the audit findings for northern devon healthcare nhs trust ... · uncertainty" (isa 315). in...

© 2013 Grant Thornton UK LLP | Audit Findings | Date

The Audit Findings

for Northern Devon Healthcare NHS

Trust Charitable Fund

Year ended 31 March 2013

Elizabeth Cave

Engagement Lead

T 0117 305 7885

E [email protected]

Mark Bartlett

Engagement Manager

T 0117 305 7896

E [email protected]

Stephen Clarke

Audit Executive

T 0117 305 7884

E [email protected]

15 July 2013

Cover page

© 2013 Grant Thornton UK LLP | Audit Findings | Date 2

The contents of this report relate only to those matters which 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. Our audit is not designed to test all internal controls or identify all

areas of control weakness. However, where, as part of our 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 do not accept any responsibility for any loss occasioned to any third party

acting, or refraining from acting on the basis of the content of this report, as

this report was not prepared for, nor intended for, any other purpose.

Disclaimer


Contents

Section Page

1. Executive summary 5

2. Audit findings 8

3. Fees, non audit services and independence 18

4. Communication of audit matters 20

Appendices

A Action plan

B Audit opinion

Contents


Section 1: Executive summary

01. Executive summary

02. Audit findings

03. Fees, non audit services and independence

04. Communication of audit matters


Executive summary

Executive summary

Overall review of

financial

statements

Purpose of this report

This report was originally taken to the Charitable Funds Committee on 15 July 2013. The financial statements could not be approved at that meeting as the restricted and unrestricted income position needing to be restated. This has now been carried out in accordance with recommendation 1 of the action plan on page 23, and we anticipate issuing an unqualified opinion on the Charity's financial statements. No other amendment has been made to this report.

This report highlights the key issues affecting the results of Northern Devon

Healthcare NHS Trust Charitable Fund (the Charity) and the preparation of the

Charity's financial statements for the year ended 31 March 2013. It is also used to

report our audit findings to management and those charged with governance in

accordance with the requirements of International Standard on Auditing (UK &

Ireland) 260.

We have agreed with the Charity that the communications required under ISA 260

would be discharged through a report to the Charitable Funds Committee, which

acts as those charged with governance on behalf of Northern Devon Healthcare

NHS Trust, the Charity's sole trustee.

Introduction

Our audit is substantially complete although we are finalising our procedures in the

following areas:

• review of the revised financial statements

• obtaining and reviewing the management letter of representation

• review of revised version of the Annual Report and

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

opinion

We received draft financial statements and accompanying working papers at the

commencement of our work, well in advance of the national deadline.

Key audit and financial reporting issues

Financial statements opinion

We have not identified any adjustments affecting the Charity's net movement in

funds. Some amendments have been made to disclosures in the financial

statements to improve the presentation of the accounts.

The key messages arising from our audit of the Charity's financial statements

are:

• The primary statements currently show £1.5m of restricted income funds.

The Charity has reviewed the classification of funds between restricted and

unrestricted funds. This has identified that restricted funds at 31 March 2013

are only £0.5m. The financial statements need to be restated to reflect this

position.

• Cash balances have increased from £324k at 31 March 2012 to £754k at 31

March 2013. These increased balances are earning very little interest

currently and could have been invested to achieve a better return.

We anticipate providing an unqualified opinion on the Charity’s financial

statements when they have been restated for the revised split between restricted

and unrestricted funds.

Further details are set out in section two of this report.


Executive summary

Overall review of

financial

statements

Controls

Roles and responsibilities

The Charity's management is responsible for the identification, assessment,

management and monitoring of risk, and for developing, operating and monitoring

the system of internal control.

Our audit is not designed to test all internal controls or identify all areas of control

weakness. However, where, as part of our testing, we identify any control

weaknesses, we report these to the Charity.

Findings

• The Charity does not have a contract in place with its fund managers, Barclays

Wealth.

• There is no evidence that the financial statements are reviewed by a senior

member of finance staff.

Further details are provided within section two of this report.

The way forward

Matters arising from the financial statements audit have been discussed with

the Director of Finance and Performance.

We have made a small number of recommendations, which are set out in the

action plan. Recommendations have been discussed and agreed with the

Director of Finance and the finance team.

Acknowledgement

We would like to take this opportunity to record our appreciation for the

assistance provided by the finance team and other staff during our audit.

Grant Thornton UK LLP

July 2013


Section 2: Audit findings


02. Audit findings




Overview of audit findings

Audit findings

Overview of audit

findings

Account Transaction cycle Material misstatement

risk?

