External Audit: Annual Audit Letter 2005/06 - Pennine Acute Hospitals NHS Trust 19 October 2006
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INFRASTRUCTURE, GOVERNMENT AND HEALTHCARE External Audit: Annual Audit Letter 2005/06 Pennine Acute Hospitals NHS Trust 19 October 2006 AUDIT
Content
The contacts at KPMG Page
in connection with this
report are:
Purpose of this letter 2
Trevor Rees
Partner
KPMG LLP (UK)
Key issues arising from use of resources work 3
Tel: 0161 246 4063
Fax: 0161 246 4040
trevor.rees@kpmg.co.uk Key issues arising from the audit of the accounts 5
Tim Cutler
Senior Manager
KPMG LLP (UK) Appendices
Tel: 0161 246 4839 1. Key performance improvement themes
Fax: 0161 246 4040
tim.cutler@kpmg.co.uk 2. Reports issued in relation to the 2005-06 audit
Salma Younis
Manager
KPMG LLP (UK)
Tel: 0113 231 3016
Fax: 0113 231 3947
salma.younis@kpmg.co.uk
© 2006 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. 1
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Section One
Purpose of this letter
Purpose of this letter
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 2005-06 at Pennine Acute Hospitals NHS Trust.
Although this letter is addressed to the directors of Pennine Acute Hospitals 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 and on the Trust website at
www.pat.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 is
the body responsible for supporting auditors to local public bodies in England, including NHS bodies.
The Audit Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited
Bodies which is available from www.audit-commission.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; and
• the accounts – that is the financial statements and the Statement on Internal Control.
This letter summarises the significant issues arising from both these areas of work and highlights the key areas we
think you should address to improve performance 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 2005-06 audit is provided in
Appendix 2.
© 2006 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. 2
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.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 arrangements in five specific areas.
• 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 proper arrangements for securing economy,
efficiency and effectiveness in your use of resources.
• Specific risk based work - we perform specific local reviews based on a risk assessment of issues facing you.
In 2005-06, these reviews included Payment by Results; Core Financial Management; Benefits realisation in
relation to Workforce Contracts; and follow up of the North-East sector review of arrangements in relation to
the National Programme for Information Technology (NPfIT).
• Work on behalf of the Healthcare Commission - we are sometimes asked to perform specific work on behalf of
the Healthcare Commission, the body responsible for promoting improvement in quality within the NHS
through performance assessment. In 2005-06 this work included Acute Hospitals Portfolio Phase 6 and a follow
up of prior year recommendations.
The key findings from this work are summarised below.
Element of work Key findings
Our assessment of Pennine Acute Hospitals NHS Trust against the five nationally specified
areas resulted in the following scores on a scale of one (inadequate) to four (excellent).
Area Score
Financial reporting 3
Financial management 2
Auditors Local Evaluation Financial standing 2
Internal control 2
Value for money 2
We have issued a separate report detailing our findings from the ALE assessment and this is
presented at the October Audit Committee. The Trust is currently working on an action plan to
improve the scores and we will follow this up as part of our 2006-2007 audit.
We issued an unqualified value for money conclusion for the 2005-06 year.
This means that we are satisfied that you put in place proper arrangements for securing
Value for money conclusion
economy, efficiency and effectiveness in your use of resources
We identified four risk areas for local review:
• Payment by Results: we found that overall the Trust has good arrangements in place for
implementation of the new fundsflow regime. Areas for improvement included setting a formal
timetable to identify costs at healthcare resource group level, in order to assess the high and
low cost areas of the Trust’s services.
• Core Financial Management: our review focussed on the financial standing aspect of this
review. We found that the Trust had good arrangements in place for monitoring its financial
position and identifying recurrent and non-recurrent measures to address cost pressures
identified. Areas for improvement included obtaining confirmations to support some of the
assumptions within the 2006-07 financial plan.
Specific risk based work
• Workforce contracts: the review focussed on the benefits realisation aspects of new
workforce contracts, specifically the Consultants Contract and Agenda for Change. We found
that the Trust had made good progress in implementing these initiatives, however there was a
need to focus now on patient benefits that could be realised and demonstrating value for
money.
• Information Management & Governance: this review followed up the Audit Commission
review of the North-East sector approach to the National Programme for Information Technology
(NPfIT). The results of this review have been shared with the Head of IM&T. We are satisfied
that the Trust has adequate arrangements in place and there are no material issues that will
have a direct impact on its activities.
