nhs chiltern clinical commissioning group chiltern ccg.pdf · annual audit letter for the year...

Ernst & Young LLP

NHS Chiltern ClinicalCommissioning GroupAnnual Audit Letter for the year ended 31 March 2016

July 2016

Contents

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Contents

Executive Summary ................................................................................................................................................................................ 2

Purpose .................................................................................................................................................................................................. 6

Responsibilities....................................................................................................................................................................................... 8

Financial Statement Audit ..................................................................................................................................................................... 10

Value for Money .................................................................................................................................................................................... 13

Other Reporting Issues .......................................................................................................................................................................... 15

Focused on your future ........................................................................................................................................................................ 188

Appendix A Audit Fees ................................................................................................................................................................... 233

In April 2015 Public Sector Audit Appointments Ltd (PSAA) issued ‘‘Statement of responsibilities of auditors and audited bodies 2015-16’. It is available from the Chief Executive ofeach audited body and via the PSAA website (www.psaa.co.uk)

The Statement of Responsibilities serves as the formal terms of engagement between appointed auditors and audited bodies. It summarises where the different responsibilities ofauditors and audited bodies begin and end, and what is expected of the audited body in certain areas.The ‘Terms of Appointment from 1 April 2015’ issued by PSAA sets out additional requirements with which auditors must comply, over and above those set out in the National AuditOffice Code of Audit Practice (the Code) and statute, and covers recurrent matters of practice and procedure.

This Annual Audit Letter is prepared in the context of the Statement of Responsibilities. It is addressed to the Directors of the audited body, and is prepared for their sole use. Asappointed auditor, we take no responsibility to any third party.

Our Complaints Procedure – If at any time you would like to discuss with us how our service to you could be improved, or if you are dissatisfied with the service you are receiving, youmay take up the issue with your usual partner or director contact. If you prefer an alternative route, please contact Steve Varley, our Managing Partner, 1 More London Place, LondonSE1 2AF. We undertake to look into any complaint carefully and promptly and to do all we can to explain the position to you. Should you remain dissatisfied with any aspect of ourservice, you may of course take up these matters with our professional institute. We can provide further information on how to contact them.

Executive Summary

Annual Audit Letter for the year ended 31 March 2016 – NHS Chiltern Clinical Commissioning Group

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Executive Summary

We must issue an Annual Audit Letter to Chiltern Clinical Commissioning Group (the CCG) following completion of our audit procedures for the yearended 31 March 2016.

The results and conclusions on the significant areas of the audit are shown below.

Area of Work Conclusion

Opinion on the CCG’s:► Financial statements. Unqualified – the financial statements give a true and fair view of the financial position of the

CCG as at 31 March 2016 and of its expenditure and income for the year then ended.

► Regularity of income and expenditure. Unqualified – financial transactions were conducted within the CCG legal framework.

► Parts of the remuneration and staff report tobe audited.

We had no matters to report.

► Consistency of the Annual Report and otherinformation published with the financialstatements.

Financial information in the Annual Report and published with the financial statements wasconsistent with the Annual Accounts.


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Reports by exception:► Consistency of Governance Statement The Governance Statement was consistent with our understanding of the CCG.

► Referrals to the Secretary of State and NHSEngland


► Public interest report We had no matters to report in the public interest.

► Value for money conclusion We had no matters to report.


Reporting to the CCG on its consolidationschedules.

We concluded that the CCG’s consolidation schedules agreed, within a £250,000 tolerance, tothe audited financial statements.

Reporting to the National Audit Office (NAO) inline with group instructions.



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As a result of the above we have also:


Issued a report to those charged withgovernance of the CCG, giving the significantfindings resulting from our audit.

Our Audit Results Report was issued to the Audit Committee on 18 May 2016, and updated on25 May 2016.

Issued a certificate that we have completed theaudit in accordance with the requirements of theLocal Audit and Accountability Act 2014 and theNational Audit Office’s 2015 Code of AuditPractice.

Our certificate was issued on 25 May 2016.

We would like to take this opportunity to thank the CCG and CSU’s staff for their assistance during the course of our work.

Maria Grindley

Executive DirectorFor and on behalf of Ernst & Young LLP

Purpose


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Purpose

The Purpose of this LetterThe purpose of this Annual Audit Letter is to communicate the key issues arising from our work, and which we consider should be reported to theClinical Commissioning Group (CCG), to Directors and external stakeholders, including members of the public.

We have already reported our detailed audit findings in our 2015/16 Annual Results Report to the Audit Committee, representing those chargedwith governance. We do not repeat them here.

