annual report and accounts 2003/4

Annual Report and Accounts

2003/4

Your contacts for further information: About the Final Accounts: Tracey Purvis, Chief Accountant Tel: 023 8079 8994 Email: [email protected] About general Trust matters: Peter Campion, Head of Communications Tel: 023 8079 4853 Email: [email protected]

______________________________________________________________ Annual Report and Accounts 2003/4 Page 1

SOUTHAMPTON UNIVERSITY HOSPITALS NHS TRUST

ANNUAL REPORT AND ACCOUNTS 2003/04

CONTENTS Section 1 Chairman’s review of the year

Page 2

Section 2 Finance Director’s Report

Page 5

Section 3 Performance Summary 2003/2004

Page 7

Section 4 Financial Summary 2003/2004

Page 11

Section 5 Statutory Reporting Requirements

Page 17

Section 6 Accounts for the Year Ended 31 March 2004

Page 24

Section 7 Notes to the Accounts

Page 40

Section 8 Charitable Fund Accounts for the Year Ended 31 March 2004

Page 61


Section 1: Chairman’s Review of the year As a University Hospital, the Trust has three main tasks: to deliver a high standard of patient care; to train, in conjunction with the University of Southampton, doctors, nurses and other professions allied to medicine; and to undertake research. In this overview, I concentrate particularly on the first of those and how our year might look from our patients’ point of view. I am glad to be able to tell you that we have had very positive feedback from many of them. Patients want shorter waiting times for treatment. We delivered: by 31 March 2004 no-one referred to our services by their GP waited more than 17 weeks for a first non-urgent outpatient appointment, and no-one needing non-urgent inpatient admission waited more than nine months. Patients want clean hospitals. We delivered: recent figures from the National Audit Office show that our MRSA rate is one of the lowest for any large specialist hospital. We also scored highly in recent assessments by independent inspectors from the Patient Environment Action Team, with our Emergency Department scoring the highest possible rating. Patients want more say in the running of their health service. We delivered: every clinical directorate now has someone to actively encourage patient & public involvement, and the Trust has a Patients Forum established as part of national arrangements. Public involvement is also a key aspect of becoming an NHS Foundation Trust, which I discuss in more detail later in this report. Patients also want modern hospital facilities, and we continued to deliver and develop them.

• We officially opened the £20 million first phase of our new oncology centre at Southampton General Hospital. Government cancer tsar Mike Richards performed the opening.

• Building work started on a new North Block at the General Hospital. This £54 million scheme will house a major expansion of our cardiac service.

• New endoscopy suites opened at the Royal South Hants Hospital - the first phase of a major Treatment Centre being developed jointly with Winchester & Eastleigh Healthcare NHS Trust.

• A new Respiratory Centre opened at the General Hospital. By offering immediate treatment, advice and care to people with long term respiratory illness it reduces the need for hospital admission.

• Orthopaedic outpatient services moved to bigger and better accommodation at the Royal South Hants Hospital, bringing a welcome improvement in the standards of privacy we can provide for these patients.

• We agreed to spend £1 million on replacement angiography equipment for the Wessex Neurosciences centre, £1.5 million on replacement kit for our Radiology Directorate, and £1.7 million to upgrade the General Hospital's lifts.

Patients from the Channel Islands and the Isle of Wight benefited from the opening of The Manor House, a residential hostel for people attending our oncology centre for radiotherapy treatment. Future generations of medical students will benefit from £3 million invested by the University of Southampton in expanded medical school facilities at the General Hospital. Of course any hospital is only as good as its staff. Ours are very good indeed, and I am delighted to acknowledge publicly the debt we owe them.


I was particularly pleased when our superintendent neuro-physiotherapist Lorraine Clapham won a highly prestigious "outstanding achiever" award in the national Health & Social Care Awards 2003, and was also delighted to present achievement awards to forty staff in our local version of the ceremony. As an organisation we continued to invest in our staff and improve their working life. During the year we:

• opened a third day nursery in partnership with Southampton City Primary Care Trust, Hampshire Partnership Trust and others.

• transferred staff residential accommodation from the tired blocks at the General Hospital to a new development much nearer the city centre.

• worked with local housing associations and others to help lower-paid staff get a foot on the expensive local housing ladder.

• invested substantially in extra staff and changed working practices to meet Government targets for reducing the hours worked by junior doctors.

One of the most noticeable staffing changes during the year was the departure of David Moss, our chief executive, after 16 years in Southampton. He led the work to win NHS Trust status in 1993 and had been its first and only chief executive ever since. On behalf of the Board - and indeed the whole organisation - I want to thank David for his enormous contribution to health services in Southampton, and wish him well in his new role as National Programme Director for NHS pay modernisation. For part of the year David led preparations for SUHT to become an NHS Foundation Trust (NHSFT). This new type of organisation is still part of the NHS, providing NHS services to patients, but with community ownership and local management in place of central controls. We were delighted when thousands of local people applied to become Members of our NHSFT. It was a marvellous demonstration of the commitment people have to the NHS locally and bodes very well for our future. We withdrew our application to become an NHSFT in 2004 when our financial problems led to us moving from the top 3 star performance ranking to a 2 star rating, but we plan to restart the process once we and the local health community have achieved financial stability. This is not something that SUHT or any other organisation can do on its own; the health care system is far too complex. It will require considerable effort across a number of inter-related partnerships, and we have worked hard in the past twelve months to create the right climate for change. I believe there is now much greater understanding between organisations of our different but complementary roles in making this complex system work. We are working more closely with NHS colleagues in Primary Care Trusts and our neighbouring acute Trusts; with Local Authorities, particularly their oversight and scrutiny committees; and with other statutory and voluntary bodies on local strategic partnerships. It is only by developing these relationships that we can continue to deliver good quality services that meet local needs and are affordable. The issue of affordability has been very real for us during the past year. We ended the 2003/04 financial year with a £5 million deficit - the first deficit of any real consequence we have ever had. This deficit is what knocked us off our top 3 star spot – we achieved all the other eight key performance targets. Achieving financial balance again is the single most important issue facing our Trust and every other NHS organisation locally, and we simply must find a way to resolve it. This will have to underlie the Board’s work during 2004/5 but, even so, we are


determined not to allow that to affect the standard of care we give to those who need our services. I hope this brief summary of 2003/4 demonstrates that we are still moving forward, despite our financial pressures. We are continuing to develop and deliver health services that meet local needs, satisfy our patients expectations and fulfil the promises made in the NHS Plan. I am proud of what the Trust has been able to deliver in the past 12 months, and prouder still of the staff who delivered it. I look forward to being able to report further success in another 12 months' time. Richard Keightley Chairman


Section 2: Finance Director’s Report Financially 2003/4 was a difficult year, for the first time in eleven years the Trust did not meet its main financial duties. Financial Performance The key features of our overall financial performance were:

��We had a deficit of £5.4m on Income and Expenditure ��We achieved a financial return on assets of 3.6% against a target of 3.5% ��Our external financing requirement was £22,977against our External Financing Limit of

£22,979, this provides funding for capital expenditure and to finance the deficit on Income and Expenditure.

��We were just £256k above our capital Resource Limit of £23,558k, which was invested in facilities and equipment

��We paid a £7,344k dividend charge to the Treasury. ��Management costs were at a similar level to last year at 3.4% of income. ��We made £5.8m of cost savings through our Cost Reduction Programme.

Financial Control The Trust has maintained sound financial control and corporate governance during the year by:

��Having a reliable system of financial management. ��Operating robust budgetary control systems ��Providing a sound internal control system including Internal Audit and an Audit

Committee that ensures our probity standards are in accordance with best Corporate Governance practice

��Meeting the Controls Assurance Core Standards on Risk Management, Corporate Governance and Financial Control

��Maintaining Standing Orders and Standing Financial Instructions that set out the accountability of employees, Directors and the Trust Board

Capital Investment The 2003/04 capital and maintenance programme totalled £32.5m.

• Major items of expenditure were the Cardiac Expansion Project, the Treatment Centre and expansion of the University Medical School.

• The main area of expenditure in 2004/5 will be the Cardiac Expansion Project. Other major areas of planned investment are the Theatre Sterile Supplies Unit (TSSU) configuration and further development of the Treatment Centre.

• There continues to be a limited amount of capital available for the large Backlog Maintenance Programme, which is currently estimated at £25m. Expenditure on the programme was £3m in 2003/4.


Structural Issues and the Underlying Financial Position As with the previous year, cost pressures and service developments in the local NHS continue to exceed available income, requiring the Trust to develop and implement major in year cost reduction programmes.

��Our current underlying deficit is £9m which has been balanced year on year through a number of one off financial measures.

�� The deficit of £5.4m in 2003/4 reflects that over the years it has become more difficult to deliver the incremental cost reductions and efficiency improvements necessary to achieve financial balance.

�� The Trust Financial Recovery and Service Modernisation Plan aims to achieve recurring financial balance through a robust cost reduction programme and the maximisation of income generation opportunities.

The challenge now is to address the underlying financial position whilst continuing to provide more and better services.

Ben Lloyd Director of Finance July 2004


Section 3: Performance Summary 2002/03 The Healthcare Commission published the 2003/2004 NHS Performance Ratings for all NHS trust in England in July 2004. The Ratings summarise a Trust’s performance against a set of published indicators and highlights areas in which the Trust has achieved high standards of performance, as well as identifying areas where performance has not been so good. The Ratings provide a system for assessing NHS performance in a rounded way. The balanced scorecard for acute trusts highlights 44 indicators across four areas of performance that are of interest to both patients and the public:

�� Key Targets – the most significant areas of performance �� Clinical Focus �� Patient Focus �� Capacity and Capability Focus

We are pleased to have been awarded Two Stars, achieving eight of the nine key targets and in the top band of performance for two of the three the Focus areas. This means that the Trust is considered to have performed well overall but lost a start because of its financial difficulties. There are a number of indicators within the Performance Ratings where the Trust’s performance is monitored against the current national average. This method is used to measure the Trust’s progress towards achieving ongoing and continuous improvements in the delivery of services to patients and to monitor progress in specific priority areas (such as access to services). A summary of the Trust’s performance in the Ratings can be found in the table overleaf. More information on the NHS Performance Ratings, indicators, targets and rationale can be found at www.ratings2004.healthcarecommission.org.uk


Key Performance Indicators

Target 2003/2004 Target

2003/2004 Actual

NHS Performance Rating Result

Access to Healthcare Emergency Care *Number of patients waiting more than 12 hours for admission via A&E 0 0 �

*Percentage of patients admitted, discharged or transferred from A&E within 4 hours or arrival 90% 93% �

**Percentage of patients admitted to hospital via A&E within 4 hours of decision to admit 93%¹ 88% 2

Elective Care – Outpatients *Number of outpatients waiting longer than the standard 0 0 �

**Percentage of outpatients seen within 13 weeks of a GP written referral 80%¹ 75% 2

*Percentage of patients seen within two weeks of urgent GP referral for suspected cancer to outpatient appointment with a specialist

100% 99% �

*Outpatient and elective (inpatient and day case) booking

67% 67%

67% 76% �

Elective Care – Inpatient/Day Cases *Number of inpatients waiting longer than the standard for elective admission 0 0 �

**Percentage of patients waiting less than 6 months for an elective inpatient admission 91%¹ 87% 2

**Percentage of patients newly diagnosed with breast cancer waiting more than one month from diagnosis to treatment

99%¹ 97% 3

**Percentage of patients treated within two months of urgent GP referral for suspected cancer

99%¹ 98% 3

**Percentage of patients waiting longer than the standard for revascularisation 0.01%¹ 0% 5

Percentage booking of day cases 97%¹ 79% 1 Patient / Carer Experience of NHS Healthcare **Percentage of written complaints for which a local resolution was completed within 4 weeks 72%¹ 68% 3

*Hospital cleanliness 3.0 3.6 �

**Better hospital food 88%¹ 91% 4

**Percentage of elective operations cancelled by the hospital at the last minute for non-medical reasons

1.2%¹ 1.8% 2

**Percentage of patients whose discharge from hospital was delayed 3%¹ 5.1% 2

**Adult inpatient and young patient survey – access and waiting - - 3


**Adult inpatient and young patient survey – better information, more choice - - 3

**Adult inpatient and young patient survey – building closer relationships - - 3

**Adult inpatient and young patient survey – clean, comfortable, friendly place to be - - 3

**Adult inpatient and young patient survey – safe, high quality, co-ordinated care - - 3

Efficiency *End of year financial position - (1.67%) X HES & workforce datasets: data quality on ethnic groups 1.53¹ 1.60 3

**Information governance 1.59¹ 1.69 4 Staff *Continued implementation of the Improving Working Lives standard - - �

**Junior doctors’ hours (compliance with the new deal on junior doctors’ hours) 89%¹ 89% 3

Staff opinion survey: health, safety and incidents 2.48¹ 2.45 3

Staff opinion survey: human resource management 2.69¹ 2.77 3

Staff opinion survey: staff attitudes 3.41¹ 3.45 3

**Consultant appraisal 97%¹ 98% 3


Clinical Indicators Target 2003/2004

Actual 2003/2004

NHS Performance Rating Score

**Clinical negligence – level of compliance against Clinical Negligence Scheme for Trusts risk management standards

1¹ 1 3

**Emergency readmission to hospital within 28 days of discharge (adults) 8.71¹ 9.14 3

**Emergency readmission to hospital following treatment for a fractured hip 9.48¹ 7.64 3

**Child protection 92%¹ 87% 3 **Indicator on stroke care 37%¹ 34% 3 **Deaths following selected non-elective surgical procedures - - 3

**Deaths following a heart bypass operation - - 3 **Infection control 86.9¹ 92.7 4 **Thrombolysis treatment time (percentage of eligible patients receiving thrombolysis within 30 minutes of hospital arrival)

81%¹ 79% 5

**Clinical governance composite indicator 10¹ 10 3

**Infection control 86.9%¹ 92.7% 3

**Composite participation in audits 18¹ 18 5

**Winning Ways – processes and procedures 4¹ 4 4

Key

* NHS Performance Ratings Key Target ** NHS Performance Ratings Focus Area ¹ Current National Average NHS Performance Rating Score Key Targets Achieved � Under-achieved - Significantly under-achieved X Focus Areas Significantly poorer than average 1 Poorer than average 2 Average 3 Better than average 4 Significantly better than average 5


Section 4: Financial Summary 2002/03 ________________________________________________________________________________ 4.1. Financial Targets

NHS Trusts are required to meet a number of financial targets set by the Department of Health, these are shown below together with the Trusts performance for 2003/04. Financial target Trust performance Break-even on Income and Expenditure The Trust did not meet its break-even

target. The Trust’s retained deficit for 2003/04 was £5,418k, which resulted in a cumulative deficit of £5,054k.

