Annual governance report

Annual governance report University Hospitals of Morecambe Bay NHS Foundation Trust Audit 2011/12 Audit Commission Annual governance report 1

Contents Key messages... 3 Before I give my opinion... 4 Financial statements... 6 Economy, efficiency and effectiveness... 12 Appendix 1 Draft independent auditor s report... 15 Appendix 2 Draft letter of management representation... 18 Appendix 3 Glossary... 22 Appendix 4 Action plan... 25 Audit Commission Annual governance report 2

Key messages This report summarises the findings from the 2011/12 audit which is complete. It includes the messages arising from my audit of your financial statements and the results of the work I have undertaken to satisfy myself that you have made proper arrangements for securing economy, efficiency and effectiveness in your use of resources. Financial statements On 30 May 2012 I expect to issue an unqualified audit opinion on the financial statements. I also plan to issue a report stating the NHS Foundation Trusts consolidation schedules (FTCs) including the Whole of Government Accounts (WGA) submission pack are consistent with the statutory financial statements. The financial statements presented for audit were of a good standard. I did not identify any material errors and management has amended a number of non trivial errors within the accounting policies and disclosure notes that I identified. I acknowledge the audit of the accounts was straightforward as a result of very good working papers produced by the Finance Section and as I also received prompt responses to my enquiries. I did not receive a complete and FT Annual Reporting Manual compliant draft of the Quality Report and Annual Governance Statement at the same time as the accounts. I can confirm the final Quality Report and Annual Governance Statement have been updated to reflect the compliance gaps I have identified. Economy, efficiency and effectiveness As a direct result of the Trust s breaches in its terms of authorisation with Monitor I am unable to conclude that you have made proper arrangements for securing economy, efficiency and effectiveness in your use of resources during 2011/12 and plan to issue a qualified certificate. Audit Commission Annual governance report 3

Before I give my opinion My report includes only matters of governance interest that have come to my attention in performing my audit. I have not designed my audit to identify all matters that might be relevant to you. Independence I can confirm that I have complied with the ethical standards issued by the Auditing Practices Board, including ES 1 (revised) Integrity, Objectivity and Independence. I have also complied with the additional requirements on independence and objectivity in Monitor s Audit Code. I am aware of the following relationship that might constitute a threat to independence and that I am required to report to you. I have therefore put in place the following safeguard to reduce the threat. Table 1: Threats and safeguards Threat Gareth Kelly your Engagement Manager is married to an employee of Cumbria Teaching PCT Safeguard The Audit Commission centrally has reviewed this independence declaration and does not have any concerns regarding Gareth Kelly's independence on this audit. His wife's role is Head of Contracts within the PCT who oversees all contracts. There is a separate designated contracts manager working on University Hospitals of Morecambe Bay NHS FT who reports to his wife. I have put in place an additional safeguard whereby, Gareth Kelly as your Engagement Manager has not undertaken any work or reviewed income or related accounts receivable/ payable balances with the PCT. Audit Commission Annual governance report 4

During the year the Audit Commission s Audit Practice undertook non-audit work for the Trust for a fee of 13,750 for which the Audit Commission reviewed the Trust s governance and risk management arrangements. I did ensure safeguards were in place in line with Audit Commission procedures to ensure there was no conflict of interest that would compromise our independence. I ask those charged with governance to: take note of the adjustments to the financial statements included in this report; approve the letter of representation (appendix 2), on behalf of the Trust before I issue my opinion and certificate; and agree your response to the proposed action plan (appendix 4). Audit Commission Annual governance report 5

Financial statements The Trust s financial statements and annual governance statement are important means by which the Trust accounts for its stewardship of public funds. As Directors you have final responsibility for these statements. It is important that you consider my findings before you adopt the financial statements and the annual governance statement. Opinion on the financial statements I plan to issue an audit report including an unqualified opinion on the financial statements. Appendix 1 contains a copy of my draft audit report. Corrected errors My audit has not identified any material or non trivial errors in the main financial statements. The Accounts have been produced to a high standard and are supported by good working papers. Significant risks and my findings I reported to you in my February 2012 Audit Plan the significant risks that I identified relevant to my audit of your financial statements. In table 2 I report to you my findings against each of these risks. Audit Commission Annual governance report 6

