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Ernst & Young LLP

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NHS Nene ClinicalCommissioning GroupAnnual Audit Letter for the year ended 31 March 2016

July 2016

Contents

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Contents

Executive Summary ................................................................................................................................................................................ 2

Purpose .................................................................................................................................................................................................. 6

Responsibilities....................................................................................................................................................................................... 8

Financial Statement Audit ..................................................................................................................................................................... 10

Value for Money .................................................................................................................................................................................. 133

Other Reporting Issues ........................................................................................................................................................................ 155

Focused on your future ........................................................................................................................................................................ 177

In April 2015 Public Sector Audit Appointments Ltd (PSAA) issued ‘‘Statement of responsibilities of auditors and audited bodies 2015-16’. It is available from the Chief Executive ofeach audited body and via the PSAA website (www.psaa.co.uk)

The Statement of responsibilities serves as the formal terms of engagement between appointed auditors and audited bodies. It summarises where the different responsibilities ofauditors and audited bodies begin and end, and what is to be expected of the audited body in certain areas.The ‘Terms of Appointment from 1 April 2015’ issued by PSAA sets out additional requirements that auditors must comply with, over and above those set out in the National AuditOffice Code of Audit Practice (the Code) and statute, and covers matters of practice and procedure which are of a recurring nature.

This Annual Audit Letter is prepared in the context of the Statement of responsibilities. It is addressed to the Directors/Members of the audited body, and is prepared for their soleuse. We, as appointed auditor, take no responsibility to any third party.

Our Complaints Procedure – If at any time you would like to discuss with us how our service to you could be improved, or if you are dissatisfied with the service you are receiving, youmay take the issue up with your usual partner or director contact. If you prefer an alternative route, please contact Steve Varley, our Managing Partner, 1 More London Place, LondonSE1 2AF. We undertake to look into any complaint carefully and promptly and to do all we can to explain the position to you. Should you remain dissatisfied with any aspect of ourservice, you may of course take matters up with our professional institute. We can provide further information on how you may contact our professional institute.

http://www.audit-commission.gov.uk/pages/default.aspx

Executive Summary

Annual Audit Letter for the year ended 31 March 2016 – NHS Nene Clinical Commissioning Group

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Executive Summary

We are required to issue an annual audit letter to NHS Nene Clinical Commissioning Group (the CCG) following completion of our audit proceduresfor the year ended 31 March 2016.

Below are the results and conclusions on the significant areas of the audit process.

Area of Work Conclusion

Opinion on the CCG’s:► Financial statements Unqualified – the financial statements give a true and fair view of the financial position of the

CCG as at 31 March 2016 and of its expenditure and income for the year then ended

► Regularity of income and expenditure Unqualified – financial transactions were conducted within the CCG legal framework

► Parts of the remuneration and staff report tobe audited

We had no matters to report.

► Consistency of the Annual Report and otherinformation published with the financialstatements

Financial information in the Annual report and published with the financial statements wasconsistent with the Annual Accounts


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Reports by exception:► Consistency of Governance Statement The Governance Statement was consistent with our understanding of the CCG

► Referrals to the Secretary of State and NHSEngland

We had no matters to report or refer.

► Public interest report We had no matters to report in the public interest.

► Value for money conclusion We had no matters to report.


Reporting to the CCG on its consolidationschedules

We concluded that the CCG’s consolidation schedules agreed, within a £250,000 tolerance, toyour audited financial statements.

Reporting to the National Audit Office (NAO) inline with group instructions

We had no matters to report.


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As a result of the above we have also:


Issued a report to those charged withgovernance of the CCG communicatingsignificant findings resulting from our audit.

Our Audit results report was issued on 26 May 2016

Issued a certificate that we have completed theaudit in accordance with the requirements of theLocal Audit and Accountability Act 2014 and theNational Audit Office’s 2015 Code of AuditPractice.

Our certificate was issued on 26 May 2016

We would like to take this opportunity to thank the CCG staff for their assistance during the course of our work.

Andrew Clewer

PartnerFor and on behalf of Ernst & Young LLP

Purpose


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Purpose

The Purpose of this LetterThe purpose of this annual audit letter is to communicate to Members and external stakeholders, including members of the public, the key issuesarising from our work, which we consider should be brought to the attention of the Clinical Commissioning Group (CCG).

