Achieving Year End Together

1. Achieving Year End Together Achieving Year End Together November 2013

2. Achieving Year End Together Sheenagh Powell Director of Financial Control NHS England Achieving Year End Together November 2013

3. Monthly Reporting Presented by Richard Lawton and Louise Hampson Achieving Year End Together November 2013

4. Key to external audit assurances Whole of Government Whole of Government Accounts accounts team Department of Health team Department of Health DH WGA return Resource Account Component audit teams Department of Health consolidation systems (FIMS / Hyperion) ALB consolidation Core Department NHS Trust FIMS forms schedules adjusted trial balance Consolidated Separate accounts NHS England Foundation Trust of other arms Summarised NHS Separate Account inc CSU transactions Account length bodies - charities data accounts of NHS NDPBs, Special (~280) Trusts (100) Health Authorities, Separate accounts Separate accounts companies and of Clinical of NHS Foundation agencies (17) Commissioning Trusts (143) Groups (211) Expected number of (x) components within sector Group Structure NHS England Statutory reporting group Achieving Year End Together November 2013

5. NHS England Statutory Reporting CCG statutory accounts NHS England Statutory Account CSU ledgers CCG ledgers X24 ledger NHS England Group Account X25 legacy balances Achieving Year End Together November 2013

6. NHS England National Chart of Accounts and the Link to Reporting Segments and Functionality Analysis 3 Entity Cost Centre Subjective Analysis 1 Analysis 2 Ledger set identifier Eg X24 Drives the monthly management information pack Drives the statutory reporting, DH reporting and HMT reporting Drives the interco eliminations and Agreement of Balances Achieving Year End Together November 2013

7. Monthly Reporting Process • Group - consistency • Dates and Coding are key • Internal reporting monthly and to Treasury quarterly • Manual Adjustments • Intercompany eliminations • Mismatches • A2 codes drive the elimination for Income and Expenditure balances • Intra and Inter Company subjective codes for debtors and creditors plus A2 codes drive the elimination for balance sheet balances Achieving Year End Together November 2013

8. Month 7 Feedback Presented by Richard Lawton and Louise Hampson Achieving Year End Together November 2013

9. Month 7 feedback • Progress made to date • Streamlining process • Issues still to resolve • Importance of robust forecasts including income • They are required for the ALB and HMT returns at month 09 • Agreement of balances update for month 07 • Agreement of balances for month 09 Achieving Year End Together November 2013

10. Month 9 and Year End Preparation Presented by Richard Lawton and Louise Hampson Achieving Year End Together November 2013

11. M9 Key Deliverables • Arms Length Body Return for DOH • Consolidated return to DOH • Non ISFE data collection required from all entities (CCG, CSU, X24 plus associated legacy) • Year end primary statements dry run for NHS England account • X24, legacy and CSU • Agreement of Balances • Debtors/creditors and income and expenditure inc legacy • Programme and admin split • HMT report Achieving Year End Together November 2013

12. NHS England Statutory Reporting • Primary statements for Statutory Accounts will be driven from the subjective account code mapping • Standard mapping to be utilised by all entities • Reports being developed by Financial Control Directorate team • Collection method for non ISFE data for month 09 and year end still being worked on • Consistency statements to support the CCG statutory accounts will be required by NHS England Central Team and Auditors • ISFE consistent with statutory accounts • Non ISFE data submitted for consolidation is consistent with statutory accounts Achieving Year End Together November 2013

13. Likely Areas of Audit Focus at Year End • Journals • Appropriate evidence and documentation and accurate classification • Estimates and Methodology adopted for those estimates • Mapping and reconciliation of ISFE trial balance to statutory accounts • Disaggregation of X25 legacy balances to individual entities • Inter group eliminations Achieving Year End Together November 2013

