NHS Great Yarmouth and Waveney CCG Annual Audit Letter for the year ended 31 March 2016 July 2016 Ernst & Young LLP
Contents Contents Executive Summary... 2 Purpose... 6 Responsibilities... 8 Financial Statement Audit... 10 Value for Money... 13 Other Reporting Issues... 17 Focused on your future... 20 Appendix A Audit Fees... 24 In April 2015 Public Sector Audit Appointments Ltd (PSAA) issued Statement of responsibilities of auditors and audited bodies 2015-16. It is available from the Chief Executive of each audited body and via the PSAA website (www.psaa.co.uk) The Statement of responsibilities serves as the formal terms of engagement between appointed auditors and audited bodies. It summarises where the different responsibilities of auditors and audited bodies begin and end, and what is to be expected of the audited body in certain areas. The Terms of Appointment from 1 April 2015 issued by PSAA sets out additional requirements that auditors must comply with, over and above those set out in the National Audit Office Code of Audit Practice (the Code) and statute, and covers matters of practice and procedure which are of a recurring nature. This Annual Audit Letter is prepared in the context of the Statement of responsibilities. It is addressed to the Directors/Members of the audited body, and is prepared for their sole use. We, as appointed auditor, take no responsibility to any third party. Our Complaints Procedure If at any time you would like to discuss with us how our service to you could be improved, or if you are dissatisfied with the service you are receiving, you may take the issue up with your usual partner or director contact. If you prefer an alternative route, please contact Steve Varley, our Managing Partner, 1 More London Place, London SE1 2AF. We undertake to look into any complaint carefully and promptly and to do all we can to explain the position to you. Should you remain dissatisfied with any aspect of our service, you may of course take matters up with our professional institute. We can provide further information on how you may contact our professional institute. EY i
Executive Summary
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Executive Summary We are required to issue an annual audit letter to Great Yarmouth & Waveney Clinical Commissioning Group (the CCG) following completion of our audit procedures for the year ended 31 March 2016. Below are the results and conclusions on the significant areas of the audit process. Area of Work Conclusion Opinion on the CCG s: Financial statements Unqualified the financial statements give a true and fair view of the financial position of the CCG as at 31 March 2016 and of its expenditure and income for the year then ended. Regularity of income and expenditure Qualified financial transactions were conducted within the CCG legal framework except for the incurrence of expenditure in excess of the specified Revenue Resource Limit. Parts of the remuneration and staff report to be audited Consistency of the Annual Report and other information published with the financial statements We had no matters to report. Financial information in the Annual report and published with the financial statements was consistent with the Annual Accounts. EY 2
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Area of Work Conclusion Reports by exception: Consistency of Governance Statement The Governance Statement was consistent with our understanding of the CCG. Referrals to the Secretary of State and NHS England We made a referral to the Secretary of State on the 22 March 2016. The referral was in relation to the incurrence of expenditure in excess of the specified Revenue Resource Limit. Public interest report We had no matters to report in the public interest. Value for money conclusion We reported by exception in respect of: Deploying resources in a sustainable manner; Working with partners and other third parties; and Taking informed decisions. These areas are considered further in the value for money section. Reporting to the CCG on its consolidation schedules Reporting to the National Audit Office (NAO) in line with group instructions We concluded that the CCG s consolidation schedules agreed, within a 250,000 tolerance, to your audited financial statements. We reported the unadjusted audit misstatement of 1.5 million. EY 3
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group As a result of the above we have also: Area of Work Issued a report to those charged with governance of the CCG communicating significant findings resulting from our audit. Issued a certificate that we have completed the audit in accordance with the requirements of the Local Audit and Accountability Act 2014 and the National Audit Office s 2015 Code of Audit Practice. Conclusion Our Audit results report was issued on 20 May 2016. Our certificate was issued on 27 May 2016. We would like to take this opportunity to thank the CCG staff for their assistance during the course of our work. Mark Hodgson Executive Director For and on behalf of Ernst & Young LLP EY 4
Purpose
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Purpose The Purpose of this Letter The purpose of this annual audit letter is to communicate to Governing Body members and external stakeholders, including members of the public, the key issues arising from our work, which we consider should be brought to the attention of the CCG. We have already reported the detailed findings from our audit work in our 2015/16 Annual Results Report to the 24 May 2016 Audit Committee, representing those charged with governance. We do not repeat those detailed findings in this letter. The matters reported here are the most significant for the CCG. EY 6
