The Audit Findings for Northern Devon Healthcare NHS Trust ... · the requirements of International Standard on Auditing (UK & Ireland) 260. Under the Audit Commission's Code of Audit

© 2015 Grant Thornton UK LLP | Northern Devon Healthcare NHS Trust Audit Findings Report 2014/15 | June 2015

The Audit Findings

for Northern Devon Healthcare NHS

Trust

Year ended 31 March 2015

Elizabeth Cave

Director

T 0117 975 7885

E [email protected]

Mark Bartlett

Manager

T 0117 305 7896

E [email protected]

Stephen Clarke

Executive

T 0117 305 7884

E [email protected]

2 June 2015

Cover page

© 2015 Grant Thornton UK LLP | Northern Devon Healthcare NHS trust Audit Findings Report 2014/15 | June 2015 2

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Private and Confidential

This Audit Findings report highlights the significant findings arising from the audit for the benefit of those charged with governance, as required by International Standard

on Auditing (UK & Ireland) 260. Its contents have been discussed and agreed with management.

As auditors we are responsible for performing the audit, in accordance with International Standards on Auditing (UK & Ireland), which is directed towards forming and

expressing an opinion on the financial statements that have been prepared by management with the oversight of those charged with governance. The audit of the financial

statements does not relieve management or those charged with governance of their responsibilities for the preparation of the financial statements.

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 primarily 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 any control weaknesses, we will report these to you. In consequence, our work cannot be relied upon to disclose defalcations or

other irregularities, or to include all possible improvements in internal control that a more extensive special examination might identify. 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.

We would like to take this opportunity to record our appreciation for the kind assistance provided by the finance team and other staff during our audit.

Yours faithfully

Elizabeth Cave, Director

Grant Thornton UK LLP

Hartwell House

55 – 61 Victoria Street

Bristol

BS16FT

www.grant-thornton.co.uk

2 June 2015

Dear Sirs

Audit Findings for Northern Devon Healthcare NHS Trust for the year ending 31 March 2015

Northern Devon Healthcare NHS Trust

North Devon District Hospital

Raleigh Park

Barnstaple

EX31 4JB

Guidance note

Red text is generic and should

be updated specifically for your

client.

Once updated, change text

colour back to black.

The disclaimer paragraph

should not be edited or

removed as this is there for

the auditor’s protection and

its absence could possibly

weaken our defence if a

complaint or claim is made.

Letter

© 2015 Grant Thornton UK LLP | Northern Devon Healthcare NHS Trust Audit Findings Report 2014/15 | June 2015 3

Contents

Section Page

1. Executive summary 5

2. Audit findings 8

3. Value for Money 20

4. Fees, non audit services and independence 27

5. Communication of audit matters 29

Appendices

A Action plan

B Audit opinion

Contents


Section 1: Executive summary

01. Executive summary

02. Audit findings

03. Value for Money

04. Fees, non-audit services and independence

05. Communication of audit matters


Executive summary

Executive summary

Overall review of

financial

statements

Purpose of this report

This report highlights the key issues affecting the results of Northern Devon

Healthcare NHS Trust (the Trust) and the preparation of the Trust's financial

statements for the year ended 31 March 2015. It is also used to report our audit

findings to management and those charged with governance in accordance with

the requirements of International Standard on Auditing (UK & Ireland) 260.

Under the Audit Commission's Code of Audit Practice (the Code) we are required

to report whether, in our opinion, the Trust's financial statements present a true

and fair view of the financial position. We are also required to reach a formal

conclusion on whether the Trust has put in place proper arrangements to secure

economy, efficiency and effectiveness in its use of resources (the Value for Money

Conclusion).

Introduction

In the conduct of our audit we have not had to alter or change our audit approach,

which we communicated to you in our Audit Plan dated 14 April 2015.

Our audit is substantially complete although we are finalising our procedures in the

following areas:

• review of the final version of the financial statements and the TRU

summarisation schedules and completion of the WGA testing

• obtaining and reviewing the management letter of representation

• review of revised versions of the Annual Governance Statement and Annual

Report and

• updating our post balance sheet events review, to the date of signing the

opinion

We received draft financial statements and accompanying working papers at the

commencement of our work, in accordance with the national deadline.

Key audit and financial reporting issues

Financial statements opinion

We have not identified adjustments affecting the Trust's retained surplus

position. We have made a number of adjustments to improve the presentation

of the financial statements.

The key messages arising from our audit of the Trust's financial statements are:

• the financial statements were produced to a good standard and were

generally supported by good working papers.

• we encountered difficulties in obtaining responses to some queries,

particularly around healthcare revenues testing in relation to the Trust's main

commissioner. This was due to key finance staff being committed to

competing deadlines, contract negotiations and the arbitration process. We

have commented further on this in the VfM section of the report.

Further details are set out in section two of this report.

We anticipate providing an unqualified audit opinion in respect of the financial

statements (see appendix B).


Executive summary

Overall review of

financial

statements

Value for money (VfM) conclusion

We are pleased to report that, based on our review of the Trust's arrangements to

secure economy, efficiency and effectiveness in its use of resources, we propose to

give an unqualified VfM conclusion.

Further detail of our work on Value for Money is set out in section three of this

report.

Agreement of Balances and Whole of Government Accounts (WGA)

Our audit work has identified the following variances in the NHS agreement of

balances (AoB) process:

• The income shown by the Trust from NEW Devon CCG is £1,631k higher

than the expenditure shown by the CCG

• The debtor balance shown by the Trust is £1,097k higher than the creditor

recognised by the CCG.

The NAO has stated that where significant variances exist they may conduct

further detailed investigation.

