UNIVERSITY COLLEGE LONDON HOSPITALS NHS FOUNDATION TRUST AUDIT COMMITTEE ANNUAL REPORT 2011/2012 UCL Hospitals is an NHS Foundation Trust comprising: The Eastman Dental Hospital, The Heart Hospital, Hospital for Tropical Diseases, National Hospital for Neurology and Neurosurgery, Royal London Hospital for Integrated Medicine, Royal National Throat, Nose and Ear Hospital and University College Hospital (incorporating the former Middlesex and Elizabeth Garrett Anderson Hospitals, and the University College Hospital Macmillan Cancer Centre).
UNIVERSITY COLLEGE LONDON HOSPITALS NHS FOUNDATION TRUST AUDIT COMMITTEE ANNUAL REPORT 1. Introduction This Annual Report summarises the activities of the Trust s Audit Committee (the Committee) for the financial year 2011/2012 setting out how it has met its terms of reference and key priorities. The Committee is a formal Committee of the Board of Directors (the Board). It follows best practice guidance as set out in the NHS Audit Committee Handbook (March 2011) providing a form of independent check upon the management of the Trust. 2. Membership and Meetings The Committee comprises four non-executive directors with executive support. The Governing Body appoints the Committee Chair; it appointed Richard Delbridge as the new Chair in July 2011 to take over from Sir Nicholas Monck who stood down in February 2012. Membership of the Committee changed during the year and following the appointment of an additional non-executive director to the Board, the number of members increased from three to four. Brief CVs of members are attached at Appendix A. Current members are: Richard Delbridge, Member, September 2011, Chair, February 2012 Dr Sue Atkinson, Member, April 2011 Dr Diana Walford, Member, December 2011 Dr Harry Bush, Member, February 2012 Former members are: Sir Nicholas Monck, Chair, April 2011 January 2012 Professor Sir John Tooke, Member, April 2011 to August 2011 Both the new and previous Chairs have significant financial experience. Professor Tooke, Dr Walford and Dr Atkinson have clinical backgrounds. In addition to the members, the following Trust Officers attend on a regular basis: Finance Director; Deputy Chief Executive; Deputy Finance Director; Director of Corporate Services and the Chief Accountant who services the Committee. The Chief Executive and the Trust Chairman attend at least annually and other directors and senior managers attend by invitation. The Trust s Internal and External Auditors attend all meetings to report on the matters they have investigated, to advise on a range of risk and control issues, and to formally report on the financial statements. Audit Committee Annual Report 2011/12 Page 2
The Board approves the Committee s terms of reference bi-annually. The version attached as Appendix B was updated in March 2012 to reflect changes in both the membership and quorum. The Committee will review the terms of reference again in July 2012 and seek Board approval for any proposed changes. Through its terms of reference, the Committee is responsible on behalf of the Board for independently reviewing the systems of governance, control, risk management and assurance. Its activities cover the whole of the Trust s governance agenda. It will review (in summary): The internal financial control environment including accuracy of financial information; The Board Assurance Framework (BAF) and risk register, and the quality of evidence for assurance provided by management and audit; Processes relating to compliance with regulation, and Policies relating to fraud and corruption, including the Code of Conduct Policy. The Committee met on seven occasions during 2011/12, this was in accordance with its timetable. It also met on two occasions in 2012 to discuss the draft Annual Accounts and other documents related to the 2011/12 year. A schedule of attendance is included in the table below. Sir Nicholas Monck chaired the Committee for six of the meetings. The minutes of each meeting, once confirmed, were presented to the following Board and a report to the Board was made from the Chair highlighting key issues from each meeting. Table 1: AC Members attendance information Members Sue Atkinson Harry Bush 19 April 25 May 28 July 29 Sept 10 Nov 26 Jan 29 March 19 April 24 May x Richard Delbridge Nicholas Monck John Tooke x x Diana Walford 3. Governance arrangements The Board has four other Committees: Finance and Contracting; Human Resources and Communications; Investment; and Quality and Safety (QSC), all of which have a monitoring and oversight role. At least one member of the Audit UCLH NHS Foundation Trust Page 3
Committee is familiar with the work of these other committees. This broad coverage strengthens the Committee, particularly when it considers clinical governance and clinical risk issues. The Committee and the Board rely on the QSC to provide assurance to the Board on areas of clinical governance. 4. Work and achievements of the Committee The Committee meets its responsibilities through requesting assurances from management and by receiving reports from the internal auditors, the external auditors and other specialists and advisers. During the year, the Committee gave attention to the following issues. 