Responsibilities
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Responsibilities Responsibilities of the Appointed Auditor Our 2015/16 audit work has been undertaken in accordance with the Audit Plan that we issued on 10 March 2016 and is conducted in accordance with the National Audit Office's 2015 Code of Audit Practice, International Standards on Auditing (UK and Ireland), and other guidance issued by the National Audit Office. As auditors we are responsible for: Expressing an opinion: On the 2015/16 financial statements; On the regularity of expenditure and income; On the parts of the remuneration and staff report to be audited; On the consistency of other information published with the financial statements, including the annual report; and On whether the consolidation schedules are consistent with the CCG's financial statements for the relevant reporting period. Reporting by exception: If the annual governance statement does not comply with relevant guidance or is not consistent with our understanding of the CCG; To the Secretary of State for Health and NHS England if we have concerns about the legality of transactions of decisions taken by the CCG; and Any significant matters that are in the public interest. Forming a conclusion on the arrangements the CCG has in place to secure economy, efficiency and effectiveness in its use of resources. Reporting on an exception basis any significant issues or outstanding matters arising from our work which are relevant to the NAO as group auditor. Responsibilities of the CCG The CCG is responsible for preparing and publishing its statement of accounts, annual report and annual governance statement. It is also responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. EY 8
Financial Statement Audit
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Financial Statement Audit Key Issues The Annual Report and Accounts is an important tool for the CCG to show how it has used public money and how it can demonstrate its financial management and financial health. We audited the CCG s Statement of Accounts in line with the National Audit Office s 2015 Code of Audit Practice, International Standards on Auditing (UK and Ireland), and other guidance issued by the National Audit Office and issued an unqualified audit report on 26 May 2016. Our detailed findings were reported to the 24 May 2016 Audit Committee and 24 May 2016 Governing Body meeting. The key issues identified as part of our audit were as follows: Significant Risk Management override of controls Management is in a unique position to perpetrate fraud because of its ability to manipulate accounting records directly or indirectly and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. We identify and respond to this fraud risk on every audit engagement. Conclusion We have not identified any material weaknesses in controls or evidence of material management override. We have not identified any instances of inappropriate judgements being applied. Revenue and expenditure recognition There is a presumed risk that revenue may be misstated due to improper recognition of revenue. The Health Act 2012 requires the CCG to operate within its revenue resource limit each year and for it to not exceed the specified administration costs allocation. Our testing has not revealed any material misstatements with respect to revenue or expenditure recognition. EY 10
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Significant Risk Better Care Fund and other joint commissioning arrangements The Better Care Fund (BCF) is a major policy initiative between local authorities, clinical commissioning groups (CCGs) and NHS providers with a primary aim of driving closer integration and improving outcomes for patients, service users and carers. Local BCF arrangements may be complex and varied, involving a number of different commissioning, governance and accounting arrangements that raise risks of misunderstanding, inconsistencies and confusion between the partners. Operating within the revenue resource limit The Health Act 2012 requires the CCG to operate within its revenue resource limit each year. Given the significant pressures across the health service and the CCG s recently revised projection, the year-end financial position was under particular scrutiny. Conclusion Our work on the Better Care Fund has identified that, the underlying substance of the arrangements in place were that of a Lead Commissioner, rather than a joint arrangement. This led to a 6.28 million reduction in both income and expenditure within the Statement of Comprehensive Net Expenditure and the related disclosure notes (Note 2, 5, 21 and 27). The financial statements were adjusted to reflect the correct accounting treatment. The CCG reported a 2.4 million deficit in 2015/16, and therefore breached its Revenue Resource Limit. As a result, we made a referral to the Secretary of State under section 30 of the Local Audit & Accountability Act 2014. We also modified the regularity assertion element of the audit opinion. We reviewed major contracts and identified one unusual transaction in regards to East Coast Community Healthcare (ECCH). A contract variation was agreed with ECCH in September 2015 in respect of the 2016/17 financial year, however, this was paid in 2015/16 and then a credit note was raised by ECCH in March 2016. This credit note was not honoured by ECCH in 2016/17. This expenditure was not recognised in 2015/16 and we reported this as an unadjusted misstatement. If it had been recognised the impact on the reported outturn position would be to increase the deficit by a further 1.5 million ( 3.9 million adjusted deficit). This amount was not material to our audit opinion. This also impacted on our value for money conclusion. This was reported to you in our Audit Results Report. EY 11
