Lancashire Care NHS Foundation Trust

Transcription

1 Lancashire Care NHS Foundation Trust I confirm that this is the final version of our ISA 260 Audit Memorandum relating to our audit of the financial statements for Lancashire Care NHS Foundation Trust. This document was discussed and approved by the Trust s Audit Committee on 3 June Tim Cutler Senior Statutory Auditor for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants St James Square, Manchester, M2 6DS ISA260 Audit Highlights Memorandum 2010/11 3 rd June June 2011

2 Contents The contacts at KPMG in connection with this report are: Tim Cutler Director Tel: Page Report sections Section One: Introduction 2 Section Two: Headlines 3 Section Three: Use of Resources 5 Section Four: Account 6 Rob Jones Senior Manager Tel: rob.jones@kpmg.co.uk Robbie Chapman Assistant Manager Tel: robert.chapman@kpmg.co.uk Appendices A. Key issues and recommendations B. Follow-up of prior year recommendations C. ISA 260 Communication of Audit Differences D. ISA260 Declaration of Independence and Objectivity This report is addressed to Lancashire Care NHS Foundation Trust ( the Trust ) and has been prepared for your use only. We accept no responsibility towards any member of staff acting on their own, or to any third parties. Monitor has issued a document entitled Audit Code for NHS Foundation Trusts. This summarises where the responsibilities of auditors begin and end and what is expected from the Trust. We draw your attention to this document. External auditors do not act as a substitute for the Trust s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. 1

3 Section One Introduction Background International Standard on Auditing (ISA) 260 requires us to provide a summary of the work we have carried out to discharge our statutory audit responsibilities to those charged with governance at the time they are considering the financial statements. This report summarises the key issues we have identified during our audit of the financial statements and will be presented to the Audit Committee on 19 th May As auditors we have a responsibility for forming and expressing an opinion on the financial statements that have been prepared by management with the oversight of those charged with governance. The audit of the financial statements does not relieve management or those charged with management or those charged with governance of their responsibilities. Use of Resources (UoR) Accounts The Trust is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources and regularly reviewing their adequacy. Our responsibility is to satisfy ourselves that you have proper arrangements in place by reviewing and, where appropriate, examining relevant evidence and reporting on these arrangements. We reflect our judgements from the use of resources work in the certification of the financial statements. Our certificate provides assurance on the Trust s arrangements for achieving economy, efficiency and effectiveness in its use of resources. The Trust is responsible for putting into place systems of internal control to ensure the regularity and lawfulness of transactions, to maintain proper accounting records and to prepare financial statements that give a true and fair view of its financial position and its expenditure and income. It must also publish a SIC with its financial statements. We audit the financial statements and give our opinion as to whether they give a true and fair view of the Trust s financial position and its expenditure and income. We also certify whether they have been prepared in accordance with relevant accounting policies directed by the Secretary of State in England and with the guidance provided in the Monitor financial reporting manual (FReM). In addition we give an opinion as to whether the content of the Annual Report is consistent with the statements and whether the part of the Remuneration Report that is required to be audited has been properly prepared. We also conduct a high level review of the SIC and consider whether it is consistent with the financial statements and complies with NHS guidance. Structure of report This report is structured as follows: Section 2 summarises the headline messages. Section 3 outlines our findings and final conclusions on the Use of Resources work. Section 4 sets out our findings on the audit of the financial statements. 2

4 Section Two Headlines The table below summarises the work we have completed throughout the year and the results of the audit of your financial statements and Quality Accounts. Use of Resources As a result of our work, we are satisfied that the Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ending 31 March Accounts We intend to issue an unqualified audit opinion. We have completed all on-site audit work and obtained required third party confirmations. Our opinion is reliant on no significant adjusting subsequent events arising between the date of this report and submission deadline. Adjusted audit differences There were no material adjusted audit differences. Various disclosures have been adjusted following conversation with the Finance team. Recommendations We have made four financial statement recommendations as a result of our 2010/11 audit work. These are summarised below: Discussion of potential severance payments Agreement of balances process Treatment of accruals and creditors Holiday accrual process We have also identified three recommendations as a result of our 2010/11 IT general controls audit work. The key recommendations are summarised below: Deactivation of leavers from IT system Administration of VPN access New Acquisition Programme policy Finally, we have also identified seven prior year recommendations that require further action by management. It should be emphasised that these recommendations were made by the previous external auditors. However, we have sought to understand the context and follow up actions where appropriate. 3