4.1 Internal Processes Risk Management The Trust s top 10 objectives are the basis of the Board Assurance Framework (BAF) and delivery is monitored in a quarterly performance report to the Board. The executive oversight of risk is the responsibility of the Risk Co-ordination Board (RCB). The Committee discussed the BAF report from the RCB four times during the year alongside a quarterly risk report which outlined the Trust s key risks. This enabled it to keep the effectiveness and integrity of the Trust s risk management processes under review and to monitor the progress being made to manage risks to the delivery of the top 10 objectives. In year, the Committee asked the RCB to consider separating strategic from operational risks in its reporting, and asked the Executive Board to give an opinion on the adequacy of the action to mitigate risks. These were considered useful improvements in the governance process. Clinical Audit In 2010, the Committee reviewed the clinical audit process and recommendations were made to improve engagement from Divisions. In year, it undertook a follow up review. It received two reports on clinical audit, a report from the executive lead and a summary report from Internal Audit. It was satisfied that improvements had been made in this area of work. There was better scrutiny of clinical audit at divisional level and greater participation in national and locally mandated audits. The Committee was particularly pleased to note that clinical audits directly related to the delivery of quality priorities were referenced in the Quality Account 2011/12. The Committee identified further areas for development in this work and will focus its attention on clinical audit in the coming year. Regulatory documents and other matters The Committee received regular standing items and ad hoc reports on governance arrangements throughout the year.. These included a review of the Standing Financial Instructions and Scheme of Delegation and changes to the Trust s Code of Conduct and Conflict of Interest Policy required because of the new Bribery Act 2010. The Committee asked management to consider its suggestion that if advice was given to members of staff in relation to the acceptance or refusal of gifts and hospitality it should be recorded; this was incorporated in the revised Code. Audit Committee Annual Report 2011/12 Page 4
The Committee considered an Expenses Policy and a report on the effectiveness of the Trust s Whistleblowing (Raising Concerns and Freedom of Speech) Policy. It challenged management to demonstrate how these policies provided assurance in fraud prevention and in the adequacy of processes for managing concerns raised by staff. Policy compliance will form part of the internal audit plan for the coming year. The Committee also received reports dealing with the write-off of aged debts, losses and special payments and reports reviewing waivers from competition for procurement. It requested revisions to the waiver reports to enable it to track and monitor volume and value in the future. Evaluation of the Committee The Committee undertook a review based on the Self Assessment Checklist in the Audit Handbook. It considered that it could provide assurance to the Board that it functioned well. There were some areas for improvement and next year, as referred to previously, it will review how greater assurance can be obtained from the work of clinical audit. It will also place more emphasis on the development of Committee members. 4.2 Independent Assurance Internal Audit RSM Tenon has provided the internal audit service for 4 years. In this year, the internal audit service was market tested and RSM Tenon s contract was extended for a further year. The Committee received regular progress reports from internal audit on the delivery of the annual audit plan. The plan tests compliance with the delivery of the Trust s top 10 corporate objectives. In year, the Committee made changes to the plan directing the auditors activity towards risk areas it had identified. It received 32 detailed assurance reports (including eight advisory reports) across a full range of internal control systems. Reports included an assurance opinion and a management action plan signed and accepted by the responsible director, an Executive Director of the Trust. Appendix C sets out the opinion provided in each of the reports. If an audit was assigned an amber/red or red opinion, the responsible director attended the Committee to present the recommendation in the management plan; the Committee subsequently followed up actions. One report, a report on control over contractual arrangements, received the lowest assurance opinion. Internal Audit presented its Annual Report on the work for the year at the 24 May 2012 meeting. The report included the Head of Internal Audit (HOIA) opinion, which was one of significant assurance. There was nothing the HOIA required be included within the Annual Governance Statement. Members of the Committee met with RSM Tenon in private and reviewed its work. It considered that they were providing a good service and that the internal audit plan provided assurance that the risks to the Trust of not meeting its objectives were being properly managed. UCLH NHS Foundation Trust Page 5