Controls

Roles and responsibilities

The Trust's management is responsible for the identification, assessment,

management and monitoring of risk, and for developing, operating and monitoring

the system of internal control.

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 any

control weaknesses, we report these to the Trust.

Findings

We draw your attention in particular to control issues identified with

reconciliations. Several reconciliations between the general ledger and

subsidiary systems have unreconciled differences that the Trust has been unable

to resolve. We have included instances where the unreconciled difference is

below our normal reporting threshold to emphasise that our findings have a

theme that needs addressing by the Trust.

Further details are provided within section 2 of this report.

The way forward

Matters arising from the financial statements audit and review of the Trust's

arrangements for securing economy, efficiency and effectiveness in its use of

resources have been discussed with the Director of Finance.

We have made a number of recommendations, which are set out in the action

plan. Recommendations have been discussed and agreed with the Director of

Finance and the finance team.

Acknowledgement

We would like to take this opportunity to record our appreciation for the

assistance provided by the finance team and other staff during our audit.

Grant Thornton UK LLP

June 2015

Guidance note

The agreement of balances

wording applies to sampled

components only and will need

to be amended as necessary for

non sampled components, or

deleted if there are no issues to

report


Section 2: Audit findings


02. Audit findings

03. Value for Money

04. Fess, non audit services and independence



Audit findings against significant risks

Risks identified in our audit plan Work completed Assurance gained and issues arising

1. Improper revenue recognition

Under ISA (UK&I) 240 there is a presumed risk that

revenue may be misstated due to the improper

recognition of revenue

We have undertaken the following work in relation to

this risk:

review and testing of revenue recognition policies

testing of material revenue streams

review of unusual significant transactions

Our audit work has not identified any issues in respect

of revenue recognition.

2. Management override of controls

Under ISA (UK&I) 240 there is a presumed risk that

the risk of management over-ride of controls is

present in all entities.

Our audit work has not identified any evidence of

management override of controls. In particular the

findings of our review of journal controls and testing

of journal entries has not identified any significant

issues.

We set out later in this section of the report our work

and findings on key accounting estimates and

judgements.


this risk:

review of accounting estimates, judgements and

decisions made by management

testing of journals entries

review of accounting estimates, judgements and

decisions made by management

review of unusual significant transactions

Our audit work has not identified any evidence of

management override of controls. In particular the

findings of our review of journal controls and testing of

journal entries has not identified any significant

issues.

We set out later in this section of the report our work

and findings on key accounting estimates and

judgements.

Audit findings

Significant findings

"Significant risks often relate to significant non-routine transactions and judgmental matters. Non-routine transactions are transactions that are unusual, either due to size

or nature, and that therefore occur infrequently. Judgmental matters may include the development of accounting estimates for which there is significant measurement

uncertainty" (ISA (UK&I) 315).

In this section we detail our response to the significant risks of material misstatement which we identified in the Audit Plan. As we noted in our plan, there are two

presumed significant risks which are applicable to all audits under auditing standards.


Audit findings against other risks

Transaction cycle Description of risk Work completed Assurance gained & issues arising

Healthcare revenues Accounting for contract

arrangements with

commissioning bodies not

consistent with terms

Contractual adjustments

with commissioning bodies

not adequate

We have undertaken the following work in relation to this risk:

Documentation of our understanding of processes and key

controls over the transaction cycle

Walkthrough of the key controls to confirm our understanding

Substantive testing of healthcare revenues including

Review of the agreement of contracts, particularly

with NEW Devon CCG

Review of the agreement of NHS balances

Review of significant contract adjustments

Our audit work has identified that there are the

following mismatches with NEW Devon CCG in the

agreement of balances exercise;

• The income shown by the Trust from NEW

Devon CCG is £1,631k higher than the

expenditure shown by the CCG

• The debtor balance shown by the Trust is

£1,097k higher than the creditor recognised by

the CCG.

The Trust has provided evidence to support its

accrual of £1,097k. The disagreement reflects the

difficulty in agreeing activity and contract outturn

with the CCG. While there is a disagreement there

is doubt over the validity of the income, although it

is not material and would not effect the Trust's

statutory break-even duty.

Employee

remuneration

Employee remuneration and

benefit obligations and

expenses understated

(Remuneration expenses

not correct)

We have undertaken the following work in relation to this risk:

Documentation of our understanding of processes and key

controls over the transaction cycle

Walkthrough of the key controls to confirm our understanding

Substantive testing of employee remuneration including

Analytical procedures over the payroll figures to

ensure that they are reasonable and complete

Agreeing transactions in the ledger to payroll details

such as contracts of employment

Review of the year end reconciliation of the payroll

system to the ledger and financial statements

Our audit work has not identified any significant

issues in relation to the risk identified.

Audit findings


(continued)

In this section we detail our response to the other risks of material misstatement which we identified in the Audit Plan.


Audit findings against other risks

Transaction cycle Description of risk Work completed Assurance gained & issues arising

Operating expenses Creditors understated or not

recorded in the correct period

(Operating expenses

understated)


this risk:

Documentation of our understanding of processes

and key controls over the transaction cycle

Walkthrough of the key controls to confirm our

understanding

Substantive testing of operating expenses

including

Sample testing of expense transactions

and year end adjustments/reconciliations

Testing for unrecorded liabilities by

review of post year end payments and

review of good not received notes at year

end

Review of estimates, judgements and

decisions made by management for

unusual and large amounts

Our audit work identified that there are accruals shown as

outstanding on the system going back a number of years.

one dated from 2005/06. Further work by the Trust has

identified £266k of long outstanding creditors that could

be cleared, but has decided not to amend the accounts

for these. We have included this on the schedule of

unadjusted misstatements and included a

recommendation for regular reviews of long outstanding

accruals.

