This report is addressed to Princess Alexandra Hospital NHS Trust (the Trust). We take no responsibility to any member of staff acting in their individual capacities, or to third parties.
External auditors do not act as a substitute for the audited body’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.
01 Executive Summary
Princess Alexandra Hospital NHS Trust Executive Summary
Purpose of the Auditor’s Annual Report
This Auditor’s Annual Report provides a summary of the findings and key issues arising from our 2023-24 audit of Princess Alexandra Hospital NHS Trust (the ‘Trust’). This report has been prepared in line with the requirements set out in the Code of Audit Practice published by the National Audit Office and is required to be published by the Trust alongside the annual report and accounts.
Our responsibilities
The statutory responsibilities and powers of appointed auditors are set out in the Local Audit and Accountability Act 2014. In line with this we provide conclusions on the following matters:
Accounts - We provide an opinion as to whether the accounts give a true and fair view of the financial position of the Trust and of its income and expenditure during the year. We confirm whether the accounts have been prepared in line with the Group Accounting Manual prepared by the Department of Health and Social Care (DHSC).
Annual report - We assess whether the annual report is consistent with our knowledge of the Trust. We perform testing of certain figures labelled in the remuneration report.
Value for money - We assess the arrangements in place for securing economy, efficiency and effectiveness (value for money) in the Trust’s use of resources and provide a summary of our findings in the commentary in this report. We are required to report if we have identified any significant weaknesses as a result of this work.
Other reporting - We may issue other reports where we determine that this is necessary in the public interest under the Local Audit and Accountability Act.
Findings
We have set out below a summary of the conclusions that we provided in respect of our responsibilities:
Accounts We have issued an unqualified opinion on the Trust’s accounts on 16 July 2024. This means that we believe the accounts give a true and fair view of the financial performance and position of the Trust.
We have provided further details of the key risks we identified and our response on page 7.
Annual report We did not identify any significant inconsistencies between the content of the annual report and our knowledge of the Trust.
We confirmed that the Governance Statement had been prepared in line with the Department of Health and Social Care requirements.
Value for money We are required to report if we identify any matters that indicate the Trust does not have sufficient arrangements to achieve value for money.
We identified one significant weakness relating to the arrangements for financial sustainability. We have provided further detail on page 10.
Other reporting We are required to consider if we should issue a public interest report on any matters which come to our attention during the audit. We have reported to the Secretary of State under section 30 of the Local Audit and Accountability Act 2014 on 10 June 2024 due to the Trust’s breach of its breakeven duty as set out in paragraph (2)(1) of Schedule 5 of the National Health Service Act 2006.
02 Audit of the Financial Statements
Princess Alexandra Hospital NHS Trust Audit of the financial statements
KPMG provides an independent opinion on whether the Trust’s financial statements:
• Give a true and fair view of the state of the Trust’s affairs as at 31 March 2024 and of its income and expenditure for the year then ended;
• Have been properly prepared in accordance with the accounting policies directed by the Secretary of State for Health and Social Care with the consent of HM Treasury on 23 June 2022 as being relevant to NHS Trusts in England and included in the Department of Health and Social Care Group Accounting Manual 2023/24; and
• Have been prepared in accordance with the requirements of the National Health Service Act 2006 (as amended).
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. We have fulfilled our ethical responsibilities under, and are independent of the Trust in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Audit opinion on the financial statements
We issued an unqualified opinion on the Trust’s financial statements on 16 July 2024
The full opinion is included in the Trust’s Annual Report and Accounts for 2023/24 which can be obtained from the Trust’s website.
Further information on our audit of the financial statements is set out overleaf.
Princess Alexandra Hospital NHS Trust Audit of the financial statements
The table below summarises the key risks that we identified to our audit opinion as part of our risk assessment and how we responded to these through our audit.
Risk Procedures undertaken
Valuation of land and buildings
Land and buildings are required to be held at fair value in the financial statements. As hospitals are specialised assets and there is not an active market for them, they are valued on the basis of the cost to replace them with a ‘modern equivalent asset’. The valuation includes assumptions in relation to the condition of the estate and obsolescence which are judgemental areas.
Fraudulent expenditure recognition
Auditing standards suggest for public sector entities a rebuttable assumption that there is a risk expenditure is recognised inappropriately.
We recognised a risk that the Trust may seek to reduce its reported expenditure in order to report that it had achieved centrally required financial performance targets. We considered this would be done through excluding accruals that should have been recorded at the end of the financial year
Management override of controls
We are required by auditing standards to recognise the risk that management may use their authority to override the usual control environment.