External Audit and review of financial statements The Governing Body appointed the Trust s auditors, Deloitte LLP, at a meeting in March 2011. Deloitte LLP was appointed to provide the external audit service on a three-year contract commencing with the 2011/12 Accounts, which may be extended for up to 24 months thereafter at the option of the Trust. The role of external audit is to review and report on the Trust s financial statements and to report on whether the Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The Committee received quarterly progress reports and briefings throughout the year. Reports highlighted changes to accounting policy (specifically the accounting treatment of donated assets), as well as recommendations for improvements in internal controls and the management response on how the recommendations would be implemented. It received the unaudited draft financial statements at its April meeting. These had been prepared in accordance with IFRS. Deloitte LLP completed a full and thorough audit of the Trust s accounts for 2011/12, and provided an unqualified opinion at the 24 May 2012 meeting. Committee members held a private meeting with Deloitte LLP. This provided the auditors the opportunity to raise any issues or concerns relating to the performance of management. The Chair also met informally with the auditors during the year. The Committee will assess the auditors work in July 2012 to ensure that the work is of a sufficiently high standard and fees are reasonable. Early indications are that the deliverables have been met. The Committee agreed that the quarterly closure process has helped with this. Counter Fraud Parkhill Counter Fraud Services has provided the Local Counter Fraud Service (LCFS) since 2001. During the year, the Trust received Level 4 (the highest level) in the NHS Protect assessment for the quality of its counter fraud arrangements. This score demonstrates that the Trust has good arrangements in place for tackling fraud and that it is concentrating on the seven principles of counter fraud strategy as required by NHS policy directives. Reasonable steps have been taken to address counter fraud and during the year the LCFS spent time creating an anti-fraud culture. This was achieved through contributing to the review of the Trust s mandatory induction programme, a review of fraud policy, and raising awareness through regular fraud alerts. All suspected frauds identified during the year were fully investigated and appropriate action taken to recover funds. The Committee reviewed the LCFS Annual Report at its 24 May 2012 meeting. In March 2012, the Trust tendered for a LCFS provider and awarded its contract to RSM Tenon, its internal audit service provider, for a period of three years. The Committee plans to monitor the counter fraud approach more frequently in the coming year. Audit Committee Annual Report 2011/12 Page 6
5. Annual Report and Quality Account Documentation Annual Governance Statement (AGS) The internal auditors performed a range of audits during the year which supported the HOIA Opinion on the effectiveness of the Trust s internal control. The Committee reviewed the draft HOIA Opinion and the draft Annual Governance Statement (previously the Statement on Internal Control) at its April meeting. Supported by internal assurance evidence, and a report on the terms of authorisation, the AGS was considered consistent with the HOIA s view on internal control. The Committee supported the AGS s inclusion in the Annual Accounts. Annual Report and Quality Account The Committee reviewed the adequacy of the risk and control related statements included in the two annual documents at its meetings in March, April and May 2012 prior to endorsement by the Board. Specifically at the 24 May meeting, it reviewed the outcome of the independent review of the quality account by the external auditors. 6. Priorities for 2012/13 The following priorities have been identified for 2012/13, the Committee will aim to assure the Board that it will: Focus on the non-financial areas which comprise the Board Assurance Framework whilst maintaining scrutiny on finance Review the risk management process in particular risk maturity Secure greater assurance from the work of clinical audit Review the processes that relate to counter fraud Review the adequacy and/or implementation of various policies including the Code of Conduct and Conflict of Interest Policy The Committee will also keep under review its working arrangements and ensure it continues to develop its own practice to improve its own effectiveness. 7. Conclusion The Committee is of the view that it has taken appropriate steps to perform its duties as delegated by the Board and it has had no cause to raise any issues of significant concern with the Board arising from its work during 2011/12. In making this statement, it acknowledges the support given to it by management, in particular the Finance Director and Deputy Chief Executive, and by the internal and external auditors The Board is asked to endorse the Annual Report of the Audit Committee. Richard Delbridge Chair, Audit Committee June 2012 UCLH NHS Foundation Trust Page 7
Appendix A Brief CVs of Audit Committee Members Dr Sue Atkinson CBE joined the Board as non-executive director in April 2007 and has been a member of the Audit Committee since 2008. She is chair of the HR and Communications Committee and a member of the Quality and Safety Committee. Sue has more than 30 years experience as a public health doctor and is a Board member of the Food Standards Agency. Dr Harry Bush CB joined the Board and the Audit Committee in February 2012. He has extensive senior management experience at HM Treasury and in the economic regulation of the aviation industry. He was most recently a member of the Civil Aviation Authority Board. Harry is a member the Investment Committee. Richard Delbridge has been a non-executive director of the Trust since July 2010. He joined the Audit Committee in September 2011 and became Chair of the Committee in February 2012. He is Chair of the Investment Committee and a member of the Finance and Contracting Committee and was previously a member of the Quality and Safety Committee. He has had more than 40 years experience working in