Capital Cost Absorption rate – the Trust is required to absorb the cost of capital at a rate of 3.5% of average net assets.

The Trusts absorption rate was 3.6%, which is within the acceptable range of 3.0%-4.0%.

Achieving the External Financing Limit (EFL)

The Trust had an external financing requirement of £22,979k against a limit of £22,977k.

Staying within the Capital Resource Limit (CRL)

The Trust overspent by £256k against a limit of £23,558k. The overspend was due to a late adjustment, that moved expenditure from revenue to capital.

This is a disappointing performance as it is the first time in the Trusts history where it has failed to meet all of its financial duties, however it does reflect the significant financial pressure being experienced by the Trust.

Key financial targets Performance against financial duties over the past six years is shown below:

Financial Targets

1998/9

1999/0

2000/1

2001/2

2002/3

2003/4

Income & Expenditure £’000 surplus /(deficit)

34

239

24

(50)

160

(5,418)

Financial Target Rate of Return %

6.2

6.3

6.2

6.6

7.1

3.6*

External Financing Limit £’000 borrowing/ (repayment)

(1,520)

(963)

(45)

9663

10,211

22,979

Capital Resource Limit £’000

-

-

-

23,480

24,339

23,558

*There was a change in the cost of capital absorbtion rate in 2003/4 from 6% to 3.5%.


4.2 Income Income has increased by £24m (8%) year on year, this is due to:

�� £9m increase in staff costs due to Pay awards (£6m), additional National

Insurance (£1m) and Junior Doctors pay (£2m) �� Investment of £3m in service developments �� new Nice drugs, £3m • Additional activity of £6m • Non pay inflation of £3m

4.3 Income from Commissioners

• With the creation of Primary Care Trusts in recent years, 75% of the Trusts income now comes from PCT’s.

• Education and Research includes the Service Increment for Teaching

(undergraduate medical education), postgraduate medical education and postgraduate nursing.

Income (£ millions)

216239

271300

324

0

50

100

150

200

250

300

350

1999/00 2000/01 2001/02 2002/03 2003/04

INCOME BY COMMISSIONER £325M

89.20

44.20 44.20

32.60 30.00 29.90

14.9010.60 9.10 6.00 3.70 3.50 3.30 3.00 0.50

Southam

pton C

ity P

CT

New Fo

rest

PCT

Traini

ng and E

ducat

ionOth

er

Other

PCTs

Eastle

igh T

VS PCT

Other

Clin

ical C

ontra

cts

Fareh

am an

d Gosp

ort PCT

Mid H

ampsh

ire P

CT

Isle o

f Wig

ht PCT

Private

patie

nts

East H

ampsh

ire P

CT

Portsmouth

City

PCT

North H

ampsh

ire P

CT

Blackw

ater

Vall

ey P

CT


4.4 Expenditure by Directorate

The organisation is divided into thirteen Clinical Directorates plus six Headquarters’ Directorates, which are grouped into Planning, (covering all of the non clinical support services including hotel services, estates, supplies, etc) Finance, Corporate Information, Human Resources, Clinical Development and the Chief Executive’s Office. Most clinical Directorates overspent in the year, this was largely as a result of above target activity levels, high agency costs and unfound savings.

4.5 Expenditure by Type

The main types of expenditure were staff, Clinical Supplies and Services, and Capital Charges. a) Staff Costs

Staff are the Trust’s most important resource and the largest expenditure item. The staffing spend this year of £206.2m (62.4%) represents an increase of £22.7m (12.4%) on 2002/03. The main areas of staffing are nursing (£71m), medical (£64m), scientific, therapeutic and technical staff (£25m), administration and clerical (£16m), ancillary, maintenance and other staff (£8m), management (£13m) and agency staff (£9m).

EXPENDITURE BY DIRECTORATE £M

0.9

5.3

11.6

12.5

13.9

14.1

14.2

17.1

17.1

17.7

18.7

19.2

21.6

24.1

30.9

31.2

Audiology

Opthamology

Radiology

Clinical Support

Child Health

Cancer Care

Neurology

Obstetrics & Gynaecology

Surgery

Pathology

Trauma & Orthopaedics

Headquarters

Planning

Cardiothoracic

Medicine & Elderly Care

Critical Care


b) Clinical Supplies and Services

Clinical supplies and services includes medical and surgical supplies and drugs. Increases in clinical activity, new NICE drugs, richer case mix and single use items resulted in increased expenditure on drugs and medical and surgical supplies expenditure to £52.2m, which is a 10.2% increase on 2002/03.

c) Dividends and Depreciation

Depreciation (which represents a charge for the use of assets) was £14.1m in 2003/4 compared to £12.2m in 2002/03. The year on year increase is due to asset additions. Dividend payments of £7.3m were made to the Government on the Trust’s Public Dividend Capital.

4.6 Management Costs

The Trust’s management costs were £10,904k. Management costs include all senior managers in the Trust and administrative and clerical staff at Headquarters. The costs increased from 3.3% of income in 2002/03 to 3.4% of income in 2003/04. Further details of management costs are given in note 5.4 to the accounts.

Management Costs (% of turnover)

3.8 3.6 3.5 3.3 3.4

0.0

5.5

1999/00 2000/01 2001/02 2002/03 2003/04

EXPENDITURE BY TYPE £M

0.9

2.5

4.1

4.9

5.5

5.6

7.3

7.4

8.6

10.8

14.2

52.2

206.2

Directors Costs

Transport

Services f rom NHS Trusts

Establishment

Services from NHS Bodies

Other

Dividends

Services from the Private Sector

General Supplies and Services

Premises

Depreciat ion

Clincial Supplies and Services

Staf f Costs


4.7 Investing in Assets The Trust continues to manage a significant capital programme, with expenditure in 2003/04 totalling £26.1m. The main areas of expenditure were

• Cardiac Expansion - £4.2m • Treatment Centre - £2.6m • Cellular Pathology £2.1m • Orthopaedics - £1.9m • Cancer Care relocation - £1.7m

Investment on major maintenance decreased to £2.8m in 2003/04. This is due to a review of major maintenance expenditure which resulted in the classification of more expenditure as capital than in previous years and a continuation of the trend seen in recent years, where increasing financial pressures have resulted in the reduction in expenditure on major maintenance.

CAPITAL INVESTMENT £M

18.015.6

4.3 4.8 3.8 3.4 2.8

27.2 28.126.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1999/00 2000/01 2001/02 2002/03 2003/04

£M

Capital Expenditure

Major Maintenance

4.8 Cash Management

The External Financing Limit (EFL) is a control on borrowing for capital purposes. Capital expenditure is funded through:

• Internal finance – depreciation and Income and Expenditure surplus (before

dividends • External finance – borrowing the balance of funds from the Department of

Health The Trusts EFL was £22,977k with the external financing requirement totalling £22,979k. This year the EFL was used to fund not only the capital spend but also the underlying cash deficit.


SOURCE AND APPLICATION OF FUNDS £M

18.015.6

27.2 28.126.1

19.015.6

17.5 17.9 18.6

1.0 0.0

9.7 10.2

23.0

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

Capital Expenditure Internal Sources External Sources (EFL), -New Loans, +Loans Repaid

4.9 Better Payment Practice Code Payments to suppliers within 30 days increased to 81% by value in 2003/04 against 65% in the previous year and the target of 95%. The in year increase was due to improved cash management, but further actions are necessary to bring the Trust in line with the target of 95%. Further details of compliance with the CBI prompt payment code are given in note 6 to the accounts.

Public Sector Payment Policy

88.1 89.491.7 90.7 86.9

69.781.175.9

65.4

87.1

1999/00 2000/01 2001/02 2002/03 2003/04

% by value % by volume


Section 5: Statutory Reporting Requirements ___________________________________________________________________________ 5.1 Background and organisational structure

Our Trust was established on 1 April 1993. We manage Southampton General Hospital, Princess Anne Hospital, the Royal South Hants Hospital and Countess Mountbatten House. Our management structure comprises a Chief Executive and Chief Executive’s Office, 6 corporate directorates and 13 clinical directorates.

5.2 Trust aims & objectives: We aim to:

• give patients the best possible care • work with our partners to provide the right services, in the right place and at the

right time • support and invest in research and education

We will succeed by satisfying our patients, valuing our colleagues, valuing our partners, leading by example and achieving best performance.

5.3 Names of Board members

Richard Keightley, Chairman Janice Viveash (nee Holmes Sept 03 non executive director) Juliet Davies (non executive director) Andrew Willis (non executive director) Andrew Rutherford (non executive director) Roger Fawcett (non executive director until Aug 03) Keith Bamber (non executive director) Hilary Fender (non executive director from Jan 04)

David Moss, Chief Executive (DoH secondment from Sept 03) Katherine Fenton, Director of Nursing (until Jan 04) Nigel Saunders, Medical Director Kevin Flynn, Director of Planning & Modernisation Ben Lloyd Director of Finance Andrew Liles, Deputy Chief Executive Simon Jupp Director of Operations (from Sept 03) Alison Rayner, Director of Human Resources Kay Riley, Acting Director of Nursing (Jan 04 – 30 Mar 04) Judy Gillow, Director of Nursing (from 31 Mar 04)

5.4 Details of relevant interests held by directors

• Keith Bamber: non-Executive Director of Brendon Nursing Trust Ltd • Dr Juliet Davies: member of Ethics Committee, The Cromwell Hospital; married

to Dr N. Davies, Critical Care, SUHT • Mrs Judy Gillow: Trustee of Naomi House Hospice (Voluntary position) • Richard Keightley: President, Dorset County Royal British Legion; President,

Dorset Relate; Member, St.John Council for Dorset; Member, Holton Lee County Committee

• David Moss: member of the Audit Commission; Chair of UK University Hospitals Forum

• Andrew Rutherford: Law Professor, University of Southampton; member of Parole Board for England & Wales

• Janice Viveash: Appeal Director, Rose Road Association (retired 30 June 2003)


• Andrew Willis: co-opted member of Council of the Conservative Medical Society;

Life Member of the League of Friends of Lymington Hospital; self-employed solicitor/lecturer. Retained by BPP Law School in London; non-Executive Director of National Housing Group Ltd.

No relevant or material interests were declared by: Ben Lloyd, Roger Fawcett, Katherine Fenton, Nigel Saunders, Kevin Flynn, Andrew Liles, Alison Rayner, Kay Riley,

Simon Jupp, Hilary Fender. 5.5 Appointment of executive directors

Executive Directors are appointed by the Appointment and Remuneration Committee. Their appointments are open-ended but may be terminated by the Committee in appropriate circumstances.

5.6 Directors’ remuneration Full details of directors’ remuneration are given in note 4.3 to the accounts. 5.7 Names of directors forming the remuneration committee

The Remuneration Committee in 2003/04 comprised the following non-executive directors: Richard Keightley, Dr Juliet Davies, Janice Viveash, Andrew Willis, Hilary Fender, Andrew Rutherford, Roger Fawcett, Keith Bamber.

5.8 Public sector payment policy Details of compliance with the code are given in note 6 to the accounts. 5.9 Management costs

Details of management costs are given in note 5.4 to the accounts. 5.10 External Auditors

Our external auditors are the Audit Commission. who provided the statutory audit at a cost of £178k.