Audit findings


(continued)

In this section we detail our response to the other risks of material misstatement which we identified in the Audit Plan.


Accounting policies, Estimates & Judgements

Accounting area Summary of policy Comments Assessment

Revenue recognition Revenue in respect of services provided is

recognised when, and to the extent that,

performance occurs, and is measured at

the fair value of the consideration

available. The main source of revenue for

the Trust is from commissioners for

healthcare services.

Where income is received for a specific

activity that is to be delivered in the

following year, that income is deferred.

The accounting policies are appropriate, adequately disclosed

and in accordance with the Manual for Accounts.

Green

Judgements and estimates Key estimates and judgements include:

Useful life of capital equipment

Revaluations

impairments

Provisions

Accruals.

We reviewed the accounting areas where the Trust has exercised

judgement and used estimates. We found that:

• Appropriate policies had been used

• Accounting policies had been adequately disclosed

• Areas where judgement had been used were supported by the

work of an expert or third party where appropriate

Green

Assessment

Marginal accounting policy which could potentially attract attention from regulators Accounting policy appropriate but scope for improved disclosure Accounting policy appropriate and disclosures sufficient

Audit findings


– accounting

policies#

In this section we report on our consideration of accounting policies, in particular revenue recognition policies, and key estimates and judgements made and included

with the Trust's financial statements.


Accounting policies, Estimates & Judgements

Accounting area Summary of policy Comments Assessment

Going concern The Directors have a reasonable expectation

that the services provided by the Trust will

continue for the foreseeable future. For this

reason, they continue to adopt the going

concern basis in preparing the financial

statements.

We have reviewed the Directors' assessment and are satisfied with

management's assessment that the going concern basis is

appropriate for the 2014/15 financial statements.

Green

Other accounting policies The Trust has adopted the standard

accounting policies for the NHS as set out in

the manual for accounts.

We have reviewed the Trust's policies against the requirements of

the Manual for Accounts and do not have any comments to make.

Green

Assessment

Marginal accounting policy which could potentially attract attention from regulators Accounting policy appropriate but scope for improved disclosure Accounting policy appropriate and disclosures sufficient

Audit findings


– accounting

policies#

.


Other communication requirements

Issue Commentary

1. Written representations A letter of representation has been requested from the Trust.

2. Confirmation requests from

third parties

We obtained direct confirmations from the National Audit Office for bank balances and loans.

3. Disclosures Our audit work identified no material omissions in the financial statements

4. Matters in relation to fraud We attend the Audit Committee meetings and we are aware of the reports from the Local Counter Fraud Specialists and the

discussions about fraud risks and the cases being investigated. We have not been made aware of any other incidents in the period

and no other issues have been identified during the course of our audit procedures.

5. Matters in relation to laws and

regulations

We are not aware of any significant incidences of non-compliance with relevant laws and regulations.

6. Matters in relation to related

parties

We are not aware of any related party transactions which have not been disclosed

Audit findings

Other

communication

requirements#

We set out below details of other matters which we, as auditors, are required by auditing standards to communicate to those charged with governance.


Internal controls

The purpose of an audit is to express an opinion on the financial statements.

Our audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. We considered and walked through the internal controls

for Healthcare Revenues, Employee Remuneration and Operating Expenses as set out on pages 9 and 10 above.

The matters that we identified during the course of our audit are set out in the table below. These and other recommendations, together with management responses,

are included in the action plan attached at appendix A.

Assessment Issue and risk Recommendations

1.

Amber

The reconciliation of Non-NHS trade payables-Revenue shows a difference

of £293k, where the amount shown in creditors control is less than the

amount stated in aged creditors due to timing differences.

The aged creditor listing should be run at the same time as

producing the creditor control balances.

2.

Amber

The Trust has been using the ledger balance rather than the available

balance when producing the bank reconciliation. The ledger balance

includes uncleared items and GBS guidance stated that the available

balance figure should be used,

The bank reconciliation should be compiled using the available

balance figure in line with the GBS guidance.

3.

Amber

The reconciliation between the general ledger and the purchase ledger has

a difference of £62k. The difference has not changed since 2013/14. The

Trust states that this is due to historical differences and that it has had

software difficulties in resolving the issue.

• The Trust needs to work with its software supplier to resolve the

difference between the purchase ledger and the general ledger.

4.

Amber

The reconciliation between the manual accruals schedule and the accounts

shows a difference of £224k, with the manual accruals being higher than the

general ledger.

• The Trust should investigate and clear the difference between the

manual accruals schedule and the accounts.

5. Red

The reconciliation between the payroll gross to net figures and the general

ledger shows a difference of £236k, which the Trust have been unable to

resolve due to constraints with the ESR system.

• The Trust must carry out additional work to map where the payroll

figures are being allocated within the general ledger to enable the

systems to be reconciled.

Audit findings

Assessment

Significant deficiency – risk of significant misstatement

Deficiency – risk of inconsequential misstatement

Internal controls

Guidance note

Issue and risk must include a

description of the deficiency and

an explanation of its potential

effect. In explaining the potential

effect it is not necessary to

quantify.



client.



The matters reported here are limited to those deficiencies that we have identified during the course of our audit and that we have concluded are of sufficient

importance to merit being reported to you in accordance with auditing standards.

© 2015 Grant Thornton UK LLP | Audit Findings Report 2014/15 | Date 15

Internal controls – review of issues raised in prior year

Assessment Issue and risk previously communicated Update on actions taken to address the issue

1.