We performed procedures including challenging assumptions made by management in determining the valuation of the site at the end of the year.
Findings
We identified one misstatement relating to year end revaluation calculation which has been corrected by the management.
We raised one control recommendation as a result of our audit procedures relating to the assessment of the useful economic life of the hospital buildings.
We considered the estimate to be balanced based on the procedures performed.
We performed procedures that included reviewing invoices received and payments made either side of the end of the financial year in order to assess whether they had been recorded within the correct reporting period.
We also assessed the accuracy of a sample of accruals that had been recorded at the end of the year compared to the actual invoices received after year end.
We identified misstatements that have not been corrected by management. Updating this would lead to a reduction in accruals, however we did not consider this material.
We considered that estimates associated with accruals at the end of the year were balanced.
We performed procedures including testing a sample of journals posted during the year that met high risk criteria identified by the audit team and assessing the control environment for the posting of manual adjustments to the general ledger.
We have not identified any indications of management override of controls as a result of our audit procedures.
03 Value for Money
Princess Alexandra Hospital NHS Trust Value for Money
Introduction
We are required to consider whether the Trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources or ‘value for money’. We consider whether there are sufficient arrangements in place for the Trust for the following criteria, as defined by the National Audit Office (NAO) in their Code of Audit Practice:
Financial sustainability: How the Trust plans and manages its resources to ensure it can continue to deliver its services.
Governance: How the Trust ensures that it makes informed decisions and properly manages its risks.
Improving economy, efficiency and effectiveness: How the Trust uses information about its costs and performance to improve the way it manages and delivers its services
Approach
We undertake risk assessment procedures in order to assess whether there are any risks that value for money is not being achieved. This is prepared by considering the findings from other regulators and auditors, records from the organisation and performing procedures to assess the design of key systems at the organisation that give assurance over value for money.
Where a significant risk is identified we perform further procedures in order to consider whether there are significant weaknesses in the processes in place to achieve value for money.
We are required to report a summary of the work undertaken and the conclusions reached against each of the aforementioned reporting criteria in this Auditor’s Annual Report. We do this as part of our commentary on VFM arrangements over the following pages.
We also make recommendations where we identify weaknesses in arrangements or other matters that require attention from the Trust.
Summary of findings
Direction of travel
Significant weaknesses followed up from the prior year
A significant weakness surrounding financial sustainability was identified in the previous year and remains in the current year. In line with guidance, we have not raised a new recommendation this year but have followed up the progress in implementing the recommendation previously raised, see page 16.
Princess Alexandra Hospital NHS Trust Value for Money
NATIONAL CONTEXT
Financial performance
The 2023-24 financial year saw a significant increase in the level of financial pressures facing the NHS sector. This followed the end of Covid-19 related financing arrangements. The sector has faced cost pressures from a range of factors, most significantly the impacts of inflation felt during the year and the costs of industrial action.
At the end of January 2024 NHS England forecast that the NHS would record an overspend of £1.1bn against its agreed budgets. This came after additional funding had been made available earlier in the year to support with the costs of industrial action.
Operational performance
In January 2023 the Government announced five pledges for 2023, including reducing NHS waiting lists and the time people wait for procedures. Waiting lists had grown significantly during the Covid-19 pandemic as elective activity was postponed in order to prioritise the treatment of Covid patients and ensure safe working.
According to the Health Foundation the NHS waiting list had grown from 6.2 million patients at the beginning of 2022 to 7.2 million in January 2023. There had also been a significant increase in the number of patients with long waits. At the end of 2023 there remained 355,000 patients that had been waiting over a year for treatment. Income arrangements for the acute sector were revised in year to reimburse providers for elective activity based on the actual number of patients treated.
System working
The Health and Care Act 2022 formally established integrated care systems (ICSs), 42 partnerships within local geographies to promote closer working between the organisations responsible for healthcare delivery. Integrated Care Boards were formed on 1 July 2022, taking over commissioning responsibility from Clinical Commissioning Groups.
In their first full year of operation ICSs have continued to work to develop and embed governance arrangements both within the ICBs themselves and as systems.
LOCAL CONTEXT
The Princess Alexandra Hospital NHS Trust is located in Harlow, Essex. It serves a core population of around 350,000 and is the natural hospital of choice for people living in West Essex and East Hertfordshire. The hospital is a 414 bedded hospital with a full range of general acute services, including; a 24/7 Accident and Emergency Department (A&E), plus an Intensive Care Unit (ICU), a Maternity Unit (MU) and a Level II Neonatal Intensive Care Unit (NICU).