5.11 Research and Development

Our Trust has continued to host and support high quality research. We completed implementation of the DoH Research Governance framework on schedule in March 2004. We had 'self declared' as a sponsor in 2003 and now comply fully with our responsibilities in this role.

The EU Directive for Clinical Trials became law in May 2004. We have systems in place to ensure we comply with its requirements.

Controls Assurance Performance management for research governance compliance is now part of Controls Assurance work. We made considerable effort last year to ensure that documentary evidence of compliance is readily available for regular inspection.

Encouraging Academic Partnership We have established a joint approach with the University of Southampton to research management and nomination of research responsibilities for the purpose of research sponsorship. A joint R&D campus office has helped ensure that all research activity is appropriately managed and complies with research governance. It has also enabled SUHT to have robust project monitoring of research activity across both organisations.


NHS Innovation Hub We are one of four founder members of a region-wide Innovation Hub for the South East. This will provide a network of IP Exploitation Managers who will help Trusts identify innovations, protect them (eg through patents, copyrights, etc) and disseminate them through various routes, including commercialisation. The Hub is jointly funded by the Department of Health, DTI and South East Regional Development Agency.

5.12 Consultation with Staff

Our Staff Partnership Forum, comprising Trade Union representatives and senior managers, met regularly to discuss issues ranging from new or revised policies to updates on the latest financial situation.

The Forum made a concerted effort to improve the response rate to the annual staff survey. The results for 2003 showed that staff are generally satisfied with management and supervision. The survey also found that 90% of requests for flexible working had been fully or partially met, and 82% of staff had received training or development of some kind within the last 12 months.

Effective internal communication with staff remains a priority for the Trust. A number of measures are used to aid prompt and accurate communication, including the continued growth of the Trust Intranet site, our team briefing system, and internal newsletters. Improving ‘horizontal’ communication forms part of our Improving Working Lives action plan.

5.13 Complaints/service improvements

Number of complaints received 692 % responded to within 20 working days 68% Number resolved by local resolution 683 Numer of requests for Independent Reveiw 9 Number of cases referred back to the Trust for local resolution 9 Number of Independent Review Panels 0

Service improvements arising from complaints included:

Audiology Complaint: Delay in appointment for a hearing assessment. Action: Structure and funding arrangements for audiology reviewed with Primary Care Trusts. Extra funding to reduce waiting times identified.

Trauma & Orthopaedics Complaint: Lack of involvement of next of kin in the consent process. Action: Staff education to ensure relatives kept informed of all procedures to be undertaken.

Pathology Complaint: Unauthorised release of a body to the funeral director. Action: Policy review

Complaint: Lack of administrative support within Haematology. Action: Recruitment of additional secretarial support

Complaint: Failure of stem cell harvest. Action: Policy review


Cardiothoracic Complaint: Delay in reporting a death to the Coroner. Actions: Revised guidelines on every ward clarifying the procedure for reporting a death; set up alternative means of communicating with the Coroner outside normal working hours; considering on site Coroners office for the future.

Child Health Complaint: Failure to report disclosure of child abuse and disposing of clinical records. Action: Staff reminded of their responsibilities.

Medicine & Elderly Care Complaint: Delay in diagnosis. Actions: Sharing outpatient letters with the patient (implementation underway); working towards unified patient records.

Complaint: Misdiagnosis. Actions: Review of procedure for requesting and reporting x-rays; handover procedures for medical staff; supervision of junior medical staff; systems for escalating treatment when necessary; communication with relatives; management of pain; standard of documentation by medical staff in the health records.

Neurosciences Complaint: Availability of general anaesthetic for MRI. Action: Policy review.

Complaint: Lack of privacy and dignity during clinical examination and discussion of diagnosis. Actions: Staff education; review of protocols for admission to the Neurological day care and short stay units.

Complaint: Standard of nursing care and loss of patient records. Actions: Review of care planning documentation; review of documentation of clinical observations; review of continuous education programmes; improved record of discussions with patients and relatives; iImproved tracking of patient records within the directorate/across the Trust; review of nursing care delivery.

Clinical Governance Complaint: Delays in handling a complaint. Action: improved monitoring of complaints and liaison with directorate complaint coordinators; review of policy for appointing clinical assessors within the Trust for complaints referred for independent review; review of organisational system to support management of complaints.

5.14 Equal Opportunities

Equality remains at the centre of all Trust policy-making, service delivery and employment practice. We aim to recruit, develop and retain a workforce representative of our diverse local population.

We closely monitor recruitment activity, training and development and employment practices to ensure that all staff can develop, apply for promotion and have working arrangements that help them achieve a manageable work-life balance, regardless of gender, ethnic origin, disability and age.

We actively promote a workplace free from harassment and discrimination. We have a comprehensive policy for managing these matters and provide awareness training for managers and staff. All employees, especially those from ethnic minority groups, are encouraged to contribute to the management of equality and diversity by participating in our BME (Black and Minority Ethnic) staff focus group.


We ensure equal access to, and delivery of, our services through interpreter services, facilities for disabled people, and sensitivity for ethnic and religious differences and needs. The Trust also works in partnership with other local and national agencies and community groups to improve communication with, and health promotion for, minority groups.

We have acknowledged shortfalls in our practice identified by a recent Employment Tribunal raised by an ethnic member of staff. As a result we aim to increase the training available to our employees.

Key achievements during 2003/04 include:

• Sharpening the focus of the Trusts Equality and Diversity Group, which acts as a steering/advisory group and is responsible for developing, managing and implementing action plans relating to all aspects of equality and diversity.

• Establishing the BME Staff Focus Group to improvecommunication with our ethnic staff.

• Winning a Department of Health regional award for ‘Breaking the Cycle’ – a collaborative project to improve diet, nutrition and health awareness among Southampton’s South Asian Communities.

• Improving and expanding the in-house Interpreters service, including setting up a University accredited course for our interpreters (13 completed the course during the year).

• Developing a split male/female prayer space within the Chaplaincy to accomodate multi-faith users.

Information to support this statement, and about our equality objectives and action plan for 2004/05, can be obtained from the Trust's Human Resources Manager by phoning 023 8079 6525.

5.15 Open Government

Board meetings of the Trust are held in public. Dates and times of meetings are published in the Southern Daily Echo and can be obtained from the Trust’s Board Business Manager.

5.16 Local pay bargaining initiatives

We have moved from creating local pay solutions to implementing the national pay modernisation programmes.

Junior Doctors’ Hours: we have continually reviewed working patterns and implemented changes to achieve European Working Time Directive targets. Banding supplements paid to doctors reflect their hours of work and shift patterns.

Consultant contract: During the winter of 2003 we implemented job planning for consultants which will underpin the implementation of the new contract. The minimum pay for a newly appointed consultant on a 40 hour week will rise by just over 20 per cent to £67,133.

Agenda for Change: More than 900 staff attended open briefings about Agenda for Change, the new pay system for NHS staff. We appointed a full time staff side lead to involve staff in implementing this £8 million investment.

5.17 Healthcare Governance

Despite a challenging year the Trust and its Directorates made progress against the seven pillars of Healthcare Governance.

This summary highlights key achievements and innovations to show the progress has made last year in delivering healthcare governance. It also outlines future plans that reflect our commitment to continuous quality improvement.


Key corporate achievements: • Bedside information folders now available for every patient • New PALS information leaflets and posters introduced • Induction sessions now available for all staff • Improved complaint response times • Core training packages developed for violence and aggression, diversity and

equality, and stress management to support Improving Working Lives • Clear process in place to disseminatel national guidelines and recommendations,

and provide feedback on implementation.

Key directorate achievements: • Discharge process improved • User involvement and patient feedback systems established • Customer care training for ward and department managers. • Staff trained in communication skills as a result of patient feedback. • Staff trained about Better Blood Transfusion (HSC 2002/09) • Multi-professional education activities increased • Range of clinical care audits undertaken • Risk registers developed further

Innovations:

• New training package for ‘consent for Post Mortem’ • Benchmarking complaints management with other acute Trusts in the region • Patient information leaflets available online through intraranet • Involvement of patients in clinical audit (eg auditing the discharge process)

Future Plans: • Develop key performance indicators for healthcare governance to cover national

guidance (eg the Climbie report) as well as the Directorate’s identified key risk areas.

• Achieve Controls Assurance standards for Medical Device Management. • Further develop Patient and Public Involvement strategies. • Develop an integrated Healthcare Governance Support Unit. • Improve reporting on Patient Safety Incidents • Share good practice across the organisation and communicate lessons learnt from

incidents.

Copies of our full Healthcare Governance report for 2003/2004 are available from the Clinical Governance Directorate, Mailpoint 18, Southampton General Hospital, Tremona Road, Southampton SO16 6YD.

Patient and Public Involvement Nationally the patient and public involvement agenda has developed and grown over the last year. The Commission for Patient and Public Involvement in Health (CPPIH) was established in January 2003 and set up patient and public involvement forums (PPIF) for each acute and primary care trust in the country. This has been achieved through forum support organisations which recruited members and provide support and administrative back up. Our PPIF is supported by Help and Care, a charity based in Bournemouth.

PPIFs help patients feed their views about health services into the NHS, look at the health service from the patient’s perspective, makesrecommendations to NHS managers about changes to services, monitor the trust’s Patient Advice and Liaison Service (PALS) and bring shortcomings to the attention of the Trust and the CPPIH, monitor how well the NHS is consulting with patients and the public, inspects NHS premises, and make referrals to the Overview and Scutiny Committee, the CPPIH and other bodies. Our PPIF


started work in December 2003 and has made several visits to SUHT. It has started to debate service change and lay out its programme of work for the coming year.

Our patient and public involvement strategy (due to be published in summer 2004) will contain a work plan that describes the direction for the Trust's PPI work in the coming year. Directorates will develop local action plans to ensure PPI is embedded in the day to day business of the organisation. These will include projects relating to communication and healthcare information.

Patient Surveys The government’s programme of national patient surveys continues. During 2003 the outpatient and emergency departments were surveyed for the first time and the inpatient survey, first carried out in 2002, was repeated. A children and young people’s survey was also carried out in 2003.

A trust wide seminar was held to consider the outpatient and emergency department survey results. This resulted in a number of initiatives to improve the patient experience including a review of medication information provided to patients, developing the housekeeper role in outpatient clinics, and making drinks available in outpatient departments.

Patient Information Our Patient Information Strategy Group has produced a resource pack to guide staff who wish to write patient information. This pack is part of an overall patient information strategy that will be produced in autumn 2004.

The Information Centre at the front of Southampton General Hospital has been developed to provide computer access for patients wanting to search the internet for health care information. Volunteers will be trained to help them search for relevant information.

We have now started a pilot scheme combining the Information Centre, PALS and hospital reception in one place. Patients will be able to access healthcare information, benefit advice, PALS, directions etc. through a single point. This should make it easier for patients and use staff more effectively.

PALS Referrals to PALS rose steadily during 2003/4 and totalled 535 referrals. Of these 373 were resolved, 60 remained as outstanding issues (commonly waiting list concerns) and 9 people were dissatisfied with the response. 93 cases were thought likely to progress to a formal complaint.

PALS staff continue to make a significant difference to individual patients and their families. Measurable organisational change as a result of PALS remains difficult to define, however. The PALS team train and educate Trust staff in a wide range of subjects relating to communication. Anecdotally the team report a shift in attitudes and customer care skills in some areas.


Section 6: Accounts for the Year Ended 31 March 2004 _________________________________________________________________________

FOREWORD TO THE ACCOUNTS

SOUTHAMPTON UNIVERSITY HOSPITALS NHS TRUST These accounts for the year ended 31 March 2004 have been prepared by the Southampton University Hospitals NHS Trust under section 98(2) of the National Health Service Act 1977 (as amended by section 24(2), schedule 2 of the National Health Service and Community Care Act 1990) in the form which the Secretary of State has, with the approval of the Treasury, directed.


STATEMENT ON INTERNAL CONTROL 2003/04

SOUTHAMPTON UNIVERSITY HOSPITALS NHS TRUST

1. Scope of responsibility The Board is accountable for internal control. As Accountable Officer, and Chief Executive of this Board, I have responsibility for maintaining a sound system of internal control that supports the achievement of the organisation’s policies, aims and objectives. I also have responsibility for safeguarding the public funds and the organisation’s assets for which I am personally responsible as set out in the Accountable Officer Memorandum. As the Chief Executive, clear responsibility ensures that there is liaison with the SHA and partner PCT’s/other Trusts in developing the strategic priorities for the Trust through the five-year strategic plan and the annual local delivery plan. The Trust Directors participate in the HIOW Directors of Finance, Directors of Nursing, Directors of Modernisation and Directors of Commissioning and Planning meetings. The SHA monitors the achievement of the priorities on an ongoing basis. All members of the Board have signed up to the Code of Conduct, which identifies the Board’s responsibilities and accountability arrangements. The Board delegates authority, on its behalf, to the following sub-committees:

• Audit Committee • Governance Committee

Scrutiny by the Non Executive Directors and Auditors within the Audit and Governance Committees provides assurance of internal control including probity in the application of public funds and in the conduct of the organisation’s responsibilities. The Audit and Governance Committees, whose reports are reviewed in the public Board meetings, ensure that the Trust takes an integrated and comprehensive approach to governance and risk management. The Trust has established Risk Management Committees and supporting structures, which together are responsible for identifying, assessing and managing the risks associated with clinical, corporate, financial and information governance and controls assurance. Key internal and external risks are reported quarterly to the Audit and Governance Committee and through it to the Board. The Trust’s Executive Directors report direct to me through regular one to one meetings. I meet weekly with the Executive Team and hold monthly one to ones with these directors. 2. The purpose of the system of internal control The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to: • identify and prioritise the risks to the achievement of the organisation’s policies, aims

and objectives; • evaluate the likelihood of those risks being realised and the impact should they be

realised, and to manage them efficiently, effectively and economically.


