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3 June 2011 - DRAFT

Barnet, Enfield & Haringey Mental Health NHS TrustAnnual Report to Those Charged With Governance (ISA 260)

Barnet, Enfield & Haringey Mental Health NHS Trust - Annual Report to Those Charged With Governance (ISA 260)

© 2011 Grant Thornton UK LLP. All rights reserved. 1

Contents

1. Executive summary 22. Key audit issues 43. Value for money 12

Appendices

A. Other reporting matters 21B. Audit adjustments 23C. Action plan 24



1. Executive summary

Purpose of this reportThis report has been prepared for the benefit of discussion between Grant Thornton UK LLP and the Audit Committee of Barnet, Enfield & Haringey Mental Health NHS Trust (the Trust). The purpose of this report is to highlight the key issues arising from the Trust's financial statements for the year ending 31 March 2011.

This report meets the mandatory requirements of International Standard on Auditing 260 (ISA 260) to report the outcome of the audit to 'those charged with governance', designated as the Audit Committee. The requirements of ISA 260, and how we have discharged them, are set out in more detail at Appendix A.

The Trust is responsible for the preparation of financial statements which record its financial position as at 31 March 2011, and its income and expenditure for the year then ended. We are responsible for undertaking an audit and reporting whether, in our opinion, the Trust’s financial statements present a true and fair view of the financial position.

Under the Audit Commission’s Code of Audit Practice we also report on our formal conclusion on whether the Trust has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Audit conclusionsFinancial statements opinionWe were presented with draft financial statements and accompanying working papers by 21 April 2011, in accordance with the national deadline. As in previous years, the working papers were of a good standard and the financial statements have been compiled in accordance with the NHSManual for Accounts (MFA).

We did not identify any material audit adjustments that impact on the Trust's income and expenditure position (statement of comprehensive income). The adjustments noted on the Statement of Financial Position were of a presentational nature only and had no overall net effect on the Trust's reported assets and liabilities.

Our audit is substantially complete subject to our usual finalisation and checking procedures.

The audit identified a number of adjustments to the accounts which were mainly to correct the classification of balances in the Statement of Financial Position. All except two of the adjustments have been agreed and processed by the Trust. None of the adjustments made had an impact on the reported result for the year.



We identified two misstatements where management had opted not to adjust the accounts. Whilst these are not material the Audit Committee needs to satisfy itself that not making the adjustments is appropriate and should formally record this in the minutes.

We anticipate providing an unqualified opinion on the Trust's financial statements, following approval by the Audit Committee on 6 June 2011.

Further details of the outcome of the financial statements audit are given in section 2.

Value for Money ConclusionIn providing the opinion on the financial statements we are required toreach a conclusion on the adequacy of the Trust's arrangements for ensuring economy, efficiency and effectiveness in its use of resources (the Value for Money Conclusion).

We propose to provide an unqualified conclusion, based on our review of the Trust's arrangements.

Further details of the outcome of our value for money work are given in section 3.

The way forwardMatters arising from the financial statements audit and our associated recommendations have been discussed and agreed with the Chief Finance and Investment Officer (see action plan at Appendix C).

Use of this reportThis report has been prepared solely for use by the Trust to discharge our responsibilities under ISA 260, and should not be used for any other purpose. We assume no responsibility to any other person. This report should be read in conjunction with the Statement of Responsibilities and the Trust's Letter of Representation.

AcknowledgementsWe would like record our appreciation for the assistance and co-operation provided to us during our audit by the Trust's staff.

Grant Thornton UK LLP

3 June 2011



2. Key audit issues

Matters identified at the planning stageIn the conduct of our audit, we have not had to alter or change our audit plan, which was communicated to you in January 2011. We provided an update of our risks to management in our Audit Approach Memorandum in April 2011.

Our response to the matters identified at the planning stage are detailed below.

Issue Audit areas affected Planning considerations Assurances gained

Any developing issues have been discussed at our training,

which Trust officers attended, as well as our ongoing liaison

meetings.

All areas ofthe financial statements

Accounting under IFRS

From work carried out during the audit, we have

not identified any areas where there has been any

departure from the International Accounting

Standards.

We have monitored the Trust's financial position throughout the

year through review of Board papers and liaison meetings with

the Chief Finance and Investment Officer. At the end of

January 2011 the Trust was forecasting a surplus of £460k.