The Trust owns the main hospital site in Harlow, and also operates outpatient and diagnostic services out of the Herts and Essex Hospital, Bishops Stortford and St Margaret’s Hospital, Epping.
The Trust is making significant investment in capital infrastructure to support the delivery of services in future years. Key projects include major investment in the development of the Electronic Health Records (EHR). The Trust is continuing to progress work for a new hospital in conjunction with the national New Hospital Programme team which will be funded directly by HM Treasury.
The Trust works with NHS Hertfordshire and West Essex Integrated Care Board (ICB) and Hertfordshire and West Essex Integrated Care System (ICS) to plan how NHS money is spent and makes sure health services work well.
The Trust has had a historic underlying deficit position. Prior to Covid-19 the Trust recorded annual deficits from 2013 to 2019, subsequently achieving a break-even position during the Covid-19 pandemic, supported by additional funding made available to the NHS to support it in managing the pandemic. In 2022-23 the Trust returned to reporting a deficit position following the end of the Covid financing regime.
Princess Alexandra Hospital NHS Trust Financial Sustainability
How the Trust plans and manages its resources to ensure it can continue to deliver its services.
We have considered the following in our work:
• How the Trust ensures that it identifies all the significant financial pressures that are relevant to its short and medium -term plans and builds these into them;
• How the Trust plans to bridge its funding gaps and identifies achievable savings;
• How the Trust plans finances to support the sustainable delivery of services in accordance with strategic and statutory priorities;
• How the Trust ensures that its financial plan is consistent with other plans such as workforce, capital, investment, and other operational planning which may include working with other local public bodies as part of a wider system; and
• How the Trust identifies and manages risks to financial resilience, e.g. unplanned changes in demand, including challenge of the assumptions underlying its plans
2023-24 Financial performance
The Trust has had an underlying deficit for a number of years, with the Trust first reporting a deficit in 2013-14 and then reporting annual deficits of between £13m and £37m per year each year until 2020. This was temporarily supported by additional funding made available during the Covid pandemic, however following the cessation of additional funding made available to the NHS to support it through the pandemic the Trust has reported deficits in 2022-23 and 2023-24.
The Trust has reported an adjusted deficit in 2023-24 of £6.1m, following adjustments made for uncontrollable spend such as impairments to its property. As a result of this deficit the Trust has now reported a cumulative deficit of £160.6m.
The Trust initially set a plan for a £5m deficit at the beginning of 2023-24 and therefore its financial performance in year has narrowly missed the planned position by c.£1m. While the Trust’s in year financial performance is in line with the financial plan that was set this was achieved by the introduction of non-recurrent measures. As shown by the chart below the Trust had reported a year to date deficit of £15m in the first nine months of the year.
In the final quarter of the year the Trust received non-recurrent funding of £10.4m, of which £2.5m was reimbursing additional costs incurred during the year as a result of industrial action, while the remainder was provided to contribute towards the deficit position of the Trust. (15,000) (10,000) (5,000)
Princess Alexandra Hospital NHS Trust Financial Sustainability
We reported a significant weakness as part of our 2022-23 value for money assurance as the Trust did not have a medium term financial strategy that set out the strategy it would put in place to reach a break-even position.
During the year the Trust has completed modelling of its underlying financial position and a medium-term financial plan. The Trust has calculated that in 2023-24 its underlying deficit position was an annual deficit of £37.6 million.
As a result of the cumulative deficit position the Trust is considered to be in breach of the break-even duty, a statutory duty issued to all NHS Trusts that requires them to record a deficit of no more than 0.5% of turnover. As a result of this breach we issued a referral to the Secretary of State for Health and Social Care as required by the Local Audit and Accountability Act/ 2024/25 financial planning
At the time of our reporting the Trust had set a financial plan of a £25.4m deficit. This is a significant reduction in the financial performance in 2023-24, driven primarily by the end of non-recurrent funding that had been received in 2023-24 as well as inflationary pressures.
In order to achieve the planned deficit position the Trust is required to achieve £18.5m of savings, equivalent to 4.6% of its controllable expenditure. At the time of completing our planning the Trust has identified £14.6m of opportunities for savings to be implemented, approximately 80% of the required amount. We note that the level of savings required to be delivered in year is higher than the level that the Trust has historically been able to deliver and there remains a gap in the opportunities identified, therefore we consider that there is a significant degree of risk associated with the delivery of the planned position.
