WEST MIDLANDS AMBULANCE SERVICE NHS FOUNDTION TRUST REPORT TO THE BOARD OF DIRECTORS. AGENDA ITEM 10 MONTH March 2014 PAPER NUMBER 07b

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1 WEST MIDLANDS AMBULANCE SERVICE NHS FOUNDTION TRUST REPORT TO THE BOARD OF DIRECTORS AGENDA ITEM 10 MONTH March 2014 PAPER NUMBER 07b Title Sponsoring Director Author Purpose Financial Planning Assessment of the Going Concern Status of the Trust Director of Finance Director of Finance The Board are requested confirm the Going Concern status of the Trust Previously Considered by Audit Committee Executive Summary The paper has been prepared to support the Board in confirming that it is appropriate to prepare the Trust s accounts on a Going Concern basis. Preparing statements on this basis means that the expectation is that the Trust will continue to trade and has no plans either to liquidate or cease trading. If this were not the case it would be necessary to prepare the statements with the assumption that the business would not continue beyond a further 12 months after the end of the accounting period. The Board is particularly asked to:- Consider any issues that individually or collectively might cast significant doubt on the Going Concern concept Consider what evidence is available to support the application of the Going Concern concept. Related Trust Objectives All Trust Objectives Risk and Assurance Strategic financial objective #8 requires that appropriate governance principles are applied to the running of the Trust That the Trust fails to identify significant risks to the Going Concern status of the organisation. Legal implications/regulatory requirements Financial Planning Workforce Implications Communications Issues No direct legal implications This is the subject of this report Not directly applicable The Going Concern statement forms part of the Annual Report of the Trust Page 1 of 2

2 WEST MIDLANDS AMBULANCE SERVICE NHS FOUNDTION TRUST REPORT TO THE BOARD OF DIRECTORS AGENDA ITEM 10 MONTH March 2014 PAPER NUMBER 07b Equality and Diversity Implications Equality Impact Assessment is not applicable. Quality Impact Assessment Not applicable for this report Data Quality Action required by the Board All papers in support of the Going Concern concept are held by the Director of Finance The Board are requested confirm the Going Concern status of the Trust Page 2 of 2

3 West Midlands Ambulance Service NHS Foundation Trust Assessment of the Going Concern status of the Trust Purpose of Report The Directors of the Trust have a responsibility to assess the going concern status of the organisation as this is an underpinning assumption when preparing the annual financial statements. This report provides the Directors with an overview of their responsibilities together with an understanding of the responsibilities of the Trust s External Auditors with respect to the going concern assumption when expressing their opinion on the financial statements. Concept of Going Concern Going Concern is a fundamental principle in the preparation of financial statements. Under the Going Concern assumption, a trust is viewed as continuing in operation for the foreseeable future with no necessity of liquidation or ceasing operations. Accordingly, the trust s assets and liabilities are recorded on the basis that 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. Responsibilities of Directors in Respect of Going Concern International Financial Reporting Standards (IFRS) require the trust s directors to assess and satisfy themselves that it is appropriate to prepare financial statements on a going concern basis. It is not automatically presumed that trusts are a going concern. Where trusts are facing difficult economic conditions and/or are in financial difficulty, careful consideration will be required by directors when making their going concern assessment. It is expected that the assessment covers a period for at least 12 months from the date of the approval of the financial statements. Responsibilities of External Auditors in Respect of Going Concern The auditor s responsibility is to consider the appropriateness of the use of the going concern assumption in preparing the financial statements and to consider if there are material uncertainties about the trust s ability to continue as a going concern that need to be disclosed in the financial statements. Guidance requires the auditors to consider whether there are material uncertainties to the going concern assumption by firstly evaluating the events and conditions relevant to the trust s circumstances, then evaluating the directors formally documented assessment by considering the process the directors followed to make their assessment, the assumptions on which the assessment is based and the plans for future action. The auditors will Page 1 of 5