5 Section Two Headlines (cont.) Public Interest Reporting In auditing the accounts of an NHS foundation trust, auditors must consider: whether, in the public interest, they should make a report on any matter coming to their notice in the course of the audit, in order for it to be considered by Trust members or brought to the attention of the public; and whether the public interest requires any such matter to be made the subject of an immediate report rather than at the conclusion of the audit. There are no matters in the public interest that we wish to raise at this time. Quality Accounts We have completed our review of the content of the draft Quality Accounts and fed back comments to management. We have also made various recommendations for improvements to the process of compiling the accounts, which are contained within our separate draft Quality Accounts audit memorandum. Based on our work to date, we intend to issue an unqualified limited assurance opinion on the content of the Quality Accounts. We also intend to report that the work we have conducted around indicator testing suggests a limited assurance opinion could be signed next year, as may be required by Monitor. Whole of Government Accounts The National Audit Office has required all Foundation Trust auditors to complete a specific piece of fieldwork this year, designed to provide additionalassuranceto the WGA consolidationexercise, which Foundation Trusts are part of, as componentsof the Department of Health. Our work is reported directly to the NAO and does not include an audit opinion. Our findings suggest that further work will be required in future years to obtain the necessary third party assurance that will be required by the NAO, that transactions are being treated equally by the Trust and its fellow public sector bodies. This is particularly the case, in material terms, for core PCT commissioners and local government partners in the area. Local authorities in particular do not currently perform any kind of balance confirmation exercise with the NHS. Our discussions with the Finance team on this topic suggest they would be willing and able to participate in a more comprehensive exercise in future. Our findings around WGA do not affect our ability to sign the accounts opinion. Audit Certificate We are required to certify that we have completed the audit in accordance with the requirements of the Code. If there are any circumstances under which we cannot issue a certificate, then we must report this to those charged with governance. There are no issues that would cause us to delay the issue of our certificate of completion of the audit. 4

6 Section Three Use of Resources Introduction We have a responsibility to satisfy ourselves that you have put in place proper arrangements to secure economy, efficiency and effectiveness in your use of resources. In meeting this responsibility we are required to review and, where appropriate, examine evidence and report on your corporate performance management and financial management arrangements. The Code requires us to specifically consider three prime sources of evidence (the SIC, work of other regulators and any other work we identify as relevant) and reach a conclusion on the robustness of your arrangements in order to issue an unqualified audit certificate. As a result of our work, we are satisfied that Lancashire Care NHS Foundation Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ending 31 March Element of Work Statement on Internal Control We review your Statement on Internal Control (SIC) to confirm whether it is consistent with our understanding of your operations. Key Findings We have reviewed the 2010/11 Statement on Internal Control (SIC). We have also taken into consideration the work of internal audit, although we still await the conclusions from work around the Assurance Framework and the Head of Internal Audit s Opinion on internal control. Subject to the outcome of this work, we will assess our ability to confirm that the SIC reflects our understanding of the Trust s operations and risk management arrangements. Work of other regulators Quality Accounts Other Work We consider the work of relevant regulatory bodies (eg Monitor), to determine if their work has an impact on our responsibilities. We review your Quality Account in line with Monitor s guidance and complete testing on two mandated indicators and one local indicator. We perform other work that we regard as necessary to enable us to conclude on whether you have effectively, efficiently and economically exercised your functions. We have ensured that the outcomes of any reviews by other regulatory bodies have been considered when developing the scope of our work. We have reviewed the Trust s Quality Account and, subject to final national moderation, we are satisfied that it is in compliance with Monitor s guidance. We have also completed the sample testing of the three indicators and have found no discrepancies from the data to source records to date. We did not consider it was necessary to perform other work in order to conclude our opinion on the Trust s use of resources in 2010/11. 5

