Board Meeting
25 06 10
Open Session
Item 2
NHS Grampian
Report to those charged with governance on the 2009/10 audit
June 2010
NHS Grampian
Report to those charged with governance on the 2009/10 audit
June 2010
Contents
Key Issues
1
Introduction
1
Status of the Audit
1
Matters to be reported to those
charged with governance
2
APPENDIX A - Proposed
Independent Auditor’s
Report
6
APPENDIX B - Unadjusted
Differences
9
Key Issues
Introduction
1.
International Standard on Auditing (ISA) 260 requires auditors to report certain matters arising from
the audit of the financial statements to those charged with governance of a body in sufficient time to
enable appropriate action.
2.
ISA 260 requires us to highlight:

relationships that may bear on our independence and the integrity and objectivity of the
appointed auditor and audit staff

the overall scope and approach to the audit, including any expected limitations, or additional
requirements

expected modifications to the audit report

management representations requested by us

unadjusted misstatements, other than those that are clearly trivial

material weaknesses in internal control identified during the audit

qualitative aspects of accounting practice and financial reporting, including accounting policies

matters specifically required by other auditing standards to be communicated to those charged
with governance and any other matters that are relevant to the audit.
3.
This report sets out for the Audit Committee’s consideration the matters arising from the audit of the
financial statements for 2009/10 that require reporting under ISA 260. We are drawing to your
attention those matters we think are worthy of note, so that you can consider them before the financial
statements are approved and certified. An audit of the financial statements is not designed to identify
all matters that may be relevant to those charged with governance. This report has been prepared for
the use of NHS Grampian and no responsibility to any third party is accepted.
Status of the Audit
4.
Our work on the financial statements is now substantially complete. The issues arising from the audit
were included in matters arising schedules issued to the Assistant Director of Finance on a regular basis
during the audit. The more significant issues arising were discussed with the Director of Finance at a
meeting on 10 June 2010.
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Matters to be reported to those charged with governance
Conduct and scope of the audit
5.
Information on the integrity and objectivity of the appointed auditor and audit staff, and the nature and
scope of the audit, were outlined in the Audit Plan presented to the Audit Committee on 3 March 2010,
and follow the requirements of the Code of Audit Practice prepared by Audit Scotland.
Audit opinion & representations
6.
Subject to the satisfactory conclusion of any outstanding matters and receipt of a revised set of
accounts for final review, we anticipate being able to issue an unqualified auditor’s report on 25 June
2010 (the proposed report is attached at Appendix A).
7.
Several adjustments were identified during the audit, where if adjustments were made these would
have a net effect of £4k, decreasing operating costs for the year shown in the operating cost
statement. The net impact on the balance sheet would be that net assets would increase by £4k.
Further details are provided at Appendix B. These errors while more than clearly trivial are immaterial
to the accounts as whole. Officers in finance propose not to adjust the accounts for these errors and
we concur on this. All other errors identified during the audit have been corrected in the accounts.
8.
As part of the completion of our audit we seek written assurances form the Accountable Officer on
aspects of the accounts and judgements and estimates made. A draft letter of representation under
ISA 580 will be provided to the Accountable Officer on receipt of a final agreed set of accounts. This
should be signed and returned by the Accountable Officer with the signed accounts prior to the
independent auditor’s opinion being certified.
Accounting and internal control systems
9.
No material weaknesses in the accounting and internal control systems were identified during the
audit which could adversely affect the ability to record, process, summarise and report financial and
other relevant data so as to result in a material misstatement in the accounts.
Matters arising
10. In our view, the following issues require to be brought to your attention regarding the appropriateness
of accounting policies or accounting estimates and judgements, the timing of transactions, the
existence of material unusual transactions or the potential effect on the financial statements of any
uncertainties.
11. Equal Pay Claims –The National Health Service in Scotland has received in excess of 11,000 claims
for equal pay and 155 of these relate to NHS Grampian. Developments over the past year have
slowed the progress of claims and led to a reduction in the number of claims going forward. The CLO
have stated that claims still do not provide sufficient detail about the comparator jobs to allow an
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estimate to be made of the likelihood of the success of the claims or of any financial impact that they
may have. The NHS Scotland Central Legal Office and Equal Pay Unit are monitoring the progress of
claims as well as developments relating to NHS equal pay claims elsewhere that may further inform
the position.
12. Discussions have been held between Audit Scotland, their partner firms, the Scottish Government, the
CLO and Board representatives to ascertain the appropriate accounting treatment of equal pay claims
in 2009/10. Given the CLO’s advice that, although some liability is probable, it is not possible to
estimate the impact of the claims, it has been agreed that disclosure as an unquantified contingent
liability remains appropriate for the 2009/10 financial statements of affected NHS Boards. We
continue to strongly encourage NHSG management, working with the Scottish Government Health
Directorates, the CLO and other NHS Boards to form a view of the potential liabilities as soon as
possible taking into account the progress of cases in Scotland and England.
Resolution: An unquantified contingent liability is included in the accounts and reference has been
made in the Letter or Representation.
13. Agenda for Change – As at 31 March 2010, NHS Grampian accrued £627,000 in respect of residual
payments required to finalise Agenda for Change. We asked the Board for formal assurances, in a
letter of representation, that the accrual, in their judgement, represents a prudent estimate of
anticipated residual costs.
Resolution: Management will provide assurance that the accrual, in their judgement, represents a
fair estimate of anticipated costs, in their letter of representation to us.
14.
Finance Leases – An anomalous situation arose when preparing the adjustments for the allocation of
the finance charges over the life of finance leases. Using the sum of digits method which is
recommended in the Capital Accounting Manual, the finance charge calculated was more than the
value of the lease payment made. This had the effect of increasing the value of the liability recognised
to more than the original fair value of the asset. Management have addressed this by modifying the
method to ensure that the lease charge is always lower then the rental paid. This variation is
permitted under IAS 17 which states “In practice, in allocating the finance charge to periods during the
lease term, a lessee may use some form of approximation to simplify the calculation.” The final effect
is the same but the charges are more smoothly allocated. Their rationale for doing this is that,
otherwise, there would be an overstatement of both the charge and the underlying liability in the early
years with a corresponding understatement in later years. The estimated effect of this treatment for
2009/10 is an understatement of finance charges of £189k in the Operating Cost Statement and an
understatement of the liability in the Balance Sheet of £189k.
We have accepted this treatment as reasonable in that it produces a fairer presentation of the leasing
charges and liabilities. We draw it to your attention as it is a departure from normal practice and have
