reporting that they w ill not achieve their financial plan. Your 2017/18 QIPP (Quality, Innovation, Productivity and Prevention) target of 12.9m is significantly larger than your previously delivered savings targets and is largely dependent on collaborative w orking w ith Isle of Wight NHS Trust. At month 7, you are forecasting a year end breakeven position. How ever there is approximately 2m of unmitigated risk in this position and you have identified 4.9m of QIPP schemes w hich may not deliver by year end. In 2017/18 you delivered an in-year surplus of 1.3 million against a planned breakeven position increasing your cumulative surplus to 3.6 million at 31 March 2018. As w ell as the release of your 0.5% system risk reserve ( 1.4 million) and the return of the benefit from the reduction in prices of category M drugs ( 0.24 million), your outturn position included a number of other non-recurrent measures such as additional allocation from NHSE of 2 million, These non-recurrent measures mask an underlying deficit position of c. 2.4 million and explain the improvement betw een your forecast position Q3 and outturn. This underlying position is understood and has been reported at both Audit Committee and Governing Body. Your plan included a QIPP target of 12.9m (5.6% of allocation) and although you w ere able to deliver 8 million of savings during the year the 4.9 million gap identified at month 7 remained unachieved at the year end. The main areas of under-delivery centre around 4 million of savings w hich are linked to efficiencies w hich need to be delivered in conjunction w ith NHS Isle of Wight NHS Trust. There w as also under delivery of planned savings in continuing healthcare. Both of these areas require partnership w orking and highlight the interdependencies w ithin the health and care system on the island. In 2017/18 you have 3.5 million of non recurrent funding to develop the My Life, a Full Life, the island s new model of care vanguard programme. This funding w ill be removed in 2018/19 and continued investment in the programme w ill need to be funded from baseline allocation. You are currently funded ahead of NHSE s target allocation w hich means the system can only anticipate minimum funding grow th over the medium term. This together w ith cost and demand pressures mean that 2018/19, w ill be an extremely challenging year. Your current Operational Plan for 2018/2019 includes QIPP savings of 9.4 million to achieve breakeven, slightly low er than in 2017/18, at 4% of allocation. How ever you have yet to fully develop plans to deliver this total, w ith 2.8 million of savings unidentified as at the end of April 2018 and unmitigated risks w ithin the financial plan of 8.4 million. It is recognised that sustainable efficiencies can only be delivered by developing solutions at a system level and through the Acute Service Redesign and Local Care Board you have set a foundation from w hich you can w ork closely w ith partners, to identify joint efficiencies and plans to improve the delivery of services for the population of the Isle of Wight. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 10
Value for Money arrangements Key Value for Money Risks Risks identified in our audit plan Findings and conclusions Risk -Informed decision making and Sustainable resource deployment In December 2017, NHS England issued special directions for the CCG, considering that the CCG is at risk of failing to delivery it s statutory responsibilities. Under these directions you have been required to: commission a capability and capacity review of the w hole CCG and to develop an Organisational Action Plan to take forw ard the recommendations of the review ; develop a clinical and financial sustainability plan; and refer to the NHS England Board any appointments to the Executive Team and the next level of management. As a CCG and health system you face some unique challenges; you serve a small population and geographical isolation means it is difficult to achieve economies of scale in service delivery. These factors are only partially reflected in the funding allocation received. During the 2017/18 year NHS England recognising the pressures w ithin the Isle of Wight health economy provided some non-current support through the resource allocation. The need to find solutions to these system w ide challenges sit behind a directions issued by NHSE. The CCG had identified that project management capacity and capability as a significant risk to the identification and delivery of savings and efficiencies, this is being addressed by additional support from the Commissioning Support Unit and outside consultants. Together w ith NHS England, you commissioned the Capability and Capacity review required in the direction. The w ork has been completed w ith a draft report issued and the CCG is currently review ing the findings. At the time of drafting this report w e have not been provided w ith a full copy of this report. You consider that requirement to produce a Clinical and Financial Sustainability Plan has been met by the submission of the 2018/19 operational plan and the Acute Services Review, the findings of w hich have been considered by the CCG and is moving to the consultation stage. Conclusions The financial sustainability issues in the island s health economy resulting in the issue of the direction by NHS England is evidence of w eaknesses in proper arrangements for planning finances effectively to support the sustainable delivery of strategic priorities and maintain statutory functions. Foundations being build to address these issues w ith the vanguard funding, the Acute Services Review and the Local Care Plan, how ever plans remain at an early stage. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 11
Value for Money arrangements Key Value for Money Risks Risks identified in our audit plan Findings and conclusions Risk- Working w ith partners and other third parties and Sustainable resource deployment It is acknow ledged that the future financial sustainability of the delivery of healthcare requires a new and system w ide approach. The CCG is part of the Hampshire and Isle of Wight Sustainability and Transformation Partnership (STP), and the Isle of the Wight Local Care System (LCS). During the year there have been significant developments in the governance, decision making and assurance arrangements in place at both the STP and LCS. You have been w orking w ith partners to develop changes to the w ay that health and care services are delivered in the Isle of Wight. We w ill review arrangements in place at the CCG for w orking w ith partners and progress of the STP and the LCS. Building on the My Life, a Full life new models of care vanguard, the CCG together w ith its partners the Isle of Wight Council and the Isle of Wight NHS Trust and support from regulators, is w orking tow ards a sustainable solution for the operational and financial challenges on the island. The Isle of Wight NHS Trust is financially challenged and in July 2017, w as rated as inadequate follow ing a CQC inspections w ith concerns noted in the community and mental health services inspected. It is also currently subject to special measures by its regulator NHS Improvement. You monitor arrangements by the Trust to improve the quality of care and financial stability at the Trust through contracting processes and involvement in the Local Care Board. The Isle of Wight Local Care Plan overseen by the Local Care Board w as published in October 2017 and informs the direction of travel for on-island services. The CCG is w orking w ith its partners to translate the key priorities into actions that are deliverable and measureable. You recently joined the Hampshire CCG Partnership w ith North Hampshire, North East Hampshire and Farnham, Fareham and Gosport and South Eastern Hampshire CCGs. This arrangement should help to develop commissioning at scale for some healthcare and shared learning from new models of care across Hampshire and the Isle of Wight. The role of the Local Care Board w ill continue to focus on commissioning local services for the Island. A review of acute service delivery on the island has been completed and is moving into the consultation phase. You are w orking w ith partners in Hampshire as part of the Hampshire and Isle of Wight Sustainability and Transformation Partnership to deliver efficiencies and improve care, particularly in addressing w orkforce supply and retention issues. 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 12
A. Reports issued and fees We confirm below our final reports issued and fees charged for the audit and confirm there w ere no fees for the provision of non audit services. Reports issued Report Date issued Audit Plan March 2018 Fees for non-audit services Service Fees None Nil Audit Findings Report May 2018 Annual Audit Letter June 2018 Fees Planned Actual fees Statutory audit 39,000 39,000 2016/17 fees Non- audit services For the purposes of our audit w e have made enquiries of all Grant Thornton UK LLP teams providing services to the CCG. No non-audit services w ere identified. Total fees 39,000 39,000 2018 Grant Thornton UK LLP NHS Isle of Wight CCG Annual Audit Letter June 2018 13
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