X

In our 2013/14 Audit Findings Report we stated that:

• Our testing of PPE additions found that VAT on one of the

projects of £118k had not been reclaimed when it was

recoverable. Further investigations identified another

project with recoverable VAT that had not been reclaimed.

An estimated £183k of VAT had not been reclaimed.

• The Trust had not been reconciling the monthly report from

HMRC to its records of gross pay and employer NIC

contributions, and could not reconcile the year end payroll

to the P35 equivalent.

Our testing of PPE additions has not identified any instances of unclaimed VAT

The Trust is now reconciling the monthly report from HMRC to its records. However,

the reconciliation between gross to net figures and the general ledger has a difference

of £236k, which has been reported separately under internal controls.

2.

X

X

X

We identified opportunities to improve the IT control

environment regarding:

• Password confidentiality to be included in the next revision

of the Information Security Policy

• Enabling password complexity features on the Integra

application.

• Reviewing the policy over intruder lockout and the policy

covering login failures.

• Implementation of an automated password protected

screensaver timeout feature

• Conducting periodic vulnerability assessments of the

network, including internet security by an independent third

party

The Information Security Policy has not been updated since we raised this issue in

2013/14. The recommendation has been repeated in the action plan at Appendix A.

Although the Trust has reduced the forced password change from 100 to 90 days, best

practice is 60 days and the password settings are still weak with 6 characters and no

forced complexity. We have recommended that the Trust review Integra access

controls in line with best practice.

The policies covering intruder lockout and login failures have been reviewed. This

recommendation has been implemented.

We have not been provided with any evidence to suggest that automatic locking of

computers after a predetermined time has been improved. We have repeated this

recommendation in the action plan at Appendix A.

Periodic vulnerability assessments by an independent third party have now been

implemented.

Audit findings

Assessment

Action completed

X Not yet addressed

Internal controls -

review of issues

raised in prior year

Guidance note



client.




Adjusted misstatements

Audit findings

Guidance note

The table is available in the

‘Audit Findings template’ on the

Mercury tab in Excel.

Tab: Adjusted misstatements

Adjusted

misstatements

Detail Statement of

Comprehensive income

£'000

Statement of

Financial Position

£'000

Impact on

surplus/deficit

£000

1 Accumulated depreciation netted off following revaluation

was disclosed as upward revaluation in the cost and

depreciation sections of note 15.1. This should be separately

disclosed in both sections of the note.

7,481 Nil

2 The audit fees in the draft accounts included amounts not

related to the statutory external audit. This is reported as it is

considered as a sensitive item for our audit.

18 Nil

Overall impact 18 7,481 Nil

A number of adjustments to the draft accounts have been identified during the audit process. We are required to report all non trivial misstatements to those charged

with governance, whether or not the accounts have been adjusted by management. The table below summarises the adjustments arising from the audit which have

been processed by management.

Impact of adjusted misstatements

All adjusted misstatements are set out in detail below along with the impact on the key statements and the reported surplus.


Unadjusted misstatements

Audit findings

Guidance note





Adjusted

misstatements

Detail Statement of

Comprehensive

income £'000

Statement of

Financial Position

£'000

Reason for not adjusting

1 Our testing of creditor accruals identified that there are

accruals going back a number of years, one dated from

2005/06. The Trust carried out a review to establish the

level of long outstanding items which should be cleared but

have not amended the accounts.

266 (266) The amount is not material.

Overall impact 266 (266)

The table below provides details of adjustments identified during the audit but which management has decided not to process in the final set of financial statements.

The Audit Committee is required to approve management's proposed treatment of all items recorded within the table below:


Misclassifications & disclosure changes

Audit findings

Guidance note





Adjusted

misstatements

Adjustment type Value

£'000

Account balance Impact on the financial statements

1 Disclosure N/A Note 15.3 Property,

plant & equipment

The economic lives for some fixed asset types were not consistent with

the lives shown on the TRU forms.

2 Disclosure

N/A General Several amendments have been made to the draft accounts to correct

minor disclosure errors or agreed changes that do not warrant being

individually reported to Those Charged with Governance.

The table below provides details of misclassification and disclosure changes identified during the audit which have been made in the final set of financial statements.


Section 3: Value for Money


02. Audit findings

03. Value for Money

04. Fees, non-audit services and independence



Value for Money

Value for Money

Overall review of

financial

statements

Value for money conclusion

The Code of Audit Practice 2010 (the Code) describes the Trust's responsibilities

to put in place proper arrangements to:

• secure economy, efficiency and effectiveness in its use of resources;

• ensure proper stewardship and governance; and

• review regularly the adequacy and effectiveness of these arrangements.

We are required to give our VFM conclusion based on two criteria specified by the

Audit Commission which support our reporting responsibilities under the Code.

These criteria are:

The Trust has proper arrangements in place for securing financial

resilience.

The Trust has robust systems and processes to manage effectively financial risks

and opportunities, and to secure a stable financial position that enables it to

continue to operate for the foreseeable future.

The Trust has proper arrangements for challenging how it secures

economy, efficiency and effectiveness.

The Trust is prioritising its resources within tighter budgets, for example by

achieving cost reductions and by improving efficiency and productivity.

Key findings

Securing financial resilience

We have undertaken a review which considered the Trust's arrangements against

the three expected characteristics of proper arrangements as defined by the Audit

Commission:

• Financial governance;

• Financial planning; and

• Financial control

Overall our work highlighted that the Trust has adequate plans in place for

delivering its key financial targets, however the trend of increasing reliance on

agency and bank staff continued in 2014/15.