7 Section Four Accounts To review your financial statements we perform tasks split between those which are undertaken before, during and after the accounts production. These are summarised below: Accounts production stage Work Performed Before During After 1. Business Understanding: review your operations Controls: assess the control framework Prepared by Client Request (PBC): issue our prepared by client request Accounting standards: agree the impact of any new accounting standards Accounts Production: review the accounts production process. 6. Testing: test and confirm material or significant balances and disclosures Representations and opinions : seek and provide representations before issuing our opinions. We have completed the first six stages of the process. We report our key findings from each stage in the remainder of this section. Business Understanding Assessment of the Control Framework Prepared by Client Request In our 2010/11 audit plan we assessed your current operations to identify significant issues that might have a financial consequence. We have provided an update on the key accounts audit issues on page 9. We have assessed the effectiveness of your key financial system controls in place that prevent and detect material fraud and error. We found that the financial controls on which we seek to place reliance are operating effectively. We evaluated the work of Internal Audit in accordance with ISA 610. We have been unable to place reliance upon some work due to the timing of reports but have sought to gain a general level of reliance around internal control where possible. We have completed our review of the IT controls which prevent fraud and error in the annual accounts. Several recommendations relating to this work are contained in Appendix A. We produced this document to summarise the working papers and evidence we asked you to collate as part of the preparation of the financial statements. We asked for information to be provided in electronic form wherever possible to assist with our electronic audit approach. This being the first year of our external audit work, we sought to clarify our requirements in detail. The finance team were particularly helpful in providing this information in a timely and comprehensive manner. 6

8 Section Four Accounts (cont.) Accounting Standards We work with you to understand the changes to accounting standards and other technical issues. Accounts Production We received complete draft accounts on 21 April 2011, in accordance with Monitor s deadline. There were some minor presentational amendments made to these accounts before the audit started. However, none of these amendments significantly hindered the progress of the audit. The Trust s working papers to support the financial statements were of high quality and our prepared by client list had been followed. The accounting policies, accounting estimates and financial statement disclosures are in line with the requirements of Monitor. Significant estimates have been made in relation to accruals and provisions. We are satisfied with these estimates. Disclosures are clear and Finance have been cooperative in expanding the level of detail where we considered this appropriate. We will debrief with the Finance team to share views on the final accounts audit. Hopefully this will lead to further efficiencies in the 2010/11 audit process. Equally we would welcome their feedback on our approach and the conduct of our work. Trust finance staff were available throughout the audit visit to answer our queries as they arose. We thank the finance team for their co-operation throughout the visit which allowed the audit to progress smoothly and complete within the allocated timeframe, which was particularly challenging this year. Testing During the audit we have not identified any material issues that have not been adjusted. We identified a number of issues that have not been adjusted but these were trivial in nature. A list of these issues are available on request. Representations and Opinions You are required to provide us with representations on specific matters such as your financial standing and whether the transactions in the accounts are legal and unaffected by fraud. We will provide a draft of this representation letter to the Finance Director on Friday 20 th April. This year we are asking management to provide a specific representation on funds received from the Specialist Commissioners which we understand relates to the Acquired Brain Injury Unit, which is expected to be operational later in We are seeking a representation that management consider the funds properly disclosed under deferred income on the balance sheet. Other Matters We are required under ISA260 to communicate to you any matters specifically required by other auditing standards to be communicated to those charged with governance; and any other audit matters of governance interest. We have not identified any other matters to specifically report. 7