Responsibilities


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Responsibilities

Responsibilities of the Appointed AuditorWe carried out our 2015/16 audit work as proposed in the Audit Plan issued on 30 March 2016. We acted in accordance with the National AuditOffice's 2015 Code of Audit Practice, International Standards on Auditing (UK and Ireland), and other guidance issued by the National Audit Office.

As auditors we are responsible for expressing an opinion on:

► the 2015/16 financial statements;

► the regularity of expenditure and income;

► the parts of the remuneration and staff report to be audited;

► the consistency of other information published with the financial statements, including the Annual Report; and

► whether the consolidation schedules are consistent with the CCG's financial statements for the relevant reporting period.

Also we must report by exception:

► if the Annual Governance Statement does not comply with relevant guidance or is not consistent with our understanding of the CCG;

► to the Secretary of State for Health and NHS England if we have concerns about the legality of the CCG’s transactions or decisions;

► any significant matters in the public interest; and

► forming a conclusion on the CCG’s arrangements to secure economy, efficiency and effectiveness in its use of resources.

Responsibilities of the CCGThe CCG is responsible for preparing and publishing its statement of accounts, Annual Report and Annual Governance Statement. It is alsoresponsible for having proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Financial StatementAudit


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Financial Statement Audit

Key IssuesThe Annual Report and Accounts is an important tool for the CCG to show how it has used public money and can demonstrate its financialmanagement and financial health.

We audited the CCG’s Statement of Accounts in line with the National Audit Office’s 2015 Code of Audit Practice, International Standards onAuditing (UK and Ireland), and other guidance issued by the National Audit Office. We issued an unqualified audit report on 25 May 2016.

Our detailed findings were reported to the 18 May 2016 Audit Committee and 9 June 2016 Governing Body meeting.

The key issues identified in our audit were:

Significant Risk Conclusion

Management override of controls We have not identified any material weaknesses in controls or evidence of materialmanagement override.We have not identified any instances of inappropriate judgements being applied.

Revenue and expenditure recognition Our testing has not revealed any material misstatements related to either revenue orexpenditure recognition.

Better Care Fund We satisfied ourselves that the accounting treatment in the financial statements wasappropriate.


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Other Key Findings Conclusion

Some CSU staff involved in the financialstatements process were relatively new to theirrole, with less experience of the financialstatements preparation and audit process. Staffat the CSU were also continuing to experienceorganisational change at a time when theirresponsibilities include preparing financialstatements and supporting working papers for anumber of CCGs across the area.There was therefore a risk that the CSU mightnot have the capacity to prepare a set ofaccounts, fully supported by good qualityworking papers, by the statutory deadline.

We did not receive full working papers on 22 April, the due dateWe highlighted a quality issue to the CSU arising from inexperienced staff. The CSU wereaware of this, but did not tell us beforehand, which endangered the deadline in some areas.We also needed to involve managers and repeat requests, which meant work took longer thanoriginally planned. We propose to charge an extra fee of £2,231 to cover this (see AppendixA).

Some amendments were required to the relatedparties information and remuneration report.

These amendments were made.

There was a casting error in the Statement ofChanges to Taxpayers’ Equity.

We reported this in our ARR as it was above the level requiring us to do so: however it did notaffect the CCG’s overall financial position (£28.5m brought forward figure had been wronglyadded in).

Value for Money


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Value for Money

We must consider whether the CCG has ‘proper arrangements’ to secure economy, efficiency and effectiveness in its use of resources. This isknown as our value for money conclusion.

Proper arrangements are defined by statutory guidance issued by the National Audit Office. They consist of the CCG’s arrangements for:

· taking informed decisions;· deploying resources in a sustainable manner; and· working with partners and other third parties.

Our audit did not identify any significant matters in relation to the CCG’s arrangements.

We note that the financial environment is expected to become more challenging in future (see the section “Focused on your future”).

Proper arrangements forsecuring value for money

Informeddecision making

Working withpartners andthird parties

Sustainableresource

deployment

Other ReportingIssues


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Other Reporting Issues

Department of Health/NHS England Group InstructionsWe need only report to the NAO by exception, i.e. if there were significant issues or outstanding matters arising from our work. There were no suchissues.

Annual Governance StatementWe are required to consider the completeness of disclosures in the CCG’s Annual Governance Statement, identify any inconsistencies with theother information which we know about from our work, and consider whether it complies with relevant guidance.

We did not identify any areas of concern.