14. Key Year End Dates Financial Control and Audit Workshops November 2013

15. High Level Timetable Dates Achieving Year End Together November 2013

16. Three Key Messages To Take Away • Adhere to reporting dates • Eliminate manual adjustments • Ensure accuracy of coding • Use I&E subjectives with I&E cost centres • Ensure expenditure is appropriately coded to the correct subjective to support final accounts analysis • Use Analysis Two codes and appropriate balance sheet subjectives for inter and intra group transactions Achieving Year End Together November 2013

17. Audit of the NHS England Financial Statements 2013-14 Group Auditor Perspective November 2013

18. The NAO Audit Team Colin Wilcox Engagement Director T 0191 269 1859 E colin.wilcox@nao.gsi.gov.uk Paul Holland Audit Manager T 0207 798 7283 E paul.holland@nao.gsi.gov.uk • Emma Townsend • Audit Lead • T 0207 798 7793 • E emma.townsend@nao.gsi.gov.uk Supervising audit team, undertaking audit of most complex account areas 7years experience of audit within the public sector. 3 years health area experience. Overall responsibility for the progress, delivery and quality of the audit. Also engagement director on DH and NTDA for 2013-14. Over 20 years experience of audit within the public sector. Several years health experience. Detailed review and client liaison. 20 years experience of audit within the public sector. Several years health area experience.

19. National Audit Office as NHS England External Auditor and ‘Group’ Auditor NAO remit NHS England Group Accounts • Audit of NHS England Group Accounts • True and fair opinion • Opinion on regularity Consolidation Audit Commission remit Audit of consolidation process NHS England Core Audit Commission appointed auditors of CCGs CCGs • Audit of NHS England Core • Including CSUs CSUs

20. Key sources of assurance

21. Where we are • Planning

22. Audit Approach • Risk based audit approach with four Significant Risks at Group Level

23. Significant Financial Statement Risks 1. Development of assurance and accountability processes • Key features • The complexity of NHS England’s business and the importance and high profile nature of its role. • The restructuring of the Health and Social Care Landscape as NHS England was established. • New reporting requirements and introduction of a new system to manage these. • Specific concerns: • assurance over the governance structures, including responsibilities and boundaries between accountabilities (internal and external). This includes reporting by CCGs; • assurance over the regularity of transactions within the group (especially in respect of Commissioning Support Units); • assurance over payroll due to problems in the initial months of 2013-14; • assurance over assets transferring from other bodies, including balances transferred to CCGs; • the timely development of consolidation processes, and sharing of these with CCGs, Area Teams, and CSUs; and • the finalisation of budgets and allocations to enable proper timely reporting against these. • Audit areas affected • Pervasive risk with potential to impact all audit areas NHS England is a new, complex organisation operating with new systems, in a reformed health landscape • External Assurances • The ISAE 3402 report on ISFE from NHS England’s auditors. This will give assurance over the operation of the ISFE system. • The work of Internal Audit on relevant systems. • Process management work, giving management a view on the maturity of the system used to produce the financial statements. • Controls • Review of management assurances, reporting, and governance systems, including how committees, processes and controls work together. • Full review of dry run of financial statements, including Governance Statement. • Substantive • Review of board and other relevant committee minutes • Review of committee handbook • Review of governance statement Emphasis of testing

24. Significant Financial Statement Risks 2. Balance transfers resulting from transfer of functions • Key features • Closing balances from legacy bodies have transferred to NHS England and CCGs. • This is a complex task including balances of a material value. • The centrally determined accounting treatment of these balances was still being agreed after the certification of the legacy PCT and SHAs’ accounts. • As a result instructions were not communicated on a timely basis. • New bodies are still not sure what balances they are receiving. • Risks include the completeness of the transferring balances, the allocation of balances to the correct bodies, and the transfer of balances at an appropriate value. • Transfers to NHS Property Services Limited and related rents and other costs, are a specific area of concern in respect of this risk. • Audit areas affected • Assets & Liabilities • Associated depreciation, revaluation and impairments NHS England has received asset transfers from a large number of legacy bodies • External Assurances • The work done by CCG auditors to gain assurance over their opening balances. • The work of Internal Audit on the processes underpinning the balance transfers. • Controls • Review of the process put in place by the Department of Health to manage this exercise. • Review of the process put in place by NHS England to receive these balances. • Substantive • Substantive testing of balances depending on level of assurance taken from controls. • Consideration of the total closing balances at Department of Health Group level, reconciled to transferred balances. • Review of any adjustments to these balances. Emphasis of testing