9 Section Four Accounts (cont.) During our testing we have considered a number of areas of high risk affecting the trust this year and have summarised our findings below: Areas of HIGH audit risk Achievement of financial targets Achievement of Cost Improvement Plan Management of capital programme Audit areas affected Financial outturn Debtors and creditors Disclosures Audit areas affected Provisions Expenditure and creditors Disclosures Audit areas affected Capital expenditure Valuation of existing estate. Disclosure of JV Summary of findings We have reviewed the Trust s submissions to Monitor throughout the year and we are satisfied that the ratings they have achieved reflect their actual position. We also reviewed the processes in place during the year to agree contracts and confirm year-end balances with key commissioners. In the course of our audit we have not identified any issues that would cause us to question the ratings reported by the Trust. As reported elsewhere in this document we have reviewed all of the Trust s key accounting judgements and can confirm that we are satisfied with these judgements. The Trust was set a challenging CIP target in year and although the majority of the plan was achieved there was slippage in several areas due to delayed implementation and unforeseen barriers to achievement. We can confirm that slippage in achieving the CIP did not have material impact upon the risk ratings of the Trust, with all target ratings being achieved. In our conversations with senior members of staff and our review of the management of CIP we were satisfied that the Trust has measures in place to control against the risk that achievement of cost improvements adversely affects the quality of provision. The Trust is in the process of entering into a joint venture arrangement with a private sector partner, partly in order to implement the construction of new in-patient facilities. We have advised the Trust in respect of the treatment of the new venture but due to the limited amount of construction activity this has not had a significant impact upon the financial statements. Having reviewed the content of the Annual Report we are satisfied that the Trust has included appropriate information regarding developments to inform stakeholders of the situation. 8

10 Section Four Accounts (cont.) During our testing we have considered a number of areas of high risk affecting the trust this year and have summarised our findings below: Areas of HIGH audit risk Workforce issues Audit areas affected Payroll costs Provisions Summary of findings As this is our first year, we have performed focused controls testing on the staff costs balances and the arrangements the Trust has in place to ensure a good quality payroll service from Lancashire Teaching Hospitals NHS FT. It is our understanding that it remains difficult to secure reliable workforce numbers from the Trust s Electronic Staff Record (ESR) system. However, having reviewed the alternative procedures performed by the finance team to obtain figures for the accounts we are satisfied that the numbers within the financial statements are not materially misstated. We have also reviewed in detail all of the severance payments made in year and are satisfied that the Trust has followed due process and made attempts to redeploy staff prior to making individuals redundant. Through our conversations with senior members of staff, although redeployment has reduced the call on provided funds since year-end, we are satisfied that provisions for future redundancies are not materially misstated. This is an area of complex financial and reputational risk for the Trust and looking forward we would encourage early discussions around future plans for staff redeployment and redundancy, as the need arises. 9

11 Section Four Accounts (cont.) Next Steps Following consideration of the issues highlighted in this report, the Audit Committee will now need to recommend the management representations letter to the Board of Directors for signing at the 7 th June Board meeting. Once we have received your representations we issue our audit opinion. For 2010/11 this provides confirmation that: your financial statements present a true and fair view; you have complied with Monitor s disclosure requirements set out in the NHS Foundation Trust Financial Reporting Manual in the preparation of your Statement on Internal Control/Annual Governance Statement and we are not aware of any inconsistencies with the information that you have recorded within this statement and our other work; we have read your Annual Report and in our view it does not contain information which is inconsistent with your financial statements; and the numerical part of your Remuneration Report has been presented in a way which complies with the accounting requirements as set out in Monitor s NHS Foundation Trust Financial Reporting Manual. Except for the uncorrected misstatement outlined in Appendix C, we do not have any other matters that we wish to draw to your attention prior to issuing this opinion. Independence and Objectivity ISA 260 also requires us to make an annual declaration that we are in a position of sufficient independence and objectivity to act as your auditors. We have provided this declaration at Appendix D. Audit Fees Our fee for the audit in 2010/11 was 46,950 plus VAT. This includes 2,000 for our work on the Whole of Government Accounts (see page 3). With the exception of the WGA fee, which was required by guidance released by the National Audit Office in year, the audit fee is in line with our audit plan. At the request of management, we have also provided an accounting advice report in respect of the estates joint venture for a fee of 4,138. No overrun charges are being sought this year. The following additional work has been performed by other functions within KPMG in year: KPMG have also completed the following pieces of non-audit work at the Trust during the year, in line with the non-audit work policy agreed in 2010: Community Services Due Provision of detailed reports around working capital, financial reporting and integration concerning the absorption of community Diligence services from various local PCTs under the Transforming Community Services agenda. These reports are being provided to Monitor as part of the process to approve the transactions, currently projected to be transferred by 1 st June ,000 estimated total fee ( 25,000 for work completed in 2010/11 and 75,000 for work completed in 2011/12) 10