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KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Section Two
Key issues arising from use of resources work (continued)
Element of work Key findings
We followed up areas for development reported in previous years in relation to: data
quality reviews (2002-03, 2003-04 and 2004-05); NHS plan (2002-03 and 2003-04); Acute
Hospitals Portfolio Phases 3 and 4 (2002-03 and 2003-04) and waiting list data review
(2003-04).
Overall, we were pleased to note that all recommendations had been addressed in relation
Work on behalf of the to these reports.
Healthcare Commission Our 2005-06 work included Phase 6 of the Acute Hospitals Portfolio review. This work
focused on the areas of medicines management, admission management and diagnostic
services.
These reviews identified issues around diagnostic services, particularly Endoscopy and
Imaging services and a number of recommendations were made in our report.
The results of both these pieces of work are reported at the October Audit Committee.
Wherever we identified an area to improve performance as a result of this work, we communicated this to the
Trust as a performance improvement observation. A summary of the most important performance improvements
raised, along with the Trust management’s response, has been provided at Appendix 1.
© 2006 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is
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KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Section Three
Key issues arising from the audit of the accounts
Opinion
We issued an unqualified opinion on your accounts on 7 July 2006. This means that we believe the accounts give a
true and fair view of the financial affairs of Pennine Acute Hospitals 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 5 July 2006 and the key issues are summarised here.
Accounts production and adjustments to the accounts
We received a complete set of draft accounts in accordance with the deadline set by the Department of Health. As
part of our interim audit we issued a ‘Prepared by Client’ (PBC) request that set out the documents we would need
for our final accounts audit. The documentation you provided was to a satisfactory standard.
We identified two adjustments required to the accounts which you did not agree to amend, both of these related to
assumptions made relating to the Agenda for Change provision. These were reported to the Audit Committee on 5
July. These adjustments were not significant enough to have an impact on our opinion on the accounts. In addition
to this, we identified some minor presentational adjustments to the accounts which you agreed to amend.
Financial Standing
NHS Trusts are given financial targets every year and your performance against the targets in 2005-06 is outlined
below.
Target name What it means Your performance [9/-]
Keeping expenditure payable for the year 9 You reported a surplus of
within the amount of income received for £56,000 against total income of
In-year breakeven the year £446,095,000
As above, over a three year period. 9 You reported a cumulative
Cumulative breakeven surplus of £1,690,000
Keeping net capital expenditure within a 9 You remained within the CRL of
Capital Resource Limit limit set by the Strategic Health Authority £20,005,000 by £128,000
Keeping the requirement for cash financing 9 You remained within the EFL of
External Financing Limit within a limit set by the Strategic Health £6,769,000 by £37,000
Authority
Paying at least 95% of creditors within 30 9 You reported paying 98% of non-
Better Payment Practice Code days of receiving an invoice from them NHS and 98% of NHS creditors
within 30 days (number)
The Trust achieved all of the above targets for 2005-06. However break-even performance was reliant on £10.5m
financial support from the Strategic Health Authority and an extensive cost improvement programme during the
year. Going forward, the Trust needs to reduce its reliance on non-recurrent measures in order to realistically
address its underlying deficit as well as the in-year cost pressures.
2006-07 Budget
The 2006-07 budget forecast a balanced position however this included the following assumptions:
• a cost improvement programme of £8.3m;
• non-recurrent support from within the local health economy of £6.9m; and
• additional cost pressures of £21m that the Trust plans to address via a recovery plan.
The Audit Committee will be aware that the Trust has appointed external consultants to support the executive
team in identifying a recovery plan to address these pressures. The Finance Committee is being kept informed of
progress made in this area and the Trust has issued a public statement in relation to its financial position via its
website.
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KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Section Three
Key issues arising from the audit of the accounts (continued)
Financial position up to 31 July 2006
We have reviewed the finance committee reports up to September 2006. As at the end of July, the deficit to date
was £6.6m against a planned forecast deficit of £6.8m. The Trust reported that it was making good progress
against its cost improvement target.
The Trust was also required to submit a revised 2006-07 budget to the Strategic Health Authority by 8 September.
This incorporated a financial forecast for the next five years. Financial Standing is a key area of ALE and we will
continue to monitor the Trust’s financial position as part of our 2006-07 audit, this will include a review of the
Trust’s recovery plan.
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confidential and its circulation and use are restricted. 6
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Appendices
Appendix 1: Key performance improvement themes
This appendix summarises the main performance improvements that we have identified during the 2005-06 year,
along with your response to them. The detail of the performance improvements have been communicated to you
during the year.