The system of internal control has not been in place in Southampton University Hospitals NHS Trust for the whole year ended 31 March 2004, but was in place by 31 March 2004 and up to the date of approval of the annual report and accounts. 3. Capacity to handle risk The Trust’s leadership arrangements for risk management comply satisfactorily with the criteria indicated in Annex A to Sir Nigel Crisp’s letter of 15 September 2003. The Trust Board has overall responsibility for setting the strategic direction of the Trust and managing the risks to delivering that strategy. All committees with risk management responsibilities report to the Board. A Trust Executive Director has lead responsibility for the development and implementation of the Risk Management Strategy and for compliance with relevant Controls Assurance Standards. Two Executive Directors are jointly responsible for the development of the Clinical Governance Strategy and Development Plan, which is agreed through the Audit Committee and the Governance Committee. The Trust Board has approved these arrangements and associated documents. A lead Executive Director has been identified for each principal risk area defined within the Assurance Framework, with the Framework being subject to ongoing, iterative review by the Executive Directors. The Trust uses an integrated electronic risk management system, known as Ulysses (Safeguard). The system is used to record and manage the risk registers at both Corporate and Directorate level. The system allows for the recording and assessment of risks using a generic scoring matrix. The risk leads within each Directorate are responsible for co-ordinating the ongoing review and management of risks identified and collated locally through their Directorate Governance structures. This is designed to enable staff to assess and manage the risks identified in their work and workplace and those key risks affecting their services relating to patient care, organisational capacity, serious untoward incidents, complaints, claims and PALS enquiries. Focussed progress by each Directorate is also performance managed through the identified Governance Key Performance Standards via the mid and end of year Directorate reviews. The risk registers are co-ordinated through the Risk Management Department with those risks, which have been identified, as either being corporate in nature or too large for Directorate’s to manage subject to review by a Validation Group who oversees the development of the Corporate Risk Register and its link with the Local Delivery Plan. Each Directorate has a responsibility to develop specific departmental induction programmes for staff based on the risks, hazards and control mechanisms specific to that area. In addition to this there are specific training programmes including Health and Safety, Infection Control and Fire training. Training is tailored to staff, based on their authority and duties, through the training and development needs assessment process. All of the above is in addition to documented guidance, including the Risk Management Strategy and Framework and the supporting Risk Management Policies and Procedures. The established Risk Management groups and the Governance Committee allow the opportunity for new guidance and good practice to be shared. 4. The risk and control framework The Risk Management Strategy provides a framework for the risk management process. It will be reviewed annually. The objectives of the Risk Management Policy and Strategic Framework are to ensure that the Trust is able to:

• maximise the available resources • minimise risks to patients, employees and others in order to provide safer services

& environment • increase awareness and ownership of risk and liabilities


• understand the risks that the Trust faces, their cause and control, and the cost of risk to the organisation.

The Policy and Procedures, which form part of the Strategy, identify the:

• criteria used for assessing the likelihood and impact of a risk occurring • steps involved in risk identification, assessment and analysis, risk prioritisation, financial

management and risk planning and reporting. This includes the development of action plans for all identified risks, which include projected implementation costs, lead responsible officers and timeframes.

• process for managing the risks and reviewing progress to minimise or avoid the risks • line reporting and accountability arrangements for risk management

The Trusts Risk Management Policy and Procedure identifies 5 key steps in the risk management process, these are:

• Risk identification and awareness • Risk assessment and analysis • Risk prioritisation and control • Financial management • Risk planning and reporting.

Risk Identification The Trust has a policy for reporting adverse events. Implicit within this policy is the need to record any unplanned event or near miss, which did not cause injury or damage but could have done so or which may have resulted in some other adverse consequence. Risk information is obtained from a multiplicity of sources including complaints, claims, PALS enquiries, as well as reviewing delivery of care/services against national performance indicators, national reports, confidential enquiries etc.

Risk Assessment and analysis The Trust has a planned and systematic approach to risk assessments, which are intended to identify hazards and particular areas of clinical, environmental, organisational, financial and occupational risk. The appropriate Risk Management Group will consider the degree of exposure, the risk control measures already in place, any action plans proposed to reduce the risk further and consider the need for raising the profile of the risk to an appropriate Committee e.g. Governance Committee, Risk Register Validation Group, Trust Management Group, Trust Board.

Risk Prioritisation and Control Roles and responsibilities are clearly outlined in the Policy ensuring that in the first instance, that the risk assessments are prioritised and actioned at either Departmental or Directorate level and that Directorates are required to maintain a local Risk Register. Where local control mechanisms are considered to be potentially inadequate, any outstanding risk is raised to the attention of the appropriate risk group for consideration/prioritisation and thus included on the Corporate Risk Register for action/review. Financial Management Consideration needs to be made as to whether the Trust assumes, shares or transfers the costs attached to those identified risks. Directorates must consider the issue of funding risk control initiatives from within their devolved budgets in the first instance and/or consider the need to make appropriate provision within their business plans. Where control measures are identified as having potentially significant resource implications, such issues should be raised at the appropriate risk management group and at the Governance Group for consideration/prioritisation. The Trust’s Local Delivery Plan directly takes account of the high priority risks in the funding allocations for the forthcoming year(s).


Risk Planning and Reporting The appropriate Risk Register identifies corporate key risks, which will be consolidated upwards in the Trust’s annual risk plan and communicated downwards across Directorates for them to action via nominated lead officers. Risk management has been embedded within the Trust’s activities in various ways during 2003/04.

• The Trust’s Governance arrangements identify the requirement for all Directorates to develop appropriate support systems and processes in order that risk management activities are naturally incorporated as part of the delivery of care and services that the Trust provides – as detailed above.

• The Executive Directors developed the Assurance Framework by initially identifying the

Trust’s high-level strategic objectives based upon the Trust’s Mission Statement. The principal risks have been identified through risk identification at Board level and are intrinsically linked to the Trust’s Principal Objectives. The work around the Business Excellence Model and the SWOT analysis contributed to this process. Controls and independent assurances have been identified and mapped against each risk. The identification of Gaps in Control, against each principal Risk, is supported by a series of risk registers. These risk registers (formed from both top-down and bottom-up risk assessments) are a major driver for the development of the Local Delivery Plans to ensure that gaps in control against Principal Risks are mitigated/closed.

• The Audit Committee and Board have received reports relating to the iterative development of the Assurance Framework, which includes the identification of the controls in place, and the positive assurances. Areas where there were identified gaps in controls and assurances now form part of the action plan for managing the principal risks as part of the overall Assurance Framework.

• The Trust’s internal auditors, South and West Audit, have worked closely with the Trust in developing the organisation’s Assurance Framework.

• The actions required addressing the gaps in controls and assurances within the

Assurance Framework are included in the Trust’s 2004/05 Annual Business Programme.

• The Trust’s Non Executive Directors are involved in identifying risks and reviewing progress against the Assurance Framework through the Audit and Governance Committee.

As outlined above, and in line with the DOH guidance, the Trust’s Assurance Framework identifies the following areas:

• the Trust’s principal objectives • the principal risks associated with achieving those objectives • controls to minimise or avoid the principal risks • the positive assurances available to the Trust in the form of reports/assessments – from

both internal & external sources • the gaps in controls and assurances that need to be put in place to give the Board

assurance that the organisation has effective control over its risks and that systems are in place to achieve its objectives

The Trust Board takes every opportunity to review the risks associated with the achievement of its strategic/principal objectives. Regular and systematised review of the Assurance Framework is achieved through individual Executive Director’s lead roles/responsibilities and through collective review through appropriate groups/committees e.g. the Board, the Audit Committee and the Governance Committee. It is recognised that the Assurance Framework document underpins a dynamic and iterative process that is subject to review and development over time in order that:


• the Board has visibility of the Trust’s portfolio of risk • progress is reviewed to address the gaps in controls and assurances • risks are added to or closed down as identified within the Assurance Framework • discussions and decisions are made where actions are needed to reduce risks through

improved controls and independent assurances

The Trust’s comprehensive and balanced Assurance Framework provides a valuable and essential vehicle for engaging the Trust Board in well-structured discussions about the management of risks that are internal and external to the organisation. It also demonstrates evidence of effective systems of internal control within the Trust. Gaps in Control: Whilst not an immediate gap in control, the Trust does currently have a challenging financial agenda. To ensure that the Trust meets its statutory duty to break even on income and expenditure, the Trust has developed a comprehensive Financial Recovery Plan. This details how the Trust will achieve savings of £15m, generate additional income of £6.5m and manage other cost risks. The Financial Recovery Plan was approved formally by the Trust Board at its meeting in April 2004. The delivery of the Financial Recovery Plan relies upon robust commissioning arrangements with PCT’s, their engagement with service re-design and jointly working on demand management. The risks and their control measures are detailed within the Trust’s Assurance Framework. In addition to the above, SUHT has developed a comprehensive set of action plans that address the gaps in control for each of the identified Principal Objectives. The following actions provide a summary list:

• the Trust will develop improved capabilities in order to match its workforce and estates/physical infrastructure to achieving its delivery plan and vision (ref: Principal Objective 3, 7)

• the Trust will further develop mechanisms to both monitor and provide improved capabilities of delivering appropriate levels of patient care in line with patient dependency/acuity (ref: Principal Objective 4)

• the Trust will develop a more structured approach to ensuring that its patients and public are better informed/involved regarding its activities (ref: Principal Objective 5)

• the Trust will further review and strengthen its structural/funding arrangements, systems/processes and performance management related to Governance activities (ref: Principal Objective 6)

• the Trust will further develop its capabilities of providing intuitive information for performance monitoring (ref: Principal Objective 8)

• the Trust will develop improved methods for communicating its vision embodied within the Assurance Framework (ref: Principal Objective 9)

Gaps in Assurances: The following actions to address the gaps in assurances have been identified. The Trust will: • develop its audit programme to include the monitoring of the Admissions/Discharges

Planning Tool and Waiting & Booking Policy(ref: Principal Objective 2) • develop and perform Race/Equality audit (ref: Principal Objective 3) • strengthen its assurance arrangements for all of the Controls Assurance Standards with

agreed reporting to Trust Board (ref: Principal Objective 3,4,7) • review and develop protected time/funding arrangements within Directorates that support

Governance activities (ref: Principal Objective 6) • apply NHS environmental tool to all new projects (ref: Principal Objective 7)

The Trust engages with key stakeholders in managing risks which impact on them in a variety of ways:


• Liaison with the SHA, other PCT’s and Trusts to ensure that details about and risks associated with serious untoward incidents, complaints, claims and PALS enquiries are appropriately shared, recorded, managed and reviewed.

• The Trust is closely involved with the National Patient Safety Agency and is developing its

reporting capabilities in line with the National Reporting and Learning System.

• The Trust is a member of the South and West Risk Management Consortium, which acts as a forum where risks are shared and learning opportunities are optimised amongst the member Trusts.

• The Trust recognises patient and public involvement (PPI) as essential to ensuring patients,

service users and carers have influence over their own care, and how services are planned and improvements made. The Trust has developed a PPI Strategy to support this work and will review its ongoing development during 2004/5. The Trust already has several well-established and active patient groups.

• The Governance Committee has a patient representative as a lay member.

• The Trust makes every effort to involve and consult patients and the public in:

- planning changes to the services for which they are responsible - developing and considering proposals for change in the way those services

are provided - decisions to be made that affect how those services operate

5. Review of effectiveness As Accountable Officer, I have responsibility for reviewing the effectiveness of the system of internal control. My review is informed in a number of ways. The head of internal audit provides me with an opinion on the overall arrangements for gaining assurance through the Assurance Framework and on the controls reviewed as part of the internal audit work. Executive managers within the organisation who have responsibility for the development and maintenance of the system of internal control provide me with assurance. The Assurance Framework itself provides me with evidence that the effectiveness of controls that manage the risks to the organisation achieving its principal objectives have been reviewed. My review is also informed by a range of internal and external audits and assessments including:

• detailed reports by both Internal Audit and the Audit Commission • Commission for Health Improvement – self-assessment schedules • NHSLA/RPST – self-assessment 89% • CNST – Level 1 Accreditation • performance and financial reports to the Trust Board • assessment against the Controls Assurance Standards • Governance Annual Report to the Trust Board

I have been advised on the implications of the result of my review of the effectiveness of the system of internal control by the Trust Board, the Audit and Governance Committee. A plan to address gaps and to ensure continuous improvement of the system is in place. The Board and the Audit Committee have taken a keen interest in the development of the Assurance Framework and in the work to embed the risk management strategy and policy.