12 Appendices Appendix A: Key issues and recommendations: general audit # Risk Issue, Impact and Recommendation Management Response/ Responsible Officer/Due Date 1 Med 2 Low Severances Several high value severances have been approved within the Trust in year. Given the significant changes the Trust is currently experiencing through TCS and the ongoing uncertainty about the financing and structure of the NHS there is potential for further departures in the coming few years. Though immaterial to the overall statements, these settlements can be high profile and must follow various regularity procedures to ensure both value for money and probity. Going forward we would ask that the Trust continues to keep us informed of all possible redundancies as they arise, specifically in relation to senior members of staff, in order that we can assess the likely impact upon our audit and our Use of Resources opinion on a rolling basis. Agreement of balances exercise Along with reviewing the agreement of balances exercise as part of our audit of the Trust s financial statements we have also examined the Trust s consolidation schedules which list balances with other government bodies. This was required as part of our work on the Whole of Government Accounts for the National Audit Office. In completing this work we have identified that, like many other NHS organisations, the Trust has not sought to confirm transactions with local government bodies. We understand that the Trust has previously attempted to engage with these bodies and their correspondence has received no response. However, with the profile of Whole of Government Accounts increasing, and a formal dry-run consolidation exercise likely in 2011/12, it is important that further efforts are put into this area. We recommend that the Trust puts in place arrangements to confirm transactions with local government bodies in 2011 while improving the agreements of balances exercise conducted with local NHS bodies. The Trust agrees to keep KPMG informed of all significant developments in this area. Director of Workforce and Organisational Development March 2012 The Trust will consider the inclusion of local government organisations in the agreement of balances exercise with a view to incorporating them in a manner that is consistent with NHS balances. Assistant Director of Finance March 2012 Key: Low risk Medium risk High risk 11

13 Appendices Appendix A: Key issues and recommendations (cont): general audit # Risk Issue, Impact and Recommendation Management Response/ Responsible Officer/Due Date 3 Low 4 Low Performance improvement point: Accruals As a result of the reduced turnaround time in relation to the production of the accounts this year there was pressure on the process of recording of invoices received before year end from several health bodies. This resulted in a decision being taken to treat several late transactions as accruals when they should have been treated as creditors. In line with Trust procedures as the invoices had been received, an accrual was no longer appropriate. Whilst this issue had no impact upon the operating result or overall balance sheet of the Trust this year we would recommend that the Trust implement clear processes to ensure that all transactions that occur around accounts closedown are treated correctly in future. Efficiency Points: holiday accrual As part of our work on employee benefits, we reviewed the process for calculating the Trust s outstanding holiday pay accrual. This involves writing to every member of staff within the organisation and collating their responses before calculating the outstanding balance. Given the fact the balance calculated is insignificant and has not materially changed year-on-year we would suggest that the process is overly time-consuming. Other methods, such as reviewing a sample of outstanding holiday balances and extrapolating the results across the Trust, could yield materially similar results with less corporate effort. We would recommend that the Trust consider alternative methods of calculating the balance in future, taking into account the additional staff volumes expected to exist in future as a result of the community services absorption. The Trust will review the year end process as a result of this issue and will discuss an appropriate approach with KPMG during next year s interim visit. Assistant Director of Finance January 2012 The Trust agrees to review this process in line with audit recommendation. Assistant Director of Finance January