Description of risk Audit findings

Voluntary Income Voluntary Income Other Voluntary income not correctly recorded

None

Activities for generating income Other Revenue None None

Investment Income Investments None None

Income from deposit accounts Investment None None

Costs of generating funds Operating Expenses None None

Cost of generating voluntary Income Operating Expenses None None

Fundraising trading costs Operating Expenses None None

Investment management costs Investments None None

Charitable activities Operating Expenses None None

In this section we present our findings in respect of matters and risks identified at the planning stage of the audit and additional matters that arose during the course of

our work.


Audit findings

Overview of audit

findings

(continued)

Account Transaction cycle Material misstatement

risk?

Description of risk Audit findings

Governance Operating Expenses None None

Other resources expended Operating Expenses None None

Current year realised gains on disposal

of assets

Operating Expenses None None

Gains and losses on investment assets Operating Expenses None None

Intangible assets Intangible assets None None

Investments Investment Other Fair value measurements priced using inputs

not based on observable market data (using

models or similar techniques) not correct

None

Debtors Other Revenue None £8k error identified

Cash Cash & Bank None £8k error identified

Creditors Operating Expenses None None

Unrestricted fund Equity None None

Restricted Income funds

Equity None Restricted funds stated as

£1.5m. Recent work by the

Charity has identified that

restricted funds should by

£0.5m.


Audit findings against significant risks

Risks identified in our audit plan Work completed Assurance gained and issues arising

1. Improper revenue recognition

Under ISA 240 there is a presumed risk that revenue

may be misstated due to the improper recognition of

revenue

We have undertaken the following:

review and testing of revenue recognition

policies

review of unusual significant transactions

See voluntary testing below

Our audit work has not identified any issues in respect

of revenue recognition.

2. Management override of controls

Under ISA 240 there is a presumed risk that the risk

of management over-ride of controls is present in all

entities.

We have undertaken the following:

review of accounting estimates, judgements and

decisions made by management

testing of journals entries

review of unusual significant transactions

Our audit work has not identified any evidence of

management override of controls. In particular the

findings of our review of journal controls and testing of

journal entries has not identified any significant issues.

We set out later in this section of the report our work

and findings on key accounting estimates and

judgements.

Audit findings

Significant findings

"Significant risks often relate to significant non-routine transactions and judgmental matters. Non-routine transactions are transactions that are unusual, either due to size

or nature, and that therefore occur infrequently. Judgmental matters may include the development of accounting estimates for which there is significant measurement

uncertainty" (ISA 315).

In this section we detail our response to the significant risks of material misstatement which we identified in the Audit Plan. As we noted in our plan, there are two

presumed significant risks which are applicable to all audits under auditing standards.


Audit findings against other risks

Transaction cycle Description of risk Work completed Assurance gained & issues arising

Voluntary income Voluntary income not correctly

recorded

We have undertaken the following work in relation to

this risk:

Documentation of our understanding of processes

and key controls over the transaction cycle

Walkthrough of the key controls to assess the

whether those controls are designed effectively

Substantive testing of voluntary income

Our audit work has not identified any significant issues in

relation to the risk identified.

Investments Fair value measurements

priced using inputs not based

on observable market data

(using models or similar

techniques) not correct

We have undertaken the following work in relation to

this risk:

Documentation of our understanding of processes

and key controls over the transaction cycle

Walkthrough of the key controls to assess the

whether those controls are designed effectively

Substantive testing of voluntary income

Our audit work has not identified any significant issues in

relation to the risk identified.

Audit findings


(continued)

In this section we detail our response to the other risks of material misstatement which we identified in the Audit Plan. Recommendations, together with management

responses are attached at appendix A.


Accounting policies, Estimates & Judgements

Accounting area Summary of policy Comments Assessment

Revenue recognition Incoming resources are recognised when

the Charity is entitled to the resource,

there is reasonable certainty that it will be

received and it can be measured with

sufficient reliability.

Income from legacies is recognised upon

receipt or when receipt is reasonably

certain e.g. confirmation received from

representatives of the estate.

We have reviewed the Charity's recognition of revenue and found

that:

Appropriate policies had been used

Accounting policies had been adequately disclosed

Revenue had been appropriately recognised

Judgements and estimates Key estimates and judgements include:

Valuation of investments

We reviewed the accounting areas where the Charity has exercised

judgement and used estimates. We found that:

Appropriateness policies had been used

Accounting policies had been adequately disclosed

Areas where judgement had been used were supported by the

work of an expert or third party where appropriate

Other accounting policies The Charity has adopted the standard

accounting policies for NHS charitable

funds.

We have reviewed the Charity's policies and do not have any

comments to make.

Assessment

Marginal accounting policy which could potentially attract attention from regulators Accounting policy appropriate but scope for improved disclosure Accounting policy appropriate and disclosures sufficient

Audit findings


– accounting

policies#

In this section we report on our consideration of accounting policies, in particular revenue recognition policies, and key estimates and judgements made and included with the Trust's

financial statements.