All areas of the financial statements

Financial performance pressures

We monitored the financial position during the

year and tested revenue and expenditure,

concluding that the reported a surplus of £274k

was not materially misstated.




Based on current guidance the Trust will be

accounting for Enfield Community Services

(ECS) using merger accounting which involves

accounting for transactions for the entire

financial year instead of from the time ECS

was transferred to the Trust. We have agreed

the accounting treatment with the Trust based

on the guidance currently available.


Accounting for Enfield Community Services (ECS)

• The Trust has accounted for ECS using merger accounting.

In doing so the Trust restated its 2009/10 accounts.

• We reviewed the restated 2009/10 accounts and did not

identify any issues regarding the restatement.

• As part of our work , we selected samples from ECS and no

issues were noted from the testing completed. Our conclusion

is that the Trust appears to have accounted for ECS

appropriately but the accounts would benefit from some

enhanced disclosures which have been agreed with

management.

Based on discussions with management, the

Trust has not carried out valuations of its

property, plant and equipment during this

financial year. The Trust has proposed to use

indices to reflect movements in value of any

fixed assets.

Property, plant and equipment

Revaluation of fixed assets

See page 7 for details on the revaluation of property, plant and

equipment.




We set out below further comments on these issues and other matters which came to light from our audit.

We have had discussions with management and

understand there are no changes to processes of

review of accounts receivable and payable or the

calculation of the provision for impairment of

accounts receivable.

Accounts receivable and payables

Accounting of Accounts receivable and payables

• We reviewed the processes of review of accounts receivable and

payable and no issues were noted. Based on our work on the

accounts receivable and payable we can conclude that these have

not been materially misstated.

• See page 8 below for details on provision for impairment of

accounts receivable.

The requirements, in line with the introduction of

the Clarity ISAs (International Standards of

Auditing) has been discussed with management at

the training attended by Trust officers. The Trust is

aware of the need to ensure expanded accounts

disclosures in relation to use of estimates and

judgements.


Use of Estimates and Judgements

• We reviewed the Trust accounting policies and disclosures for

likely areas where estimates and judgement would be used. We

concluded that adequate disclosures have been included for these

areas in the financial statements.

• See page 7 for details on the revaluation of property, plant and

equipment.



Status of the auditWe carried out our audit in accordance with the proposed timetable and deadlines communicated to you in our Audit Approach Memorandum. Our audit is substantially complete although we are finalising our procedures in the following areas:

• receipt of any outstanding information to complete audit tests• review of the final version of the financial statements and the FMA summarisation schedules

• obtaining and reviewing the Trust's letter of representation• review of revised versions of the Statement on Internal Control and Annual Report

• updating our post balance sheet events review, to the date of signing the accounts.

We anticipate providing an unqualified opinion on the Trust's financial statements, following approval by the Audit Committee on 6 June 2011.

A small number of issues arose during the course of the audit, which whilst not considered material to the reported financial performance , should be considered by the Audit Committee. These are set out in the following paragraphs. Where appropriate, we have made recommendations for improvement, as set out in the agreed action plan at Appendix C.

Matters arising from the financial statements auditThe Trust presented us with draft financial statements on 21 April 2011, in accordance with the national deadline.

Revaluation of property, plant and equipmentThe Trust carried out a full valuation of its land and buildings in 2009/10 and in 2010/11 used indices to identify if the book value of assets was materially different from the fair value.

The Trust reviewed the Building Cost Information Services (BCIS) and Median Index of Public Sector Building Tender Prices (MIPS). The BICSindicated that that asset values increased by 1.9% and MIPS indicated that asset values had decreased by 1.2% since the last valuation.

In reviewing both indices the value of assets do not appear to have significantly changed and on this basis the Trust has not undertaken a full revaluation in 2010/11. Based on the conclusion that its existing asset values are not materially different from fair value the Trust has not adjusted its asset values in the Statement of Financial Position.

We considered the Trust's justification for not adjusting its asset values, with reference to International Accounting Standard 16, which states that "revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required." On the basis that the Trust has referred to commonly used indices which, taken together, support the assertion that asset values have remained relatively stagnant during the year, we are satisfied that the Trust's stated asset values do not vary from fair value at the end of the reporting period.

We have recommended the Trust includes additional disclosure in the accounting policies on the use of indices to revalue the Trust's assets in line with clarity ISAs, including the estimates and judgements the Trust has made in concluding that a revaluation in 2010/11 was not required. These have been agreed with management.