sought assurances in the Letter of Representation that the leasing transactions are fairly stated.
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Resolution: Management will provide assurances that the methodology adopted more fairly
presents the finance charges and underlying liability relating to Finance leases.
15.
Balances with other NHS Scotland Boards – NHS Grampian have been unable to agree the
closing accounts payable balance with the Scottish Ambulance Service. This is due to a dispute
relating to the validity of some charges for Air Ambulance services. The value of the disputed invoices
is £246k. Although NHS Grampian have included these invoices in their accounts they were not
reflected in the SFR 30 return. The NHS Boards Accounts Manual states: “For balances that cannot
be resolved within the timescale the charging body is entitled to show the full amount of any disputed
charge and the body being charged must also show this amount …”
Resolution: Management have agreed to reflect the charges within balances with other NHS Boards
and in the SFR 30 financial return.
16. SFR 18 Losses – NHS Grampian had written off a balance of £26k due from a customer who has
become insolvent. The balance was not included in the SFR 18 losses register and no authority was
obtained for the write off although it exceeds the £25k threshold.
Resolution: Management have agreed to include the balance in SFR 18 and will provide assurance
that the necessary authority will be obtained.
Outstanding Information
17.
Letter of Representation– The formal letter of representation is required prior to the auditor’s
certification of the financial statements
Resolution: The letter of representation is to be provided after consideration by the Board.
18.
Summarisation schedules – Two copies and an electronic version of the summarisation schedules
are required before the accounts are submitted to the Scottish Government Health Directorates by 30
June 2010.
Resolution: Copies of the summarisation schedules are to be provided after the accounts are
submitted to the Board for approval.
19.
Minimum data set – Audit Scotland requires certain minimum data in relation to the Board’s financial
position in 2009/10 and the projected financial position for 2010/11. This minimum data needs to be
reviewed and confirmed by the Director of Finance as an accurate record of the Board’s financial
position.
Resolution: The Director of Finance will provide a completed certified minimum data set return by 30
June 2010.
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Acknowledgements
20.
We would like to express our thanks to the staff of NHS Grampian for their help and assistance during
the audit of this year’s financial statements which has enabled us to provide an audit report within the
agreed timetable.
June 2010
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APPENDIX A - Proposed
Independent Auditor’s Report
Independent auditor’s report to the members of Grampian Health Board, the Auditor General for
Scotland and the Scottish Parliament
I have audited the financial statements of Grampian Health Board for the year ended 31 March 2010 under
the National Health Service (Scotland) Act 1978. These comprise the Operating Cost Statement, the
Balance Sheet, the Cash Flow Statement, the Statement of Changes in Taxpayers’ Equity, and the related
notes. These financial statements have been prepared under the accounting policies set out within them. I
have also audited the information in the Remuneration Report that is described in that report as having
been audited.
This report is made solely to the parties to whom it is addressed in accordance with the Public Finance and
Accountability (Scotland) Act 2000 and for no other purpose. In accordance with paragraph 123 of the
Code of Audit Practice approved by the Auditor General for Scotland, I do not undertake to have
responsibilities to members or officers, in their individual capacities, or to third parties.
Respective responsibilities of the Board, Accountable Officer and auditor
The Board and Accountable Officer are responsible for preparing the Annual Report, which includes the
Remuneration Report, and the financial statements in accordance with the National Health Service
(Scotland) Act 1978 and directions made thereunder by the Scottish Ministers. The Accountable Officer is
also responsible for ensuring the regularity of expenditure and income. These responsibilities are set out in
the Statement of the Chief Executive’s Responsibilities as the Accountable Officer of the Health Board.
My responsibility is to audit the financial statements and the part of the Remuneration Report to be audited
in accordance with relevant legal and regulatory requirements and with International Standards on Auditing
(UK and Ireland) as required by the Code of Audit Practice approved by the Auditor General for Scotland.
I report to you my opinion as to whether the financial statements give a true and fair view and whether the
financial statements and the part of the Remuneration Report to be audited have been properly prepared in
accordance with the National Health Service (Scotland) Act 1978 and directions made thereunder by the
Scottish Ministers. I report to you whether, in my opinion, the information which comprises the Operating
and Financial Review and Directors Report, included in the Annual Report, is consistent with the financial
statements. I also report whether in all material respects the expenditure and income shown in the
financial statements were incurred or applied in accordance with any applicable enactments and guidance
issued by the Scottish Ministers.
In addition, I report to you if, in my opinion, the body has not kept proper accounting records, if I have not
received all the information and explanations I require for my audit, or if information specified by relevant
authorities regarding remuneration and other transactions is not disclosed.
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I review whether the Statement on Internal Control reflects the Board’s compliance with the Scottish
Government Health Directorates’ guidance, and I report if, in my opinion, it does not. I am not required to
consider whether this statement covers all risks and controls, or form an opinion on the effectiveness of the
body’s corporate governance procedures or its risk and control procedures.
I read the other information contained in the Annual Report and consider whether it is consistent with the
audited financial statements. This other information comprises only that part of the Remuneration Report
that has not been audited. I consider the implications for my report if I become aware of any apparent
misstatements or material inconsistencies with the financial statements. My responsibilities do not extend
to any other information.
Basis of audit opinion
I conducted my audit in accordance with the Public Finance and Accountability (Scotland) Act 2000 and
International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board as required by
the Code of Audit Practice approved by the Auditor General for Scotland. An audit includes examination, on
a test basis, of evidence relevant to the amounts, disclosures and regularity of expenditure and income
included in the financial statements and the part of the Remuneration Report to be audited. It also includes
an assessment of the significant estimates and judgements made by the Board and Accountable Officer in
the preparation of the financial statements, and of whether the accounting policies are most appropriate to
the body’s circumstances, consistently applied and adequately disclosed.
I planned and performed my audit so as to obtain all the information and explanations which I considered
necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial
statements and the part of the Remuneration Report to be audited are free from material misstatement,
whether caused by fraud or error, and that in all material respects the expenditure and income shown in the
financial statements were incurred or applied in accordance with any applicable enactments and guidance
issued by the Scottish Ministers. In forming my opinion I also evaluated the overall adequacy of the
presentation of information in the financial statements and the part of the Remuneration Report to be
audited.
Opinions
Financial statements
In my opinion