14 Appendices Appendix A: Key issues and recommendations: information technology In addition to recommendations arising from our general audit, we identified three recommendations relating to our work on general IT controls. This work supports our assessment of the overall risk environment in place at the Trust, and as such both our financial statements and quality accounts opinions. # Risk Issue, Impact and Recommendation Management Response/ Responsible Officer/Due Date 5 Med 6 Low 7 Low IT recommendation: Starters and Leavers In reviewing the HR system we found that, contrary to Trust policy: six leaver accounts had been deactivated over 30 days after their leaving date; three leaver accounts were still live at the time of audit. We would recommend that HR send summary leaver reports to IM&T on a monthly basis and all persons identified should be deactivated immediately. Alternatively management could consider developing a leaver s form that is completed by the line manager and sent to IM&T directly. Either method would provide an audit trail for management authorisation and ensure timely removal of access rights. IT recommendation: System Access - VPN During our testing of Virtual Private Network (VPN) access we found that: VPN Access request forms for one user could not be found; Two users were line managers and had authorised their own VPN Access Request Forms. We would recommend that VPN Access Request Forms should be completed and retained in all instances and that all VPN access request forms should be authorised by a superior. IT recommendation: New Programme Acquisition In the course of the financial year the Trust has continued to acquire and develop new IT programmes such as the e-requisition system. However, we found that the Trust has no formal policy in place for programme acquisition development. We would recommend that a formal programme acquisition policy is developed and that this should include instructions to formally document the business case for new programmes, stipulations that management approval for new programmes should be documented and that provisions should be made for testing to be carried out to ensure new programmes meet their business objectives. Response from IM&T Assistant Director is being sought. Response from IM&T Assistant Director is being sought. Response from IM&T Assistant Director is being sought. 13

15 Appendices Appendix B: Follow up of prior year recommendations In 2010 the Trust s previous external auditors made seven financial statement audit recommendations. We have followed up each of these recommendations as part of our audit for 2010/11. We consider five of the recommendations to be outstanding or partially complete at the time of the completion of our audit visit. We have set out each outstanding recommendation, plus our assessment of current status, below: Number of Prior Year Recommendations Number of Recommendations implemented Number outstanding Outstanding Recommendations # Issue and Recommendation Status as at 18 May Component depreciation The Trust was asked to review their fixed asset register and look to fully apply the IAS 16 by considering whether components of property, plant and equipment are significant to warrant separate recording and depreciation on the register. Whilst the Trust acknowledges that this is a requirement of IAS 16 the issue will require significant attention and has been given a lower priority in light of the substantial changes the Trust is undergoing. We appreciate this position and will return to the issue in the future. 2 Statutory maternity pay reconciliation The Trust was asked to continue their work with the payroll service provider and ESR supplier to resolve the difference. According to Trust management the technical problem at the heart of this issue has been identified but has yet to be resolved. Dialogue continues with the payroll provider and ESR supplier and we will return to this issue as part of our interim audit next year. 14

16 Appendices Appendix B: Follow up of prior year recommendations Outstanding Recommendations # Issue and Recommendation Status as at 18 May Employee numbers It was recommended that management establish robust mechanisms for the recording and reporting of HR related data, in particular the reporting of the number of contracted employees for the purposes of the annual accounts. Outstanding Through our conversations with the finance team and senior employees within HR we have established that the process of reviewing ESR in order to produce more reliable employee numbers has begun but that it is in its early stages and therefore did not have an impact upon the numbers disclosed within the financial statements. However, having reviewed the alternative procedures performed by the finance team to obtain figures for the accounts we are satisfied that the methodology is consistent with prior years and the WTEnumbers within the financial statements are not materially misstated. 4 Over and under payment of salaries The Trust was asked to consider whether a more detailed review is needed to ensure all staff are on the correct pay scales. Outstanding Management acknowledged this as a concern and the ongoing review of ESR discussed above is looking to address this issue in tandem with increased pressure on line managers to report staff movements in a timely manner. The Trust accepts that over payments continue to occur and will be looking to implement additional controls as part of the review of ESR. 15