As more time passes since the last full revaluation, the assertion that existing or index adjusted asset values represent fair value becomes more difficult to support. The Trust should consider how it will ensure that reported asset values are materially correct from year to year, for example, using a rolling revaluation programme.



Provision for impairment of accounts receivable

The Trust reviews all receivable accounts on an invoice by invoice basis in calculating its provision for impairment of accounts receivable and writes off any receivables that are not recoverable.

We reviewed the calculation to ensure the above methodology was applied and the provision for impairment of accounts receivable appears reasonable.

As part of our work on the NHS receivables, we noted that the Trust had reviewed and impaired NHS debts of £406k by debiting income and crediting NHS receivables.

Although, in general terms, it is reasonable and prudent to review all receivables, under NHS accounting rules, NHS bodies are not allowed to provide for impairments or impair NHS receivables. As the NHS receivables impaired by the Trust are not inconsequential (with reference to our calculation of materiality) we are obliged to report this to those charged with governance and recommend to management not to provide for NHS receivables. We have proposed an adjustment to reverse this entry, i.e. debit NHS receivables and credit income.

Management has not made this adjustment. As the amount is not material, this does not pose an issue for our opinion, but we have raised a recommendation for management.

Redundancies

The Trust has correctly included £293k relating to redundancies in the accounts but this has been accounted for an accrual instead of a provision. In line with IAS 37 - Provisions, these amounts had not been agreed before the year end and staff had been notified therefore should be accounted for as a provision. An adjustment has been agreed to reclassify this accrual as a provision.

Segmental ReportingNHS Trusts are required to disclose their business operating segments. An operating segment is a separately identifiable component of a Trust, which earns revenues and incurs expenses, and whose operating results are regularly reviewed by the Trust's chief operating decision maker ("CODM"), to assess the segment's performance and allocate resources. The Trust disclosed three operating segments in its 2010/11 financial statements, namely the provision of healthcare services, ECS and Forensics, which is consistent with reporting to Trust Board (being the Trust's CODM). We therefore consider this disclosure adequate. As Service Line Reporting develops it is likely that the Trust will report on more operating segments.

Deferment of charitable funds consolidation The move to accounting under Internal Accounting Standards has raised the possibility of NHS Trust's Charitable Funds becoming incorporated into the accounts of NHS Trusts. On 5 February 2010, HM Treasury approved a further year's deferment from applying IAS 27 (regarding consolidation) to NHS charities. The Trust's current practice of non-consolidation is therefore appropriate.

.



Other accounts issues arisingIn addition to the matters raised above, there were a number of minor presentational changes that arose during the course of our audit that have been made to the financial statements, including:

• the disclosure and accounting policy for investment properties• enhanced disclosures in relation to ECS acquisition including

judgements that have been made in accounting for ECS• reclassification of amounts included in the other operating income

note to include them under the correct headings.

Misstatements and reclassificationsMinor reclassification adjustments were identified by the management team during the course of the audit and were posted to the financial statements.

Further misstatements were identified by Grant Thornton, the most significant of these was adjusting depreciation brought forward on land of £6,690k (relating to the impairment on land) against the brought forward valuation amount. This was due to an error on the formula on the Department of Health accounts template. This issue has no impact on the net book value of property, plant & equipment.

A number of classification or disclosure adjustments were identified as a result of the audit work performed. All adjusted and unadjusted misstatements are set out at Appendix B. The overall effect of the adjustments made has no impact on this years reported financial position.

The auditor is required to communicate all uncorrected misstatements, other than those considered to be clearly trivial, to the entity's management and to request that management corrects them. Where not corrected the Audit Committee needs to satisfy itself that not making the adjustments is appropriate and should formally record this in the minutes.

Our audit identified two amendments to the financial statements that have not been processed by management on the grounds of materiality. These relate to:

• adjustment of provision of impairment of NHS receivables of £406k• adjustment to accrue for interest payable of £21k.

This overall effect of the unadjusted misstatements would be £385k increase in the reported surplus on the Statement of Comprehensive Income for the year ended 31 March 2011.

Statutory financial targetsIn the year ended 31 March 2011 the Trust's achievement of its statutory financial targets is set out below:

Better Payment Practice Code (BPPC)As last year, the Trust did not meet its target in relation to the Better Payment Practice Code ('BPPC'), which requires the Trust to pay all undisputed invoices with 30 days. In 2010/11, the Trust made timely payments for 77% of NHS invoices and 87% for non-NHS invoices. The Trust should continue to develop and improve its accounts payable procedures and systems to ensure that it improves its BPPC performance.

