Annual Audit Letter Year ending 31 March 2018 NHS West Lancashire CCG 22 June 2018
Contents Section Page 1. Executive summary 3 2. Audit of the accounts 4 3. Value for Money arrangements 7 Your key Grant Thornton team members are: Appendices A. Reports issued and audit fees Andrew Smith Engagement Director T: 0161 953 6900 E: andrew.j.smith@uk.gt.com Tommy Rooney Engagement Manager T: 0161 214 6359 E: tommy.o.rooney@uk.gt.com Pamela Swallowe In Charge Auditor T: 0161 953 6910 E: pamela.s.swallowe@uk.gt.com The contents of this report relate only to those matters which came to our attention during the conduct of our normal audit procedures which are designed for the purpose of expressing our opinion on the financial statements. Our audit is not designed to test all internal controls or identify all areas of control weakness. However, where, as part of our testing, we identify control weaknesses, we will report these to you. In consequence, our work cannot be relied upon to disclose all defalcations or other irregularities, or to include all possible improvements in internal control that a more extensive special examination might identify. This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent. We do not accept any responsibility for any loss occasioned to any third party acting, or refraining from acting on the basis of the content of this report, as this report was not prepared for, nor intended for, any other purpose. Grant Thornton UK LLP is a limited liability partnership registered in England and Wales: No.OC307742. Registered office: 30 Finsbury Square, London, EC2A 1AG. A list of members is available from our registered office. Grant Thornton UK LLP is authorised and regulated by the Financial Conduct Authority. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another s acts or omissions. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 2
Executive summary Purpose Our Annual Audit Letter (letter) summarises the key findings arising from the work that we have carried out at NHS West Lancashire Clinical Commissioning Group (the CCG) for the year ended 31 March 2018. This letter is intended to provide a commentary on the results of our work to the CCG and external stakeholders, and to highlight issues that we wish to draw to the attention of the public. In preparing this Letter, we have followed the National Audit Office (NAO)'s Code of Audit Practice and Auditor Guidance Note (AGN) 07 'Auditor Reporting'. We reported the detailed findings from our audit work to the CCG's Audit Committee as those charged with governance in our Audit Findings Report on 22 May 2018. Respective responsibilities We have carried out our audit in accordance with the NAO's Code of Audit Practice, which reflects the requirements of the Local Audit and Accountability Act 2014 (the Act). Our key responsibilities are to: give an opinion on the CCG's financial statements and regularity assertion (section two) assess the CCG's arrangements for securing economy, efficiency and effectiveness in its use of resources (the value for money conclusion) (section three). In our audit of the CCG's financial statements, we comply with International Standards on Auditing (UK) (ISAs) and other guidance issued by the NAO. Our work Materiality We determined materiality for the audit of the CCG's accounts to be 3.28 million, which is 2% of the CCG's gross revenue expenditure. Financial Statements opinion We gave an unqualified opinion on the CCG's financial statements on 26 May 2018. NHS Group consolidation template (WGA) Use of statutory powers Value for Money arrangements Certificate As well as an opinion on the financial statements, we are required to give a regularity opinion on whether expenditure has been incurred 'as intended by Parliament'. Failure to meet statutory financial targets automatically results in a qualified regularity opinion. Based on our review of the CCG's expenditure we gave an unqualified regularity opinion. We also reported on the consistency of the accounts consolidation template provided to NHS England with the audited financial statements. We concluded that these were consistent. We did not identify any matters which required us to exercise our statutory powers. We were satisfied that the CCG put in place proper arrangements to ensure economy, efficiency and effectiveness in its use of resources. We reflected this in our audit report to the members of the Governing Body on 26 May 2018. We certify that we have completed the audit of the accounts of the CCG in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 3
Audit of the accounts Materiality In our audit of the CCG's financial statements, we use the concept of materiality to determine the nature, timing and extent of our work, and in evaluating the results of our work. We define materiality as the size of the misstatement in the financial statements that would lead a reasonably knowledgeable person to change or influence their economic decisions. We determined materiality for the audit of the CCG's accounts to be 3.28 million, which is 2% of the CCG's gross revenue expenditure. We used this benchmark as, in our view, users of the CCG's financial statements are most interested in where the CCG has spent its allocation in the year. We also set a lower level of specific materiality for the disclosures of senior manager remuneration of 2% of the total executive and non-executive director s remuneration. We set a lower threshold of 164,000, above which we reported errors to the Audit Committee in our Audit Findings Report. The scope of our audit Our audit involves obtaining enough evidence about the amounts and disclosures in the financial statements to give sufficient assurance that they are free from material misstatement, whether caused by fraud or error. This includes assessing whether: the accounting policies are appropriate, have been consistently applied and are adequately disclosed; the significant accounting estimates made by management are reasonable; and the overall presentation of the financial statements gives a true and fair view. We also read the remainder of the Annual Report to check it is consistent with our understanding of the CCG and with the accounts included in the Annual Report on which we gave our opinion. We carry out our audit in accordance with ISAs (UK) and the NAO Code of Audit Practice. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach was based on a thorough understanding of the CCG's business and is risk based. We identified key risks and set out overleaf the work we performed in response to these risks and the results of this work. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 4