Unadjusted misstatements

Audit findings

Adjusted

misstatements

Detail Statement of

Financial Activities

£'000

Balance Sheet

£'000

Reason for not adjusting

1 The financial statements show £1.5m of restricted funds

but recent work by the Charity has identified that restricted

funds are £0.5m. The statements should be restated for the

correct split between restricted and unrestricted. This

amount is material to the accounts and impacts on the

users of the statements.

1,020 1,020 The Charity did not have time to

make the necessary amendments

to restate the Statement of

Financial Activities

The table below provides details of adjustments identified during the audit but which have not been made within the final set of financial statements. The Charitable Funds Committee

is required to approve management's proposed treatment of all items recorded within the table below:


Adjusted misstatements

Audit findings

Adjusted

misstatements

Detail Statement of Financial

Activities

£'000

Balance Sheet

£'000

Impact on net

movement in funds

£000

1 The cash at bank balance was overstated due to a banking

error. Charity monies were credited to the Trust bank account

and are now shown within debtors.

- 8 Nil

A number of adjustments to the draft accounts have been identified during the audit process. We are required to report all misstatements to those charged with governance, whether or

not the accounts have been adjusted by management. The table below summarises the adjustments arising from the audit which have been processed by management.

Impact of adjusted misstatements

All adjusted misstatements are set out in detail below along with the impact on the key statements and the reported surplus.


Misclassifications & disclosure changes

Audit findings

Adjusted

misstatements

Adjustment type Value

£'000

Account balance Impact on the financial statements

1 Disclosure

N/A Note 4 Investments A note analysing investments representing over 5% of the portfolio

was not disclosed. This has been included in the revised accounts.

The table below provides details of misclassification and disclosure changes identified during the audit which have been made in the final set of financial statements.


Internal controls

The purpose of an audit is to express an opinion on the financial statements.

Our audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters reported here are limited to those

deficiencies that we have identified during the course of our audit and that we have concluded are of sufficient importance to merit being reported to you in

accordance with auditing standards.

These and other recommendations, together with management responses, are included in the action plan attached at appendix A.

Assessment Issue and risk Recommendations

1.

The Charity does not have a contract in place with

Barclays Wealth, who are not required to have an AAF01

audit report carried out.

The Charity must ensure that it puts appropriate arrangements in place to ensure that

responsibilities are clearly set out between itself and Barclays Wealth and that the

investment policy of the Charity is adhered to.

2.

There is no evidence of a review of the Charity financial

statements by a senior member of Finance staff before

they are presented for audit.

The Charity should ensure that a senior member of finance staff carries out an

evidenced quality review of the financial statement before they are presented for audit.

Audit findings

Assessment

Significant deficiency – risk of significant misstatement

Deficiency – risk of inconsequential misstatement

Internal controls


Other communication requirements

Issue Commentary

1. Matters in relation to fraud We have previously discussed the risk of fraud with the Charity and we have not been made aware of any incidents in the period and

no other issues have been identified during the course of our audit procedures.

2. Matters in relation to related

parties

We are not aware of any related party transactions which have not been disclosed

3. Matters in relation to laws and

regulations

We are not aware of any significant incidences of non-compliance with relevant laws and regulations.

4. Written representations A standard letter of representation has been requested from the Charity.

5. Disclosures Our review found no material omissions in the financial statements.

6. Going Concern Our audit work has not identified any matters which indicate that preparation of the accounts under the going concern assumption

would not be appropriate.

Audit findings

Other

communication

requirements#

We set out below details of other matters which we, as auditors, are required by auditing standards to communicate to those charged with governance.


Section 3: Fees, non audit services and independence


02. Audit findings




Fees

£

Planned audit fee 4,500

Actual audit fee 4,500

Variance 4,500

Fees, non audit services and independence

We confirm below our final fees charged for the audit and confirm there were no fees for the provision of non audit services.

Independence and ethics

We confirm that there are no significant facts or matters that impact on our independence as auditors

that we are required or wish to draw to your attention. We have complied with the Auditing Practices

Board's Ethical Standards and therefore we confirm that we are independent and are able to express an

objective opinion on the financial statements.

We confirm that we have implemented policies and procedures to meet the requirements of the

Auditing Practices Board's Ethical Standards.

Fees for other services

Service Fees £

None Nil

Fees, non audit services and independence


Section 4: Communication of audit matters


02. Audit findings

03. Value for Money



Communication of audit matters to those charged with governance

Our communication plan

Audit

Plan

Audit

Findings

Respective responsibilities of auditor and management/those

charged with governance

Overview of the planned scope and timing of the audit. Form, timing

and expected general content of communications

Views about the qualitative aspects of the entity's accounting and

financial reporting practices, significant matters and issues arising

during the audit and written representations that have been sought

Confirmation of independence and objectivity

A statement that we have complied with relevant ethical

requirements regarding independence, relationships and other

matters which might be thought to bear on independence.

