AUDIT COMMITTEE ANNUAL REPORT TO TRUST BOARD 2012/13 Introduction In accordance with recommended best practice, the Audit Committee hereby presents to the Trust Board a report summarising how it has met its terms of reference during the past year. This is in addition to the regular submission of minutes of meetings to the Board and quarterly verbal updates on Committee activities by the Chair. The senior independent committee of the Trust Board, the Committee has met formally seven times during the year to transact the general business of the committee including an additional meeting in May 2012 to review the Draft Annual Accounts (12 months to 31 March 2012) and associated disclosures and reports on behalf of the Board. This report also includes the Committee s self assessment for the year 2012/13 and its proposed objectives for progress in 2013/14. The committee comprises three non-executive directors:- The members of the Committee from 1 April 2012 were Graham Foster (Chair of Committee), Lesley Thompson and Tony Smith. As of 29 May 2013, Lesley Thompson stepped down to focus on other Trust Committees and interests and Maura Teager became a member of the Committee. Tony Smith regularly attended Risk and Governance Committees to provide reports on their activities at each Audit Committee meeting and to feed back issues and concerns raised in the course of the Committee's considerations. Lesley Thompson regularly attends the Workforce Strategy Group to provide reports into the Audit Committee on key strategic Human Resource and Organisational Development issues. The Executive Director of Finance, and Director of Corporate and Legal Affairs attend regularly and the Chief Executive and other Executive Directors attend meetings during the year. The Trust's External Auditor (Audit Commission to 31 October 2012, Grant Thornton from 1 November 2012) and Internal Auditors (PricewaterhouseCoopers) also attend regularly, as does the Local Counter Fraud Specialist (East Midlands Internal Audit Services).
PRINCIPAL AREAS OF REVIEW 1. Annual Governance Statement (AGS) and Head of Internal Audit (HOIA) opinion The Audit Committee reviewed the draft AGS (2012/13) and concluded that it was consistent with the view of the Committee on the organisation's system of internal control and accordingly supported the Board's approval of the AGS. The Committee received the draft HOIA Opinion for the same period, from PricewaterhouseCoopers, which provided significant assurance on the system of internal control. The opinion confirms that there is a generally sound system of internal control...and that controls are generally being applied consistently. Some identified weaknesses in the design and/or inconsistent application of controls puts the achievement of particular objectives at risk." However the auditors add that using standard terminology, "this opinion would equate to Significant Assurance". The HOIA Opinion referred to a small number of low risk exceptions arising from their various reviews in the year, and eleven medium risk findings across four areas of audit, namely, use of data for decision making, electronic patient record project governance, CQC Preparedness and prior year follow up actions. A full programme of actions in response to all audit recommendations has been implemented to offer assurance to the Trust in all audited areas throughout the period. No high or critical level review points were raised during any audit in the year. 2. Risk Management and Board Assurance Framework In addition to the HOIA Opinion the Committee has relied on the Board Assurance Framework and associated risk register. The Committee has noted that this assurance relies to a large extent on the continuing development of the framework. The Committee has continued to focus on the development of the Assurance Framework and acts as the primary body overseeing the Framework, prior to regular discussion of the BAF and strategic risk management at Board Meetings. The Assurance Framework is a key determinant of audit activity commissioned by the Audit Committee to provide assurance to the Board regarding the management of strategic risks. In 2012/13, additional sources of assurance and closer tracking of in-year progress on the improvement of controls and risk mitigations, have added further strength to the Board Assurance Framework, which has again been consistently monitored by the Committee during the year and reviewed to maintain alignment with corporate strategies, objectives and risk registers. 2
The Committee has formed the opinion that the system of risk management is adequate in identifying risks and allows the Board to understand, assess and control significant risks. The Committee seeks to keep close and regular contact with the activities of the Risk Committee, receiving reports from Non-Executive Directors who attend its regular meetings and Executives responsible for particular Risk Management areas, as well as reviewing minutes and other documentation from the Committee. 