Target Actual Met

Surplus/(Deficit) Break even or better £274k �

Capital Cost Absorption Duty 3.5% 3.5% �

Capital Resource Limit Not over £4k underspend �

External Financing Limit Not over £4,209k underspend �



Evaluation of key controlsInternal ControlsWe have undertaken sufficient work on key financial controls for the purpose of designing our programme of work for the financial statements audit. Our evaluation of the Trust's key financial control systems did not identify any control issues that present a material risk to the accuracy of the financial statements.

Review of IT We performed a high level review of the general IT control environment as part of the overall review of the internal control system and concluded that there were no material weaknesses within the IT arrangements that could adversely impact on our audit of the accounts. We have reported separately to the Trust on the issues identified and agreed an action plan with management.

Review of internal auditWe reviewed the internal audit function for compliance with requirements of the NHS Internal Audit manual and Internal Audit Standards. We concluded that the Trust's internal auditors met these requirements. We draw on this work in forming our overall Value for Money (VfM) conclusion in the Trust's arrangements for securing economy, efficiency and effectiveness in its use of resources. This work also supports our review of the Statement on Internal Control (SIC) which in turn informs our VfM conclusion and our audit of the financial statements.

We note the internal auditors provided a 'significant assurance' opinion in respect of the system of internal control in place during the year.

Management of the risk of fraud We have sought assurances from the Chief Finance and Investment Officer and the Chair of the Audit Committee in respect of processes in place to identify and respond to the risk of fraud at the Trust.

From these enquiries we have established that the Trust considers there are adequate processes in place to mitigate against the risk of fraud occurring at the Trust and that those charged with governance have sufficient oversight over these processes to give them the assurances they require in this area. There were no unresolved issues noted by the Trust's Local Counter Fraud Specialist which present a material risk to the accuracy of the financial statements.

Statement on Internal Control (SIC)We have examined the Trust's arrangements and processes for compiling the SIC. In addition, we read the SIC and considered whether the statement is in accordance with our knowledge of the Trust.

We reviewed the draft SIC and are satisfied that the revised SIC complies with NHS guidance and is in accordance with our knowledge of the Trust.

Annual reportWe have reviewed the Trust's annual report for compliance with the requirements of the Manual for Accounts and have not noted any significant issues with the proposed content of the report in respect of our knowledge and understanding of the Trust's performance during the year.



Next stepsThe Audit Committee is required to recommend to the Board the financial statements for the year ended 31 March 2011. In forming itsconclusions, the Committee's attention is drawn to the adjustments to the financial statements and our draft Letter of Representation and to the unadjusted misstatements.

The Trust is required to submit the audited financial statements to the Department of Health by 9am on 10 June 2011. We are required to submit audited FMA summarisation schedules to the Department of Health by the same deadline.

Annual Report to Those Charged With Governance (ISA 260)


3. Value for money

Value for money conclusion

The Code of Audit Practice 2010 (the Code) describes the Trust's responsibilities to put in place proper arrangements to:• secure economy, efficiency and effectiveness in its use of resources• ensure proper stewardship and governance• review regularly the adequacy and effectiveness of these arrangements.

For 2010/11 we are required to give our VfM conclusion based on two criteria specified by the Audit Commission.

• the Trust has proper arrangements in place for securing financial resilience

• the Trust has proper arrangements for challenging how it secures economy, efficiency and effectiveness

Programme of work - review of arrangements in place for value for money Our work has encompassed a review against proper corporate performance and financial management arrangements as defined by the Code. The summary findings from our review against these arrangements are detailed below:

Code criteria Work completed Conclusion

The Trust agreed its 2011/12 budget in March 2011, to

deliver a planned surplus of £1,883k. This requires delivery

of £13,954k of CIPs. Of this the Trust has identified

£11,343k of their CIPs and £2,611k remains unidentified.

Most of the CIPs are planned from recurrent schemes which

are part of the business and financial plans developed and

agreed for each of the service lines We have reviewed the CIP

schedule and are satisfied that based on above, this criteria

has been met.

Reviewed as part of financial resilience which included

review of the 2011/12 annual plan, budget and CIP

schedule.