25. Significant Financial Statement Risks 3. Presumed Risk of Fraud in Revenue Recognition • Audit areas affected • Income • Key features • Under International Standard on Auditing (UK and Ireland) 240, there is a presumed risk of fraud in revenue recognition. • This is complicated by the previous risks, 1 & 2. • At this stage we do not have enough evidence or understanding of NHS England’s revenue streams to be able to rebut this risk. • We consider that amounts may be not significant, but need evidence to confirm this assumption. • External Assurances • The standard ISAE 3402 report on ISFE from NHS England’s auditors. • The work of Internal Audit on relevant systems and processes. • Our process management work. • Controls • Review of management assurances, reporting, and governance systems, including how committees, processes and controls work together. • Full review of dry run of financial statements, including Governance Statement. • Substantive • Substantive testing of a sample of income. • Cut-off testing to ensure that any revenue is accounted for in the correct accounting period. Presumed risk under International Standard on Auditing 240 Emphasis of testing

26. Significant Financial Statement Risks 4. Presumed Risk of Fraud Arising from Management Override • Audit areas affected • Pervasive risk with potential to impact all audit areas • Key features • Under International Standard on Auditing (UK and Ireland) 240, there is a presumed risk of significant risk of misstatement owing to fraud from management of override of controls. • This is complicated by risks 1 & 2. • At this stage we still need to fully determine the exact size and nature of expected management estimates: we anticipate these will include depreciation and amortisation charges, provisions, accruals and prepayments. • In order to plan our audit approach we need detail of the degree of uncertainty and estimation in these figures. • External Assurances • The standard ISAE 3402 report on ISFE from NHS England’s auditors. • The work of Internal Audit on relevant systems and processes. • Our process management work. • Controls • n/a • Substantive • Journals testing. • Testing of accounting estimates. • Testing of significant or unusual transactions in the year. Presumed risk under International Standard on Auditing 240 Emphasis of testing

27. Other issues

28. Group audit considerations In relation to the C&AG’s opinion on the group financial statements, we are required by ISAs to perform more work on the financial information of components that are significant, either by size or by risk, to the group financial statements. Where there is an audit of a significant component’s financial statements we seek to rely on the work of the other auditor, but we are required to have a level of involvement in that work depending on the level risk attached to it. Significant component with risk Significant component • Medium • Work includes: • discussing risks of material misstatement with component auditor • confirming their response to significant risks for the group • Medium/High • As X25 is part of NHS England core, the NAO will be auditing the X24-related balances and transactions within this ledger. There is therefore no separate component auditor with which we must liaise. • Four CCGs have been identified as being material by value. These are: • (1) NHS Dorset CCG • (2) NHS North, East, West Devon CCG • (3) NHS Birmingham Cross City CCG • (4) NHS Cambridgeshire and Peterborough CCG • X25, the separate ledger to administer the legacy balances is a significant component in its own right, with a specific risk attached (see risk 2 above).

29. Where next

30. Auditor and client relations Client Side Auditor Side • WGA auditors • HMT • DH resource account auditors • DH • NHS England • NHS England auditors • CCGs • CCG auditors

31. What we would like from you

32. Achieving Year End Together Achieving Year End Together November 2013

33. CCG Annual Reporting Manual Presented by: Stephen Fell (NHS England) Paul Holland/Emma Townsend (NAO) Achieving Year End Together November 2013

34. Context • Under the NHS Act 2006 (as amended) NHS England give Directions to CCGs on: • Form and content of the Annual Report (section 14Z15 of the Act) • Form and content of Annual Accounts and the method and principles for their preparation (section 17 of Schedule 1A of the Act) Achieving Year End Together November 2013