Audit of the accounts Significant audit risks These are the significant risks which had the greatest impact on our overall strategy and where we focused more of our work. Risks identified in our audit plan How we responded to the risk Findings and conclusions Operating expenses purchase of secondary healthcare A significant percentage of the CCG s expenditure is on contracts for healthcare with NHS providers and non-nhs providers, such as operations and hospital care. This expenditure is recognised when the activity has been performed, with accruals raised at the year-end for completed activity for which an invoice has not been issued. We identified the accuracy and occurrence of contract variations as a risk requiring special audit consideration. As part of our audit work we have: gained an understanding of the financial reporting processes used for the purchase of secondary healthcare and evaluated the design of the associated controls confirmed that the main contracts have been signed and confirmed the annual amounts at interim audit, substantively tested secondary healthcare costs to month 9, sample tested payments to contracts and variations to supporting correspondence and other appropriate evidence at year-end, completed further substantive testing and analytical procedures in respect of secondary healthcare costs in months 10 to 12 reviewed the DH mismatch report to identify and review any unmatched items above the NAO threshold ( 300k) Our audit work has not identified any issues in respect of operating expenses purchase of secondary healthcare. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 5
Audit of the accounts Significant audit risks These are the significant risks which had the greatest impact on our overall strategy and where we focused more of our work. Risks identified in our audit plan How we responded to the risk Findings and conclusions Primary Care Co-Commissioning From 1 st April 2017 the CCG assumed full delegated responsibility general practice (GP) services receiving an addition allocation of 13.7m. Given the newness of these arrangements we consider there to be a risk of material misstatement and the potential for irregular expenditure given the inherent conflict of interest issues involved. Management override of internal controls Under ISA (UK) 240 there is a non-rebuttable presumed risk that the risk of management over-ride of controls is present in all entities. The CCG faces pressure to meet external targets, and this could potentially place management under undue pressure in terms of how they report performance. We identified management override of controls as a risk requiring special audit consideration. As part of our audit work we have: documented and reviewed the operating effectiveness of the CCG's controls to ensure that the monthly expenditure is correct gained an understanding of the CCG's assessment of where control lies and the resultant expected accounting entries to be made by the CCG obtained an understanding of the CCG's arrangements to manage conflicts of interest in relation to GP commissioned services, including the potential impact for related party transaction disclosures tested the accounting entries made in respect of the cocommissioning to check they are consistent with our understanding of the arrangement and that transactions and balances recorded are consistent with those recorded by counterparty organisations reviewed the service auditor's report on relevant controls operated for the Exeter/NHAIS system. As part of our audit work we have: gained an understanding of the accounting estimates, judgements applied and decisions made by management and considered their reasonableness obtained a full listing of journal entries, identified and tested unusual journal entries for appropriateness evaluated the rationale for any changes in accounting policies or significant unusual transactions. Our audit work has not identified any issues in respect of primary care co-commissioning. Our audit work has not identified any issues in respect of management override of controls. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 6
Audit of the accounts Audit opinion We gave an unqualified opinion on the CCG's financial statements on 26 May 2018, in advance of the national deadline. As well as an opinion on the financial statements, we are required to give a regularity opinion on whether expenditure has been incurred 'as intended by Parliament'. Failure to meet statutory financial targets automatically results in a qualified regularity opinion. Based on our review of the CCG's expenditure we gave an unqualified regularity opinion. Preparation of the accounts The CCG presented us with draft accounts in accordance before the national deadline, and provided a good set of working papers to support them. The finance team responded promptly and efficiently to our queries during the course of the audit. Issues arising from the audit of the accounts We reported the key issues from our audit to the CCG's Audit Committee on 22 May 2018. Annual Report, including the Governance Statement We are also required to review the CCG's Annual Report and the Governance Statement included within the Annual Report. It provided these on a timely basis with the draft accounts with supporting evidence. No inconsistencies or significant issues were identified. As a result, no matters were reported in our opinion in respect of the annual report and the governance statement. Whole of Government Accounts (WGA) We issued a group return to the National Audit Office in respect of Whole of Government Accounts, which did not identify any issues for the group auditor to consider. Certificate of closure of the audit We are also required to certify that we have completed the audit of the accounts of the CCG in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice. We certified on 26 May 2018 that we had completed the 2017/18 audit of the accounts of the CCG. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 7
Value for Money arrangements Background We carried out our review in accordance with the NAO Code of Audit Practice, following the guidance issued by the NAO in November 2017 which specified the criterion for auditors to evaluate: In all significant respects, the audited body takes properly informed decisions and deploys resources to achieve planned and sustainable outcomes for taxpayers and local people. Overall Value for Money conclusion We are satisfied that in all significant respects the CCG put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2018. Key findings Our first step in carrying out our work was to perform a risk assessment and identify the key risks where we concentrated our work. The key risks we identified and the work we performed are set out overleaf. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 8