3. Governance The Trust s Board Committee structure, last revised in late 2008 following a further review of the effectiveness of all Committees and benchmarking and best practice data, continues to provide effective assurance to this Foundation Trust Board. This effectiveness was confirmed by Internal Audit within the 2009/10 Internal Audit Plan and was discussed in detail and accepted by Monitor and external consultants during the 2010/11 Foundation Trust application process. Alongside the Board s recent adoption of a new medium term strategy, some alterations to the Governance structure in 2013/14 have been adopted, including the formation of two key Board sub-committees, one dealing with Finance and Performance and the other being an Integrated Risk and Quality Governance Committee. The Audit Committee has strongly supported these changes which are in line with best practice and which will afford Board scrutiny in more depth in crucial areas of Trust Governance. The effectiveness of these new structures will be reviewed through the Trust's annual review of governance, early in 2014. 4. Internal Audit The Committee reviewed and approved the Internal Audit Strategy and annual Operational Plan. The Committee met with internal Audit during the creation of the plan and revised the plan during the year as different priorities arose and is satisfied that the plan supports the Board Assurance Framework. Progress against the annual plan is reviewed at each meeting. The Committee considers the main findings of internal audit work and management's responses to each review and has developed the existing system for tracking and monitoring the implementation of audit recommendations. The Audit Committee reserves the right to request managers and directors to attend the committee to discuss significant failures to achieve agreed action plans. The committee continues to receive in full all audit reports where a limited or negative assurance is given, and those which it considers of high strategic impact. The continued environment of stronger exception and dashboard reporting on the ongoing Audit Programmes and follow-up actions provides the Committee with further assurance over the continuing improvement in Audit performance by the Trust across the board. 3
The Committee is very satisfied with the performance of PricewaterhouseCoopers as Internal Auditor from 1 December 2011, and the value added by that organisation in discussions at the Committee Meetings. Additionally, the Committee is satisfied as to the costeffectiveness of the Internal Audit services and acknowledges the efforts of Internal Audit to meet the increasingly diverse challenges from the Audit Committee as it seeks assurance over a wider range of control and risk areas. 5. Counter Fraud East Midlands Internal Audit Services continue to provide an expert and responsive Counter- Fraud specialist service to the Trust and the committee is satisfied as to the costeffectiveness and quality of the Trust's approach to Counter Fraud work. An Operational Plan was agreed and all work related to fraud and corruption has been regularly reported and reviewed. Reports are brought to Committee three times each year given the continued low levels of fraud activity and the maintenance of a steady and committed Counter Fraud team and activity base in the Trust. Whilst the execution of the Counter Fraud plan for 2012/13 is no longer subjected to a formal Compound Indicator assessment, the Committee is nevertheless assured that the level of fraud awareness and control has been at least maintained and a greater emphasis placed on high risk areas and proactive approaches to fraud detection. 6. External Audit Following the Trust's authorisation as a Foundation Trust on 1 February 2011, the Governors re-appointed the Audit Commission as the Trust's External Auditors and they completed the audit of the 2011/12 financial statements and associated disclosures and submissions. They issued an unqualified opinion on those statements and also concluded that the Trust has proper arrangements in place to secure economy efficiency and effectiveness in the use of resources. Following the national decision for the Audit Commission to cease public audit appointments, the Audit Commission remained in place on an interim basis until 1 November 2012, following which, after an open tender process, Grant Thornton were appointed as External Auditors with an anticipated 3 year initial term. Members of the Audit Committee, Governors and Executives took part in the tender process in the Summer of 2012, resulting in a strong recommendation for the appointment of Grant Thornton. 4
During the year 2011/12 the Committee has agreed with External Auditors the scope of the Annual Audit Plan, monitored progress against the plan, received reports and improved the tracking of audit recommendations. The External Auditors reviewed the Annual Financial Statements and associated reports and disclosures relating to the 2012/13 financial period and issued an unqualified opinion on those Financial Statements. 7. Committee development All members of the Committee have attended specific audit training events during the year. The Chair of the Committee is an active member of the East Midlands NHS Audit Committee chairs forum which meets to review good practice and consider relevant accounting and governance issues. The Committee is satisfied that the Trust is complying with the additional expectations of Internal Audit within the NHS Audit Handbook and that its terms of reference and processes are satisfactory in the context of indicated best practice within that document. The Committee regularly meets with Internal and External Auditors outside of the Committee Meetings, and during its annual self assessment exercise seeks feedback on its performance from key stakeholders including both Internal and External Auditors. 