Breach of revenue resource limit and referral to Secretary of StateWe must report to the Secretary of State any matter where we believe a decision has led or would lead to unlawful expenditure, or some action wasor would be unlawful and likely to cause a loss or deficiency. We had no exceptions to report.

Report in the Public InterestWe have a duty under the Local Audit and Accountability Act 2014 to consider whether it is in the public interest for us to report on any matterthat comes to our attention in the course of the audit, either for consideration by the CCG or brought to the attention of the public.

We did not identify any issues which required us to do this.

Control Themes and ObservationsAs part of our work, we obtained enough understanding of internal controls to plan our audit and determine the nature, timing and extent of ourtesting. Although our audit was not designed to express an opinion on the effectiveness of internal control, we must communicate any significantdeficiencies we found to the CCG.

The matters reported below are limited to deficiencies identified during the audit which we concluded are important enough to report to the CCG.


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Description Impact

1. Journals:Testing of journals identified a number ofjournals prepared and approved by the sameperson.

An important element of financial control is segregation of duties, which means differentindividuals should be involved in the preparation and authorisation of journals to help minimiseany risk to the CCG: we also found this in previous audits. We note there is a process ofretrospective authorisation and advise using these journals as seldom as possible.

2. Payroll Contracts:As part of our payroll testing we asked to see anumber of employee contracts to supportemployee remuneration. We were told that theHR recruitment service had recently (April2016) been brought back in house by the CSUand that it was not possible to locate therelevant employee contracts. We found thatthese contracts were for sessional GPs who hadrecently come on to the payroll so we areconfident that the risk here is both minimal andbeing addressed.

HR governance processes (including contract management) should ensure that any riskexposure to the CSU or CCG from lack of contractual terms is minimised.

3. Payroll Authorisation:Salisbury Foundation Trust do not have currentauthorisation to run the main payroll to payemployees.

It is good practice to have appropriate authorisation of the payroll run to ensure that onlyvalid payments are made. An appropriate level of authorisation from the CCG/CSU shouldinstruct Salisbury Foundation Trust.

Focused on yourfuture


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Focused on your future

Area Issue Impact

NHS providerfinancialpressures

Draft 2015/16 financial statements show NHS providers overspentby a record £2.45 billion for the year. The scale of this overspendingis unprecedented. Despite additional funding and significant efforts toreduce deficits, record numbers of trusts overspent and the overalldeficit is likely to be three times higher than in 2014/15. Some 48trusts reported a deficit of more than £20 million, including 11 trustsreporting an individual deficit of more than £50 million.At the same time, performance against key targets is continuing todeteriorate and there are increasing concerns over the quality ofservices. Providers as a whole missed the Accident and Emergencywaiting target of seeing 95% of patients within four hours in the finalquarter of the year, and waiting lists for routine operations reached£3.34 million.It is not yet clear whether trusts’ financial performance will cause theDepartment of Health to exceed its spending limit for 2015/16, aserious breach of parliamentary protocol. In either case, NHS trustswill start 2016/17 with a collective deficit of around £1 billion morethan planned. Without change there is the potential for the increasingfinancial pressure to have a further impact on levels of patient care.

The scale of the financial challenges faced by NHSproviders has an impact on all aspects of theiroperations, and on the CCGs who commission servicesfrom them. It is therefore a key driver of audit risk andaffects our approach.We will consider this risk as part of our value formoney conclusion in the coming year.


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Area Issue Impact

Better CareFund

The Better Care Fund (BCF) is a series of pooled budgets betweenCCGs and local government bodies aimed at better integration ofhealth and social care, and so an improved experience and betterquality care for patients. 2016/17 will be the BCF’s second year andmany partners will be developing their plans for collaborativeworking, including:► reviewing care pathways to deliver improved patient outcomes

and genuine system-wide efficiencies;► revisiting governance arrangements in the light of the first year;► working towards fully integrating commissioning;► further honing of arrangements for reporting financial and

non-financial information; and► delivering fair risk sharing arrangements between partners.

Partners will need to work together to a far greaterextent than previously to ensure that sustainability andfinancial plans are both viable and successfullydelivered. Failure to do this could have wider adversefinancial and service delivery consequences across thewhole local area.As the CCG’s external auditor we need to understandyour wider approach and plans, and the impact ofgreater partnership working on its governance,internal control and financial reporting.