The Trust met its targets in 2014/15, although £1.1m of income is disputed by

NEW Devon CCG, which would impact on the Trust's financial performance if

not resolved in its favour.

The Trust's relationship with its main commissioner, NEW Devon CCG,

continues to be a concern with the 2015/16 budget process being delayed due

to formal arbitration between the parties. The NHS England 5 year forward

view focusses on organisations working together to provide effective healthcare.

This includes commissioners and providers, together with other partners such

as local authorities and the voluntary sector.

The financial challenges facing the Trust cannot be solved by the Trust in

isolation. The Trust, in conjunction with its key stakeholders, needs to

fundamentally review and challenge the services that are required in the health

economy and how these should be delivered within the available financial

envelope.


Value for Money (continued)

Value for Money

Overall review of

financial

statements

The Trust has not formally refreshed its Long Term Financial Model (LTFM) and

Integrated Business Plan (IBP) since 2012/13. This process was underway at the

time of our audit. The Trust needs to ensure that this includes detailed scenario

planning and reporting of the financial impact of the potential loss of the Eastern

Community Contract.

Challenging economy, efficiency and effectiveness

We have reviewed whether the Trust has prioritised its resources to take account

of the tighter constraints it is required to operate within and whether it has

achieved cost reductions and improved productivity and efficiencies.

The Trust delivered its cost improvement plan (CIP) for 2014/15 with only the

Trust's share of the joint community slippage of £850k being delivered non-

recurrently. The Trust has identified £10.9m of its schemes for 2015/16 with plans

well progressed for the balance.

While most of the Trust's performance indicators are positive, the Trust did not

achieve the target for the majority of its national cancer targets.

Overall VFM conclusion

On the basis of our work, and having regard to the guidance on the specified

criteria published by the Audit Commission, we are satisfied that in all significant

respects the Trust put in place proper arrangements to secure economy, efficiency

and effectiveness in its use of resources for the year ending 31 March 2015.

Quality Accounts

Our work in respect of the Trust's Quality Account is still in

progress.

We will provide a separate report on the outcome of our work on

the Quality Account.


Value for Money

Theme Summary findings RAG rating

Key indicators of performance The Trust has delivered a retained surplus of £2.337million in 2015/15. The Trust met its other statutory financial

requirements in terms of capital resource limit and external financing limit.

Its year end financial risk rating is 3 with the Continuity of Service Risk Rating being 4, indicating a robust financial

position at 31 March 2015.

However, the Trust's expenditure on bank and agency staff continued to increase in 2014/15.

Green

Strategic financial planning The Trust has not carried out a full refresh of its LTFM and IBP since 2012/13. A refresh of the LTFM was submitted

to the TDA in June 2014, but this was not formally reviewed by the Board. While assumptions made by the Trust are

generally sound, there has been no detailed scenario planning or reporting of the financial impact of the potential loss

of the Eastern Community contract.

Amber

Financial governance Financial Governance was assessed as a low risk area for our VfM work, so no detailed work was carried out on this

theme.

Green

Financial control The Trust has processes in place to produce timely and reliable budgets that are monitored monthly and reported to

each Board meeting. The CIP programme has proven to be effective in recent years and the plan for 2015/16 is

further progressed than in 2014/15 with £2.3m of £13.2m red rated for delivery but with detailed plans in development

for this gap.

Green

Prioritising resources Prioritising resources was assessed as a low risk area for our VfM work, so no detailed work was carried out on this

theme.

Green

The table below summarises our overall rating for each of the themes reviewed:

Green Adequate arrangements

Amber Adequate arrangements, with areas for development

Red Inadequate arrangements

We set out below our detailed findings against six risk areas which have been used to assess the Trust's performance against the Audit Commission's criteria. We

summarise our assessment of each risk area using a red, amber or green (RAG) rating, based on the following definitions:


Value for Money

Theme Summary findings RAG rating

Improving efficiency & productivity The Trust has had a good record of identifying and delivering savings to achieve its financial plans. The monitoring of

the cost improvement programme provides a risk rating to the delivery of each scheme.

The Trust has joined the NHS benchmarking club which is delivering useful output.

Although most indicators are fairly positive, the Trust did not achieve the target for the majority of its national cancer

targets.

Green

The table below summarises our overall rating for each of the themes reviewed:

Green Adequate arrangements

Amber Adequate arrangements, with areas for development

Red Inadequate arrangements

We set out below our detailed findings against six risk areas which have been used to assess the Trust's performance against the Audit Commission's criteria. We

summarise our assessment of each risk area using a red, amber or green (RAG) rating, based on the following definitions:


Value for Money

Residual risk identified Summary findings RAG rating

Workforce issues The trend for expenditure on agency/bank/temporary workers has continued to increase.

The Trust's expenditure on agency, bank and temporary workers has increased in the last three years:

• 2012/13 - £10.9m (7.4%)

• 2013/14 - £12.8m (8.4%)

• 2014/15 - £15.9m (10.1%)

The Trust developed a Workforce Supply and Demand Action Plan which has actions in the short, medium and long

term to address these issues.

Amber

Focus of the MTFS The Trust hasn't fully updated its IBP and LTFM since 2012/13. However there was a refresh of the LTFM submitted to

TDA on 20 June 2014. The IBP and LTFM are being fully refreshed currently in line with the TDA's timeline for FT

status.

Amber

Adequacy of planning

assumptions

While the Trust's planning assumptions have been generally sound, the key risk currently is the potential loss of the

Eastern Community contract which has a value of circa £50m. Work is on-going to clarify the financial risks of this but

no detailed modelling of the potential impact of alternative scenarios has been done.