8. Annual Self-Assessment of Audit Committee Effectiveness 8.1 Background As a part of established best practice for Audit Committees, this Committee has undertaken a self-assessment of its effectiveness covering the past twelve months. This period covers the twelve months functioning of the Committee from 1 April 2012 to 31 March 2013. The members agreed to base the self-assessment on the a self-assessment survey tool provided by PricewaterhouseCoopers. Following this, an informal meeting of the Committee consolidated members thoughts and their reactions to informal feedback received from other interested parties involved with the Committee. The process was consolidated and concluded at the Committee s April 2013 meeting. 8.2 Performance against Objectives 2012-13 Three key objectives were identified in April 2012, in brief 1) A focus of Data Quality in its Audit and assurance work, 2) A particular attention to the area of HR and Organisational Development, and 3) More attention to the impacts of Financial and Operational Controls and processes on Patent Experience and Satisfaction. 5
On Data Quality, the Committee noted the excellent results relating to the annual Data Governance audit, and the continued progress made in this key assurance area. Committee members continued to evaluate data quality in areas audited and to refer data quality concerns to Board level. In the year an in-depth audit of the data quality and use of data for reporting and decision making in two key Board reporting metrics was undertaken, yielding some valuable assurance and a number of medium and low risk actions. It is the Committee's intention to continue these reviews into key data areas each year to enhance Board assurance over data quality within the Board's decision making environment and the Trust's external reporting obligations. On Strategic Risk areas and Service Transformation, good progress was made. The Committee maintained a keen focus on the Board Assurance Framework and continued to raise concerns on particular strategic areas via the Board and via the regular one-toone meetings between the CEO and the Chair of Audit Committee. A further review of the impacts and monitoring of Transformation of Services was also conducted and valuable insights and recommendations obtained. On Patient Outcomes and Satisfaction, whilst the Committee has tried to focus its reviews of terms of reference and it's challenge to audit reports from the perspective of assuring positive patient outcomes and satisfaction, no specific audits were undertaken. This has led to recommendations in the self assessment and 2013/14 objectives discussed below. 8.3 Further Reflections from Committee Members and regular attendees Based on the feedback received from stakeholders and the members discussion and self assessment the following issues were raised where a change in approach would be considered beneficial for the Committee and in securing Board assurance in key areas. Governance Structure changes - The changes under consideration to the Board Governance structure via the proposed establishment of an Integrated Risk and Governance Committee and a Finance and Performance Committee were welcomed. These new Board Committees would give more time outside of Board Meetings for Non-Executive Directors to review and debate key assurance areas such as Board Assurance Framework and the regular Monitor returns. Clear benchmarking of KPIs and audit outcomes - There was a desire for greater use of benchmarking data in audits and in Board KPIs and Metrics generally, requiring support from our Internal and External Auditors. 6
Patient centred audit - Committee members were especially keen to see audits designed from a patient, rather than process, oriented perspective - this is in line with the Board's new declared Strategy for the forthcoming 3 years. This will involve further engagement in the design of audit plans and continued challenge to audit outcomes. 8.4 Setting Objectives for 2013-14 Following on from that analysis, the following objectives were agreed: Patient focus - Involvement in all relevant audit plans and specific discussion of patient aspects at all audit reviews in Committee Supporting Trust response to Francis Report - The Committee will have an important role in assuring the Board over the speed and effectiveness of the Trust's response to the many issues raised in the Francis Report, and will keep the Board's declared intentions to implement all relevant changes under active review in the coming months and years. Financial Controls - In the tough economic environment, renewed focus on financial controls will be vital and the Committee should play a key role in gaining assurance over the key elements of reporting, forecasting and cost control. Data Quality - Further audit work of key decision and externally reported data and metrics to be undertaken Key strategic initiatives - The Committee must maintain a strong focus on key strategically important projects and initiatives if the Board is to fulfil its demanding strategy, vital to its ongoing viability and its proclaimed aim to best one of the best Trusts in the UK. These include our HR / OD programme, the Electronic Patient Record project, changes to the commissioning landscape and PbR developments and the introduction of Service Line Management and greater devolution of management closer to the delivery of patient care. 9. Recommendations The Board is asked to; Note the report on the work of the Audit Committee and the assurances provided in relation to the Annual Governance Statement Agree that the report is published on the Trust website and that key elements of the report are included alongside the Trust Annual Report for 2012/13. Graham Foster, Audit Committee Chair, July 2013 7