Performance Improvement Area Trust Management Response
Payment by Results (PbR) Agreed
Improvement areas included the following: See Payment by Results report (5 July 2006) for detailed
• identify the element of cross subsidisation of services in management responses.
order to understand the different cost elements of each
Healthcare Resource Group (HRG);
• set a formal timetable for identifying costs at HRG level,
identifying key milestones and dates so that progress can be
monitored;
• set a timetable for reviewing activities that come under
“part C” of the Service Level Agreement Monitoring reports;
• review the clinical coding resource in terms of the need for
professional accreditation and monitoring the outputs of
novice coders;
• have signed service level agreements in place for 2006-07
as soon as possible; and
• undertake a formal risk assessment of areas subject to PbR
to identify where the risks for the Trust lie.
Core Financial Management Agreed
Improvement areas included the following: See Core Financial Management report (5 July 2006) for
• seek confirmation of the level of financial support available detailed management responses.
for 2006/07;
• ensure that activity levels are agreed with the PCTs and
signed service level agreements for 2006/07 are in place as
soon as possible; and
• continue to report cash-releasing efficiency savings to the
Finance Committee and also formally report Financial
Recovery Plan savings to the Finance Committee as a
separate agenda item.
Workforce Contracts Agreed
Improvement areas included the following: See Realising the Benefits of Workforce Contract Reform (19
• develop an overarching benefits realisation plan which October 2006) for detailed management responses.
clearly links both Agenda for Change (AfC) and Consultant
Contracts together;
• integrate workforce reforms more effectively into the
Trust’s service redesign and modernisation agenda;
• develop the AfC Benefits Realisation Framework and the
local Knowledge and Skills Framework (KSF) to assist the
Trust in identifying and implementing benefits for patients as a
consequence of contract reform; and
• undertake an assessment of the improvements in value for
money achieved to date as a consequence of the
implementation of the workforce contract reforms.
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confidential and its circulation and use are restricted. 7
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Appendices
Appendix 1: Key performance improvement themes (continued)
Performance Improvement Area Trust Management Response
Acute Hospitals Portfolio – Admissions Management Agreed
Improvement areas included the following: See Acute Hospitals Portfolio 2005-06 – Admissions Report
for detailed management responses.
• reduce the number of patients staying longer than 48 hours
in assessment units;
• reduce the number of procedures cancelled within seven
days of admission for non-clinical reasons;
• reduce the lengths of stay for the six surgical procedures
reviewed;
• increase the numbers of patients admitted on the day of
surgery; and
• review bed occupancy levels.
Acute Hospitals Portfolio – Medicines Management Agreed
Improvement areas included the following: See Acute Hospitals Portfolio 2005-06 – Medicines
Management Report for detailed management responses.
• develop an action plan for Medicines Management which
addresses all of the issues identified in the standard reports;
• formally document the risk assessment of unlicensed
drugs;
• produce a Trust wide anti-microbial strategy;
• increase Pharmacy contributions to patient care;
• extend the comprehensive medication reviews of patients
within 24 hours of admission and target these reviews better;
• reduce waits for outpatient prescriptions; and
• increase the utilisation of non-medical independent
prescribers.
Acute Hospitals Portfolio - Diagnostics Agreed
Improvement areas included the following: See Acute Hospitals Portfolio 2005-06 – Diagnostics Report
for detailed management responses.
• develop an action plan for Diagnostic Services which
addresses all of the issues identified in the standard reports;
• reduce the levels of inappropriate Endoscopy GP referrals;
• reduce Imaging waiting times;
• reduce the turnaround times for Imaging reports;
• reduce Histopathology turnaround times;
• standardise child protocols and facilities checklist for
Imaging across all four sites;
• monitor success rates for Endoscopy Caecal Intubation;
and
• review out-of-hour arrangements for emergency
endoscopies.
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confidential and its circulation and use are restricted. 8
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.Appendices
Appendix 2: Reports issued in relation to the 2005-06 audit
Report Date issued
Audit Plan 2 November 2005
Interim report and Auditor Local Evaluation (phase one) 27 April 2006
Audit Memorandum (to those charged with governance) 5 July 2006
Payment by Results 5 July 2006
Core Financial Management 5 July 2006
Realising the Benefits of Workforce Contract Reform 19 October 2006
Overall Auditor Local Evaluation 19 October 2006
ALE Final Report 19 October 2006
Acute Hospitals Portfolio – Phase 6 19 October 2006
Annual Audit Letter 19 October 2006
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