finance and banking and served on the Financial Reporting Council's Committee for Guidance on Audit Committees. Sir Nicholas Monck was a non-executive director of the Trust and Chair of the Audit Committee from February 2005 to February 2012. Nick Monck was also the Vice-Chairman of the Board. He is a former civil servant and served as Second Permanent Secretary at HM Treasury and as Permanent Secretary of the Employment Department Group. He was a member of the Finance and Contracting, and Investment Committees. He is President and Member of the Council of Management of the National Institute of Economic and Social Research. Professor Sir John Tooke joined the Board as non-executive director in February 2010. He was a member of the Audit Committee from February 2010 to August 2011. He is Vice Provost (Health) at UCL and has more than 25 years clinical experience. He is the chair of the Trust s Quality and Safety Committee. Dr Diana Walford CBE joined the Board and the Audit Committee in December 2011. She is a former civil servant and served the NHS as Deputy Chief Medical Officer for England and was Director of the Public Health Laboratory Service. She is a qualified haematologist and epidemiologist. Most recently, she was the Principal of Mansfield College, Oxford University. Diana is a member of the Finance and Contracting Committee. Audit Committee Annual Report 2011/12 Page 8
Appendix B AUDIT COMMITTEE Terms of Reference 1. Objectives 1.1 Governance, Risk Management and Internal Control The Committee shall review the establishment and maintenance of an effective system of integrated governance, internal control and risk management, across the whole of the organisation s activities (both clinical and non-clinical) that supports the achievement of the organisation s objectives. In particular, the Committee will review: The policies and processes for preparing the Assurance Framework including review of the quality of the evidence for assurance provided by Internal and External Audit, management and other sources. All risk and control related disclosure statements (in particular the Statement on Internal Control and declarations of compliance with the Standards for Better Health), together with any accompanying Head of Internal Audit statement, external audit opinion or other appropriate independent assurances, prior to endorsement by the Board. The underlying assurance processes that indicate the degree of achievement of the corporate objectives, the effectiveness of the management of principal risks (including risk review procedures and reports) and the appropriateness of the above disclosure statements. The findings of other significant assurance functions, both internal and external to the organisation, and consider the implications for the governance of the organisation. This will include a review of the work of other committees, including the Quality & Safety Committee, and the work on risk of the Risk Co-ordination Board or Executive Board which can provide relevant assurance. The policies and processes for ensuring that there is compliance with the Terms of Authorisation agreed with Monitor, and other relevant regulatory, legal and code of conduct requirements. The operational effectiveness of financial policies, systems and services and the financial control environment throughout the Trust, including compliance with Standing Orders and Standing Financial Instructions. The policies and procedures for all work related to fraud and corruption as set out in Secretary of State Directions and as required by the Directorate of Counter Fraud Services, and the operation of Trust policies for Freedom of Speech ( whistle blowing ). P1/4 UCLH NHS Foundation Trust Page 9
1.2 Financial Reporting Review the Annual Report and Financial Statements before submission to the Board, focusing particularly on: The wording in the Statement on Internal Control and other disclosures and other disclosures relevant to the terms of reference of the Committee. Changes in, and compliance with, accounting policies and practices. Unadjusted mis-statements in the financial statements. Major judgmental areas. Significant adjustments resulting from the audit. The Committee should also ensure that the systems for financial reporting to the Board, including those of budgetary control, are subject to review as to completeness and accuracy of the Information provided to the Board. 1.3 Internal Audit The Committee will: Review and approve the internal audit strategy, operational plan, and programme of work, ensuring that this is consistent with the audit needs of the organisation as identified in the Assurance Framework. Annually assess and review the performance of internal audit to ensure that an effective service is provided. Consider the major findings of internal audit investigations and management s response, and ensure co-ordination between the Internal and External Auditors. Ensure that Internal Audit function is adequately resourced and has appropriate standing within the organisation. 1.4 External Audit P2/4 The Committee will: Make recommendations to the Governing Body in relation to the appointment, reappointment, and removal of the external auditor and approve the remuneration and terms of engagement of the external auditor. Discuss with the External Auditor, before the audit commences, the nature and scope of the audit, and ensure co-ordination, as appropriate, with other External Auditors in the local health economy; Review all External Audit reports, including agreement of the annual audit letter before submission to the Board, and any work carried outside the annual audit plan, together with the appropriateness of management responses. Annually assess the Auditor s work, performance, and fees to ensure work is of a sufficiently high standard and the fees are reasonable. Review the Auditor s Audit Committee Annual Report 2011/12 Page 10