Value for Money
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth and Waveney Clinical Commissioning Group Value for Money We are required to consider whether the CCG has put in place proper arrangements to secure economy, efficiency and effectiveness on its use of resources. This is known as our value for money conclusion. Proper arrangements are defined by statutory guidance issued by the National Audit Office. They comprise your arrangements to: Take informed decisions; Deploy resources in a sustainable manner; and Work with partners and other third parties. Informed decision making Proper arrangements for securing value for money Sustainable resource deployment Working with partners and third parties EY 13
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth and Waveney Clinical Commissioning Group We noted the following issues as part of our audit in relation to the CCG s arrangements. Key Findings Deploying resources in a sustainable manner The CCG incurred a deficit of 2.4m in 2015/16. The CCG had agreed a break even control total with NHS England. This resulted in a section 30 referral being issued to the Secretary of State in March 2016 as noted earlier in this letter. The 2015/16 Quality, Innovation, Productivity and Prevention (QIPP) savings plan target was 12.3 million but only 9.5 million was achieved. The 2016/17 financial plan is to recover the 2015/16 deficit with a 3.2 million surplus. Included in the plan is 15.5 million of QIPP savings. This represents 4.3% of the Revenue Resource Limit for 2016/17. The CCG has historically achieved 73% of its QIPP plan targets over the last three years. Based on the CCG s track record for delivery of QIPP schemes there is a significant risk of the CCG breaching its statutory break even duty in 2016/17. This issue is evidence of a weakness in planning finances effectively to support the sustainable delivery of strategic priorities, and maintain statutory functions. Working with partners and other third parties commissioning services effectively to support the delivery of strategic priorities The CCG was unable to conclude the 2015/16 provision of services contract negotiations with its main provider, the James Paget University NHS Foundation Trust (JPUH) during the first half of the financial year. Contract resolution was concluded after it went to expert determination in November 2015 with the contract finally being signed in February 2016. This determination was to the detriment of the CCG, and directly contributed to the deficit of 2.4 million recognised by the CCG at year end. We were aware that the CCG s 2016/17 provision of services contract with JPUH had not been signed due to an 18.0 million dispute over the contract value. There was also a 2.9 million year-end outturn dispute in the NHS agreement of balances exercise for 2015/16 between the two parties. This provided evidence of a weakness in proper arrangements of working with partners in order to commission services effectively to support the delivery of strategic priorities. EY 14
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth and Waveney Clinical Commissioning Group Key Findings Taking informed decisions Acting in the public interest, through demonstrating and applying the principles and values of sound governance During 2015/16, the CCG negotiated a contract variation of 1.5 million for transformation funding with East Coast Community Healthcare in respect of their 2016/17 contract for the provision of services. This contract negotiation, the rationale and accounting treatment for the funding was very poorly documented by the CCG and there is no evidence that the CCG took proper advice or evaluated the necessary considerations expected of an NHS body prior to the contract variation being enacted. This provided evidence of a weakness in proper arrangements for acting in the public interest, through demonstrating and applying the principles and values of sound governance. We therefore issued a modified value for money conclusion reporting by exception in relation to weaknesses in the CCGs arrangements in all three focus areas. EY 15
Other Reporting Issues
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Other Reporting Issues Department of Health/NHS England Group Instructions We are only required to report to the NAO on an exception basis if there were significant issues or outstanding matters arising from our work. There were no such issues. Annual Governance Statement We are required to consider the completeness of disclosures in the CCG s annual governance statement, identify any inconsistencies with the other information of which we are aware from our work, and consider whether it complies with relevant guidance. We completed this work and did not identify any areas of concern. Breach of revenue resource limit and referral to Secretary of State We must report to the Secretary of State any matter where we believe a decision has led to, or would lead to, unlawful expenditure, or some action has been, or would be, unlawful and likely to cause a loss or deficiency. The Department of Health set revenue resource limits for CCGs. CCGs are required to keep their spending within this limit. The CCG spent 2.4 million more than its limit for the year ( 316.9 million). As spending in excess of the revenue resource limit is unlawful, we had to report to the Secretary of State on the breach. We fulfilled this responsibility by qualifying the regularity opinion and issuing a report to the Secretary of State and NHS England under Section 30 of the Local Audit and Accountability Act 2014. Report in the Public Interest We have a duty under the Local Audit and Accountability Act 2014 to consider whether, in the public interest, to report on any matter that comes to our attention in the course of the audit in order for it to be considered by the CCG or brought to the attention of the public. We did not identify any issues which required us to issue a report in the public interest. EY 17
