Board of Directors (Public) Item 5.3

Transcription

1 Board of Directors (Public) Item 5.3 Subject: Going Concern Date of meeting: 25 th April 2016 Prepared by: Ian Cartwright, Head of Financial Accounts Presented by: David Jago Chief Finance Officer BAF Ref Impact on BAF 3,6 None 1. Executive Summary International Financial Reporting Standards require the Board of Directors to assess and satisfy themselves that it is appropriate to prepare its financial statements on a going concern basis for at least 12 months from the date of the accounts. The Trust needs to consider whether it is appropriate to prepare its accounts on a going concern basis for disclosure in the annual accounts and in doing so has considered the 2015/16 outturn position and the 2016/17 position detailed within the draft plan submission. In assessing the Trust s going concern position management have reviewed a range of evidence including internal and external financial reports, internal and external audit reports, discussions with Monitor and we have assessed our current economic position. The Trust does not have any evidence that indicates the going concern basis is not appropriate. The Trust has not been informed by Monitor that there is any prospect of intervention or dissolution within the next twelve months. In terms of sustainable provision of services, there has been no indication from the Department of Health that the Trust will not continue as a going concern. The accounts have been prepared on a going concern basis and recommends that the Trust s Board of Directors should conclude that LHCH is a going concern and that it is appropriate for the accounts to be prepared on a going concern basis. There are no significant doubts about our ability to continue as a going concern that require disclosure. 1

2 2. Background Going Concern concept Going concern is a fundamental principle in the preparation of financial statements. Under the going concern assumption, the Trust is viewed as continuing in operation for the foreseeable future with no necessity of liquidation or ceasing trading. Accordingly, the Trust s assets and liabilities are recorded on the basis that the assets will be realised and liabilities discharged in the normal course of business. A key consideration of going concern is that the Trust has the cash resources to meet its obligations as they fall due in the foreseeable future. The accounting concept of going concern refers to the basis on which an organisation s assets and liabilities are recorded and included in the accounts. If an organisation is a going concern, it is expected to operate indefinitely and not go out of business or liquidate its assets in the foreseeable future. An organisation that is not a going concern would prepare its accounts on a different basis, reflecting their value on the winding up of the entity. Consequently assets would be likely to be recorded at a much lower breakup value and medium and long-term liabilities would become short term liabilities. In assessing going concern, Boards need to determine whether: The Trust is a going concern and it is appropriate for the accounts to be prepared on the going concern basis; or The Trust is a going concern but there are uncertainties regarding future issues which should be disclosed; or The Trust is a going concern and the accounts may need to be prepared on an appropriate alternative basis. Foundation Trust Annual Reporting Manual guidance IAS 1 requires management to assess as part of the accounts preparation process, the NHS foundation trust s ability to continue as a going concern. The financial statements should be prepared on a going concern basis unless management either intends to apply to the Secretary of State for the dissolution of the NHS foundation trust without the transfer of the services to another entity, or has no realistic alternative but to do so. Table 6.2 of the FReM states that: The anticipated continuation of the provision of a service in the future, as evidenced by inclusion of financial provision for that service in published documents, is normally sufficient evidence of going concern. Where management are aware of material uncertainties in respect of events 2

3 or conditions that cast significant doubt upon the going concern ability of the NHS foundation trust, these should be disclosed. Where management are aware of material uncertainties in respect of events or conditions that cast significant doubt upon the going concern ability of the NHS foundation trust, these should be disclosed. 3. Issues Assessing the going concern position In assessing whether it is appropriate to prepare the 2015/16 financial statements on a going concern basis. The Trust has considered number of sources of information to support the assumption: Requirements/ guidance on going concern assessment in financial reporting standards (IAS 1) and Monitor including the Financial Sustainability rating; Internal financial reports (on past, current and forecast performance); The Trust s forward plan; Discussions with Monitor following draft plan submission; Reports from internal audit on the financial position and financial management arrangements; Going Concern assessment The information listed above has been assessed and the key points set out below to support the use of the going concern basis for the 2015/16 financial accounts. Financial reporting The Trust is forecasting a deficit in 2015/16 of 1.2m, compared to a planned deficit of 0.3m. The Trust s Cost Improvement Programme (CIP) target for 2015/16 is 4.6m. The forecast delivery against this target is 3.3m and is one of the key drivers of the above plan deficit. Closing cash balances are forecast to be 7.5m, which is after financing from cash reserves a forecast capital investment of 5.0m. During 2015/16 the Trust has invested in a new CF Unit, the initial works on the new main entrance and increases to the number of critical care beds. 3