Amber

Process for reviewing the MTFS Although a refresh of the LTFM was submitted to the TDA in June 2014, the LTFM has not been formally reviewed by

the Trust.

Amber

Responsiveness of the MTFS A full refresh of the LTFM and the main IBP, with the associated detailed financial modelling, has not been carried out

since 2012/13. The Trust is preparing the full analysis to support a full refresh with downside scenario planning. The

Trust has a meeting with the TDA on 7 July 2015 to review the assumptions within the LTFM.

Amber

CIP Programme Setting and

monitoring

The Trust has a CIP plan of £13.2m for 2015/16, £2.3m of this is red rated for delivery. The Trust has identified potential

schemes to bridge the gap, but these have not yet been finalised.

Amber

Finance department resourcing The Finance team have struggled to get key audit evidence to the audit team on a timely basis. This is partly due to

competing TDA deadlines and the 2015/16 budget arbitration process but may also suggest capacity issues longer term

as the Trust moves forward in its plan to become a Foundation Trust.

Amber

To support our VFM conclusion against the specified criteria we performed a risk assessment against VFM risk indicators specified by the Audit Commission. and

additional indicators identified by ourselves. Following completion of our work we noted the following residual risks to our VFM conclusion:


Value for Money

Residual risk identified Summary findings RAG rating

Effectiveness of key services Performance against national cancer targets has deteriorated in 2014/15 with the majority of target not having been

met. There is evidence that the Trust has taken actions in response to the reports and that performance has improved in

April 2015, with all targets being met.

Amber

Management of natural

resources

There is no evidence that Board reporting considers the Trust's use of natural resources and therefore whether it affects

decision making. The Trust has entered into an Energy Performance Contract in 2014/15 which should lead to greater

consideration of these issues.

Amber

To support our VFM conclusion against the specified criteria we performed a risk assessment against VFM risk indicators specified by the Audit Commission. and

additional indicators identified by ourselves. Following completion of our work we noted the following residual risks to our VFM conclusion:


Section 4: Fees, non audit services and independence


02. Audit findings

03. Value for Money

04. Fees, non audit services and independence



Fees

Per Audit plan

£

Actual fees

£

Trust audit 63,270 63,270

Charitable funds

(Independent examination)

tbc tbc

Total audit fees 63,270 63,270

Fees, non-audit services and independence

We confirm below our final fees charged for the audit and notify you of the proposed fee for the provision of non-audit services.

Independence and ethics

We confirm that there are no significant facts or matters that impact on our independence as auditors

that we are required or wish to draw to your attention. We have complied with the Auditing Practices

Board's Ethical Standards and therefore we confirm that we are independent and are able to express an

objective opinion on the financial statements.

We confirm that we have implemented policies and procedures to meet the requirements of the

Auditing Practices Board's Ethical Standards.

Fees for other services

Service Fees £

The Trust has asked us to undertake external assurance on its Quality

Accounts in 2014/15

10,000

Guidance note

'Fees for other services' is to be

used where we need to

communicate agreed fees in

advance of the audit. At the

time of preparation of the Audit

Plan it is unlikely that full

information as to all fees

charged by GTI network firms

will be available. Disclosure of

these fees, threats to

independence and safeguards

will therefore be included in the

Audit Findings report.



client.



We plan to complete our work on your Quality

Accounts and Charitable Funds by 30 June 2015.

We will advise the Audit Committee of the fees for the

Charitable Funds independent examination.

Fees, non audit services and independence


Section 5: Communication of audit matters


02. Audit findings

03. Value for Money

04. Fees, non audit services and independence



Communication of audit matters to those charged with governance

Our communication plan

Audit

Plan

Audit

Findings

Respective responsibilities of auditor and management/those

charged with governance

Overview of the planned scope and timing of the audit. Form, timing

and expected general content of communications

Views about the qualitative aspects of the entity's accounting and

financial reporting practices, significant matters and issues arising

during the audit and written representations that have been sought

Confirmation of independence and objectivity

A statement that we have complied with relevant ethical

requirements regarding independence, relationships and other

matters which might be thought to bear on independence.

Details of non-audit work performed by Grant Thornton UK LLP and

network firms, together with fees charged

Details of safeguards applied to threats to independence

Material weaknesses in internal control identified during the audit

Identification or suspicion of fraud involving management and/or

others which results in material misstatement of the financial

statements

Compliance with laws and regulations

Expected unmodified auditor's report

Uncorrected misstatements

Significant matters arising in connection with related parties

Significant matters in relation to going concern

International Standards on Auditing ISA (UK&I) 260, as well as other ISAs, prescribe

matters which we are required to communicate with those charged with governance, and

which we set out in the table opposite.

The Audit Plan outlined our audit strategy and plan to deliver the audit, while this Audit

Findings report presents the key issues and other matters arising from the audit, together

with an explanation as to how these have been resolved.

Respective responsibilities

The Audit Findings Report has been prepared in the context of the Statement of

Responsibilities of Auditors and Audited Bodies issued by the Audit Commission

(www.audit-commission.gov.uk).

We have been appointed as the Trust's independent external auditors by the Audit

Commission, the body responsible for appointing external auditors to local public bodies

in England. As external auditors, we have a broad remit covering finance and

governance matters.

Our annual work programme is set in accordance with the Code of Audit Practice ('the

Code') issued by the Audit Commission and includes nationally prescribed and locally

determined work. Our work considers the Trust's key risks when reaching our

conclusions under the Code.

It is the responsibility of the Trust to ensure that proper arrangements are in place for the

conduct of its business, and that public money is safeguarded and properly accounted

for. We have considered how the Trust is fulfilling these responsibilities.