Income and Expenditure Account for the Year Ended 31 March 2004 2004 2003 NOTE £000 £000 Income from activities: Continuing operations 2 250,465 234,459 Other operating income Continuing operations 3 73,839 66,123 Operating expenses: Continuing operations 4-5 (322,800) (290,009) OPERATING SURPLUS (DEFICIT) Continuing operations 1,504 10,573 Cost of fundamental reorganisation/restructuring* 0 0 Profit (loss) on disposal of fixed assets 308 1,520 SURPLUS (DEFICIT) BEFORE INTEREST 1,812 12,093 Interest receivable 331 400 Interest payable 8 (1) 0 Other finance costs - unwinding of discount 0 0 Other finance costs - change in discount rate on provisions (216) SURPLUS (DEFICIT) FOR THE FINANCIAL YEAR 1,926 12,493 Public Dividend Capital dividends payable (7,344) (12,333) RETAINED SURPLUS (DEFICIT) FOR THE YEAR (5,418) 160


Note to the Income and Expenditure Account for the Year Ended 31 March 2004 £000 Retained surplus/(deficit) for the year (5,418) Financial support included in retained surplus/(deficit) for the year 2,950 Retained surplus/(deficit) for the year excluding financial support (8,368) The financial support relates to capital to revenue transfers in year.


Balance Sheet as at 31 March 2004 2004 2003 NOTE £000 £000 FIXED ASSETS Intangible assets 9 918 0 Tangible assets 10 279,842 243,945 280,760 243,945 CURRENT ASSETS Stocks and work in progress 11 8,347 5,743 Debtors 12 19,624 22,938 Cash at bank and in hand 16.3 959 6,890 28,930 35,571 CREDITORS: Amounts falling due within one year 13 (30,290) (44,831) NET CURRENT ASSETS (LIABILITIES) (1,360) (9,260) TOTAL ASSETS LESS CURRENT LIABILITIES 279,400 234,685 CREDITORS: Amounts falling due after more than one year 13 0 0 PROVISIONS FOR LIABILITIES AND CHARGES 14 (3,921) (2,359) TOTAL ASSETS EMPLOYED 275,479 232,326 FINANCED BY: TAXPAYERS' EQUITY Public dividend capital 176,160 153,103 Revaluation reserve 15 77,947 58,820 Donated Asset reserve 15 24,650 18,651 Income and expenditure reserve 15 (3,278) 1,752 TOTAL TAXPAYERS EQUITY 275,479 232,326 Signed: ................................................................ (Chief Executive) Date: ....................................................................


Statement of Total Recognised Gains and Losses for the year ended 31 March 2004 2002/03 £000 £000 Surplus (deficit) for the financial year before dividend payments 1,926 12,493 Fixed asset impairment losses 0 0 Unrealised surplus (deficit) on fixed asset revaluations/indexation 20,860 28,228 Increases in the donated asset and government grant reserve due to receipt of donated and government grant financed assets 6,311 3,424 Reductions in the donated asset and government grant reserve due to the depreciation, impairment and disposal of donated and government grant financed assets (1,657) (1,381) Total recognised gains and losses for the financial year 27,440 42,764 Prior period adjustment - Pre-95 early retirement (763) Total gains and losses recognised in the financial year 27,440 42,001


CASH FLOW STATEMENT FOR THE YEAR ENDED 31 March 2004

2002/03 NOTE £000 £000 OPERATING ACTIVITIES Net cash inflow(outflow) from operating activities 16.1 7,821 24,471 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE: Interest received 331 400 Net cash inflow/(outflow) from returns on investments and servicing of finance 331 400 CAPITAL EXPENDITURE Payments to acquire tangible fixed assets (32,825) (28,069) Receipts from sale of tangible fixed assets 1,550 5,322 Net cash inflow (outflow) from capital expenditure (31,275) (22,747) DIVIDENDS PAID (7,344) (12,333) Net cash inflow/(outflow) before management of liquid resources and financing (30,467) (10,209) FINANCING Public dividend capital received 24,467 10,528 Public dividend capital repaid (not previously accrued) (1,410) 0 Public dividend capital repaid (accrued in prior period) 0 (226) Other capital receipts 7,488 0 Net cash inflow (outflow) from financing 30,545 10,302 Increase (decrease) in cash 78 93


NOTES TO THE ACCOUNTS

1. ACCOUNTING POLICIES

The Secretary of State for Health has directed that the financial statements of NHS trusts shall meet the accounting requirements of the NHS trusts Manual for Accounts which shall be agreed with HM Treasury. Consequently, the following financial statements have been prepared in accordance with the 2003/04 NHS Trusts Manual for Accounts issued by the Department of Health. The accounting policies contained in that manual follow UK generally accepted accounting practice for companies (UK GAAP) and HM Treasury's Resource Accounting Manual to the extent that they are meaningful and appropriate to the NHS, as determined by HM Treasury, which is advised by the Financial Reporting Advisory Board. The accounting policies have been applied consistently in dealing with items considered material in relation to the accounts.

1.1 Accounting convention

These accounts have been prepared under the historical cost convention modified to account for the revaluation of fixed assets at their value to the business by reference to their current costs. NHS Trusts are not required to provide a reconciliation between current cost and historical cost surpluses and deficits.

1.2 Acquisitions and discontinued operations

Activities are considered to be 'acquired' only if they are acquired from outside the public sector. Activities are considered to be 'discontinued' only if they cease entirely. They are not considered to be 'discontinued' if they transfer from one NHS body to another.

1.3 Income Recognition

Income is accounted for applying the accruals convention. The main source of income for the Trust is from commissioners in respect of healthcare services provided under local agreements. Income is recognised in the period in which services are provided. Where income is received for a specific activity, which is to be delivered in the following financial year, that income is deferred.

1.4 Intangible fixed assets Intangible assets are capitalised when they are capable of being used in a trust's activities for more the one year; they can be valued; and they have a cost of at least £5,000. Intangible fixed assets held for operational use are valued at historical cost and are depreciated over the estimated life of the asset on a straight line basis, except capitalised Research and Development which is revalued using an appropriate index figure. The carrying value of intangible assets is reviewed for impairment at the end of the first full year following acquisition and in other periods if events or changes in circumstances indicate the carrying value may not be recoverable. Purchased computer software licences are capitalised as intangible fixed assets where expenditure of at least £5,000 is incurred. They are amortised over the shorter of the term of the licence and their useful economic lives.

1.5 Tangible fixed assets Capitalisation Tangible assets are capitalised if they are capable of being used for a period which exceeds one year, and they - individually have a cost of at least £5,000; or


- collectively have a cost of at least £5,000, where the assets are functionally interdependent, they had broadly simultaneous purchase dates, are anticipated to have simultaneous disposal dates and are under single managerial control; or - form part of the initial equipping and setting-up cost of a new building, ward or unit irrespective of their individual or collective cost From 2003/04, the method of accounting for second hand assets, on acquisition, has been changed from disclosing gross cost and accumulated depreciation, to disclosing net acquisition cost. This change will have no effect on the balance sheet figures and comparative figures have not been amended. Valuation Tangible fixed assets are stated at the lower of replacement cost and recoverable amount. On initial recognition they are measured at cost (for leased assets, fair value) including any costs such as installation directly attributable to bringing them into working condition. They are restated to current value each year. The carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in circumstances indicate the carrying value may not be recoverable. All land and buildings are restated to current value using professional valuations in accordance with FRS15 every five years and in the intervening years by the use of indices. The buildings index is based on the All in Tender Price Index published by the Building Cost Information Service (BCIS). The land index is based on the residential building land values reported in the Property Market Report published by the Valuation Office. Professional valuations are carried out by the District Valuers of the Inland Revenue Government Department. The valuations are carried out in accordance with the Royal Institute of Chartered Surveyors (RICS) Appraisal and Valuation Manual insofar as these terms are consistent with the agreed requirements of the Department of Health and HM Treasury. In accordance with the requirements of the Department of Health, the last asset valuations were undertaken in 1999 as at the prospective valuation date of 1 April 2000. The valuations are carried out primarily on the basis of Depreciated Replacement Cost for specialised operational property and Existing Use Value for non-specialised operational property. The value of land for existing use purposes is assessed at Existing Use Value. For non-operational properties including surplus land, the valuations are carried out at Open Market Value. Additional alternative Open Market Value figures have only been supplied for operational assets scheduled for imminent closure and subsequent disposal. All adjustments arising from indexation and five-yearly revaluations are taken to the Revaluation Reserve. All impairments resulting from price changes are charged to the Statement of Total Recognised Gains and Losses. Falls in value when newly constructed assets are brought into use are also charged there. These falls in value result from the adoption of ideal conditions as the basis for depreciated replacement cost valuations. Assets in the course of construction are valued at current cost using the indexes as for land and buildings, as above. These assets include any existing land or buildings under the control of a contractor. Operational equipment other than IT equipment, which is considered to have nil inflation, is valued at net current replacement costs through annual uplift by the change in the value of the GDP deflator. Equipment surplus to requirements is valued at net recoverable amount.


Depreciation, amortisation and impairments Tangible fixed assets are depreciated at rates calculated to write them down to estimated residual value on a straight-line basis over their estimated useful lives. No depreciation is provided on freehold land and assets surplus to requirements. Assets in the course of construction and residual interests in off-balance sheet PFI contract assets are not depreciated until the asset is brought into use or reverts to the Trust, respectively. Buildings and dwellings are depreciated on their current value over the estimated remaining life of the asset as advised by the District Valuer. Leaseholds are depreciated over the primary lease term. Equipment is depreciated on current cost evenly over the estimated life of the asset, using the following lives:. Medical equipment and engineering plant and equipment 5 to 15 years Furniture 10 Mainframe information technology installations 8 Soft furnishings 7 Vehicles 7 Office and information technology equipment 5 Set up costs in new buildings 10 Impairment losses resulting from short-term changes in price that are considered to be recoverable in the longer term are taken in full to the revaluation reserve. These include impairments resulting from the revaluation of fixed assets from their cost to their value in existing use when they become operational. This may lead to a negative revaluation reserve in certain instances. Where the useful economic life of an asset is reduced from that initially estimated due to the revaluation of an asset for sale, depreciation is charged to bring the value of the asset to its value at the point of sale. Where, under Financial Reporting Standard 11, a fixed asset impairment is charged to the Income and Expenditure Account, offsetting income may be paid by the Trust’s main commissioner using funding provided by the NHS Bank.

1.6 Donated fixed assets Donated fixed assets are capitalised at their current value on receipt and this value is credited to the Donated Asset Reserve. Donated fixed assets are valued and depreciated as described above for purchased assets. Gains and losses on revaluations are also taken to the Donated Asset Reserve and, each year, an amount equal to the depreciation charge on the asset is released from the Donated Asset Reserve to the Income and Expenditure account. Similarly, any impairment on donated assets charged to the Income and Expenditure Account is matched by a transfer from the Donated Asset Reserve. On sale of donated assets, the value of the sale proceeds is transferred from the Donated Asset Reserve to the Income and Expenditure Reserve.

1.7 Government Grants

Government grants are grants from government bodies other than funds from NHS bodies or funds awarded by Parliamentary Vote. The government grants reserve is maintained at a level equal to the net book value of the assets, which it has financed.


1.8 Private Finance Initiative (PFI) transactions.

The NHS follows HM Treasury's Technical Note 1 (Revised) "How to Account for PFI transactions" which provides definitive guidance for the application of the FRS 5 Amendment.

PFI schemes under which the PFI operator receives an annual payment from the Trust for the services provided by the PFI operator. Where the balance of the risks and rewards of ownership of the PFI property are borne by the PFI operator, the PFI payments are recorded as an operating expense. Where the trust has contributed assets, a prepayment for their fair value is recognised and amortised over the life of the PFI contract by charge to the Income and Expenditure Account. Where, at the end of the PFI contract, a property reverts to the trust, the difference between the expected fair value of the residual on reversion and any agreed payment on reversion is built up over the life of the contract by capitalising part of the unitary charge each year as a tangible fixed asset. Where the balance of risks and rewards of ownership of the PFI property are borne by the trust, it is recognised as a fixed asset along with the liability to pay for it which is accounted for as a finance lease. Contract payments are apportioned between an imputed finance lease charge and a service charge.

1.9 Stocks and work-in-progress

Stocks and work-in-progress are valued at the lower of cost and net realisable value. This is considered to be a reasonable approximation to current cost due to the high turnover of stocks. Work-in-progress comprises goods in intermediate stages of production. Partially completed contracts for patient services are not accounted for as work-in-progress.

1.10 Research and development

Expenditure on research is not capitalised. Expenditure on development is capitalised if it meets the following criteria:

- there is a clearly defined project; - the related expenditure is separately identifiable; - the outcome of the project has been assessed with reasonable certainty as to: - its technical feasibility; - its resulting in a product or service which will eventually be brought into

use; - adequate resources exist, or are reasonably expected to be available to enable

the project to be completed and to provide any consequential increases in working capital.