Table 2: Risks and findings Risk The Trust has appointed a new Valuer who has revalued some of the Trust s land and property assets using the alternative site valuation model. As a Foundation Trust the Trust can apply the alternative site valuation method. However, there is a risk that this new approach to valuation may not fully comply with the reporting manuals and International Financial Reporting Standards, and as a result asset values may be materially misstated in the Statement of Financial Position. The 2011/12 NHS Foundation Trust Annual Reporting Manual (ARM) has introduced a change to the accounting policy relating to donated assets. Management may fail to correctly implement the change to this accounting policy on a material balance. Finding I have reviewed the controls over establishing estimates, including arrangements for instructing your Valuer and the information provided to Valuer. I have obtained direct assurance from the Trust s Valuer to establish proper procedures have been followed in arriving at asset valuations. I have reviewed the new alternative site valuation method and I conclude it does comply with the NHS Foundation Trust Annual Reporting Manual, Financial Reporting Manual (FReM) and other relevant accounting standards such as IAS16 Property, Plant and Equipment and Valuation Information Paper 10. Historically, the Trust has combined external works and land at each of the hospital sites so that there is a revaluation block for each. Review of the GVA valuation confirms that different methodologies have been used to value land and external works. I have agreed with the Trust going forward that separate blocks in the revaluation reserve should be established to account for movements in the value of land and movements in the value of external works at each site. I have concluded there was no material impact on the 2011/12 accounts. I have reviewed the Trust s interpretation of the new accounting policy change on donated assets. I have tested the restatement and prior period adjustments associated with the Trust s donated asset reserve. I conclude the donated asset reserve as at 31 March 2012 is accurately disclosed. Audit Commission Annual governance report 7

Risk Staff are leaving the Trust during 2011/12 under the terms of a Mutually Agreed Resignation Scheme (MARS). There is risk expenditure in the Statement of Comprehensive Income may not accurately reflect MARS expenditure incurred during the year, including those MARS settlements where accounting standards require the Trust to make a provision. Additionally, management may fail to comply with the detailed disclosure requirements relating to staff exit packages as set out in the ARM. Finding I have reviewed management controls over the MARS scheme. I have reviewed relevant agendas and minutes for completeness and I confirm all MARS expenditure is reflected in the financial statements. I have tested MARS payments to confirm that they have been calculated properly in accordance with the agreed MARS scheme and in all but one case tested they were correct. I acknowledge the error was minor relating to one additional month of payment over the individual's entitlement and my testing supports this not being a systemic error. I am satisfied all MARS payments were settled before the end of the financial year and therefore no provision was required. Recommendation R1 Introduce separate blocks in the revaluation reserve to account for movements in the value of land and movements in the value of external works at each site. Significant weaknesses in internal control It is the responsibility of the Trust to develop and implement systems of internal financial control and to put in place proper arrangements to monitor their adequacy and effectiveness in practice. My responsibility as your auditor is to consider whether the Trust has put adequate arrangements in place to satisfy itself that the systems of internal financial control are both adequate and effective in practice. I have tested the controls of the Trust only to the extent necessary for me to complete my audit. I am not expressing an opinion on the overall effectiveness of internal control. Audit Commission Annual governance report 8

Other matters I am required to communicate to you significant findings from the audit and other matters that are significant to your oversight of the Trust s financial reporting process including the following. Qualitative aspects of your accounting practices including accounting policies, accounting estimates and financial statement disclosures. Matters specifically required by other auditing standards to be communicated to those charged with governance, for example, issues about fraud, compliance with laws and regulations, external confirmations and related party transactions. Other audit matters of governance interest. I have matters in relation to the qualitative aspects of your accounting practices that I wish to report to you as outlined in table 3. Table 3: Other accounting policies and disclosure note related matters Issue Finding Accounting policies I have suggested some minor changes in the accounting policies disclosures including the following areas. Critical judgements in applying accounting policies. Key sources of estimation uncertainty. Intangible assets. Donated assets. The Trust has made these changes to reflect compliance with the FT Annual Reporting Manual and the statements. Disclosure notes Note 4.1 Operating revenue 1.003m of other miscellaneous income was omitted from the disclosure note total of 6.129m. Note 6.2 Termination benefits The disclosure should total 1.03m and 57 people as the termination benefit for a Director has already been disclosed separately as part of Note 6.6 The disclosure note has been corrected and there is no impact on the Statement of Comprehensive Income as it was correctly disclosed at 6.129m. The disclosure note has been corrected to remove the Director's termination benefit from Note 6.2 and an additional note added to acknowledge related payments to directors are disclosed at note 6.6. Audit Commission Annual governance report 9

