Transcript KPMG Report Portrait Template 1

INFRASTRUCTURE, GOVERNMENT AND
HEALTHCARE
External Audit: Annual
Audit Letter 2006-07
The Shrewsbury and Telford
Hospital NHS Trust
August 2007
AUDIT
Content
Page
The contacts at KPMG
in connection with this
report are:
Key messages
2
Key issues arising from use of resources work
3
Tel: 0121 232 3308
[email protected]
Key issues arising from the audit of the accounts
4
Helen Dempsey
Senior Manager
KPMG LLP (UK)
Appendices
Will Carr
Partner
(UK)
Tel: 0121 232 3901
[email protected]
Simon Stanyer
Assistant Manager
KPMG LLP (UK)
Tel: 0121 232 3694
[email protected]
KPMG LLP
1.
Key recommendation themes
2.
Reports issued in relation to the 2006-07 audit
Purpose
The purpose of this Annual Audit Letter (the letter) is to summarise the key issues arising from the work that we have carried
out during 2006-07 at The Shrewsbury and Telford Hospital NHS Trust.
Although this letter is addressed to the directors of the Shrewsbury and Telford Hospital NHS Trust (‘you’), it is also intended
to communicate those key issues to key external stakeholders, including members of the public. The letter will be published on
the Audit Commission website at www.audit-commission.gov.uk. It is the responsibility of the Trust to publish the letter on
the Trust website at www.sath.nhs.uk.
Responsibilities of the auditor and the Trust
We have been appointed by the Audit Commission as your independent external auditor. The Audit Commission has issued a
document entitled Statement of Responsibilities of Auditors and Audited Bodies which is available from www.auditcommission.gov.uk. This summarises where the responsibilities of auditors begin and end and what is expected from you as
the audited body. External auditors do not act as a substitute for the audited body’s own responsibility for putting in place
proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that
public money is safeguarded and properly accounted for, and used economically, efficiently and effectively.
The scope of our work
The statutory responsibilities and powers of appointed auditors are set out in the Audit Commission Act 1998. Our main
responsibility is to carry out an audit that meets the requirements of the Audit Commission’s Code of Audit Practice (the
Code). Under the Code we are required to review and report on:
•the use of resources - that is whether you have made proper arrangements for securing economy, efficiency and effectiveness
(‘value for money’) in your use of resources
•the accounts – that is the financial statements and the Statement on Internal Control.
If you have any concerns or are dissatisfied with any part of KPMG’s work, in the first instance you should contact Will Carr who is the engagement director to
the Trust, telephone 0121 232 3308email [email protected] who will try to resolve your complaint. If you are dissatisfied with your response please contact
Trevor Rees on 0161 246 4000, email [email protected], who is the national contact partner for all of KPMG’s work with the Audit Commission. After this,
if you still dissatisfied with how your complaint has been handled you can access the Audit Commission’s complaints procedure. Put your complaint in writing to
the Complaints Team, Nicholson House, Lime Kiln Close, Stoke Gifford, Bristol, BS34 8SU or by e mail to: [email protected]. Their
telephone number is 020 7166 2349, textphone (minicom) 020 7630 0421.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
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Section One
Key messages
This letter summarises the significant issues arising from our audit work in 2006/07. We highlight both areas of good performance and provide recommendations to support
areas where you could improve performance. A summary of our key recommendations drawn from our previous reports is summarised in Appendix 1. The issues
summarised in this letter have previously been reported to you and a list of all reports issued to you in relation to the 2006/07 audit is provided in Appendix 2.
Financial Management
The Trust has experienced severe financial pressures since its establishment. The financial plan for 2006/07 included a £9.4 m Cost Improvement Programme (CIP), of which
£2.2m was unidentified at the start of the year. In addition, the budget also included £2.8 m financial support from the West Midlands NHS bank. The audited deficit was
£2.84m for the year ended 31st March 2007.