17 Appendices Appendix C: ISA260 Communication of Audit Differences We are required by ISA (UK and Ireland) 260 Communication of Audit Matters to Those Charged with Governance to communicate all uncorrected misstatements, other than those that we believe are clearly trivial, to those charged with governance. We are also required to report all material misstatements that management has corrected but that we believe should be communicated to the Audit Committee to assist it in fulfilling its governance responsibilities. This appendix sets out the audit differences that we identified following the completion of our audit of Lancashire Care NHS Foundation Trust for the year ended 31 March Unadjusted audit differences We are pleased to report that there were no unadjusted audit differences. Adjusted audit differences We are pleased to report that there were no material adjusted audit differences. As a result of our payables testing, a balance of 1,082k has been moved from Amounts due to other related parties to NHS creditors. This has had no impact on the overall assets/liabilities position of the Trust at year-end. Presentational Issues We identified a number of minor presentational issues during our audit and these have all been satisfactorily amended by the Trust. Of particular note was the itemisation of termination payments within Operating Expenditure and as a summary table within the newly required Exit Payments note. This reflects new requirements from Monitor. In addition minor changes have been made to disclosures around related parties and inter-governmental balances. 16

18 Appendices Appendix D: ISA260 Declaration of Independence and Objectivity The purpose of this Appendix is to communicate all significant facts and matters that bear on KPMG LLP s independence and objectivity and to inform you of the requirements of ISA 260 (UK and Ireland) Communication of Audit Matters to Those Charged with Governance. Integrity, objectivity and independence We are required to communicate to you in writing at least annually all significant facts and matters, including those related to the provision of non-audit services and the safeguards put in place that, in our professional judgement, may reasonably be thought to bear on KPMG LLP s independence and the objectivity of the Engagement Lead and the audit team. We have considered the fees paid to us by the Trust for professional services provided by us during the reporting period. We are satisfied that our general procedures support our independence and objectivity. General procedures to safeguard independence and objectivity KPMG LLP is committed to being and being seen to be independent. As part of our ethics and independence policies, all KPMG LLP Audit Partners and staff annually confirm their compliance with our Ethics and Independence Manual including in particular that they have no prohibited shareholdings. Our Ethics and Independence Manual is fully consistent with the requirements of the Ethical Standards issued by the UK Auditing Practices Board. As a result we have underlying safeguards in place to maintain independence through: Instilling professional values, Communications, Internal accountability, Risk management and Independent reviews. We would be happy to discuss any of these aspects of our procedures in more detail. There are no other matters that, in our professional judgement, bear on our independence which need to be disclosed to the Board of Governors. Audit matters We are required to comply with ISA (UK and Ireland) 260 Communication of Audit Matters to Those Charged with Governance when carrying out the audit of the accounts. ISA 260 requires that we consider the following audit matters and formally communicate them to those charged with governance: Relationships that may bear on the firm s independence and the integrity and objectivity of the audit engagement lead and audit staff. The general approach and overall scope of the audit, including any expected limitations thereon, or any additional requirements. The selection of, or changes in, significant accounting policies and practices that have, or could have, a material effect on the Trust s financial statements. The potential effect on the financial statements of any material risks and exposures, such as pending litigation, that are required to be disclosed in the financial statements. (Continued overleaf) 17

19 Appendices Appendix D: ISA260 Declaration of Independence and Objectivity (cont.) Audit matters (cont.) Audit adjustments, whether or not recorded by the entity that have, or could have, a material effect on the Trust s financial statements. Material uncertainties related to event and conditions that may cast significant doubt on the Trust s ability to continue as a going concern. Disagreements with management about matters that, individually or in aggregate, could be significant to the Trust s financial statements or the auditor s report. These communications include consideration of whether the matter has, or has not, been resolved and the significance of the matter. Expected modifications to the auditor s report. Other matters warranting attention by those charged with governance, such as material weaknesses in internal control, questions regarding management integrity, and fraud involving management. Any other matters agreed upon in the terms of the audit engagement. We continue to discharge these responsibilities through our attendance at audit committees, commentary and annual audit letter and, in the case of uncorrected misstatements, through our request for management representations. Auditor Declaration In relation to the audit of the financial statements of Lancashire Care ( the Trust ) for the financial year ending 31 March 2011, we confirm that there were no relationships between KPMG LLP and the Trust, its directors and senior management and its affiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards in relation to independence and objectivity. 18

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