4 Despite performing adversely and falling above the planned deficit, LHCH is ending 2015/16 in a strong position, providing a strong baseline going into 2016/17. Forward planning The Trust submitted its draft Annual Plan Return on 8 th February 2016 for the 2016/17 financial year. The plan detailed that the Trust will deliver a deficit in 2016/17 of 4.8m. The planned deficit is based on the delivery of a CIP of 4.0m, and allows for an adverse movement on the payment by results tariff. Disappointingly, there is a delayed implementation of HRG4+ and removal of top up payments for highly specialised services anticipated for 2016/17. The strategic plan includes an assumption that this will be implemented in 2017/18. For 2016/17, the Trust is seeking to mitigate the impact through negotiating a local tariff for Aortic Surgery. The planned closing cash balance for 2016/17 is 2.3m after the delivery of a capital investment plan of 5.3m. At present, there is no planned requirement for a working capital facility or support from the Department of Health, however robust cash management and rolling 13 week cash flow forecasts are being developed, so that daily cash flow fluctuations can be managed. The forward plan was prepared using national guidance on tariff and inflationary factors with income based on agreements with Commissioners. In addition to inflationary factors, expenditure assumptions include recurring pressures and approved investments. The Trust believes that this forward plan provides a realistic assessment of its financial position. Dialogue with Monitor The Trust has been in regular discussions with Monitor during the year covering in-year performance, the forecast outturn position and the impact on 2016/17. The forecast outturn delivers a financial sustainability risk rating of 3 for 2015/16 and the forward plan delivers a risk rating of 2, driven by the deterioration of the net deficit position. Internal audit reports During 2015/16, Mersey Internal Audit Agency (MIAA) conducted an annual review of financial systems. The review covered the following areas: General ledger; Budgetary control; Income and Debtors Accounts Payable Treasury Management 4

5 The assurance level provided from the review was that of significant assurance, which means there are some weaknesses in the design and/or operation of controls which could impair the achievement of objectives of the system, function or process. However, either the impact would be minimal or they would be unlikely to occur. Current economic position The economic situation has deteriorated over recent years and in the short to medium term this is having an impact on the NHS. The Trust has incorporated commissioner intentions (subject to agreeing final contract values aligned to the financial plan), investment requirements and inflationary pressures for 2016/17 into the forward plan. In future years it is anticipated that the Trust s position is likely to become even more difficult and the Trust will have to continue to make significant savings and explore opportunities to maintain financial viability including the implementation of HRG4+ to improve clinical income recognition of its complex service base. The Trust recognises that there is a requirement to develop a wider programme for delivery of continued efficiency savings and is participating in the healthy Liverpool project to explore the benefits from transformational change. Forming a view on going concern The HfMA guide for non-executives on foundation trust accounts states that to allow non-executive directors to form a view of going concern: management should report to them the process it has followed in forming a view on going concern and the assumptions on which that view is based. NEDs (non-executive directors) should, where appropriate, challenge those assumptions, particularly where they are aware of any significant issues that do not appear to have been taken into account, to ensure that the financial statements have been prepared on an appropriate basis. The guide also sets out a number of questions that non-executive directors may consider. These are covered below. Has a report been received from management forming a view on going concern? This document sets out the Trust s position on going concern for the 2015/16 accounts. 5

6 Are the financial assumptions in that report consistent with the annual plan and the financial information provided to the board throughout the year? The information sets out the position in the draft annual plan reported to the Board of Directors. Are the implications of statutory or policy changes appropriately reflected in the business plan, financial forecasts and report on going concern? For the Trust s forward plan, the impact of changes to PbR is modelled, commissioning intentions and the impact of Agenda for Change in terms of inflation and incremental drift are all included. Directors have considered the Trust s financial plan, and also monthly cash flow forecast for 2016/17. Are there any indications that commissioners are reviewing their commissioning arrangements so that income streams and activity levels could be adversely affected? Current forecasts incorporate activity informed by discussions with NHS England and CCG s. Have there been any significant issues raised with the Board during the year, for example, adverse comments raised by internal and external audit regarding financial performance or significant weaknesses in systems of financial control, or significant variances to activity levels compared to those planned, which could cast doubts on the assumptions made? There are no such indications from external reports. Monthly financial updates have been presented to the Board of Directors during 2015/16 outlining the trust s performance, working capital position and performance against CIP. Does a review of available financial information (for example, annual accounts, in-year financial monitoring reports, future year financial forecasts) identify any of the following adverse financial indicators? o o o o liquidity problems, for example, negative cash flow, that is, cash inflows in the year less than cash outflows; poor or deteriorating performance against the better payment practice code, that is, deteriorating performance in the payment of creditors, possibly indicating cash flow problems; and delay or deferral of PDC or other loan repayments. 6

7 The annual plan for 2015/16 reflects negative cash flows, driven by a reduction in cashflows from operations, and continuing capital investment. There is no planned slippage or delays for the payment of creditors or fixed commitments such as lease repayments or PDC Dividends. In addition, the trust is not planning a requirement of interim capital or revenue support from the Department of Health for 2016/17. 4 Recommendations The Board of Directors are asked to note the contents of this report and to conclude that the Trust is a going concern and that it is appropriate for the accounts to be prepared on a going concern basis. There are no material uncertainties that may cast significant doubt about the Trust s ability to continue as a going concern that require disclosure. 7

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