Value for Money arrangements Significant Value for Money risks Risks identified in our audit plan How we responded to the risk Findings and conclusions Financial outturn and sustainability During the year, the CCG was forecasting a year end surplus of 2.997m in line with its targets, but had identified risks which may reduce the surplus achieved by 1m. This was largely due to under delivery against QIPP schemes and acute services and prescribing costs being higher than originally forecast. As part of our audit we reviewed: the CCG's arrangements for managing financial risks, including reporting to the Governing Body, delivery of QIPP savings, and arrangements for putting together and agreeing its budget and medium term financial plan for 2018/19. We found that: The financial position and forecast are reported in the Integrated Business Report (IBR) to each meeting of the Governing Body. These provide summary information on the current financial position and forecasts to year end. Risks to achievement of the surplus target were reported in the IBR to the Governing Body, with the key risks being under delivery against QIPP targets, acute services over performance and prescribing overspend. A Project Management Office (PMO) was also established to enhance oversight and governance over QIPP. There was also continuing refresh of QIPP assumptions and monitoring by the Senior Management Team (SMT) using weekly reports from the PMO software system. The 2018/19 financial plan was prepared by the CFO and his team, using the model provided by NHSE, and in consultation with other executives and staff. It took into account NHSE guidance and includes appropriate assumptions for changes in tariff, inflation and pay movement and took account of healthcare contract outturn forecasts at the time to estimate 2018/19 requirements. The financial plan for 2018/19 was agreed with NHSE and approved by the Governing Body in March 2018. The CCG is planning to deliver its statutory financial duties in 2018/19, including an in-year break even position. The plan includes a 0.847m contingency reserve to cover financial risks associated with over-spending. However, the plan identifies financial risks totalling 2.4m, around 1.6m more than the contingency. The risks include over activity in acute services and under-delivery of QIPP schemes. Should the contingency be fully deployed and other risks crystallise, the CCG will need to identify additional efficiency and savings measures to address them. Conclusion We concluded that the CCG had appropriate arrangements in place during 2017/18 for setting, monitoring and managing its financial plans. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 9
Value for Money arrangements Significant Value for Money risks Risks identified in our audit plan How we responded to the risk Findings and conclusions Community services and urgent care The CCG appointed Virgin Care to provide community health and urgent care services from 1 May 2017, with the aim of developing and enhancing community and local walk-in and out of hours services, to help prevent avoidable acute hospital attendances. As part of our audit we reviewed: the CCG s arrangements for monitoring the performance of the new provider to ensure the CCG s expectations for the transformation of the services are met. We found that: An appropriate governance structure has been put in place to oversee and report on the provider s performance and progress in delivering transformation in collaboration with the CCG. A Transition and Transformation Board (TTB) is in place and meets approximately monthly to oversee delivery of the services and monitor the performance of the provider and quality of services. This is a commissioner and provider group which provides a forum to allow for regular, detailed discussions between both parties regarding the transformation of services and performance and contract issues. The TTB reports to the CCG Executive Committee, which is a commissioner only group and the Executive Committee reports onto the CCG Governing Body. The TTB is supported by 3 sub-groups which have their own terms of reference. All three sub-groups include representatives from the CCG and the provider. Each presents a brief highlights report to the TTB outlining key issues and risks for escalation, and actions for the TTB to take or decisions to make. Progress and issues have also been reported to the CCG Governing Body in the Chief Officer s Update reports, including issues and progress in delivering transformation over the planned five year period, for which there is a particular focus on the first two years. Contract monitoring arrangements and an Outcomes Framework are in place and periodic stock takes are undertaken to evaluate performance and progress. The Outcomes Framework is the payment mechanism for the contract setting out milestones for year 1 to year 5. Service Delivery and Quality Improvement Plans are also in place setting out actions, milestones, expected benefit and consequence of achievement or breaches over the period of the contract. Conclusion We concluded that the CCG had appropriate arrangements in place during 2017/18 for monitoring the performance of Virgin Care to provide assurance that the CCG s expectations for the transformation of the service are being met. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 10
Appendix A: Reports issued and fees Reports issued We confirm in the table below our final reports issued. Report Date issued Audit Plan 29 January 2018 Audit Findings Report 21 May 2018 Annual Audit Letter 22 June 2018 Audit fees We confirm in the table below the fees charged for the audit. Working with the CCG During the year we have delivered a number of successful outcomes with you: An efficient audit we delivered an efficient audit with you in May, delivering the accounts before the deadline, releasing your finance team for other work. Understanding your operational health through the value for money conclusion we provided you with assurance on your operational effectiveness. Sharing our insight we provided regular audit committee updates covering best practice. We also shared our thought leadership reports Providing training we provided your teams with training on financial accounts and annual reporting We would like to record our appreciation for the assistance and co-operation provided to us during our audit by the CCG's staff. Planned Actual fees 2016/17 fees Statutory audit 38,000 38,000 45,000 Non-audit fees There were no fees for the provision of non audit services. 2018 Grant Thornton UK LLP Annual Audit Letter June 2018 11
2018 Grant Thornton UK LLP. All rights reserved. Grant Thornton refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another s acts or omissions. grantthornton.co.uk 2018 Grant Thornton UK LLP Annual Audit Letter June 2018