Conclusion
We have concluded that there is a significant weakness in the Trust’s arrangements for achieving financial sustainability. While the Trust has progressed the development of its modelling of its underlying financial position and the likely financial performance over the medium term it has not yet identified the actions required in order to achieve a break-even position in the short or medium term.
We considered that the deficit plan set for 2024-25 was a material level of deficit and that as the Trust remains in breach of the break-even duty that this was a significant weakness in the Trust’s arrangements. We have provided an update on the progress made in implementing the recommendation raised in 202223 on page 16.
Princess Alexandra Hospital NHS Trust Governance
How the Trust ensures that it makes informed decisions and properly manages its risks.
We have considered the following in our work:
• how the Trust monitors and assesses risk and how the body gains assurance over the effective operation of internal controls, including arrangements to prevent and detect fraud;
• how the Trust approaches and carries out its annual budget setting process;
• how the Trust ensures effective processes and systems are in place to ensure budgetary control; to communicate relevant, accurate and timely management information (including nonfinancial information where appropriate); supports its statutory financial reporting requirements; and ensures corrective action is taken where needed, including in relation to significant partnerships;
• how the Trust ensures it makes properly informed decisions, supported by appropriate evidence and allowing for challenge and transparency; and
• how the body monitors and ensures appropriate standards, such as meeting legislative/regulatory requirements and standards in terms of management or Board m embers’ behaviour
Risk management
Escalation of risks is completed through the monthly Risk Management Group (RMG) and Senior Managers Team (SMT) meetings. Bi-monthly the Corporate risks and the Board Assurance Framework (BAF) are discussed at Trust Board. The risks on the Board Assurance Framework are reviewed regularly by the lead Executive Directors, at the relevant Trust Board Committees and by the Board bi-monthly.
During 2023-24 the trust has developed and approved a new risk management strategy that details the Trust’s risk appetite, risk tolerance and treatment options. The trust has also developed and approved a risk management policy, to support risk leads to implement the Trust Risk Management Strategy. All Trusts risks have now moved from Assure to the Datix risk system.
The Board Assurance Framework (BAF) reports a target risk score for each of the risks that has been recorded. Our review of the BAF noted that all of the risks had residual risk scores that were higher than the target level, which suggests that insufficient actions has been taken to mitigate the risks. We have previously raised a performance improvement observation to management that the target risk levels should be reviewed to ensure that they are attainable, which we consider to still be open. We do not consider this a significant weakness as there ios evidence that management and the Board are appropriately reviewing and monitoring the risks on the BAF.
Capital plans
The Trust is currently implementing two major capital projects. One involves developing an Electronic Health Record (EHR) system, which is scheduled to go live in November 2024. Additionally, the Trust is part of the second wave of the New Hospital Programme, for which an Outline Business Case has been developed but confirmation of funding and approval for a Full Business Case has not yet been achieved.
The EHR project involves multiple levels of committee oversight, combining operational and clinical staff expertise. The junior boards include the Clinical Safety Board, Technical Board, Operational Readiness and Advisory Board, and Clinical Design Advisory Board. These boards report to the Implementation Board, which in turn reports to the Programme Board. The Implementation Board comprises a mix of clinical staff and executives, while the Programme Board includes the Chief Executive, other board executives, representatives from NHS England and ICB, an external independent consultant (St. Vincent), and Oracle representatives.
Princess Alexandra Hospital NHS Trust Governance
The Chief Information Officer provides overall progress updates during Senior Management Team (SMT) meetings and monthly private Trust board meetings, as well as bimonthly public Trust board meetings.
Any development milestones that are reached in the EHR project are compared with the original Business Case submission. This submission includes a detailed disaggregation of the stages that must be completed for a ‘gateway’ to be triggered and invoicing to be undertaken. This is agreed by all members of the Programme Board. At the end of the financial year the Trust was slightly behind plan on its most recent gateway, however a close down plan had been agreed for the remaining actions required.
A Strategic Transformation Board has been established to provide oversight to the key developments being undertaken at the Trust, including both of the major capital schemes that are in progress. We consider that the overall governance arrangements in place for oversight of the Trust’s major projects are in line with our expectations for the sector.
Conclusion
We have not identified any significant weaknesses associated with governance.
Control deficiencies reported in the Annual Governance Statement No significant control deficiencies identified No significant control deficiencies identified
Head of Internal Audit Opinion
assurance
Care Quality Commission rating June 2023 – ‘requires improvement November 2021 - ‘requires improvement’.