We have already reported the detailed findings from our audit work in our 2015/16 annual results report to the 25 May 2016 Audit and RiskCommittee, representing those charged with governance. We do not repeat those detailed findings in this letter. The matters reported here are themost significant for the CCG.

Responsibilities


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Responsibilities

Responsibilities of the Appointed AuditorOur 2015/16 audit work has been undertaken in accordance with the Audit Plan that we issued on 14 April 2016 and is conducted in accordancewith the National Audit Office's 2015 Code of Audit Practice, International Standards on Auditing (UK and Ireland), and other guidance issued bythe National Audit Office.

As auditors we are responsible for:

Expressing an opinion:

► On the 2015/16 financial statements;

► On the regularity of expenditure and income;

► On the parts of the remuneration and staff report to be audited;

► On the consistency of other information published with the financial statements, including the annual report; and

► On whether the consolidation schedules are consistent with the CCG's financial statements for the relevant reporting period.

Reporting by exception:

► If the annual governance statement does not comply with relevant guidance or is not consistent with our understanding of the CCG;

► To the Secretary of State for Health and NHS England if we have concerns about the legality of transactions of decisions taken by theCCG; and

► Any significant matters that are in the public interest.

► Forming a conclusion on the arrangements the CCG has in place to secure economy, efficiency and effectiveness in its use of resources.

► Reporting to the National Audit Office (NAO) any differences over £250,000 between the consolidation schedules and the auditedfinancial statements.

Responsibilities of the CCGThe CCG is responsible for preparing and publishing its statement of accounts, annual report and annual governance statement. It is alsoresponsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Financial StatementAudit


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Financial Statement Audit

Key IssuesThe Annual Report and Accounts is an important tool for the CCG to show how it has used public money and how it can demonstrate its financialmanagement and financial health.

We audited the CCG’s Statement of Accounts in line with the National Audit Office’s 2015 Code of Audit Practice, International Standards onAuditing (UK and Ireland), and other guidance issued by the National Audit Office and issued an unqualified audit report on 25 May 2016.

Our detailed findings were reported to the 25 May 2016 Audit and Risk Committee.

The key issues identified as part of our audit were as follows:

Significant Risk Conclusion

Management override ofcontrols

We have not identified any material weaknesses in controls or evidence of material management override.We have not identified any instances of inappropriate judgements being applied.The CCG raised a number of invoices to Northamptonshire County Council which remained unpaid at the end of2015/16, some of which date back to 2013/14. The total outstanding amount at 31 March 2016 was £3.1magainst which the CCG has provided £2.8m. The invoices primarily relate to recharges for expenditure incurred bythe CCG for services where funding has been transferred to the Council. A number of these invoices have beendisputed by the Council. The CCG will need to progress this with the Council to resolve at the earliest opportunityin 2016/17.

Revenue and expenditurerecognition

Our testing has not revealed any material misstatements with respect to revenue and expenditure recognition.

Better care fund (BCF) andother joint commissioningarrangements

The CCG has agreed with its partners in the first year of the Better Care Fund for each individual organisation tocontinue to pay for the services that they utilise in line with their contribution to the pool with a memorandumaccount produced at year end. The Fund has not therefore been pooled as intended by the BCF.The Governance arrangements for the BCF have been developing during the year. It is critical that these areembedded so that they support the delivery of the objectives of the BCF in 2016/17.

Administration runningcosts

Our testing has not revealed any material misstatements with respect to administration running costs.


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Other Key Findings Conclusion

Completeness of Related Party Transactions We had no matters to report related to the completeness of related party transactiondisclosures.

Value for Money


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Value for Money

We are required to consider whether the CCG has put in place ‘proper arrangements’ to secure economy, efficiency and effectiveness on its use ofresources. This is known as our value for money conclusion.

Proper arrangements are defined by statutory guidance issued by the National Audit Office. They comprise your arrangements to:

· Take informed decisions;· Deploy resources in a sustainable manner; and· Work with partners and other third parties.

We did not identify any significant matters in relation to the CCG’s arrangements

Key Findings

We have reviewed the CCGs 5-year plan and its underpinning assumptions. The CCG has plans in place which would enable it to meet its financialtargets in the medium term.