Although still in deficit, the Trust’s financial performance in 2006/07 represented a significant improvement over previous years. Whilst not achieving its full CIP, and
experiencing some areas of overspending, the Trust significantly over performed on activity. This resulted in a favourable variance to income. The Trust achieved financial
balance on its monthly run rate, i.e. the difference between income and expenditure, for the first time in February 2007 with an in-month surplus of £0.945m being reported.
This was followed by a surplus run rate in March 2007 of £0.325m. This trend has continued into 2007/08 and continues to be projected for the remainder of the financial
year.
The Trust Board approved the 2007/08 budget on 28 th March 2007. The budgeted surplus for the year is £4.1m. This equals the amount required to repay the principal due on
the working capital loan of £12.299m which the Trust received in 2006/07 to underpin its cash position. The 2007/08 budget included a CIP of £7.5m, which is a particular
challenge given the £9.4m CIP included within the 2006/07 budget. At the time that the 2007/08 CIP was developed, £2.2m remained unidentified.
As at 30 June 2007 (the latest figures available at the time of drafting this letter) the Trust reported a in-year surplus of £0.175m which is consistent with budget and based
upon prudent assumptions on activity.. Although still at risk, the Trust’s financial health is improving, and based on current assumptions, the Trust’s forecast remains £4.1m
surplus for the full year.
Foundation Trust process
The Trust has met the initial eligibility requirements for Foundation Trust status and has entered into the Department of Health pre-admission phase of the application
process. The Trust is awaiting confirmation from the Department of Health that its assessment will be completed by Monitor as a wave 8 applicant in April 2008. If successful
in its Monitor assessment, the Foundation Trust licence would be granted from 1July 2008.
As part of the application process, the Trust must finalise a detailed integrated strategic business plan (IBP) for formal submission in March 2008.The IBP sets out the Trust’s
strategy for the next five years. This is an evolving document which should assist the Trust to plan for the risks and opportunities it will face as an independent public benefit
corporation.
As part of the process, the Trust is also required to prepare a long term financial model (LTFM). The financial projections will form the basis for the discussions of the Trust’s
future plans at the “Board to Board” meeting. At the Board to Board meetings the Trust will be required to present its IBP to the Monitor Board which will ask questions and
challenge the Trust’s application.
Taken alongside the financial recovery process, the Foundation Trust application process will prove a significant challenge in terms of management capacity to deliver the
workload required. The Board will need to ensure that its focus remains balanced between reviewing day to day performance issues, whilst developing and challenging the
future strategies and plans and levels of documentation and review which are needed to deliver the ambition to achieve Foundation Trust status.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
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Section Two
Key issues arising from use of resources work
The main elements of our use of resources work are:
•
Auditor’s Local Evaluation (ALE) - we are required to assess how well NHS bodies manage and use their financial resources by providing scored judgements on your
•
Value for money conclusion – in part based on the ALE assessment above, we are required to issue a conclusion on whether we are satisfied that you have put in place
•
Specific risk based work - we have not performed any risk based work to support our use of resources opinion.
arrangements in five specific areas.
proper arrangements for securing economy, efficiency and effectiveness in your use of resources.
The key findings from this work are summarised below.
Element of work
Key findings
Our assessment of The Shrewsbury and Telford Hospital NHS Trust against the five nationally specified areas resulted in the following scores on a
scale of one (inadequate) to four (excellent).
Area
Auditors Local Evaluation
Score
Financial reporting
2
Financial management
2
Financial standing
1
Internal control
3
Value for money
2
The Trust showed improvement in most of the ALE scores which represented both an improvement in the systems and processes in place and the
embedding of the culture of control.
The ALE scoring methodology means that a Trust in deficit will achieve a score of one on financial standing and, until the Trust has recovered the
cumulative deficit, the maximum score in this area will be two.
However, addressing the ALE requirements to achieve level three in the other four areas will assist the Trust in its Monitor assessment process.
We issued an unqualified, “except for”, value for money conclusion for the 2006-07 year.