Princess Alexandra Hospital NHS Trust
Improving economy, efficiency and effectiveness
How the Trust uses information about its costs and performance to improve the way it manages and delivers its services
We have considered the following in our work:
• how financial and performance information has been used to assess performance to identify areas for improvement;
• how the Trust evaluates the services it provides to assess performance and identify areas for improvement;
• how the Trust ensures it delivers its role within significant partnerships and engages with stakeholders it has identified, in order to assess whether it is meeting its objectives; and
• where the Trust commissions or procures services, how it assesses whether it is realising the expected benefits.
Efficiency planning process
The Trust has an established Patient Quality and Productivity (PQP) plan for identifying, managing and reporting savings from divisional level to the Board. Reporting to the Board includes a PQP dashboard to report progress against trajectory and target as well as recurrent levels of savings, risks to delivery and a summary of the key exceptions, highlights and risks from the divisional assurance meeting.
In 2023-24 the Trust has managed to deliver required savings of £16.6m, however our review of the efficiency programme that has been delivered showed approximately 48% of the efficiencies delivered were non-recurrent, which is a high proportion of total efficiencies. This leads to additional pressures on future efficiency plans as there is not a recurrent benefit achieved from the savings achieved in year and so further efficiencies are required to be found to make up for those not delivered recurrently in the previous year.
In 2024-25, the Trust is required to deliver savings of £18.5 million. Of this amount, £14.6 million has been identified, but overall, 59% of the savings are considered high risk. We believe these are significantly challenging saving target for the Trust and there is risk to their delivery.
Procurement
The Trust has procurement processes and procedures in place to comply with the requirements of public sector procurement regulations. Where the Trust does not intend to undertake a competitive procurement exercise for purchasing contracts there is a requirement for a waiver to be obtained. There are defined reasons why waivers can be utilised, such as urgency or there only being a single supplier available. Waivers require approval in line with the scheme of delegation and are reported to the Audit Committee to provide oversight.
In the final quarter of the year there were 42 waivers approved, with a total value of £2.3m. Of these £1.2m were processed due to urgent need, a high proportion of which related to capital spend that was required to be incurred prior to the end of the year in order to fully utilise the Trust’s delegated capital resource limit. For a number of these vesting certificates were also used with suppliers in order to record the spend in 2023-24 despite the assets not being able to be received. Managing Public Money states that public sector organisations should not incur expenditure in advance of need and by using tender waivers there is a risk that best value is not achieved in the purchasing of capital items at year end.
We also noted that during the year the Trust was involved in a procurement dispute relating to pathology services that had been tendered across the integrated care system. An out of court settlement was reached with the potential supplier during the year which is recorded within the special payments note to the accounts.
Conclusion
We have not identified any significant weaknesses in the Trust’s arrangements for improving economy, efficiency and effectiveness. We have noted a weakness in relation to efficiency performance, which we have captured under our financial sustainability section.
Princess Alexandra Hospital NHS Trust
Prior year findings
Significant weaknesses followed up from the prior year In our annual auditor’s report for the financial year 2022-23 we reported that the Trust had a significant weakness in arrangements over financial sustainability surrounding financial sustainability. As required by the Code of Audit Practice we have revisited this issue and set out in the table below an update in regards to the arrangements in this area.
1 Financial plan
The Trust does not have a financial plan to identify the efficiencies and changes required in order to achieve a recurrent break -even financial position and therefore we concluded that there was a significant weakness in the arrangements for achieving financial sustainability. The Trust should develop a medium term financial strategy that sets out the actions to be taken in order to achieve break -even and their timetable. This will require the identification of recurrent efficiencies based on the projected level of annual efficiency requirements and should be aligned to the ICS medium term financial plan that is under development, in line with NHS England guidance.
The Trust recognises that it does not have a plan that addresses a return to breakeven; however, there has been substantial work undertaken with the ICB to set out the long term structural issues that we have as a Trust which includes a case for supplementary funding and changes to the provision of our services which would enable us to close this deficit. We developed a LTFM in 23/24 as a system that highlighted a similar, wider financial challenge for us all. We continue to develop recovery plans around our now established, Patient Quality and Productivity (PQP) programme.
Partially completed
While we acknowledge that Trust currently has a medium -term financial plan, it lacks a clear strategy outlining how it will achieve a break -even position on a recurring basis. We have therefore considered that while progress has been made against the recommendation it has not yet been fully implemented and there remains a significant weakness in arrangements.