4 consider whether the assessment has taken into account all relevant information of which they are aware as a result of their audit procedures. Directors Assessment of Going Concern Areas for Review The specific factors that directors should consider, that individually or collectively might cast significant doubt on the going concern assumption include: Financial Conditions Operating Conditions Other Conditions inability to meet the planned annual financial targets the need to use the agreed Working Capital Facility to meet future obligations when they fall due necessary Working Capital and loan facilities have not been agreed Working Capital facilities reaching maturity with little prospect of renewal inability to repay the Working Capital Facility when the Expiry Date is reached existence of significant operating losses, historical and projected anticipated or actual major loss of commissioner income major cost improvement programme with high risk of nonachievement major losses or cash flow problems which have arisen since the balance sheet date. loss of key management without replacement loss of key staff without replacement and/or industrial relation difficulties significant failure to achieve Care Quality standards resulting in any restrictions on services provided fundamental changes in the market or technology to which the trust is unable to adapt adequately. serious non-compliance with regulatory or statutory requirements pending legal or regulatory proceedings against the trust that may, if successful, result in claims that are unlikely to be satisfied changes in legislation or government policy expected to adversely affect the trust issues which involve a range of possible outcomes so wide that an unfavourable result could affect the appropriateness of the going concern basis. Page 2 of 5

5 Directors Assessment of Going Concern Evidence If any issues are highlighted when reviewing the above areas, Directors should request and consider evidence to support their assessment including identifying any potential remedial actions that may need to be addressed, to support their conclusion prior to their approval of financial statements. Evidence to consider: Forecasts and budgets Access to funding Medium and long-term plans Health services and markets Timing of cash flows Contingent liabilities Financial and operational risk management Sensitivity analysis and stress testing Systems Controls budget covering at least up to 12 months from the date of the approval of the financial statements cash flow forecasts covering at least up to 12 months from the date of the approval of the financial statements and providing monthly balances for the period to the end of the financial year, reflecting agreed commissioning contracts, with perhaps less detailed forecasts thereafter critical assumptions underlying the forecasts and budgets commissioning intentions and agreement of contract activity risk rating of the cost improvement programme in terms of timing and amounts capital programme cash flow forecasts and financing sources flexibility that might exist in the forecasts to delay the meeting of obligations availability of an agreed Working Capital facility cash resources available to the Trust compared to the Trust s expected cash requirements medium or long-term plans that give an indication in general terms of how the directors expect the Trust s business to fare APR (Annual Plan Review) and IBP agreed financial strategy the economic environment within which the Trust operates any economic, political or other factors which may cause the health market to change an adequate matching of projected cash inflows with projected cash outflows including all liabilities and other commitments potential cash outflows during the review period relating to legal proceedings, environmental costs and service liability key risks identified by the Trust in its Risk Register counterparty risks that arise from concentration on key suppliers or commissioners who may themselves be facing financial difficulty critical assumptions that underlie the budgets and forecasts the extent to which cash flows vary with changes in assumptions Head of Internal Audit Opinion Directors Conclusion on the Assessment of Going Concern Page 3 of 5

6 Having considered relevant conditions and performed the assessment, the directors need to evaluate which one of three potential conclusions is appropriate to the specific circumstances of the trust. The directors may conclude one of the following: there are no material uncertainties that may cast significant doubt about the trust s ability to continue as a going concern there are material uncertainties related to events or conditions that may cast significant doubt about the trust s ability to continue as a going concern, but the going concern basis remains appropriate the use of the going concern basis is not appropriate i.e. the trust has no realistic alternative but to cease trading or go into liquidation. West Midlands Ambulance Service NHS FT Page 4 of 5

7 Going Concern Assessment /14 Conditions Criteria Evidence Status Notes Financial Meeting planned annual financial targets 2013/14 Year-end surplus meets plan 2013/14 Capital Expenditure meets plan No need to use Working Capital Facility to meet Short to Medium term Financial support required financial obligations in 2013/ /15 Financial Plan shows at least planned y/e breakeven 2014/15 Plan does not require use of the agreed Working Capital Facility ARP does not require use of the Working Capital Facility in yrs 2-5 E&U Commissioner intentions known for 2014/15 with no major loss of income Date of Trust Board Review Page 5 of 5