Details of non-audit work performed by Grant Thornton UK LLP and

network firms, together with fees charged

Details of safeguards applied to threats to independence

Material weaknesses in internal control identified during the audit

Identification or suspicion of fraud involving management and/or

others which results in material misstatement of the financial

statements

Compliance with laws and regulations

Expected unmodified auditor's report

Uncorrected misstatements

Significant matters arising in connection with related parties

Significant matters in relation to going concern

International Standards on Auditing (ISA) 260, as well as other ISAs, prescribe matters

which we are required to communicate with those charged with governance, and which

we set out in the table opposite.

The Audit Plan outlined our audit strategy and plan to deliver the audit, while this Audit

Findings report presents the key issues and other matters arising from the audit, together

with an explanation as to how these have been resolved.

Respective responsibilities

The Audit Findings Report has been prepared in the context of the Statement of

Responsibilities of Auditors and Audited Bodies issued by the Audit Commission

(www.audit-commission.gov.uk).

We have been appointed as the Charity independent external auditors by the Audit

Commission, the body responsible for appointing external auditors to local public bodies

in England. As external auditors, we have a broad remit covering finance and

governance matters.

Our annual work programme is set in accordance with the Code of Audit Practice ('the

Code') issued by the Audit Commission and includes nationally prescribed and locally

determined work. Our work considers the Charity's key risks when reaching our

conclusions under the Code.

It is the responsibility of the charity to ensure that proper arrangements are in place for

the conduct of its business, and that public money is safeguarded and properly

accounted for. We have considered how the Charity is fulfilling these responsibilities.

Communication of audit matters

http://www.audit-commission.gov.uk/




Appendices

Appendices


Appendix A: Action plan

Priority High - Significant effect on control system Medium - Effect on control system Low - Best practice

Rec

No. Recommendation Priority Management response

Implementation date &

responsibility

1 The financial statements must be restated

for the revised split between restricted and

unrestricted funds

High The financial statements have been restated and agreed

with the external auditors.

Actioned September 2013

2 Arrangements should be put in place to allow excess cash balances to be invested in order achieve better returns.

Medium Arrangements have been set up with Barclays Wealth

for the investment of cash balances.

Actioned August 2013

3 The Charity must ensure that it puts appropriate arrangements in place to ensure that responsibilities are clearly set out between itself and Barclays Wealth and that the investment policy of the Charity is adhered to.

High Agreed. Arrangements to be reviewed before the next

committee meeting.

January 2014

Andy Robinson

4 The Charity should ensure that a senior member of finance staff carries out an evidenced quality review of the financial statements before they are presented for audit.

High Agreed

March 2014

Andy Robinson

Appendices


Appendix B: Audit opinion

We anticipate we will provide the Trust with an unmodified audit report

Guidance note

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Audit opinion –

option 1

Independent auditor's report to the trustees of Northern Devon Healthcare NHS Trust Charitable

Fund

We have audited the financial statements of Northern Devon Healthcare NHS Trust Charitable Fund for the

year ended 31 March 2013 which comprise the statement of financial activities, the balance sheet and related

notes. The financial reporting framework that has been applied in their preparation is applicable law and

United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the charity's trustees, as a body, in accordance with Section 154 of the Charities

Act 2011. Our audit work has been undertaken so that we might state to the charity's trustees those matters

we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the charity and its trustees

as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of trustees and auditor

As explained more fully in the Trustees’ Responsibilities Statement set out on page 1, the trustees are

responsible for the preparation of financial statements which give a true and fair view.

We have been appointed as auditor under section 149 of the Charities Act 2011 and report in accordance

with regulations made under section 154 of that Act. Our responsibility is to audit and express an opinion on

the financial statements in accordance with applicable law and International Standards on Auditing (UK and

Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB's) Ethical Standards

for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at

www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the charity’s affairs as at 31 March 2013, and of its incoming

resources and application of resources, for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and

• have been prepared in accordance with the requirements of the Charities Act 2011.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Charities Act 2011

requires us to report to you if, in our opinion:

• the information given in the Trustees’ Annual Report is inconsistent in any material respect with the

financial statements; or

• sufficient accounting records have not been kept; or

• the financial statements are not in agreement with the accounting records and returns; or

• we have not received all the information and explanations we require for our audit.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Hartwell House, 55-61 Victoria Street, Bristol BS1 6FT

Date:

Appendices

http://www.frc.org.uk/apb/scope/private.cfm


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