Expenditure so deferred is limited to the value of future benefits expected and is amortised through the income and expenditure account on a systematic basis over the period expected to benefit from the project. It is revalued on the basis of current cost. The amortisation charge is calculated on the same basis as used for depreciation i.e. on a quarterly basis. Expenditure, which does not meet the criteria for capitalisation, is treated as an operating cost in the year in which it is incurred. NHS Trusts are unable to disclose the total amount of research and development expenditure charged in the income and expenditure account because some research and development activity cannot be separated from patient care activity.

Fixed assets acquired for use in research and development are amortised over the life of the associated project.


1.11 Provisions The trust provides for legal or constructive obligations that are of uncertain timing or amount at the balance sheet date on the basis of the best estimate of the expenditure required to settle the obligation. Where the effect of the time value of money is significant, the estimated risk-adjusted cash flows are discounted using the Treasury's discount rate of 3.5% in real terms. This is a change from the rate of 6% applied in 2002/03 and earlier. The effect of the change is to increase the carrying value of the provision and this is shown in the Income and Expenditure Account and at Note 14.

1.12 Clinical negligence costs

The NHS Litigation Authority (NHSLA) operates a risk pooling scheme under which the NHS Trust pays an annual contribution to the NHSLA which in return settles all clinical negligence claims. Although the NHSLA is administratively responsible for all clinical negligence cases the legal liability remains with the Trust. The total value of clinical negligence provisions carried by the NHSLA on behalf of the Trust is disclosed at note 14. Since financial responsibility for clinical negligence cases transferred to the NHSLA at 1 April 2002, the only charge to operating expenditure in relation to clinical negligence in 2003/04 relates to the Trust's contribution to the Clinical Negligence Scheme for Trusts.

1.13 Non-clinical risk pooling

The trust participates in the Property Expenses Scheme and the Liabilities to Third Parties Scheme. Both are risk pooling schemes under which the trust pays an annual contribution to the NHS Litigation Authority and in return receives assistance with the costs of claims arising. The annual membership contributions, and any 'excesses' payable in respect of particular claims are charged to operating expenses as and when they become due.

1.14 Pension costs

Past and present employees are covered by the provisions of the NHS Pension Scheme. The Scheme is an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies, allowed under the direction of Secretary of State, in England and Wales. As a consequence it is not possible for the Trust to identify its share of the underlying scheme assets and liabilities. Therefore, the scheme is accounted for as a defined contribution scheme and the cost of the scheme is equal to the contributions payable to the scheme for the accounting period. The total employer contribution payable in 2003/04 was £9,242,863 (£8,581,256 for 2002/03). The notional surplus of the scheme is £1.1 billion as per the last scheme valuation by the Government Actuary for the period 1 April 1994 to 31 March 1999. The conclusion of the valuation was that the scheme continues to operate on a sound financial basis. It was recommended that employers' contributions remain at 7% of pensionable pay until 31 March 2003 and then be increased to 14% of pensionable pay with effect from 1 April 2003. These contributions will need to be reviewed at the next investigation date, due at 31 March 2004.

The Scheme is subject to a full valuation every four years (previously every five years). The last valuation took place as at 31 March 2003. Between valuations, the Government Actuary provides an update of the scheme liabilities. The latest assessment of the liabilities of the Scheme is contained in the Scheme Actuary report, which forms part of the annual NHS Pension Scheme (England and Wales) Resource Account, published annually. These accounts can be viewed on the NHS Pensions Agency website at www.nhspa.gov.uk. Copies can also be obtained from The Stationery Office. NHS bodies are directed by the Secretary of State to charge employers pension costs contributions to operating expenses as and when they become due. Employer


contribution rates are reviewed every four years following a scheme valuation carried out by the Government Actuary. On advice from the actuary the contribution may be varied from time to time to reflect changes in the scheme's liabilities. At the last valuation (31 March 1999) on which contribution rates were based employer contribution rates for 2002/03 were set at 14% of pensionable pay (2002/03 - 7%). Until 2002/03 HM Treasury paid the Retail Price Indexation costs of the NHS Pension scheme direct but as part of the Spending Review Settlement, these costs have been devolved in full. For 2003/04 the additional funding has been retained as a Central Budget by the Department of Health and has been paid direct to the NHS Pensions Agency and the employers' contribution has remained at 7%. From 2004/05 this funding will be devolved in full to NHS Pension Scheme employers and the employers' contribution rate will rise to 14%. Employees pay contributions of 6% (manual staff 5%) of their pensionable pay. The Scheme is a "final salary" scheme. Annual pensions are normally based on 1/80th of the best of the last three years pensionable pay for each year of service. A lump sum normally equivalent to 3 years pension is payable on retirement. Annual increases are applied to pension payments at rates defined by the Pensions (Increase) Act 1971, and are based on changes in retail prices in the twelve months ending 30 September in the previous calendar year. On death, a pension of 50% of the member's pension is normally payable to the surviving spouse.

Early payments of a pension, with enhancement, is available to members of the Scheme who are permanently incapable of fulfilling their duties effectively through illness or infirmity. A death gratuity of twice final year's pensionable pay for death in service, and up to five times their annual pension for death after retirement, is payable.

The Scheme provides the opportunity to members to increase their benefits through money purchase Additional Voluntary Contributions (AVCs) provided by an approved panel of life companies. Under the arrangement the Trust can make contributions to enhance an employee's pension benefits. The benefits payable relate directly to the value of the investments made.

Additional pension liabilities arising from early retirements are not funded by the scheme except where the retirement is due to ill-health. For early retirements not funded by the scheme, the full amount of the liability for the additional costs is charged to the income and expenditure account at the time the Trust commits itself to the retirment, regardless of the method of payment.

FRS 17 has been fully adopted from 2003/04. 1.15 Liquid resources

Deposits and other investments that are readily convertible into known amounts of cash at or close to their carrying amounts are treated as liquid resources in the cashflow statement. The Trust does not hold any investments with maturity dates exceeding one year from the date of purchase.

1.16 Value Added Tax

Most of the activities of the trust are outside the scope of VAT and, in general, output tax does not apply and input tax on purchases is not recoverable. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of fixed assets. Where output tax is charged or input VAT is recoverable, the amounts are stated net of VAT.


1.17 Foreign Exchange

Transactions that are denominated in a foreign currency are translated into sterling at the exchange rate ruling on the dates of the transactions. Resulting exchange gains and losses are taken to the Income and Expenditure account.

1.18 Third Party Assets

Assets belonging to third parties (such as money held on behalf of Patients) are not recognised in the accounts since the Trust has no beneficial interest in them. Details of third party assets are given in Note 23 to the accounts.

1.19 Leases

Where substantially all risks and rewards of ownership of a leased asset are borne by the NHS Trust, the asset is recorded as a tangible fixed asset and a debt is recorded to the lessor of the minimum lease payments discounted by the interest rate implicit in the lease. The interest element of the finance lease payment is charged to the Income and Expenditure Account over the period of the lease at a constant rate in relation to the balance outstanding. Other leases are regarded as operating leases and the rentals are charged to the Income and Expenditure Account on a straight-line basis over the term of the lease.

1.20 Dividend

A charge, reflecting the forecast cost of capital utilised by the NHS Trust, is paid over as public dividend capital dividend. The charge is calculated at the real rate set by HM Treasury (currently 3.5%) on the forecast average carrying amount of all assets less liabilities, except for assets in the course of construction, donated assets and cash with the Office of the Paymaster General. A note to the accounts discloses the rate that the dividend represents as a percentage of the actual average carrying amount of assets less liabilities in the year.


2. Income from Activities 2004 2003 £000 £000

Strategic Health Authorities 0 699 NHS Trusts 1,298 1,292 Primary Care Trusts* 243,796 225,976 Local Authorities 39 0 Department of Health 134 597 Non NHS:

- Private Patients 3,638 4,659 - Overseas patients (non-reciprocal) 26 0 - Road Traffic Act 1,424 1,149 - Other 110 87 250,465 234,459

*Includes £699k to offset fixed asset impairments charged to operating expenses and £711k to fund accelerated depreciation. Road Traffic Act income is subject to a provision for doubtful debts of 10% to reflect expected

rates of collection

3. Other Operating Income 2004 2003 £000 £000

Service Increment for Training 18,800 17,740 Research and Development 7,299 6,789 Post Graduate Medical Education 14,358 13,189 Other Education 3,748 2,428

Total Education, training and resarch 44,205 40,146 Transfers from donated asset reserve for depreciation on donated assets 1,657 1,381 Other NHS organisations 5,277 4,198 Catering 2,093 2,018 University occupied premises 2,136 1,496 Merit Awards 3,234 2,763 Cancer Intelligence Unit 1,833 1,921 Car Parking 1,382 1,220 Residences 579 804 Other Research and Development 814 875 Other Income 10,629 9,301 Total Income 73,839 66,123


4. Operating Expenses 4.1 Operating expenses comprise:

2004 2003 £000 £000

Services from other NHS Trusts 4,130 4,683 Services from other NHS bodies 5,544 4,961 Purchase of healthcare from non NHS bodies 7,361 2,950 Directors' costs 857 775 Staff costs 206,220 183,513 Supplies and services

- clinical 52,247 47,410 - general 8,553 7,866

Establishment 4,896 5,125 Transport 2,484 1,945 Premises 10,765 11,596 Bad debts 199 241 Depreciation and amortisation 14,163 12,199 Audit fees 178 180 Clinical negligence 2,477 2,259 Other 2,726 4,306

322,800 290,009 4.2 Operating Leases 4.2/1 Operating expenses include: 2004 2003 £000 £000

Hire of plant and machinery 439 643 Other operating lease rentals 697 747

1,136 1,390 4.2/2 Other leases 2004 2003 £000 £000

Operating leases which expire: Within 1 year 209 96 Between 1 and 5 years 305 446 After 5 years 224 0

738 542


4.3 Salary and Pension entitlements of senior managers Name and Title Age Salary Real increase in Total accrued Benefits in kind pension at age 60 pension at age 60 (Rounded to the at 31 March nearest £) (Bands of £5000) (Bands of £2,500) (Bands of £5000) 2003/04 Mr R Fawcett 55 0-5 0 0 0 Ms H Fender 59 0-5 0 0 0 Mr A Rutherford 64 5-10 0 0 100 Mr K Bamber 60 5-10 0 0 1,300 Dr J Davies 50 5-10 0 0 1,000 Mr A Willis 37 5-10 0 0 1,100 Ms J Viveash 53 5-10 0 0 0 Mr R Keightley 70 25-30 0 0 5,000 Ms K Riley 38 35-40 5,000-10,000 5-10 100 Mr S Jupp 36 65-70 7,500-10,000 5-10 4,700 Ms K Fenton 47 70-75 2,500-5,000 20-25 1,200 Mr K Flynn 47 80-85 0-2,500 0-5 900 Ms A Rayner 37 80-85 2,500-5,000 10-15 300 Mr A Liles 37 100-105 2,500-5,000 10-15 900 Mr B Lloyd 40 110-115 2,500-5,000 10-15 1,100 Mr N Saunders 47 135-140 0-2,500 10-15 0 Mr D Moss 56 130-135 0-2,500 55-60 1,500 Benefits in Kind comprise travel and other expenses

4.4 Salary and Pension entitlements of senior managers Name and Title Age Salary Real increase in Total accrued Benefits in kind pension at age 60 pension at age 60 at 31 March (Bands of £5000) (Bands of £2500) (Bands of £5000) (£000) 2002/03 Mr A Rutherford* 63 0-5 0 0 0 Mr K Bamber* 59 0-5 0 0 0 Mr R Fawcett* 54 0-5 0 0 0 Mrs C Brill* 51 0-5 0 0 0 Prof Dame J Macleod Clarke* 58 0-5 0 0 0 Dr J Davies 48 5-10 0 0 0 Mr A Willis 37 5-10 0 0 0 Ms J Holmes 52 5-10 0 0 0 Mr R Keightley 69 20-25 0 0 4 Mr A Butler* 55 35-40 0-2500 35-40 1 Mr B Lloyd* 39 35-40 0-2500 5-10 0 Mr K Flynn 46 70-75 0-2500 0-5 Ms A Rayner 36 75-80 0-2500 10-15 4 Ms K Fenton 46 80-85 0-2500 25-30 1 Mr A Liles 36 85-90 0-2500 5-10 0 Mr N Saunders 47 105-110 0-2500 5-10 3 Mr D Moss 55 125-130 0-2500 50-55 1 *The following directors' costs have been adjusted for part-year service Alan Butler From 01/04/02 - 23/08/03 Director of Finance Ben Lloyd From 04/11/02 Director of Finance Roger Fawcett From 15/10/02 Non-Executive Director Catherine Brill From 01/04/02 - 30/05/02 Non-Executive Director Jill Macleod Clarke From 01/04/02 - 30/09/02 Non-Executive Director Keith Bamber From 15/10/02 Non-Executive Director Andrew Rutherford From 01/11/02 Non-Executive Director Benefits in Kind payments relate to relocation costs and mileage claims


5. EMPLOYEE COSTS AND NUMBERS 5.1 Staff costs 2004 2003 £000 £000

Salaries and wages 175,027 156,452 Social Security Costs 13,578 11,006 Employer contributions to NHSPA 9,243 8,581 Other pension costs 310 964 Agency and contract staff 9,079 7,236

207,237 184,239 5.2 Average number of persons employed 2004 2003 Number Number

Medical and dental 836 785 Administration & estates 1,147 1,107 Healthcare assistants & other support staff 336 335 Nursing, midwifery & health visiting staff 3,047 2,913 Scientific, therapeutic & technical staff 964 909 Other 394 383

Total 6,723 6,432

5.3 Employee benefits There were no material employee benefits paid during the year (2003-Nil). 5.4 Management costs 2004 2003 £000 % £000 %

Management costs 10,904 3.4% 9,893 3.3% Income 324,304 300,582

Management costs are as defined in the document 'NHS Management Costs 2002/03' which can be found on the internet at http://www.doh.gov.uk/managementcosts.