Proper arrangements forsecuring value for money

Informeddecision making

Working withpartners andthird parties

Sustainableresource

deployment

Other ReportingIssues


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Other Reporting Issues

Department of Health/NHS England Group InstructionsWe are only required to report to the NAO on an exception basis if there were significant issues or outstanding matters arising from our work.There were no such issues.

Annual Governance StatementWe are required to consider the completeness of disclosures in the CCG’s annual governance statement, identify any inconsistencies with the otherinformation of which we are aware from our work, and consider whether it complies with relevant guidance.

We completed this work and did not identify any areas of concern.

Breach of revenue resource limit and referral to Secretary of StateWe must report to the Secretary of State any matter where we believe a decision has led to, or would lead to, unlawful expenditure, or some actionhas been, or would be, unlawful and likely to cause a loss or deficiency. We had no exceptions to report.

Report in the Public InterestWe have a duty under the Local Audit and Accountability Act 2014 to consider whether, in the public interest, to report on any matter that comesto our attention in the course of the audit in order for it to be considered by the CCG or brought to the attention of the public.

We did not identify any issues which required us to issue a report in the public interest.

Control Themes and ObservationsAs part of our work, we obtained an understanding of internal control sufficient to plan our audit and determine the nature, timing and extent oftesting performed. Although our audit was not designed to express an opinion on the effectiveness of internal control, we are required tocommunicate to you significant deficiencies in internal control identified during our audit. We have no matters to report.

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Focused on yourfuture

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Focused on your future

Area Issue Impact

NHS providerfinancialpressures

Draft 2015/16 financial statements show NHS providers overspent by arecord £2.45 billion for the year. The scale of this overspending isunprecedented. Despite additional funding and significant efforts to reducedeficits, record numbers of trusts overspent and the overall deficit is likely tobe three times higher than in 2014/15. Some 48 trusts reported a deficit ofmore than £20 million, including 11 trusts reporting an individual deficit ofmore than £50 million.At the same time, performance against key targets is continuing todeteriorate and there are increasing concerns over the quality of services.Providers as a whole missed the Accident and Emergency waiting target ofseeing 95 percent of patients within four hours for the final quarter of theyear, and waiting lists for routine operations reached 3.34 million.It is not yet clear whether trusts’ financial performance for the year will causethe Department of Health to exceed its spending limit for 2015/16, a seriousbreach of parliamentary protocol. Whether or not there is a breach, NHStrusts will start 2016/17 with a collective deficit of around £1 billion morethan planned. Without change there is the potential for the increasingfinancial pressure to impact further on levels of patient care.

The scale of the financial challenges faced by NHS providersimpacts all aspects of their operations, as well as theircommissioners. It is therefore a key driver of audit risk andimpacts our approach.


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Area Issue Impact

Better Care Fund The Better Care Fund (BCF) is a series of pooled budgets between CCGs andlocal government bodies aiming to better integrate health and social care,resulting in an improved experience and better quality care for patients.2016/17 will be the BCF’s second year of existence and many partners will bedeveloping their plans for collaborative working, including:► Reviewing care pathways to deliver improved patient outcomes and

genuine system wide efficiencies;► Revisiting governance arrangements after a year’s experience;► Working towards fully integrating commissioning;► Further honing arrangements for reporting financial and non-financial

information; and► Delivering fair risk share arrangements between partners.

Local BCF arrangements are complex and varied, involving anumber of different commissioning, governance andaccounting arrangements that raise risks ofmisunderstanding and inconsistencies between the partners.There are also structural, cultural and regulatory differencesbetween local government and the NHS, and it is importantthat these are understood and considered by all of thepartners in the operation of the pool. In this second year,these arrangements will be further developed and embedded.As your external auditor we need to gain an understanding ofyour approach to delivering planned outcomes of the BCF,and the impact of this on your governance, internal controland financial reporting.