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Control Themes and Observations As part of our work, we obtained an understanding of internal control sufficient to plan our audit and determine the nature, timing and extent of testing performed. Although our audit was not designed to express an opinion on the effectiveness of internal control, we are required to communicate to you significant deficiencies in internal control identified during our audit. The matters reported are shown below and are limited to those deficiencies that we identified during the audit and that we concluded are of sufficient importance to merit being reported. Description Continuing Health Care follow up Impact In 2014/15, we reported a control weakness, as a number of Individual Care Agreements (ICA) to support continuing health care (CHC) expenditure, were missing and we recommended a tightening of procedures in this area. The ICA is a key document which determines the individual s package of care and the cost of that care. Without this document, the CCG cannot be assured that an individual is receiving the required level of care and that they are paying the correct amount for that care. During our testing of CHC expenditure in 2015/16 we identified that 14%, (2014/15 14%) of the assessed cases receiving payment did not have an ICA in place. The CCG should continue to ensure that this control is operating effectively and payments should only be made for amounts agreed within the ICA s. These ICA s should be reviewed on a regular basis and the care package in place signed off by an appropriate clinical specialist. The CCG should ensure that this remains an area of focus, given the quantum of expenditure in this area. EY 18
Focused on your future
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Focused on your future Area Issue Impact NHS provider financial pressures Draft 2015/16 financial statements show NHS providers overspent by a record 2.45 billion for the year. The scale of this overspending is unprecedented. Despite additional funding and significant efforts to reduce deficits, record numbers of trusts overspent and the overall deficit is likely to be three times higher than in 2014/15. Some 48 trusts reported a deficit of more than 20 million, including 11 trusts reporting an individual deficit of more than 50 million. At the same time, performance against key targets is continuing to deteriorate and there are increasing concerns over the quality of services. Providers as a whole missed the Accident and Emergency waiting target of seeing 95 percent of patients within four hours for the final quarter of the year, and waiting lists for routine operations reached 3.34 million. It is not yet clear whether trusts financial performance for the year will cause the Department of Health to exceed its spending limit for 2015/16, a serious breach of parliamentary protocol. Whether or not there is a breach, NHS trusts will start 2016/17 with a collective deficit of around 1 billion more than planned. Without change there is the potential for the increasing financial pressure to impact further on levels of patient care. The scale of the financial challenges faced by NHS providers impacts all aspects of their operations. It is therefore a key driver of audit risk and impacts our approach. EY 20
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Area Issue Impact Better Care Fund The Better Care Fund (BCF) is a series of pooled budgets between CCGs and local government bodies aiming to better integrate health and social care, resulting in an improved experience and better quality care for patients. 2016/17 will be the BCF s second year of existence and many partners will be developing their plans for collaborative working, including: Reviewing care pathways to deliver improved patient outcomes and genuine system wide efficiencies; Revisiting governance arrangements after a year s experience; Working towards fully integrating commissioning; Further honing arrangements for reporting financial and non-financial information; and Delivering fair risk share arrangements between partners. Bodies will need to work together to a far greater extent than ever before to ensure that sustainability and financial plans are viable, and successfully delivered. Failure to do this could have wider adverse financial and service delivery consequences across the whole local area. As your external auditor we need to gain an understanding of your wider approach and plans, and the impact of greater partnership working on your governance, internal control and financial reporting. Sustainability and Transformation Plans NHS England s document, Delivering the Forward View: NHS planning guidance 2016/17-2020/21, published in December 2015, asks local health systems, including local government, voluntary and community partners, to work together to secure transformation change in healthcare planning and delivery. For this purpose England has been divided into 44 local health systems, made up of local councils, CCGs and NHS and