Planning finances effectively to deliver strategic priorities and secure sound financial health




The Trust has good arrangements in place for monitoring

and management of the Trust's CIP programme with

regular reports to budget holders, the Finance and

Investment Committee and the Board which ensures close

monitoring of financial performance. In 2010/11 the Trust

achieved its planned CIP of £11,162k.

Reviewed as part of financial resilience which included

review of performance against budget in 2010/11.

Having a sound understanding of costs and performance and achieving efficiencies in activities

There is high level reporting on financial performance to

every Trust Board meeting with more detailed reporting to

the Trust's Finance and Investment Committee on a monthly

basis. The reports include consideration of performance

against budget, performance against Foundation Trust risk

rating metrics, performance against CIP and significant risks.

The Trust continues to review and improve its finance

reports, including the implementation of service line

reporting .

The financial statements were submitted on time and with no

significant issues arising.

Reviewed as part of financial resilience work - review of

finance reports, our audit of the financial statements and

our review of the Trust's annual report.

Reliable and timely financial reporting that meets the needs of internal users, stakeholders and local people

The Trust was assessed as performing well in the 2009/10

assessment on meeting patient needs and for the overall value

for money criteria. The annual plan sets out the Trust's

priorities which have been tailored to the local needs. These

are reported as part of the performance reports to the Board.

Our monitoring of the performance reports during the year

did not highlight a significant change in performance and we

are, therefore, satisfied that the criteria has been met.

Considered as part of our risk assessment of the Trust’s

arrangements to prioritise resources and improve efficiency

and productivity.

Commissioning and procuring services and supplies that are tailored to local needs and deliver sustainable outcomes and value for money




In 2009/10 we reviewed data quality arrangements and based

on our work, the Trust has a corporate framework for

management and accountability of data quality, and has put in

place appropriate policies and procedures to secure the quality

of data it records and uses for reporting. We did not identify

any significant change to arrangements from our work this year.

We have reviewed the Trust's overall arrangements in respect

of patient data quality as part of the Quality Accounts Audit.

We have identified scope for improvement in some areas but,

overall, arrangements were found to be adequate.

Considered as part of our risk assessment of the

Trust’s arrangements to prioritise resources and

improve efficiency and productivity and mandated

work on the Trust’s Quality Accounts.

Producing relevant and reliable data and information to support decision making and manage performancepriorities

The Audit Committee continues to be effective and challenging

where required as noted from our attendance at the meetings.

The Trust appointed Deloitte as their Local Counter Fraud

Specialists at the start of the year. There has been an increase in

proactive and reactive work and in raising awareness of fraud at

the Trust.

Based on our follow up review on governance, the Trust has

proactively addressed the issues we raised during our review last

year and sought to implement best practice See page 18 for

follow up of governance review.

The financial resilience review includes a section on financial

governance. This has not highlighted any significant issues with

appropriate information being regularly provided to the Board

and committees to provide an opportunity for review and

challenge.

Our review of the Statement on Internal Control and the

Trust's Annual Report did not highlight any significant issues.

Reviewed as part of financial resilience, follow up

review of governance, review of the SIC and the

annual report.

Promoting and demonstrating the principles and values of good governance




The Trust maintains a sound system of internal control, as

evidenced by the Head of Internal Audit's opinion stating

'significant assurance' over the control framework for

2010/11.

The financial resilience review includes a section on financial

control. This has not highlighted any significant issues. See

page 18 for follow up of governance review.

Reviewed as part of financial resilience, follow up review

of governance, review of the SIC and the annual report.

Managing risks and maintaining a sound system of internal control

The Trust was assessed as performing well for this criteria in

2009/10. The Trust has an estates, waste management and

energy and water management strategies in place which

demonstrates that the Trust continues to be committed to the

sustainable use of resources and includes how the Trust plans

to reduce carbon emissions. Our monitoring of

developments throughout the year did not highlight a

significant change in performance, e.g. no significant CQC

issues. We are therefore satisfied that these criteria are met.

We have updated our 2009/10 assessment through

discussions with officers and a review of strategies.Making effective use of natural resources

The Trust performed well in the 2009/10 assessment. The

annual plan sets out the Trust's priorities which have been

tailored to the local needs. The Trust sets a capital budget in

line with its annual plan, clinical and estates strategies. The

Trust maintains an up to date asset register which is used to

help manage the asset base. The Trust has a good awareness

of the areas it needs to improve on such as asset productivity

and deployment and backlog maintenance. Based on this we

are satisfied that the criteria have been met.


arrangements to prioritise resources and improve

efficiency and productivity.