This means that we were not fully satisfied that you had put in place proper arrangements for securing economy, efficiency and effectiveness in
your use of resources because of:
Value for money conclusion
•
arrangements for the management of the assts base – the Trust had not finalised its estates strategy at the year end; and
arrangements to ensure that spending matches the available resources – as highlighted above, a reported deficit limits the financial standing
conclusion to inadequate.
•
Specific risk based work
We have not completed any risk based work to support our use of resources opinion.
Wherever we identified an area to improve performance, we communicated this to the Trust as a ecommendation. A summary of the most important recommendations raised,
along with the Trust’s management’s response, has been provided at Appendix 1.
The Audit Commission is a signatory to the concordat between bodies inspecting, regulating and auditing healthcare. All recommendations from our use of resources work will
be loaded onto the concordat website at www.concordat.org.uk and an annual update of progress against these plans will be provided to the Audit Committee.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
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Section Three
Key issues arising from the audit of the accounts
Opinion
We issued an unqualified opinion on your accounts on 25 June 2007. This means that we believe the accounts give a true and fair view of the financial affairs of The
Shrewsbury and Telford Hospital NHS Trust and of the income and expenditure recorded by the Trust during the year.
Before we give our opinion on the accounts, we are required to report to your Audit Committee any significant matters arising from the audit. We did this on 20 June 2007
and the key issues are summarised here.
Accounts production and adjustments to the accounts
We received a complete set of draft accounts by the deadline set by the Department of Health which were supported by good quality working papers..
We identified two adjustments required to the accounts which you did not agree to amend. These were reported to the Audit Committee. These adjustments were not
significant enough to have an impact on our opinion on the accounts.
To support our audit work on the annual accounts, we complete work on the financial systems and processes. This work is supported by that completed by your internal audit
function. In 2006/07, we undertook work on the financial and IT controls in place at the Trust. In addition, we undertook a review of the controls in place during the Trust’s
general ledger migration from the McKesson Integra system to the Oracle e-Business suite. No significant weaknesses were identified which impacted on the accounts
production although we identified several issues on the Trust IT controls in relation to the Trust’s network security arrangements, password settings and system change
controls. The Trust accepted our recommendations in this area.
Financial Standing
NHS bodies are given financial targets every year. One of these, the breakeven duty, is statutory, which means you must achieve it. The others are administrative, which
means you should achieve them. Your performance against the targets in 2006-07 is outlined below.
.
Target name
In-year breakeven
What it means
Your performance [/]
Keeping expenditure payable for the year
within the amount of income received for the
year

You reported a deficit of £2.84m. This deficit was underpinned by a further £2.8m, non repayable
financial support, to fund recovery actions, without which, the actual Trust deficit would have been
£5.64m. If the rules in relation to resource accounting (RAB) had not changed during the year, the
Trust’s deficit would have been £12.142m higher resulting in a total deficit of £14.982m.
As above, over a three year period.

You reported a cumulative deficit of £34.2 m. This cumulative deficit includes the £2.84m incurred
during 2006/07. The cumulative deficit has increase each year since the Trust was formed. As a
result, the Trust has agreed a five year breakeven duty with the Strategic Health Authority.
External Financing Limit
Keeping the requirement for cash financing
within a limit set by the Strategic Health
Authority

You remained within the EFL of £17.1m.
Capital Resource Limit
Keeping net capital expenditure within a limit
set by the Strategic Health Authority

You remained within the CRL of £11.3m by £1.3m.
Cumulative breakeven
Better Payment Practice
Code
Paying at least 95% of creditors within 30 days
of receiving an invoice from them

You reported paying 91% of non-NHS and 69% of NHS creditors within 30 days. The poor
performance against NHS creditors was due to the implementation of the new general ledger
system.
During the year, the Trust entered into a three year loan agreement with the Department of Health for a working capital loan totalling £12.299m. This is to be repaid
over a three year period and is subject to a rate of interest of 5.5%. This loan underpinned the cash support required for the deficit incurred during 2005/06. The Trust
also received a permanent cash adjustment, by way of Public Dividend Capital, of £5m from the West Midlands Strategic Health Authority.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
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Section Three
Key issues arising from the audit of the accounts (continued)
.Financial forecasts for 2007/08
The Trust Board approved a balanced budget on 28th March 2007 for the 2007/08 financial year. The budget includes income growth of £9m (4.4%), and, forecasts a surplus
of £4.1m which is the amount required to repay the principal and interest on the working capital loan received in 2006/07.