5.5 Retirements due to ill-health

During 2003/04 (prior year 2002/03) there were 18 (9) early retirements from the trust agreed on the grounds of ill-health. The estimated additional pension liabilities of these ill-health retirements will be £793,000 (£486,555). The cost of these ill-health retirements will be borne by the NHS Pensions Agency.


6. Public Sector Payment Policy 6.1 Better Payment Practice Code - measure of compliance 2004 2003 Number £000 Number £000

Total bills paid in the year 122,777 131,182 108,081 111,760 Total bills paid within target 99,555 99,512 75,278 73,076 Percentage of bills paid within target 81.09% 75.86% 6965% 65.39%

The Better Payment Practice Code requires the Trust to aim to pay all valid non-NHS invoices by the due date or within 30 days of receipt of goods or a valid invoice, whichever is later.

6.2 The Late Payment of Commercial Debts (Interest) Act 1998

2004 2003 £000 £000

Amounts included within Interest Payable (Note 9) arising from claims made under this legislation 1 0 Compensation paid to cover debt recovery costs under this legislation 0 0

7. Profit (Loss) on Disposal of Fixed Assets

Profit/loss on the disposal of fixed assets is made up as follows: 2004 2003 £000 £000

Profit on disposal of land and buildings 350 1,559 Loss on disposal of plant and equipment (42) (39)

308 1,520

Profit on disposal of land and buildings relates to the sale of Coitbury House at the start of the financial year.

8. Interest Payable 2004 2003 £000 £003

Other 1 0 1 0


9. Intangible Fixed Assets Software Licenses & Patents Development Total Licences trademarks Expenditure £000 £000 £000 £000 £000 Gross cost at 1 April 2003 0 0 0 0 0 Additions - purchased 2,143 0 0 0 2,143 Gross cost at 31 March 2004 2,143 0 0 0 2,143 Amoritisation Opening Balance 0 0 0 0 0 Provided during the year 1,225 0 0 0 1,225 At 31 March 2004 1,225 0 0 0 1,225 Net book value Total at 1 April 2003 0 0 0 0 0 - Purchased at 31 March 2004 918 0 0 0 918 - Total at 31 March 2004 918 0 0 0 918 10. Tangible Fixed Assets

10.1 Tangible fixed assets at the balance sheet date comprise the following elements: Of the totals at 31 March 2004, £312k related to land valued at open market value and £0 related to buildings valued at open market value and £543k related to dwellings valued at open market value.

Land Buildings Dwellings Assets under

Construction & payments on account

Plant & machinery

Transport Equip

Info Tech

Furnitur & Fittings

Total

£000 £000 £000 £000 £000 £000 £000 £000 £000 Cost or Valuation 28,288 179,759 5,244 27,630 50,131 559 7,984 633 300,228 Additions-purchased 0 0 0 24,419 0 36 (1547) 0 22,908 Additions-donated 0 6,976 0 (2,419) 1,754 0 0 0 6,311 Impairments 0 0 0 0 0 0 0 0 0 Reclassifications 479 26,991 534 (34,417) 5,017 13 1,383 0 0 Indexation 1,616 18,098 0 2,596 1,085 12 0 14 23,421 Other revaluations 0 0 0 0 0 0 0 0 0 Disposals 0 (1,236) (81) 0 (1,737) 0 (212) (1) (3,267) At 31 March 2004 30,383 230,588 5,697 17,809 56,250 620 7,608 646 349,601 Depreciation Opening Balance 0 18,750 434 0 31,176 305 5,010 608 56,283 Provided during year 0 7,774 1,112 0 4,242 52 (250) 8 12,938 Impairments 0 0 0 0 0 0 0 0 0 Reclassification 0 (31) 43 0 0 0 (12) 0 0 Indexation 0 1,873 0 0 668 7 0 13 2,561 Disposals 0 (36) (81) 0 (1,695) 0 (211) 0 (2,023) At 31 March 2004 0 28,330 1,508 0 34,391 364 4,537 629 69,759 Net Book Value Purchased 1 April 2003 28,288 155,957 0 24,855 13,078 188 2,901 25 225,292 Donated 1 April 2003 0 9,862 0 2,775 5,877 66 73 0 18,653 Total 31 March 2003 28,288 165,819 0 27,630 18,955 254 2,974 25 243,945 Purchased 31 March 2004

30,383 184,857 4,189 17,203 15,315 202 3,025 17 255,191

Donated 31 March 2004

0 17,401 0 606 6,544 54 46 0 24,651

Total 31 March 2004 30,383 202,258 4,189 17,809 21,859 256 3,071 17 279,842


10.2 The net book value of land, buildings and dwellings at 31 March 2004 comprises: 2004 2003 £000 £000

Freehold 235,975 192,989 Long leasehold 855 1,118 Short leasehold 0 0

TOTAL 236,830 194,107

11. Stocks and Work in Progress 2004 2003 £000 £000

Raw materials and consumables 8,347 5,743 Work-in-progress 0 0 Finished goods 0 0

8,347 5,743 12. Debtors 2004 2003 £000 £000

Amounts falling due within one year: NHS debtors 9,622 12,763 Provision for irrecoverable debts (110) (85) Other prepayments and accrued income 656 385 Other debtors 8,056 8,126

18,224 21,189

Amounts falling due after more than one year: Provision for irrecoverable debts (156) (109) Other debtors 1,556 1,858

19,624 22,938 13. Creditors 13.1 Creditors at the balance sheet date are made up of: 2004 2003 £000 £000

Amounts falling due within one year: Bank overdrafts 0 6,009 NHS creditors 6,510 22,365 Non - NHS trade creditors - revenue - other 8,863 8,126 Non - NHS trade creditors - capital 2,640 2,927 Tax and social security costs 6,946 624 Other creditors 223 198 Accruals and deferred income 5,108 4,582

30,290 44,831

NHS Creditors balance as at year end 2003/4 is significantly lower as in 2002/3 £14.7m was owed to PCT's in respect of cash brokerage.


14. Provisions for liabilities and charges Pensions Legal claims Other Total relating to

other staff £000 £000 £000 £000

At 1 April 2003 as previously stated 1,823 478 58 2,359 Prior Period Adjustments 0 0 0 0 At 1 April 2003, as restated 1,823 478 58 2,359 Change in the discount rate 216 0 0 216 Arising during the year - Other 49 173 1,731 1,953 Utilised during the year (119) (140) (32) (291) Reversed unused (12) (304) 0 (316) Unwinding of discount 0 (0) 0 0

At 31 March 2004 1,957 207 1,757 3,921

Expected timing of cashflows:

Within 1 year 116 99 1,736 1,951 1 - 5 years 567 99 10 676 Over 5 years 1,274 9 11 1,294

The 'Pensions relating to other staff' provision is additional pensions costs relating to early retirement due to injury £1,051,296 (2003 £1,059,939) and additional pension costs relating to pre 95 early retirments £905,304 (2003 £762,697). The injury benefits are offset by income receivable from Primary Care Trusts included within the back-to-back provisions. The 'Other Legal Claims' provision relates to employer's liability £206,664 (2003 £478,051). Half the balance is expected to be paid out within 1 year and the remainder with 1-5 years. Included under 'Other' is ancillary holiday pay £27,535 (2003 £57,469) and £1,729,252 relating to the expected additional costs of the new consultants contract. The element related to ancillary holiday pay reduces as staff leave the Trust and the element for the new consultants contract will be paid out in 2004/5 when the final details of the contracts are finalised. £11,155,085 is included in the provisions of the NHS Litigation Authority at 31/3/2004 in respect of clinical negligence liabilities of the trust (31/3/2003 £10,511,471).

15. Movements on Reserves

Movements on reserves in the year comprised the following: Revaluation Donated Income and Total reserve Asset Expenditure £000 £000 £000 £000

At 1 April 2003 as previously stated 58,820 18,651 1,752 79,223 At 1 April 2003, as restated 58,820 18,651 1,752 79,223

-Transfer from I&E account (5,418) (5,418) -Surplus on other revaluations/ indexation of fixed assets 19,515 1,345 20,860 -Transfer of realised profits (losses) to I&E reserve (388) 0 388 0

-Receipt of donated assets 6,311 6,311 -Depreciation, impairment,

and disposal of donated assets (1,657) (1,657) At 31 March 2004 77,947 24,650 (3,278) 99,319


16. Notes to the cash flow Statement 16.1 Reconciliation of operating surplus to net cash flow from operating activities: 2004 2003 £000 £000

Total operating surplus (deficit) 1,504 10,573 Depreciation and amortisation charge 14,163 12,199 Transfer from donated asset reserve (1,657) (1,381) (Increase)/decrease in stocks (2,604) (911) (Increase)/decrease in debtors 9,323 (4,178) Increase/(decrease) in creditors (14,470) 8,169 Increase/(decrease) in provisions 1,562 Net cash inflow from operating activities 7,821 24,471

16.2 Reconciliation of net cash flow to movement in net debt

2004 2003 £000 £000

Increase/(decrease) in cash in the period 78 93 Change in net debt resulting from cashflows 78 93 Net debt at 1 April 2003 881 788 Net debt at 31 March 2004 959 881

16.3 Analysis of changes in net debt At 31 March Cash changes At 1 April 2004 in year 2003 £000 £000 £000

OPG cash at bank 837 (6,053) 6,890 Commercial cash at bank and in hand 122 122 0 Bank overdrafts 0 6,009 (6,009)

959 78 881 17. Capital Commitments

Commitments under capital expenditure contracts at the balance sheet date were £41,545,000 (2002/03 £8,354,000), this increase is due to the size of the capital programme in 2003/4.

18. Post Balance Sheet Events

There were no material Post Balance Sheet events.


19. Contingencies 2004 2003 £000 £000

Gross Value (211) (245) Amounts recoverable (if any) 157 245

Net contingent liability (54) 0

Of the above contingent liabilities £53,632 relates to a potential liability under the new consultant contract and £157,175 relates to Public Liability and Employers Liability claims against the Trust. Any liability for Public and Employers Liability will e met by the NHSLA.

20. Movements in Government Funds 2004 2003 £000 £000

Surplus (deficit) for the financial year 1,926 12,493 Public dividend capital dividends (7,344) (12,333)

(5,418) 160

Gains (losses) from revaluation/indexation of purchased 19,515 26,748 fixed assets New public dividend capital (cash receipt) 24,467 10,528 New public dividend capital (transfer from dissolved NHS trust) 0 0 Public dividend capital repaid (1,410) 0

Net addition (reduction) in government funds 37,154 37,436

Opening government funds 213,675 176,239

Closing government funds 250,829 213,675

21. Financial Performance Targets 21.1 Breakeven performance

The Trust's breakeven performance for 2003/2004 is as follows: 2000 2001 2002 2003 2004 £000 £000 £000 £000 £000

Turnover 215,974 239,982 271,161 300,582 324,304 Retained surplus/(deficit) for the year 163 24 (50) 160 (5,418) Prior period adjustment 76 Break-even in-year position 163 24 (50) 160 (5,418) Break-even cumulative position 154 254 204 364 (5,054) - Anticipated financial year of recovery (if a break-even cumulative deficit only) 2008 - If anticipated financial year of recovery is more than two years state the period agreed with SHA 5 Materiality test:

- Break-even in-year position 0.08% 0.04% (0.02)% 0.05% (1.67)% - Break-even cumulative position 0.07% 0.11% 0.08% 0.12% (1.56)%


21.2 Capital cost absorption rate

The Trust is required to absorb the cost of capital at a rate of 3.5% of average relevant net assets. The rate is calculated as the percentage that dividends paid on public dividend capital, totalling £7,344k bears to the average relevant net assets of £205,673k, that is 3.6%. Prior to 2003/04, the cost of capital rate was 6% of average relevant net assets. However, funding of NHS commissioners was changed at the time of change of the rate in such a way that the ability to meet the target was unaffected. The average relevant net assets calculation differs from 02/03 as no adjustment is made to the net relevant assets and associated creditors for government granted assets and loans and overdrafts.