Managing assets effectively to help deliver strategic priorities and service needs




The Trust has an underspend on its pay budget for the year

mainly due to holding back on vacancies. The Trust is the

process for reviewing its service delivery and redesigning its

services as part of its CIPs. This involves reviewing

productivity improvements, workforce skill mix change and

reconfiguration of services The services were also required to

develop workforces plans which includes the productivity

improvements. Based on review of the above, the Trust

meets the criteria.

Reviewed as part of financial resilience.


arrangements to prioritise resources and improve

efficiency and productivity.

Planning, organising and developing the workforce effectively to support the achievement of strategic priorities



Matters arising from the review of Value for Money

Key outcomes from our local programme of work are detailed below.

Securing Financial ResilienceWe have completed a review to assess whether the Trust has robust systems and processes in place to effectively manage its financial risks and opportunities and secure a stable financial position now and for the foreseeable future.

To support our conclusion against these criteria we have undertaken a review which considered the Trust's arrangements against four key areas:

• current financial performance• strategic financial planning• financial governance• financial control.

The key findings from this review are:

• The Trust has met it statutory financial targets and achieved its CIPs for 2010/11. The Trust has an overall Financial Risk Rating (FRR) of 2, is forecasting a FRR of 2 for 2011/12 and a 3 thereafter. This risk rating is due to the low liquidity ratio which the Trust plans to improve with a working capital facility which will be approved as the Trust becomes a Foundation Trust. Our experience with Monitor due diligence is that, all other things remaining equal, the Trust should be able to achieve a FRR of 3 on this basis. However, we would suggest that the Trust continues to monitor its liquidity position closely to mitigate against the risks of events that could threaten the projected liquidity ratio. The Trust has performed well against on achieving planned EBITA and EBITA margin and returns on assets, but could improve against its surplus margin through maximising CIP delivery.

• The Trust has an annual plan for 2011/12 which incorporates the budget and CIPs for ECS. The Trust is forecasting a surplus of £1,883k including CIPs of £13,954k (revised from £15,617k included in the budget approved by the Board in March 2011) of which £12,566k relates to the Trust and £1,388k to ECS. Of this the Trust has identified £11,343k of required CIPs and £2,611k remains unidentified. Most of the CIPs are planned from recurrent schemes which are part of the business and financial plans developed and agreed for each of the service lines. In developing these plan, the service lines have reviewed their workforce plans, including the mix of staff required to deliver the service and this incorporates the saving efficiencies required to be made by each of the services. The service line business plans have been used as the basis to update the Integrated Business Plan (IBP). At the time of our review, the Trust was updating its IBP which we plan to review once it is finalised. For the purposes for our VfM conclusion, we have reviewed the assumptions in preparing the budget and CIP schedule for 2011/12 and the Trust has adequate plans in place to deliver this budget.

• The Trust appears to have a sound system of governance in place through which it monitors and reports its financial position. Evidence has been provided of both Executive Directors and Non-Executive Directors being involved in the budget setting process. Finance reports are presented at every Trust Board and Finance and Investment Committee which includes financial performance of each service line. The Trust is in the process of further developing their service line reporting.



• The Trust has good arrangements for financial control, with arrangements in place for setting and monitoring budgets and internal control. This has been demonstrated with the financial position of the Trust in 2010/11 in which the Trust achieved its target CIP of £11,162k of which 81% was achieved from recurrent measures. No issues have been noted from reviews of the financial accounting systems and strong internal audit arrangements are in place.

• The Trust does not provide rolling twelve month forecast for its cash or surplus/deficit positions and this would useful monitoring tool for Board members to manage the Trust's financial position beyond the standard NHS year end which should, in turn make the Trust more financially resilient. The Trust plans to start preparing rolling cashflowforecast from quarter 2 of 2011/12.

• The Trust will need to continue to monitor and review its budgets during the year in order to achieve a challenging 2011/12 budget.

Recommendations from our financial resilience review will be set out within our detailed report which will be agreed with management in June 2011 and presented at the next Audit Committee meeting in October 2011.

Securing Economy, Efficiency and EffectivenessWe have reviewed whether the Trust has prioritised its resources to take into account budget constraints and whether it has achieved cost reductions and improved productivity and efficiencies.