The budget is based upon the achievement of £7.5m CIPs of which, £2.2m (29%) of these savings were unidentified when the original CIPs was developed. The CIPs represent
3.5% of the total Trust turnover and the Trust must continue to monitor the delivery of these CIPs and provide assurance to the Board and its stakeholders on their delivery.
This is challenging given the size of the CIP of £9.4m included within the 2006/07 Trust budget. In setting the 2007/08 financial plans, the Trust has budgeted for a positive
run rate throughout the year culminating in the forecast surplus of £4.1m at the year end.
However, the immediate challenge facing the Trust is the continued late phasing of the CIP. Although the phasing of the CIP is improved from previous years, 63% of the
CIP of £7.5m is due to be delivered in the final half of 2007/08.In addition, the Trust is forecasting that £2.74m (67%) of the year end surplus of £4.1m, will be delivered in
the final half of the year.
As at 30 June 2007 (the latest figures available at the time of drafting this letter) the Trust had reported a in-year surplus of £0.175m which is consistent with budget and
based upon prudent assumptions on activity.
Although the financial performance to date is broadly to plan, the challenge facing the Trust will be the ongoing delivery of challenging CIPs and run rates which become
greater during the latter part of the financial year.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
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Appendices
Appendix 1: Key recommendation themes
This appendix summarises the main recommendations that we have identified during the 2006-07 year, along with your response to them. Where recommendations have
reached their due date for implementation we provide an update of progress. The detail of the recommendations have been communicated to you during the year.
Area for improvement
Management Response and timescale for implementation
Network security
Agreed
The Trust’s network security arrangements and system password settings do not currently meet
standards of recommended best practice. These should be improved by documenting the
procedures for setting up new users, ensuring that the network security policy is appropriately
communicated to staff and performing and annual review of user access levels. In addition, the
Trust’s network passwords should be enhanced.
The Trust is piloting chip and pin smart card which will give users a single PIN code to
access the system they are required to use.
Controls issues relating to final accounts
Agreed
The Trust should ensure the accuracy of its stock records by re-performing a sample of stock
valuations by an officer independent of the preparation. In addition, the Trust should obtain
periodic, independent confirmations from its solicitors on all litigation and claims outstanding.
Finally, the Trust should ensure that its debt collection team is adequately resourced to reduce
the level of private patient debts outstanding.
All recommendations will be implemented by the end of the financial year.
Due by 31 July 2007
The chip and PIN cards are still being piloted across the Trusts.
Due by 31st March 2008
Agreed
General ledger data migration
The Trust should document the procedures for setting up new users and for removing leavers
from the system. The number of users who have system administrator access should also be
restricted. In addition, the Trust should ensure that a physical and environmental review of the
server holding Trust data takes place as soon as possible. Finally change management
procedures for all key systems should be documented.
Due by 31st December 2007 (being the latest due date for recommendations made)
The Trust is proceeding with implementing all recommendations made. The final due date will
be adhered to.
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
6
Appendices
Appendix 2: Reports issued in relation to the 2006-07 audit
Report
Date issued to Audit Committee
Audit Plan
22 March 2006
Interim report and Auditor Local Evaluation (phase one)
18 April 2007
Audit Memorandum (to those charged with governance)
20 June 2007
Auditor Local Evaluation overall report
Draft due by 30 September . The report will then go forward to Audit Committee at the next
scheduled date of 12 December 2007
General ledger data migration review
20 June 2007
Annual Audit Letter
19 September 2007
© 2007 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the
KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. The Concordat logo is reproduced by permission of the Audit Commission.
KPMG LLP is not a signatory to the Concordat but supports the broad principles that are promoted by the Concordat.
7