Issue Note 6.5 staff sickness absence The pre audit figures for 2010/11 had been used in the comparator and not the audited figures. The disclosure should be 36,585 days, 4,006 years and 9.1 average days. Note 15 Trade and other payables The 2010/11 comparator for NHS Payables was overstated by 90,000 and other trade payables understated by 90,000. This is due to the NHS Supplies Chain creditor being classified as other trade payables in 2011/12 and the need to match previous year comparators in the sub-analysis. Note 17 - Prudential Borrowing Limit The Total long term borrowing limit set by Monitor for 2011/12 is 48.3m but the draft accounts disclosed last year s limit of 49.9m. Note 19 Contingent liabilities The latest correspondence from the Trust s Solicitor confirms the number of live equal value claims to be 198 not 216 as disclosed pre audit. Note 20.3 Financial Instruments Trade and other receivables 2011/12 was understated by 89,000 due to a calculation error. The 2010/11 pre audit trade and other receivables was incorrectly disclosed which resulted in the balance being overstated by 215,000. Note 20.4 Financial Instruments The 2010/11 pre audit trade and other receivables was disclosed which resulted in the balance being understated by 1.709m. Finding The disclosure note has been updated and this does not affect the accounts elsewhere. The sub-analysis for the 2010/11 comparator has been corrected and it has no impact on Statement of Financial Position as the 2010/11 comparator total for trade and other payables remains the same. Note 17 has been updated including the 2011/12 minimum dividend cover actual ratio changing from 2.4 times to 2.6 times. This amendment has no impact on the main statements as it is a disclosure only item to show the total prudential borrowing limit. The disclosure note has been updated based on information received in May 2012 and this does not affect the accounts elsewhere. The disclosure note has been corrected and it has no impact on the rest of the accounts. The disclosure note has been corrected and it has no impact on the rest of the accounts Audit Commission Annual governance report 10

Issue Note 21 Related Party Transactions (RPT) The draft RPT note did not disclose all income received from local authorities and all RPT comparators for 2010/11. Note 23 - Losses and special payments The Trust had disclosed that there were no cases of fraud, fruitless payments, clinical negligence, personal injury or compensation where the net payment exceeded 250,000 but the new requirement is to disclose over 100,000. Finding The RPT note has been updated to reflect transactions with various local authorities and to reflect that transactions in 2011/12 are similar to those in 2010/11. It is important the Trust monitors Governor declarations to ensure completeness of the RPT disclosure note. The note has been updated but it did not affect the disclosure as there were no individual cases over the lower threshold of 100,000. Recommendation R2 Integrate the staff and Governors declarations processes to ensure completeness on the Related Party Transaction Disclosure note. Annual Report I have reviewed the draft Annual Report dated 23 May 2012 and I have not identified inconsistencies with the financial statements. Consolidation reports Alongside my work on the financial statements, I have also reviewed and reported on the consolidation schedules submitted by the Trust to Monitor. I have also reported to the National Audit Office under its Group Audit Instructions. I have no matters to report. Audit Commission Annual governance report 11

Economy, efficiency and effectiveness I am required to satisfy myself that the Trust has proper arrangements for securing economy, efficiency and effectiveness in its use of resources. I have reviewed the: statement made by the Chief Executive as part of the Annual Governance Statement (AGS), which includes details of the arrangements put into place to secure economy, efficiency and effectiveness; and results of the work carried out by relevant regulatory bodies, including Monitor and the Care Quality Commission, to determine if the results of their work have an impact on my responsibilities. As a direct result of the Trust s breaches in its terms of authorisation with Monitor I am unable to conclude that you have made proper arrangements for securing economy, efficiency and effectiveness in your use of resources during 2011/12 and plan to issue a qualified certificate. I have therefore qualified my certificate as outlined in appendix 1. Annual Governance Statement I have reviewed the Annual Governance Statement (AGS) and have satisfied myself that the post audit version: complies with the requirements of the Annual Reporting Manual; and is consistent with other information that I am aware of from my audit of the financial statements, including the regulators reports and breaches, quarterly board statements required under the Compliance Framework, the Quality Report and the Annual Report. I do need to draw your attention to the poor quality of the initial draft AGS, which I acknowledge the Audit Committee also identified in its April 2012 meeting. The draft AGS was not fully compliant with the FT Annual Reporting Manual and in particular the effectiveness section did not fully reflect the weaknesses the Trust is currently facing together with the proposed recovery actions. A summary of the key omissions are listed below. Audit Commission Annual governance report 12