Communication of audit matters

http://www.audit-commission.gov.uk/




Appendices

Appendices


Appendix A: Action plan

Priority Significant deficiency – risk of significant misstatement Deficiency - risk of inconsequential misstatement

Rec

No. Recommendation Priority Management response

Implementation date &

responsibility

1 The Trust should regularly review long

outstanding creditor accruals to ensure

that they remain appropriate.

Deficiency A review of the appropriateness of long outstanding

creditor accruals will be undertaken. The review will be

on-going throughout the financial year.

Commence 1 June 2015

Finish 31 March 2016

Karen Sandwell

Nina Phillips

2 The aged creditor listing should be run at

the same time as producing the creditor

control balances to aid the reconciliation of

Non-NHS trade payables.

Deficiency Year end closure timetable will be updated to ensure

report is run to ensure consistency with the GL.

Actioned and complete.

Karen Sandwell

3 The bank reconciliation should be

compiled using the available balance

figure in line with the GBS guidance.

Deficiency The Trust will continue to reconcile its ledger balance to

the statement balance.

Actioned and complete.

Karen Sandwell

4 The Trust needs to work with its software

supplier to resolve the difference between

the purchase ledger and the general

ledger.

Deficiency Disagree. The issue is over 5 years old and this will sit

as an opening reconciliation difference.

No action required

Karen Sandwell

5 The Trust should investigate and clear the

difference between the manual accruals

schedule and the general ledger.

Deficiency Disagree. The issue is over 5 years old and this will sit

as an opening reconciliation difference

No action required

Karen Sandwell

Appendices




Rec



responsibility

6 The Trust must carry out additional work to

map where the payroll figures are being

allocated within the general ledger to

enable the systems to be reconciled.

Significant

deficiency

HMRC P35 and Gross to net reconciliations were

undertaken monthly by payroll throughout the year.

McKesson are working on a fix to the reconciliation of

RTI submissions.

The issue to be resolved is the tracking of payroll

information through the ESR hub in the GL.

Additional finance resource is now in place will allow the

detailed mapping of data feeds to inform additional

reconciliation.

Consultancy support has been provided to write some

reports to help with the reconciliation. Areas of

difference between the gross to net report have been

identified. A full reconciliation is being undertaken for

2014/15 and will continue on a monthly basis in

2015/16.

Commenced 29 May 2015

Karen Sandwell

7 The Trust should include key user information on the importance of maintaining the confidentiality of passwords within the next revision of the Information Security Policy and consider providing guidance across all applications on the strength of password policies.

Deficiency Noted and will be updated on next Revision

Tony Blake - 31 March 2016

Appendices




Rec



responsibility

8 We recommend that management reviews access controls over the Integra application with consideration given to introducing the following settings in line with best practice: • 8 character • complex • 60 day renewal

Deficiency This has been reviewed and actioned. The password

requirement has been set at 8 characters with a need to

have at least 1 numeric character. It is considered by

management that 90 days follows the policy for such

applications as NHS Mail and therefore will not be

changed.

Action complete.

Tony Blake

9 The Trust should consider implementing an automated password protected screensaver time out feature.

Deficiency Attempt to role out, however considered not acceptable

for clinical areas. So implementation and role out

ceased

N/A - Tony Blake

10 The Trust needs monitor and report on

progress against its Workforce Supply and

Demand Action Plan to ensure that it

addresses the trend of increasing spend

on agency, bank and other temporary

workers.

Deficiency There is an internal assurance process monitoring the

delivery of the action plan.

On-going

Darryn Allcorn

Robert Sainsbury

11 The Trust needs to update its medium term financial strategy (LTFM) as soon as possible. This should include detailed modelling of the potential impact of alternative scenarios around the Eastern Community contract.

Deficiency LTFM work commencing 1 June 2015.

The finance team is meeting with the TDA in July 2015.

On-going review of SLR information based on 2014/15

activities that will inform the impact of the decision on

the Eastern Community Contract.

October 2015

Colin Dart

Appendices




Rec



responsibility

12 The Trust needs to finalise the CIP schemes to bridge the £2.3m gap in the 2015/16 CIP plans.

Deficiency Initial proposals have been submitted to NEW Devon

CCG and will be updated through Finance Committee

and Board

July 2015

Executive Team

13 The Trust should consider whether the Finance team have adequate capacity in key roles to deal with peaks in demand, such as budget setting, contract negotiations, FT preparatory work and external audits.

Deficiency Management believes that the capacity constraint was

the consequence of the delay in issuing the 2015/16

national tariff. Resources are now in place that

supports the LTFM and planning process. This

capacity will need review should Eastern Community

services transfer.

On-going

Colin Dart

14 The Trust must continue to monitor its performance against national cancer targets closely so that it can respond to any deterioration in performance.

Deficiency Action plans in place with operational ownership and

visibility.

On-going

Robert Sainsbury

15 The Trust should produce reports on how it

uses natural resources to enable these

factors to be considered in decision making.

Deficiency An Energy Performance business case has been

approved by the Board and is progressing through

NHS TDA that significantly reduces the Trust’s use of

natural resources. Reporting mechanisms will be

implemented during 2015/16.

On-going

Iain Roy

Appendices




Rec



responsibility

16 The Trust should aim to reach agreement

with its main commissioner on activity and

income for the year in advance of preparing

the accounts.

Significant

deficiency

The lessons learned from 2014/15 will be used to

inform the timely resolution of disputes to reduce the

impact in preparing the 2015/16 accounts.