the financial statements give a true and fair view, in accordance with the National Health Service
(Scotland) Act 1978 and directions made thereunder by the Scottish Ministers, of the state of affairs of
the Board as at 31 March 2010 and of its net operating cost position, changes in taxpayers’ equity and
cash flows for the year then ended;

the financial statements and the part of the Remuneration Report to be audited have been properly
prepared in accordance with the National Health Service (Scotland) Act 1978 and directions made
thereunder by the Scottish Ministers; and

information which comprises the Operating and Financial Review and Directors’ Report, included in the
Annual Report, is consistent with the financial statements.
Regularity
In my opinion in all material respects the expenditure and income shown in the financial statements were
incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish
Ministers.
7
David McConnell
Assistant Director of Audit (Health)
Audit Scotland
7th floor, Plaza Tower
EAST KILBRIDE
G74 1LW
Date…………June 2010…………..
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APPENDIX B - Unadjusted Differences
Schedule of differences
Account Area
Creditors
Reason for Adjustment
Balance Sheet
Operating Cost
Audit Adjustment
Audit Adjustment
Dr
£000
Cr
£000
Dr
£000
Cr
£000
Trade creditors
136
Bank
OPG account balance
136
Bank overstated by unbooked direct
debits
Debtors
Accrued income
Income
Hospital and community income
9
9
Debtors and income understated
through charge to wrong financial
year
Debtors
Other receivables
Creditors
Trade creditors
106
106
Net accounting of MARU
debtor/creditor balances
Creditors
Accruals
Staff costs
Hospital and community
13
13
Error in calculation of holiday pay
accrual
Buildings
Property, Plant and equipment
Revaluation
Reserve
Revaluation reserve
105
105
Omission of property from
revaluation exercise
Total
356
360
13
The net effect of these unadjusted differences is to decrease assets by £4k and to increase expenditure by
£4k.
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