Following our risk assessment, we identified the following work which we have carried out to support this:

• Follow up on the governance review• Review arrangements in place for the incorporation of Enfield Community Services.

Follow up on governance reviewThe Trust has proactively addressed the issues we raised during our review last year and sought to implement best practice with regard to the Board Assurance Framework (BAF), including strengthening information, especially details of assurance flows. It was apparent from the members of the Board and the Governance and Risk Management Committee interviewed during the course of our follow up review, that Executive and Senior Management of the Trust have a comprehensive understanding ofthe integrated governance framework and greater confidence in the current risk management system than had previously been the case.

The Trust is continually seeking to refine and improve existing practice, enabling it to comply with statutory requirements effectively and efficiently whilst minimising the risks faced by patients, staff and the wider public that the Trust serves. Governance and risk management is a continually evolving area and as the Trust progresses towards its foundation trust application it should ensure that it complies with Monitor's Quality Governance Framework.

Review arrangement in place for the incorporation of Enfield Community ServicesAs part of this work we reviewed the process the Trust had followed in undertaking this transaction and we concluded that the Trust had followed a reasonable process in acquiring ECS which complied with NHS London requirements. We also obtained assurance that the Trust negotiated a deal that represented good value for money for the Trust in financial terms.

Work is still on-going on the benefits realisation which covers our review of the integration programme and managing the delivery of the benefits of integration.

See page 5 above in regards to the work done on accounting for ECS.



External assurance on Quality AccountsThe Health Act 2009, set out the requirement for all providers of NHS healthcare services to produce a Quality Account, an annual report to the public about the quality of services delivered. Quality accounts aim to enhance accountability to the public and engage the leaders of health organisations in their quality improvement agenda. All providers of acute, mental health and learning disability services are required to produce a Quality Account from April 2010.

For 2010/11, our work on the Trust's quality account covered:• a review of the Trust's arrangements for satisfying itself that the

quality account is fairly stated and in accordance with relevant requirements

• testing of two specified performance indicators included in the Trust's quality account.

We will issue a detailed report on the work completed which will be presented at the July Board meeting. For the purposes of this report, we have not identified any significant data quality concerns that have any impact on our judgements on the Trust's arrangements for securing economy, efficiency and effectiveness.



Appendices



A. Other reporting mattersPurpose of reportThe purpose of this report is to highlight the key issues affecting the results of the Trust and the preparation of the Trust's financial statements for the year ended 31 March 2011.

The document is also used to report to management to meet the mandatory requirements of International Standard on Auditing (UK and Ireland) 260.

We would like to point out that the matters dealt with in this report came to our attention during the conduct of our normal audit procedures which are designed primarily for the purpose of expressing our opinion on the financial statements of the Trust.

This report is strictly confidential, and although it has been made available to management to facilitate discussions, it may not be taken as altering our responsibilities to the Trust arising under the terms of our audit engagement.

The contents of this report should not be disclosed with third parties without our prior written consent.

Responsibilities of the directors and auditorsThe directors are responsible for the preparation of the financial statements and for making

available to us all of the information and explanations we consider necessary. Therefore, it is essential that the directors confirm that our understanding of all the matters in this report is appropriate, having regard to their knowledge of the particular circumstances.

Clarification of the roles and responsibilities with respect to internal controlsThe Trust's management is responsible for the identification, assessment, management and monitoring of risk, for developing, operating and monitoring the system of internal control and for providing assurance to the Audit Committee that it has done so.

The Audit Committee is required to review the Trust's internal financial controls. In addition, the Audit Committee is required to review all other internal controls and approve the statements included in the annual report in relation to internal control and the management of risk.

The Audit Committee should receive reports from management as to the effectiveness of the

ISAUK 260 requires communication of:• relationships that have a bearing on the independence of the audit firm and the integrity and

objectivity of the engagement team

•nature and scope of the audit work• significant findings from the audit

systems they have established as well as the conclusions of any testing conducted by internal audit or ourselves.

We have applied our audit approach to document, evaluate and assess your internal controls over the financial reporting process in line with the requirements of auditing standards.

Our audit is not designed to test all internal controls or identify all areas of control weakness. However, where, as part of testing, we identify any control weaknesses, we will report these to you.

In consequence, our work cannot be relied upon to disclose defalcations or other irregularities, or to include all possible improvements in internal control that a more extensive special examination might identify.

We would be pleased to discuss any further work in this regard with the Audit Committee.