Capacity to handle risk: ways in which you seek to learn from good practice. Risk and control framework: how stakeholders are involved with assessing risks which impact on them; key elements of the quality governance arrangements; and how the Trust produces its Annual Quality Report. Review of Effectiveness: incomplete as it did not fully reflect the current issues facing the Trust; no summary action plan section to cover the position on the recovery plan; no reference to the Head of Internal Audit opinion or our VFM qualified opinions; and no reference to the shortfall in the Cost Improvement Plan and recovery action to address ownership and recurrent savings issues. It is important to note I am not expressing an opinion on the overall effectiveness of internal control. In my 2010/11 Annual Governance Report I recommended that the Trust needed to ensure the assurances to support the AGS are completed on an ongoing process and not just as a year-end exercise, and that it is compliant with the reporting requirements. I have to report that the Trust has not implemented this recommendation. One critically important aspect to the new AGS is to report on the Trust s quality governance arrangements. The Trust should consider using Monitor s Quality Governance Framework to support future AGS disclosures. FT Code of Governance compliance In a letter dated 16 April 2012 Monitor reinforced the need for FTs to demonstrate compliance with Schedule A of the FT Code of Governance. The current requirement is for these disclosures to be made in the Annual Report to confirm compliance but Monitor recognises it may be more appropriate to include them in the AGS. The initial draft of the Annual Report did include the required governance disclosures to comply with Schedule A of the FT Code of Governance with the following minor exceptions. Governors constituency they each represent. Detail how auditor objectivity and independence is safeguarded. The final Annual Report has now been amended for these minor omissions. Audit Commission Annual governance report 13

Recommendations R3 Improve the process for collating information for the annual governance statement and ensure arrangements are in place to secure the appropriate assurances throughout the year. R4 Consider the use of Monitor s Quality Governance Framework to support future Annual Governance Statement disclosures. Audit Commission Annual governance report 14

Appendix 1 Draft independent auditor s report INDEPENDENT AUDITOR S REPORT TO THE COUNCIL OF GOVERNORS OF UNIVERSITY HOSPITALS OF MORECAMBE BAY NHS FOUNDATION TRUST I have audited the financial statements of University Hospitals of Morecambe Bay NHS Foundation Trust for the year ended 31 March 2012 under the National Health Service Act 2006. The financial statements comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Taxpayers Equity, the Statement of Cash Flows and the related notes. These financial statements have been prepared under the accounting policies set out in the Accounting Policies note. This report is made solely to the Council of Governors of University Hospitals of Morecambe Bay NHS Foundation Trust in accordance with paragraph 24(5) of Schedule 7 of the National Health Service Act 2006. My audit work has been undertaken so that I might state to the Council of Governors those matters I am required to state to it in an auditor s report and for no other purpose. To the fullest extent permitted by law, I do not accept or assume responsibility to anyone other than the Foundation Trust as a body, for my audit work, for this report or for the opinions I have formed. Respective responsibilities of the Accounting Officer and auditor As explained more fully in the Statement of Accounting Officer s Responsibilities, the Accounting Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. My responsibility is to audit the financial statements in accordance with applicable law, the Audit Code for NHS Foundation Trusts and International Standards on Auditing (UK and Ireland). Those standards require me to comply with the Auditing Practices Board s Ethical Standards for Auditors. Audit Commission Annual governance report 15

Scope of the audit of the financial statements 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 Trust; and the overall presentation of the financial statements. In addition, I read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my report. Opinion on financial statements In my opinion the financial statements: give a true and fair view of the state of affairs of University Hospitals of Morecambe Bay NHS Foundation Trust s affairs as at 31 March 2012 and of its income and expenditure for the year then ended; and have been properly prepared in accordance with the accounting policies directed by Monitor as being relevant to NHS Foundation Trusts. Opinion on other matters In my 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. Matters on which I report by exception I report to you if, in my opinion the Annual Governance Statement does not reflect compliance with Monitor s requirements. I have nothing to report in this respect. Audit Commission Annual governance report 16