SustainabilityandTransformationPlans

NHS England’s document, Delivering the Forward View: NHS planningguidance 2016/17-2020/21, published in December 2015, asks local healthsystems, including local government, voluntary and community partners, towork together to secure transformation change in healthcare planning anddelivery.For this purpose England has been divided into 44 local health systems, madeup of local councils, CCGs and NHS and other providers. Each health systemneeds to produce, by the end of June 2016, a Sustainability andTransformation Plan covering the next five years.The initial requirement is for CCGs and providers to control expenditure andstay within budget in 2016-17. Subsequently, spending and performance willneed to be managed sustainably over the following four years in order toaccess the available transformation funding. This is intended to fund changesto service delivery while maintaining and improving patient safety and qualityover the years 2017-21. Failure to deliver on targets agreed will results inbodies being unable to access transformation funding, which will from now onbe the only additional funds available.

Bodies will need to work together to a far greater extent thanever before to ensure that sustainability and financial plansare viable, and successfully delivered. Failure to do this couldhave wider adverse financial and service deliveryconsequences across the whole local area.As your external auditor we need to gain an understanding ofyour wider approach and plans, and the impact of greaterpartnership working on your governance, internal control andfinancial reporting.


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Area Issue Impact

Co-commissioning

Co-commissioning aims to support the development of integrated out-of-hospital services based around the needs of local people. It is part of a widerstrategy to join up care in and out of hospital and is intended to lead to anumber of benefits for patients and the public.CCGs were invited to take on an increased role in the commissioning of GPservices through three co-commissioning models:► Greater involvement – an invitation to CCGs to collaborate more closely

with their local NHS England teams in decisions about primary careservices.

► Joint commissioning – enables one or more CCGs to jointly commissiongeneral practice services with NHS England through a joint committee.

► Delegated commissioning – offers an opportunity for CCGs to assume fullresponsibility for the commissioning of general practice services.

Over half of CCGs are now operating under the delegated model. 63 CCGstook on full delegation in 2015/16 and another 51 CCGs have takendelegated arrangements from 1 April 2016. There will also be moreopportunities for CCGs without joint or delegated arrangements to take upgreater responsibility for the commissioning of general practice services inthe future.

Adopting co-commissioning processes, and particularly fullydelegated arrangements, exposes CCGs to a greater risk ofconflicts of interest, both real and perceived. It remainsimportant for CCGs to strengthen their arrangements in thisarea following the issue of NHS England guidance and asubsequent audit of arrangements against that guidancewhich identified some weaknesses and inconsistencies ingovernance arrangements, training and processes to declareand record conflicts.Gaining assurance for fully delegated arrangements, whererelevant expenditure is accounted for by CCGs, also posedsome challenges for external auditors in 2015/16.Specifically:► Systems and processes for fully delegated arrangement

are not all operated locally by CCGs. Gaining a fullunderstanding of the system can be difficult.

► CCGs rely on the work of service organisations to ensurethe accurate initiation, processing and recording of co-commissioning transactions. There have been challengesin gaining timely and complete assurance over the work ofservice organisations.

► In 2015/16 detailed transactions were recorded on theledger of NHS England rather than locally by individualCCGs. It was therefore difficult to directly test thosetransactions to gain assurance.

Changes to arrangements nationally in 2016/17 should helpto ensure that some of these issues are resolved. However, itremains important that CCGs continue to engage with us onthe changes made to local arrangements to fully inform ouraudit approach


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Area Issue Impact

EU referendum The decision of the UK to begin the process of leaving the EU has introduceda period of significant uncertainty for the UK and indeed Global economy. TheLeave vote will lead to a significant impact for the public sector as it will bethe sector that has to deliver the implementation of Brexit. We now know thatthere will be a change of Prime Minister plus it is likely that there will be otherchanges to the cabinet as ’a result. In addition it is possible that an oppositionleadership contest will also take place in the near future. It is evident at thispoint that there is a danger of a political vacuum for a number of months –this will only increase uncertainty both within the public sector and in thebusiness world.

Many of the issues and challenges that face the UK publicsector will continue to exist, not least because continuedpressure on public finances will need responding to.Additionally it may well be that the challenges are increasedif the expected economic impacts of Brexit and loss of EUgrants outweigh the benefits of not having to contribute tothe EU and require even more innovative solutions.

We are committed to supporting our clients through thisperiod, and help identify the opportunities that will also arise.We will talk with you on the concerns and questions you mayhave and provide our insight at key points along the path. Wewill provide our June 2016 paper on the EU Referendum, andthe impact of Brexit on the Government and Public Sectormarket.


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