independence and objectivity and effectiveness taking into account relevant UK professional and regulatory requirements. Develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm. 2. Membership The Committee will comprise not less than four Non-executive members of the Board of Directors which will include the Chair of the Audit Committee. The Governing Body will appoint the Chair of the Audit Committee. A quorum shall be three members. 3. Attendance The Finance Director with appropriate finance management support, Corporate Medical Director, Deputy Chief Executive, Director of Corporate Services, Head of Internal Audit and a representative of the External Auditors shall normally attend meetings. The Chief Executive shall be invited to attend, at least annually, to discuss with the Audit Committee the process for assurance that supports the Statement on Internal Control. The Corporate Medical Director shall be invited to attend, at least annually, to discuss the process of assurance relevant to the work of the Quality and Safety Directorate. Other Executive Directors or managers may be invited to attend as necessary. However, at least once a year the Committee may wish to meet with the External and Internal Auditors without any Executive Board members present. 4. Frequency Meetings shall be held not less than three times a year, and probably about five times a year. The External Auditor or Head of Internal Audit may request a meeting if they consider that one is necessary. 5. Authority The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. The Committee is authorised by the Board to obtain outside legal or other professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. 6. Reporting The minutes of the Audit Committee meetings shall be formally recorded and submitted to the Board. A report shall be made following each Audit Committee meeting to the next Board meeting on issues which need to be considered by the Board. The report to the Board will identify any matters in respect of which the Audit Committee recommends that a report be made to the Governing Body and shall give details of the action or improvement that is needed and the Audit Committee s recommendations. P3/4 UCLH NHS Foundation Trust Page 11
The Chair of the Audit Committee will make a report to the Governing Body every six months, and an annual report will made to the Board on the work of the Audit Committee in support of its objectives. 7. Summary of Regular Reports to the Audit Committee Each meeting: Twice a year: Update report from External Auditor Report from Local Counter Fraud Service Update report from Head of Internal Audit Review of Financial Control Update report from Finance Director Review of Risk Management across the Trust Standards for Better Health Note of business of other committees Annually: External Audit plan for next year Internal Audit plan for next year Counter Fraud plan for next year Final Accounts and SAS610 Assurance Framework Terms of Authorisation Annual Governance Statement (previously Statement on Internal Control) Head of Internal Audit s opinion on internal controls & Annual Report External Auditor s audit opinion, audit certificate and findings from the audit Review of External Auditor s work and fees Counter Fraud Annual Report Review of governance aspects not covered above TO BE REVIEWED No later than MARCH 2014 P4/4 Audit Committee Annual Report 2011/12 Page 12
Appendix C Audit Undertaken Date Issued Assurance Opinion 1 Comprehensive Biomedical Research 03/06/11 Advisory Review 2 CRB Checks 29/06/11 Green 3 Logica Benchmarking Process Review 08/07/11 Green / Amber 4 Five Digit Renumbering Project 12/08/11 Green 5 CQC Registration Quarter 1 13/09/11 Advisory 6 CQC Registration Quarter 2 13/09/11 Advisory 7 Patient Appointments 21/09/11 Amber / Red 8 NHNN Site Visit 18/01/12 Amber / Red 9 Contractor Payments 12/01/12 Red 10 Health & Safety (Physical Assault 02/11/11 Amber / Red against staff) 11 Patient Trips and Falls 02/11/11 Green / Amber 12 Cancer (62 day target) 18/11/11 Green 13 Accounts Payable 12/01/12 Green / Amber 14 Pharmacy Site Visit 09/01/12 Green / Amber 15 Quality & Efficiency Programme 02/03/12 Green / Amber 16 Payroll/ESR 12/01/12 Green / Amber 17 General Ledger 11/01/12 Green 18 Budgetary Control & Financial Reporting 20/03/12 Green / Amber (Pay Budgets) 19 CQC Registration Quarter 3 17/01/12 Advisory 20 IT Audit Network Resilience 15/02/12 Green / Amber 21 Medicines Adherence (Patient 16/03/12 Advisory Questionnaire Analysis) 22 Fixed Assets Register 16/03/12 Green / Amber 23 Treasury Management and Cash 20/03/12 Green Receipt & Banking 24 Site Visits Estates and Facilities 30/03/12 Green 25 Clinical Audit Follow Up 17/03/12 Good Progress 26 Accounts Receivable 28/03/12 Green / Amber 27 Payroll Top-Up Testing 21/03/12 Advisory 28 CQC Registration Quarter 4 16/03/12 Advisory 29 Assurance Stocktake 23/04/12 Advisory 30 Information Governance: IG Toolkit 03/04/12 Green 31 Quality Accounts Complaints 11/05/12 Green / Amber 32 Compliance with key policies and procedures HR Assurance 14/05/12 Green / Amber Key: Green - Substantial Assurance Green/Amber - Reasonable Assurance Amber/Red - Some Assurance Red - Cannot take Assurance UCLH NHS Foundation Trust Page 13