Qualified certificate Under Schedule 10 1(d) of the National Health Service Act 2006 I have a duty to satisfy myself that the Foundation Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. On 11 October 2011 and 6 February 2012 Monitor issued notices of exercise of intervention of powers under section 52 of the National Health Service Act 2006 to the Board of Directors and the Board of Governors of the Trust. These notices stated that Monitor was satisfied that the Foundation Trust had contravened and was failing to comply with the following conditions of its Terms of Authorisation: Condition 2 to exercise its functions 'effectively, efficiently and economically'; Condition 5 its governance duty; and Condition 6 its healthcare targets and other standards duty. Monitor was satisfied that the contraventions and failures were significant under section 52(1) of the Act. As a result of the matters discussed in the two notices issued by Monitor, I am not satisfied that University Hospitals of Morecambe Bay NHS Foundation Trust made proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2012. I certify that I have completed the audit of the accounts of University Hospitals of Morecambe Bay NHS Foundation Trust in accordance with the requirements of the National Health Service Act 2006 and the Audit Code for NHS Foundation Trusts issued by Monitor. Jackie Bellard Officer of the Audit Commission Audit Commission, 2nd Floor Aspinall House, Aspinall Close, Middlebrook, Horwich Bolton, BL6 6QQ May 2012 Audit Commission Annual governance report 17

Appendix 2 Draft letter of management representation 30 May 2012 Jackie Bellard Engagement Lead Audit Commission 2 nd Floor, Aspinall Close Enterprise Park 3 Middlebrook Bolton BL6 6QQ Dear Ms Bellard University Hospitals of Morecambe Bay NHS Foundation Trust - Audit for the year ended 31 March 2012 I confirm to the best of my knowledge and belief, having made appropriate enquiries of other directors of University Hospitals of Morecambe Bay NHS Foundation Trust, the following representations given to you in connection with your audit of the Trust s financial statements for the period ended 31 March 2012. Compliance with the statutory authorities I acknowledge my responsibility under the relevant statutory authorities for preparing the financial statements in accordance with the NHS Foundation Trust Annual Reporting Manual which give a true and fair view of the financial position and financial performance of the Trust, for the completeness of the information provided to you and for making accurate representations to you. Audit Commission Annual governance report 18

Supporting records I have made available all relevant information and access to persons within the Trust for the purpose of your audit. I have properly reflected and recorded in the financial statements all the transactions undertaken by the Trust. Internal control I have communicated to you all deficiencies in internal control of which I am aware and these are documented in the Annual Report and Accounts and the Annual Governance Statement accordingly. Irregularities I acknowledge my responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud or error. I also confirm that I have disclosed: my knowledge of fraud, or suspected fraud, involving either management, employees who have significant roles in internal control or others where fraud could have a material effect on the financial statements; my knowledge of any allegations of fraud, or suspected fraud, affecting the entity s financial statements communicated by employees, former employees, analysts, regulators or others; and the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. Law, regulations, contractual arrangements and codes of practice I have disclosed to you all known instances of non-compliance, or suspected non-compliance with laws, regulations and codes of practice, whose effects should be considered when preparing financial statements. Transactions and events have been carried out in accordance with law, regulation or other authority. The Foundation Trust has complied with all aspects of contractual arrangements that could have a material effect on the financial statements in the event of non-compliance. All known actual or possible litigation and claims, whose effects should be considered when preparing the financial statements, have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework. Accounting estimates including fair values I confirm the reasonableness of the significant assumptions used in making the accounting estimates, including those measured at fair value. Audit Commission Annual governance report 19

Contingent liabilities There are no other contingent liabilities, other than those that have been properly recorded and disclosed in the financial statements. In particular: there is no significant pending or threatened litigation, other than those already disclosed in the financial statements; there are no material commitments or contractual issues, other than those already disclosed in the financial statements; and no financial guarantees have been given to third parties. Related party transactions I confirm that I have disclosed the identity of the Trust s related parties and all the related party relationships and transactions of which I am aware. I have appropriately accounted for and disclosed such relationships and transactions in accordance with the requirements of the Annual Reporting Manual. Subsequent events I have not been required to make any adjustments or disclosures in the financial statements for any relevant events subsequent to the date of the financial statements. Comparative financial statements A restatement was made to the opening position of the Trust to reflect the changed accounting policy for donated assets with effect from 1 April 2010. This had the effect of transferring the balance of 5.009m on the Donated Asset Reserve into Retained Earnings at that point. All subsequent transactions have been accounted for in line with the new accounting policy and the opening position of the Trust at 1 October 2010 has been restated accordingly. The revised balances are shown on the Statement of Financial Position. Audit Commission Annual governance report 20

Signed on behalf of University Hospitals of Morecambe Bay NHS Foundation Trust. Eric Morton Tim Bennett Chief Executive Director of Finance and Information 30 May 2012 30 May 2012 I can confirm that this letter has been discussed and agreed by the Trust Board on 30 May 2012. Chair 30 May 2012 Audit Commission Annual governance report 21