On-going

Colin Dart

17 The Trust, in conjunction with its key

stakeholders, need to fundamentally review

and challenge the services that are required

in the health economy and how these should

be delivered within the available financial

envelope.

Significant

deficiency

The Trust is engaged with key stakeholders and will

maintain visibility of progress through Board briefings.

On-going

Executive Team

Appendices


Appendix B: Audit opinion

We anticipate we will provide the Trust with an unmodified audit report

Guidance note



client.



Please choose option 1, 2 or 3

and delete the slides that are

not required.

Audit opinion –

option 1

INDEPENDENT AUDITOR'S REPORT TO THE DIRECTORS OF NORTHERN DEVON

HEALTHCARE NHS TRUST

We have audited the financial statements of Northern Devon Healthcare NHS Trust for the year ended 31

March 2015 under the Audit Commission Act 1998. 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. The financial reporting framework that has been

applied in their preparation is applicable law and the accounting policies directed by the Secretary of State

with the consent of the Treasury as relevant to the National Health Service in England.

We have also audited the information in the Remuneration Report that is subject to audit, being:

• the table of salaries and allowances of senior managers and related narrative notes

• the table of pension benefits of senior managers and related narrative notes

• the table of pay multiples and related narrative notes.

This report is made solely to the Board of Directors of Northern Devon Healthcare NHS Trust in

accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph

44 of the Statement of Responsibilities of Auditors and Audited Bodies published by the Audit Commission

in March 2014. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone

other than the Trust's directors and the Trust as a body, for our audit work, for this report, or for the

opinions we have formed.

Respective responsibilities of Directors and auditor

As explained more fully in the Statement of Directors’ Responsibilities in respect of the accounts, the

Directors are responsible for the preparation of the financial statements and for being satisfied that they give

a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in

accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards

also require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

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 directors; and the overall presentation of the financial

statements. In addition, we read all the financial and non-financial information in the annual report which

comprises the Strategic Report, Annual Governance Statement and Remuneration Report, to identify

material inconsistencies with the audited financial statements and to identify any information that is

apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the

course of performing the audit. If we become aware of any apparent material misstatements or

inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the financial position of Northern Devon Healthcare NHS Trust as at 31

March 2015 and of its expenditure and income for the year then ended; and

• have been prepared properly in accordance with the accounting policies directed by the Secretary of

State with the consent of the Treasury as relevant to the National Health Service in England.

Opinion on other matters

In our opinion:

• the part of the Remuneration Report subject to audit has been prepared properly in accordance with the

requirements directed by the Secretary of State with the consent of the Treasury as relevant to the

National Health Service in England; and

• the information given in the annual report for the financial year for which the financial statements are

prepared is consistent with the financial statements.

Appendices


Guidance note



client.



Please choose option 1, 2 or 3

and delete the slides that are

not required.

Audit opinion –

option 1

Matters on which we report by exception

We report to you if:

• in our opinion the governance statement does not reflect compliance with the NHS Trust Development

Authority's Guidance

• we refer the matter to the Secretary of State under section 19 of the Audit Commission Act 1998

because we have reason to believe that the Trust, or an officer of the Trust, is about to make, or has

made, a decision involving unlawful expenditure, or is about to take, or has taken, unlawful action likely

to cause a loss or deficiency; or

• we issue a report in the public interest under section 8 of the Audit Commission Act 1998.

We have nothing to report in these respects.

Conclusion on the Trust’s arrangements for securing economy, efficiency and effectiveness in the

use of resources

Respective responsibilities of the Trust and auditor

The Trust is responsible for putting in place proper arrangements to secure economy, efficiency and

effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly

the adequacy and effectiveness of these arrangements.

We are required under Section 5 of the Audit Commission Act 1998 to satisfy ourselves that the Trust has

made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The

Code of Audit Practice issued by the Audit Commission requires us to report to you our conclusion relating

to proper arrangements, having regard to relevant criteria specified by the Audit Commission in October

2014.

We report if significant matters have come to our attention which prevent us from concluding that the Trust

has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of

resources. We are not required to consider, nor have we considered, whether all aspects of the Trust’s

arrangements for securing economy, efficiency and effectiveness in its use of resources are operating

effectively.

Scope of the review of arrangements for securing economy, efficiency and effectiveness in the use of

resources

We have undertaken our review in accordance with the Code of Audit Practice, having regard to the

guidance on the specified criteria, published by the Audit Commission in October 2014, as to whether the

Trust has proper arrangements for:

• securing financial resilience

• challenging how it secures economy, efficiency and effectiveness.

The Audit Commission has determined these two criteria as those necessary for us to consider under the

Code of Audit Practice in satisfying ourselves whether the Trust put in place proper arrangements for

securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2015.

We planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we

undertook such work as we considered necessary to form a view on whether, in all significant respects, the

Trust had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of

resources.

Conclusion

On the basis of our work, having regard to the guidance on the specified criteria published by the Audit

Commission in October 2014, we are satisfied that in all significant respects Northern Devon Healthcare

NHS Trust put in place proper arrangements to secure economy, efficiency and effectiveness in its use of

resources for the year ending 31 March 2015.

Certificate

We certify that we have completed the audit of the accounts of Northern Devon Healthcare NHS Trust in

accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued

by the Audit Commission.

Elizabeth Cave

for and on behalf of Grant Thornton UK LLP, Appointed Auditor

Grant Thornton

Hartwell House

55-61 Victoria Street

Bristol

BS1 6FT

Appendices


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The Audit Findings for Northern Devon Healthcare NHS Trust ... · the requirements of International Standard on Auditing (UK & Ireland) 260. Under the Audit Commission's Code of Audit