21.3 External financing

The Trust is given an external financing limit, which it is permitted to undershoot. 2004 2003 £000 £000

External financing limit set by the Department of Health 22,977 10,211 Cash flow financing 30,467 10,209 Other capital receipts (7,488) 0 External financing requirement 22,979 10,209

Undershoot/(overshoot) (2) 2

21.4 Capital Resource Limit

The Trust is given a Capital Resource Limit, which it is not permitted to overspend 2004 2003 £000 £000

Gross capital expenditure 32,538 31,493 Less: book value of assets disposed of (1,242) (3,767) Plus: loss on disposal of donated assets 6 0 Less: capital grants (1,177) 0 Less: donations (6,311) (3,424)

Charge against the CRL 23,814 24,302 Capital resource limit 23,558 24,339

(Over)/Underspend against the CRL (256) 37

The Trust breached its CRL by £256k due to a late capitalisatoin of Digital Hearing Aids in order to comply with the Manual For Accounts.


22. Related Party Transactions

Southampton University Hospitals NHS Trust is a body corporate established by order of the Secretary of State for Health. During the year none of the Board Members or members of the key management staff or parties related to them has undertaken any material transactions with Southampton University Hospitals NHS Trust.

The Department of Health is regarded as a related party. During the year Soutampton University Hospitals NHS Trust has had a significant number of material transactions with the Department, and with other entities for which the Department is regarded as the parent Department. These entities are listed below:

Hampshire and Isle of Wight Strategic Health Authority £199k Southampton City Primary Care Trust £89,164k Eastleigh and Test Valley Primary Care Trust £29,938k New Forest Primary Care Trust £44,239k NHS Supplies Authority NHS Litigation Authority

In addition, the Trust has had a number of material transactions with other Government Departments and other central and local Government bodies. Most of these transactions have been with the Department for Education and Skills.

The Trust has also received revenue and capital payments from a number of charitable funds, certain of the Trustees for which are also members of the NHS Trust Board. [The Summary Financial Statements of the Funds Held on Trust are included in this annual report and accounts.]

23. Financial Instruments

FRS 13, Derivatives and Other Financial Instruments, requires disclosure of the role that financial instruments have had during the period in creating or changing the risks an entity faces in undertaking its activities. Because of the continuing service provider relationship that the NHS Trust has with local Primary Care Trusts and the way those Primary Care Trusts are financed, the NHS Trust is not exposed to the degree of financial risk faced by business entities. Also financial instruments play a much more limited role in creating or changing risk than would be typical of the listed companies to which FRS 13 mainly applies. The NHS Trust has limited powers to borrow or invest surplus funds and financial assets and liabilities are generated by day-to-day operational activities rather than being held to change the risks facing the NHS Trust in undertaking its activities.

As allowed by FRS 13, debtors and creditors that are due to mature or become payable within 12 months from the balance sheet date have been omitted from all disclosures other than the currency profile.

Liquidity risk The NHS Trust's net operating costs are incurred under annual service agreements with local Primary Care Trusts, which are financed from resources voted annually by Parliament. The Trust also largely finances its capital expenditure from funds made available from Government under an agreed limit. Southampton University Hospitals NHS Trust is not, therefore, exposed to significant liquidity risks.


Interest-Rate Risk 75% of the Trust's financial assets and 100% of its financial liabilities carry nil or fixed rates of interest. Southampton University Hospitals NHS Trust is not, therefore, exposed to significant interest-rate risk. The following two tables show the interest rate profiles of the Trust's financial assets and liabilities:

23.1 Financial Assets Fixed rate Total Floating Fixed Non-interest Weighted Weighted period rate rate bearing interest rate for which fixed Currency £000 £000 £000 £000 % Years At 31 March 2004 Sterling 959 959 0 0 0 0 Other 2,857 0 1,301 1,556 350 29 Gross financial assets 3,816 959 1,301 1,556 At 31 March 2003 Sterling 10,013 6,890 3,123 0 6 29 Other 0 0 0 0 0 0 Gross financial assets 10,013 6,890 3,123 0 23.2 Financial Liabilities Fixed rate Total Floating Fixed Non-interest Weighted Weighted period rate rate bearing interest rate for which fixed Currency £000 £000 £000 £000 % Years At 31 March 2004 Sterling 0 0 0 0 0 0 Other 178,366 0 2,206 176,160 4 29 Gross financial liabilities 178,366 0 2,206 176,160 At 31 March 2003 Sterling 7.832 6,009 1,823 6 29 Other 0 0 0 0 0 0 Gross financial liabilities 7,832 6,009 1,823 0 23.3 Foreign Currency Risk

The Trust has no/negligible foreign currency income or expenditure.


23.4 Fair Values Set out below is a comparison, by category, of book values and fair values of the NHS Trust's financial assets and liabilities as at 31 March 2004.

Book Value Fair Value Basis of fair valuation £000s £000s

Financial assets Cash 959 959 Debtors over 1 year: - Agreements with commissioners to

cover creditors and provisions 2,857 2,701 Note a

Total 3,816 3,660

Financial liabilities Book Value Fair Value Basis of fair valuation £000s £000s

Provisions under contract (3,921) (3,921) Note d Public dividend capital* (176,160) (176,160) Note e

Total (180,081) (180,081)

a These debtors reflect agreements with commissioners to cover creditors over 1 year for early retirements and provisions under contract, and their related interest charge/unwinding of discount. In line with notes c and e, below, fair value is not significantly different from book value.

d Fair value is not significantly different from book value since, in the calculation of book value,

the expected cash flows have been discounted by the Treasury discount rate of 3.5% in real terms.

e The figure here should be the full value of PDC in the balance sheet and 'book value' should

equal 'fair value'. 24. Third Party Assets

The Trust held £9,332 cash at bank and in hand at 31/03/04 (£9,847 - Prior Year) which relates to monies held by the NHS Trust on behalf of patients. This has been excluded from cash at bank and in hand figure reported in the accounts.


Section 8: Charitable Fund Accounts 2003/2004 Registered Charity No 1051543 _______________________________________________________________________ These accounts have been prepared by the Trust under section 98(2) of the National Health Service Act 1977 (as amended) in the form which the Secretary of State has, with the approval of the Treasury, directed. The NHS and Community Care Act 1990 empowers NHS Trusts to accept donations, hold charitable funds on trust and raise monies by charitable appeals. Southampton University Hospitals NHS Trust administers funds for the provision of patient care, staff welfare and research, with the Trust Board acting as Corporate Trustee. All of our Directorate funds have been officially registered with the Charity Commission under a common registration number. The Southampton University Hospitals General Purpose Fund is our only unrestricted fund and all other funds are restricted either by directorate, location or purpose. We do not hold any endowment funds at this time. Investment of Funds

�� Following the guidance within the Charity Commission’s Statement of Recommended Practice entitled ‘Accounting by Charities’ the Trustees have apportioned both realised and unrealised gains arising from investments to each of our funds on a pro-rata basis.

�� The market value of investments with Schroders & M&G rose over the year from

£2,614,000 to £2,999,000. This reflects a steady recovery of global financial markets and a very impressive performance by M&G. Cash held by the investment broker was reduced from £1,032,000 at 1 April 2003 to £325,232 at 31 March 2004 representing the transfer of investments from HSBC to Schroders & M&G at the beginning of the financial year.

�� The Trustees have invested funds adopting a diverse approach with 55% of assets

allocated to equities; 10% to bonds; 10% to hedge funds (low risk); 10% to commercial property and 15% to cash.

��Our overall investment performance with Schroders shows a positive +9.84% total annual

return based on capital growth and income generated covering the period 28 May 2003 to 31 March 2004, as against M&G’s total annual return of +24.40%. It was agreed by Trustees that Schroders should gradually re-invest during the year as opportunities arose, hence the return does not cover the period 01 April 2003 to 27 May 2003. An official pooling scheme is operated for investments and was registered with the Charity Commission in June 1998.

Income and Expenditure

�� The income and expenditure position of these charitable funds is summarised on page 65 with considerable monies coming into the Trust and being spent on improving patient care, staff welfare, research and equipment.

�� Income for the year totalled £1,801,000 mainly from donations and legacies. A total of

£190,000 was received in March 2004 for the development of Romsey Hospital with £107,000 received from Wessex Heartbeat Charity towards Cardiothoracic medical equipment . A further £57,000 was received from dividends and interest on investments.

��Expenditure totalled £1,318,000 including £826,000 spent on patient and staff amenities,

£70,000 on research and £389,000 on equipment and capital projects. This resulted in excess income of £431,000 thereby increasing our level of reserves. Of this total of £1,318,000 we spent 96% on direct charitable activities in furtherance of our aims; 1% on


costs of generating funds, (a very low cost-ratio within the sector); and 3% on management and administration (well below the average cost-ratio).

��Major items of expenditure included £183,000 spent on Cardiothoracic equipment;

£160,000 on Romsey Hospital Development, plus £77,000 on specialised Neonatal equipment including ventilators.

The total value of our charitable funds inclusive of net current assets is £3,953,000 at the 31 March 2004 that represents a sound financial position. Over the past year, after taking account of the requirement to build up depleted reserves and £190,000 income received in late March 2004 for Romsey Hospital development, expenditure has broadly matched income, which is in line with the Trust’s Reserves Policy. Boosted by a positive total return on investments, the overall charitable funds of the Trust remain in a healthy position with a high level of income being secured during the year. Ben Lloyd Director of Finance


INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES OF THE SOUTHAMPTON UNIVERSITY HOSPITALS NHS TRUST FUNDS HELD ON TRUST I/we have audited the financial statements on pages 67 to 68 which have been prepared in accordance with the Statement of Recommended Practice 2000: Accounting and Reporting by Charities and with the accounting policies relevant to the National Health Service. Respective Responsibilities of Trustees and Auditors As described on page 65, the Trustees are responsible for the preparation of financial statements in accordance with the Statement of Recommended Practice 2000: Accounting and Reporting by Charities and directions issued by the Secretary of State. My/our responsibilities, as independent auditors, are established by statute, the Code of Audit Practice issued by the Audit Commission and my/our profession's ethical guidance. I/we report to you my/our opinion as to whether the financial statements give a true and fair view of the financial position and result of operation of the charitable funds. In accordance with regulations made under section 44 of the Charities Act 1993, the charity has been granted a dispensation under section 9(2)(a) of the Charities (Accounts and Reports) Regulations 1995, permitting the audit to be carried out by the auditor appointed by the Audit Commission. Basis of audit opinion I/we conducted our audit in accordance with the Charities Act 1993, the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Trustees in the preparation of the financial statements, and of whether the accounting policies are appropriate to the fund's circumstances, consistently applied and adequately disclosed. I/we planned and performed my/our audit so as to obtain all the information and explanations which I/we considered necessary in order to provide me/us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my/our opinion, I/we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In my/our opinion, the financial statements give a true and fair view of the funds held on trust at 31 March 2004 and of the incoming resources and application of resources for the year then ended and have been properly prepared in accordance with the Statement of Recommended Practice 2000: Accounting and Reporting by Charities. Signature:…………………...................................... Date:…………………………. Name:…….....………..................................………………… Address:……………..............................................…………. ........................................................................... ........................................................................... ...........................................................................


CHARITABLE FUNDS STATEMENT OF FINANCIAL ACTIVITY FOR THE YEAR ENDED 31 MARCH 2004 2004 2003 INCOME £000 £000 Donations 753 1,279 Legacies 473 553 Grants receivable from other NHS bodies 0 0 Other grants receivable 126 12 Investment income 57 111 Other income 392 117 Total Incoming Resources 1,801 2,072 EXPENDITURE Administration expenses 37 31 Patients' welfare and amenities 419 216 Staff welfare and amenities 407 386 Research 70 209 Contributions to NHS 389 806 Costs of generating funds 15 102 Other expenditure including fund balances transferred to Exchequer 33 60 ______ ______ Total 1,370 1,810 Net (Outgoing)/Incoming Resources 431 262 Gains/(losses) on Revaluation and Disposal of Investment Assets: 383 (1068) ______ ______ Net Movement in Funds 814 (806) Fund Balances brought forward 31 March 2003 3,139 3,945 ______ ______ Fund Balances carried forward 31 March 2004 3,953 3,139


CHARITABLE FUNDS - BALANCE SHEET AS AT 31 MARCH 2004 2004 2003 FIXED ASSETS £000 £000 Investments 2,999 2,614 ______ ______ CURRENT ASSETS Debtors 85 9 Short term investments and deposits 0 16 Cash at bank and in hand 1,137 613 ______ ______ 1,222 638 CURRENT LIABILITIES Creditors: Amounts falling due within one year (268) (113) ______ ______

NET CURRENT ASSETS 954 525 ______ ______ NET ASSETS 3,953 3,139 RESERVES - INCOME FUNDS Restricted 3,944 3,128 Unrestricted 9 11 ______ ______ TOTAL FUNDS 3,953 3,139

annual report and accounts 2003/4

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