35. Guidance Framework • CCGs are subject to guidance as follows: • CCG Annual Reporting Manual This is the primary guidance for CCGs This cross references to the • Government Financial Reporting Manual (FReM) Which provides UK public sector wide guidance Full technical guidance is contained in • Accounting Standards Achieving Year End Together November 2013

36. Content • Guidance on: • Annual Report requirements • Statement of Accountable Officer’s Responsibilities (including template) • Governance Statement (including template) • Interpretation of accounting standards for CCGs • Financial Statements (including templates) • Losses & Special Payments Achieving Year End Together November 2013

37. The Governance Statement: Context • New entities & developing governance structures • Contribution to the group: risk escalation and assurance processes • “Boiler plate” governance statements and SICs must remain things of the past Achieving Year End Together November 2013

38. Better governance statements are: Achieving Year End Together November 2013

39. Essential features Achieving Year End Together November 2013

40. Additional resources • CCG Annual Reporting Manualchapter 6(including template governance statement for CCGs) • NAO governance statement factsheet: http://www.nao.org.uk/wp-content/uploads/2013/02/Governance_Statements_Fact_Sheet_observations.pdf • Managing Public Money (HM Treasury), Annex 3.1, The Governance Statement: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/212123/Managing_Public_Money_AA_v2_-_chapters_annex_web.pdf Achieving Year End Together November 2013

41. Financial Control and Audit Workshops • Service Auditor Reporting for • Commissioning Support Units (CSUs) November 2013

42. Topics of Discussion Service Auditor Reporting for CSUs

43. The New and Evolving WorldWhat does it look like and how should assurance work? Department of Health Growing Customer Base for CSUs Diversifying Market for CSUs CCG CCG 3rd Party 3rd Party CCG only processes in the CCG CCG only processes in the CCG 3rd Party only processes in the 3rd Party 3rd Party only processes in the 3rd Party Internal / External Auditors Audit Committees Service Auditor Reporting for CSUs

44. The New and Evolving WorldIf assurance is not managed in an integrated manner Service Auditor Reporting for CSUs

45. Why can’t internal audit reports be shared?

46. Internal Audit Report vs Service Auditor ReportWhat is the difference? Internal Audit Report • Internal Audit work reports by exception to enable an opinion to be formed on the control environment from the perspective of the entity that has commissioned the work • Internal Audit work is based on a risk based plan, performed at period in time. Typically some degree of cyclical work • Internal Audit reports do not provide a detailed list of controls tested and the test results for each control • Internal Audit work at a service organisation can be used by the customer auditors to aid understanding but cannot usually be relied upon for assurance purposes, necessitating additional testing by customer auditors Service Auditor Report • A Service Auditor Report includes a description of the processes and provides a detailed list of the controls being assessed • The test results of each control are reported, with recommendations where there are exceptions identified • The report covers a defined period of time if a Type II report • The Report can be used by the service organisation customers and their auditors (Internal and External) to inform their assessment of the control environment and complete their Head of Audit opinion and Governance Statement Service Auditor Reporting for CSUs

47. What is in a Service Auditor Report?

48. Service Auditor ReportIt tells a story..... Service Auditor Reporting for CSUs

49. Service Auditor ReportWhat does one contain? What does it give you? • The service organisation’s description of its system of internal control; • A written assertion by the organisation that, in all material respects, and based on suitable criteria: • The description fairly presents the service organisation’s system as designed and implemented throughout the specified period; • The controls related to the control objectives stated in the service organisation’s description of its system were suitably designed throughout the specified period; and • The controls related to the control objectives stated in the service organisation’s description of its system operated effectively throughout the specified period. EXAMPLE Report Introduction CSU x Controls Appendices CSU x Assurance Report on Internal Controls (AAF 01/06 and ISAE 3402) Type I/II for the Period X to X Type II • A service auditor’s assurance report that: • Conveys reasonable assurance about the matters in a.- c. above; • Includes a description of the tests of controls and the results thereof Service Auditor Reporting for CSUs

50. The combined assurance landscape for Service Auditor Reporting