Independence and robustnessEthical standards require us to give you full and fair disclosure of the matters relating to our independence. In this context we ensure that:• the appointed audit partner and audit manager are subject to rotation every seven years;

• Grant Thornton, its partners and the audit team have no family, financial, employment, investment or business relationship with the Trust;

• our fees paid by the Trust do not represent an inappropriate proportion of total fee income for either the firm, office or individual partner; and

• at all times during the audit, we will maintain a robustly independent position in respect of key judgement areas

Audit and non-audit servicesServices supplied to the Trust for the year ended 31 March 2011 are as follows:

Audit quality assuranceGrant Thornton's audit practice is currently monitored by the Audit Inspection Unit, an arm of the Financial Reporting Council which has responsibility for monitoring the firm's public interest audit engagements.

The audit practice is also monitored by the Quality Assurance Directorate of the ICAEW. Grant Thornton also conducts internal quality reviews of engagements.

Furthermore, audits of public interest bodies are subject to the Audit Commission's quality review process.

We would be happy to discuss further the firm's approach to quality assurance.

£

Audit services

Statutory audit 145,000



B. Audit adjustmentsAdjustment typeMisstatement - A change in the value of a balance presented in the financial statementsClassification - The movement of a balance from one location in the accounts to anotherDisclosure - A change in the way in which a balance is disclosed or presented in an explanatory note

Adjustments to the financial statements

Adjustment type £000 Account balance Impact on financial statements

Reclassification 293 Accruals and provisions Increase in provisions and decrease of accruals

Reclassification 6,690 Property, plant & equipment No impact on the net book value of property, plant & equipment

Reclassification 152 Non-NHS receivables and Non-NHSpayables

Increase of receivables and decrease of payables

Adjustment type £000 Account balance Impact on financial statements

Misstatement 406 Income and NHS receivables Increase of income and increase of NHS receivables

Misstatement 21 Interest payable and current liabilities Interest

Increase of finance costs and increase of current liabilities

Unprocessed adjustments to the financial statements



C. Action planRec

No.

Recommendation Priority Management Comments Implementation date

and responsibility

Financial statements:

1. The Trust should ensure that it puts arrangements in place so that it can continue to be satisfied that its assets reflect fair value at the end of each reporting period and should ensure that this is reflected accurately and comprehensively in the accounting policies and narrative disclosures.

M Agreed: The trust will continue to review

the continuous relevance of the guidelines

from DH for a 5 yearly full valuation

depending on prevailing circumstances.

The Trust will also explore the use of

indices by benchmarking these with other

NHS Trusts

Head of Financial

Control

29 February 2012

2. The Trust should ensure it does not make a provision for impairments in relation to NHS receivables are this is not allowed under NHS accounting principles.

M Agreed. This will be taken into

consideration as part of the overall

provisions going forward.

Management will continue to report to the

Audit Committee on potential risks of

irrecoverable debts including NHS

accounts. Where it can be established that

an NHS debt is not recoverable a credit

note will be issued instead.

Head of Financial

Control

31 July 2011

3. The Trust should prepare separate bank reconciliations for its Citi Bank

and RBS Bank accounts.

M Agreed. This currently happens but the

report combines the two accounts. We will

ensure that the report separates the

reconciliations.

Head of Financial

Control

30 June 2011

4. The Trust should put in place arrangements to improve its performance

against the Better Payment Practice Code.

M Agreed. Accounts payable action plan will

be prepared to address this issue.

Head of financial

Control

30 June 2011



C. Action planRec

No.

Recommendation Priority Management Comments Implementation date

and responsibility

Financial statements:

5. The Trust should ensure that it has formal agreements in place for all

properties that it leases to other bodies (e.g. Moorfields).

M Agreed: This is being dealt with as part of

the SLA discussions for 2011/12

Head of Estates

31 July 2011

6. The Trust should ensure it completes checklists for any losses and compensation over £1k in line with Chapter 5 of the MfA.

L Agreed. Head of Financial

Control

31 July 2011

7. The Trust should ensure that any officers defined as senior financial reporting personnel i.e. Director of Finance and Deputy Director of Finance, should not have the access on Agresso to make journal entries.

L Agreed. Head of Financial

Control

30 June 2011

Documents

Barnet, Enfield & HaringeyMental Health NHSTrust Us/Priorities and performance... · Barnet, Enfield & HaringeyMental Health NHSTrust ... requirements of International Standard on