other providers. Each health system needs to produce, by the end of June 2016, a Sustainability and Transformation Plan covering the next five years. The initial requirement is for CCGs and providers to control expenditure and stay within budget in 2016/17. Subsequently, spending and performance will need to be managed sustainably over the following four years in order to access the available transformation funding. This is intended to fund changes to service delivery while maintaining and improving patient safety and quality over the years 2017-21. Failure to deliver on targets agreed will results in bodies being unable to access transformation funding, which will from now on be the only additional funds available. Bodies will need to work together to a far greater extent than ever before to ensure that sustainability and financial plans are viable, and successfully delivered. Failure to do this could have wider adverse financial and service delivery consequences across the whole local area. As your external auditor we need to gain an understanding of your wider approach and plans, and the impact of greater partnership working on your governance, internal control and financial reporting. EY 21
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Area Issue Impact Cocommissioning Co-commissioning aims to support the development of integrated out-of-hospital services based around the needs of local people. It is part of a wider strategy to join up care in and out of hospital and is intended to lead to a number of benefits for patients and the public. CCGs were invited to take on an increased role in the commissioning of GP services through three co-commissioning models: Greater involvement an invitation to CCGs to collaborate more closely with their local NHS England teams in decisions about primary care services. Joint commissioning enables one or more CCGs to jointly commission general practice services with NHS England through a joint committee. Delegated commissioning offers an opportunity for CCGs to assume full responsibility for the commissioning of general practice services. Over half of CCGs are now operating under the delegated model. 63 CCGs took on full delegation in 2015/16 and another 51 CCGs have taken delegated arrangements from 1 April 2016. There will also be more opportunities for CCGs without joint or delegated arrangements to take up greater responsibility for the commissioning of general practice services in the future. Adopting co-commissioning processes, and particularly fully delegated arrangements, exposes CCGs to a greater risk of conflicts of interest, both real and perceived. It remains important for CCGs to strengthen their arrangements in this area following the issue of NHS England guidance and a subsequent audit of arrangements against that guidance which identified some weaknesses and inconsistencies in governance arrangements, training and processes to declare and record conflicts. Gaining assurance for fully delegated arrangements, where relevant expenditure is accounted for by CCGs, also posed some challenges for external auditors in 2015/16. Specifically: Systems and processes for fully delegated arrangement are not all operated locally by CCGs. Gaining a full understanding of the system can be difficult. CCGs rely on the work of service organisations to ensure the accurate initiation, processing and recording of co-commissioning transactions. There have been challenges in gaining timely and complete assurance over the work of service organisations. In 2015/16 detailed transactions were recorded on the ledger of NHS England rather than locally by individual CCGs. It was therefore difficult to directly test those transactions to gain assurance. Changes to arrangements nationally in 2016/17 should help to ensure that some of these issues are resolved. However, it remains important that CCGs continue to engage with us on the changes made to local arrangements to fully inform our audit approach. EY 22
Appendix A Audit Fees
Annual Audit Letter for the year ended 31 March 2016 NHS Great Yarmouth & Waveney Clinical Commissioning Group Appendix A Audit Fees Our fee for 2015/16 is in line with the scale fee set by the PSAA and reported in our 20 May 2016 Annual Results Report. Final Fee 2014/15 Planned Fee 2015/16 Scale Fee 2015/16 Planned Final Fee 2015/16 (Note 1) Description GBP - s GBP - s GBP - s GBP - s Total Audit Fee Code work 73,500 52,500 52,500 59,242 Note 1 - Fee variation from scale fee We completed more audit work than was originally planned within the scope of the audit, so we have sought a variation to the scale fee in relation to: Referral to the Secretary of State under Section 30 of the Local Audit & Accountability Act - 1,250. Additional work to address specific audit risks arising during the audit - 5,492; We identified further deficiencies in arrangements to secure VFM, including risks identified around working with third parties and taking informed decisions (see pages 14 and 15 for details) which required additional audit work and resulted in a modified (adverse) conclusion being issued; and We undertook additional procedures to identify and understand the East Coast Community Healthcare contract variation expenditure (see page 11 for details) which resulted in extended testing in order to conclude that this was a one off misstatement and was not pervasive across the audit. This final fee is subject to approval from the Public Sector Auditor Appointments (PSAA) who will amend the scale fee to reflect the final fee charged. We confirm we have not undertaken any non-audit work outside of the PSAA s requirements. EY 24