SustainabilityandTransformationPlans

NHS England’s document, Delivering the Forward View: NHS planningguidance 2016/17-2020/21, published December 2015, asks localhealth systems, including local government, voluntary, andcommunity partners to work together to secure change in healthcareplanning and delivery.England has been divided into 44 local health systems, including localcouncils, CCGs and NHS and other providers. By the end of June2016 each health system must produce a Sustainability andTransformation Plan for the next five years.The initial requirement is for CCGs and providers to controlexpenditure and stay within budget in 2016/17. Spending andperformance will then need to be managed for the next four years inorder to access the available transformation funding. This is intendedto fund changes to service delivery while maintaining and improvingpatient safety and quality up to 2020/21. Failure to deliver on agreedtargets will result in bodies being unable to access transformationfunding, which will be the only additional funding available.

Partners will need to work together to a far greaterextent than previously to ensure that sustainability andfinancial plans are both viable and successfullydelivered. Failure to do this could have wider adversefinancial and service delivery consequences across thewhole local area.As the CCG’s external auditor we need to understandyour wider approach and plans, and the impact ofgreater partnership working on its governance,internal control and financial reporting.


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Area Issue Impact

Co-commissioning

Co-commissioning aims to support the development of integratedout-of-hospital services based on the needs of local people. It is partof a wider strategy for joint care in and out of hospital and improvingservices.CCGs were invited to take an increased role in commissioning GPservices through three co-commissioning models.► Greater involvement – CCGs collaborate more closely with their

local NHS England teams in decisions about primary care services.► Joint commissioning – enables one or more CCGs jointly to

commission GP services with NHS England through a jointcommittee.

► Delegated commissioning – CCGs assume full responsibility forcommissioning GP services.

Over half of CCGs now operate under the delegated model. 63 CCGstook on full delegation in 2015/16 and another 51 have agreeddelegated arrangements from 1 April 2016. There will also be moreopportunities for CCGs without joint or delegated arrangements totake up greater responsibility for commissioning GP services.

Adopting co-commissioning processes, especially fullydelegated arrangements, exposes CCGs to a greaterrisk of conflicts of interest, both real and perceived.CCGs must strengthen their arrangements in this areafollowing the issue of NHS England guidance - and theaudit of arrangements against that guidance - whichidentified weaknesses and inconsistencies ingovernance arrangements, training, and processes todeclare and record conflicts.Gaining assurance for fully delegated arrangementswhere relevant expenditure is accounted for by CCGsalso posed challenges for external auditors in2015/16. Specifically:► systems and processes for fully delegated

arrangement are not all operated locally by CCGs.Gaining a full understanding of the system can bedifficult.

► CCGs rely on the work of service organisations toensure the accurate initiation, processing andrecording of co-commissioning transactions. Therehave been challenges in gaining timely andcomplete assurance over the work of serviceorganisations.

► in 2015/16 detailed transactions were recorded onthe ledger of NHS England rather than locally byindividual CCGs. It was therefore difficult to testthose transactions directly to gain assurance.

Changes to arrangements nationally in 2016/17should help to ensure that some of these issues areresolved. However CCGs should continue to engagewith us on changes made to local arrangements toinform our audit approach.


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Area Issue Impact

EU referendum The decision of the UK to begin the process of leaving the EU hasintroduced a period of uncertainty for the UK and indeed Globaleconomy. The Leave vote is likely to lead to a significant impact forthe public sector as it will be the sector that has to deliver theimplementation of the decision. There has been a change of PrimeMinister and other changes to the cabinet as a result. In addition anopposition leadership contest is also taking place. This level ofpolitical change and uncertainty will only increase uncertainty bothwithin the public sector and in the business world.

Many of the issues and challenges that face the UKpublic sector will continue to exist, not least becausecontinued pressure on public finances will needresponding to. Additionally it may well be that thechallenges are increased if the net economic impact ofthe vote to leave the EU results in further constraintson public sector spending which require moreinnovative solutions.

We are committed to supporting our clients throughthis period, and help identify the opportunities that willalso arise. We will talk with you on the concerns andquestions you may have and provide our insight at keypoints along the path.

Audit Fees

Appendix A


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Appendix A Audit Fees

We have charged additional fee for 2015/16 above the scale fee set by the PSAA and reported in our 30 March 2016 Audit Plan and the AnnualResults Report. This is because of the extra work required because of difficulties obtaining information from the CSU during the audit of thefinancial statements discussed above (see p.11).

DescriptionFinal Fee 2015/16GBP

Planned Fee 2015/16GBP

Scale Fee 2015/16GBP

Final Fee 2014/15GBP

Total Audit Fee – Code work Not yet finalised 54,075 54,075 72,100

We confirm we have not undertaken any non-audit work outside the PSAA’s requirements. The proposed additional fee of £2,231 is with the PSAAfor their consideration.

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