Appendix 3 Glossary Annual Governance Report The auditor s report on matters arising from the audit of the financial statements presented to those charged with governance before the auditor issues their opinion and conclusion. Annual Governance Statement The accounting officer s report on the Trust s systems of internal control that supports the achievement of the Trust s policies aims and objectives. This replaces the Statement on Internal Control which has been produced by the Trust in earlier years. Audit of the accounts The audit of the accounts of an audited body comprises all work carried out an auditor under Monitor s Audit Code to meet their statutory responsibilities under the National Health Service Act 2006. Auditing Practices Board (APB) The body responsible in the UK for issuing auditing standards, ethical standards and associated guidance to auditors. Its objectives are to establish high standards of auditing that meet the developing needs of users of financial information and to ensure public confidence in the auditing process. Auditing standards Pronouncements of the APB, which contain basic principles and essential procedures with which auditors must comply, except where otherwise stated in the auditing standard concerned. Audit Code The Audit Code for NHS Foundation Trusts issued by Monitor. Audit Commission Annual governance report 22

Ethical Standards Pronouncements of the APB that contain basic principles relating to independence, integrity and objectivity that apply to the conduct of audits and with which auditors must comply, except where otherwise stated in the standard concerned. Financial statements The annual accounts that the Trust is required to prepare, which report the financial performance and financial position of the Trust. The financial statements are produced in accordance with the Treasury Financial Reporting Manual as supported by Monitor s Annual Reporting Manual for Foundation Trusts. Internal control The whole system of controls, financial and otherwise, that the Trust establishes to provide reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations. Materiality The APB defines this concept as an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission would reasonably influence the decisions of an addressee of the auditor s report; likewise a misstatement is material if it would have a similar influence. Materiality may also be considered in the context of any individual primary statement within the financial statements or of individual items included in them. Materiality is not capable of general mathematical definition, as it has both qualitative and quantitative aspects. The term materiality applies only to the financial statements. Auditors have responsibilities and duties under the Audit Code, as well as their responsibility to give an opinion on the financial statements, which do not necessarily affect their opinion on the financial statements. Quality Report An annual report about the quality of services provided by the Trust required by the National Health Service Act 2006. Audit Commission Annual governance report 23

Significance The concept of significance applies to these wider responsibilities and auditors adopt a level of significance that may differ from the materiality level applied to their audit of the financial statements. Significance has both qualitative and quantitative aspects. Whole of Government Accounts The Whole of Government Accounts (WGA) initiative is to produce a set of consolidated financial accounts for the entire UK public sector on commercial accounting principles. Monitor consolidates the foundation trust consolidation schedules (FTCs) of individual NHS FTs, which are based on their financial statements, for inclusion in the Department of Health s accounts for use in preparing the WGA. Audit Commission Annual governance report 24

Appendix 4 Action plan Recommendations Recommendation 1 Introduce separate blocks in the revaluation reserve to account for movements in the value of land and movements in the value of external works at each site. Responsibility Priority Jane Stanley Medium Date May 2012 Comments Implemented with effect from 1 April 2012 Recommendation 2 Integrate the staff and Governors declarations processes to ensure completeness on the Related Party Transaction Disclosure note. Responsibility Priority Jane Stanley/Joanne Borthwick Medium Date 31 December 2012 Comments Processes will be aligned to ensure information is available at the appropriate time for completion of the Related Party Transaction note for 2012/13. Audit Commission Annual governance report 25

Recommendations Recommendation 3 Improve the process for collating information for the annual governance statement and ensure arrangements are in place to secure the appropriate assurances throughout the year. Responsibility Priority Jackie Holt High Date 30 September 2012 Comments Will be incorporated into the Trust's review of governance. Recommendation 4 Consider the use of Monitor s Quality Governance Framework to support future Annual Governance Statement disclosures. Responsibility Priority Jackie Holt High Date 30 September 2012 Comments Will be incorporated into the Trust's review of governance. Audit Commission Annual governance report 26

If you require a copy of this document in an alternative format or in a language other than English, please call: 0844 798 7070 Audit Commission 2012. Design and production by the Audit Commission Publishing Team. Image copyright Audit Commission. The Engagement Letter, issued by the Audit Commission, explains the respective responsibilities of auditors and of the audited body. Reports prepared by engagement leads are addressed to governors, members, non-executive directors, directors or officers and are prepared for the sole use of the audited body. Auditors accept no responsibility to: any member, governor, non executive director, director or officer in their individual capacity; or any third party. www.audit-commission.gov.uk May 2012