CCG Annual Report and Accounts. Introductory Guide. First Edition

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1 Introductory Guide Introductory Guide CCG Annual Report and Accounts - First Edition CCG Annual Report and Accounts First Edition Healthcare Financial Management Association (HFMA) Albert House 111 Victoria Street Bristol BS1 6AX T F E info@hfma.org.uk ISBN Healthcare Financial Management Association (HFMA) is a registered charity in England and Wales, no and Scotland, no SCO HFMA is also a limited company registered in England and Wales, no Company no: Registered Office: Albert House, 111 Victoria Street, Bristol, BS1 6AX Introductory Guide Grant Thornton 4 Hardman Square, Spinningfields, Manchester M3 3EB T +44 (0) W

2 Published by the Healthcare Financial Management Association (HFMA), Albert House, 111 Victoria Street, Bristol BS1 6AX Tel: (44) Fax: (44) This guide was produced under the guidance and direction of the HFMA s Accounting and Standards Committee. The editor was Debbie Paterson with Mick Waite and Diane Vaight from Grant Thornton. Cover design was undertaken by Mike Wyatt, setting by Academic + Technical Typesetting and printing by ESP Colour Ltd. The NHS is always changing and developing this edition reflects the structures and processes in place in March We are keen to obtain feedback on ways in which the content, style and layout can be improved to better meet the needs of its users. Please forward your comments to info@hfma.org.uk or to the address above. While every care has been taken in the preparation of this publication, the publishers and authors cannot in any circumstances accept responsibility for errors or omissions, and are not responsible for any loss occasioned to any person or organisation acting or refraining from action as a result of any material within it. Healthcare Financial Management Association All rights reserved. The copyright of this material and any related press material featuring on the website is owned by Healthcare Financial Management Association (HFMA) No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopy, recording or otherwise without the permission of the publishers. Enquiries about reproduction outside of these terms should be sent to the publishers at info@hfma.org.uk or posted to the above address. ISBN

3 Introductory Guide CCG Annual Report and Accounts Contents Foreword Page 2 Acknowledgements Page 3 1. Introduction Page 5 2. Annual Report Page 7 3. Governance Statement Page Statement of Accountable Officer s Responsibilities Page Independent Auditor s Report Page The Financial Statements Page Statement of Comprehensive Net Expenditure Page Statement of Financial Position Page Statement of Changes in Taxpayers Equity Page Statement of Cash Flows Page Notes to the Accounts Page 53 Appendices Appendix 1: Questions for Members of the Governing Body to Consider Page 67 Appendix 2: Glossary of Terms and Abbreviations Page 73 Appendix 3: References and Further Reading Page 77 Index of tables Table 1: Contents of the strategic and members reports Page 8 Table 2: Remuneration table Page 12 Table 3: Pension benefits Page 14 Table 4: Pay multiple disclosures Page 15 Table 5: Contents of the governance statement Page 17 Table 6: Contents of the independent auditor s report Page 21 1

4 Introductory Guide CCG Annual Report and Accounts Foreword Understanding an annual report and accounts can be difficult, even for those with financial knowledge or training. This guide aims to make the task of reading and understanding a clinical commissioning group s (CCG s) annual report and accounts easier. Members of the council of members and governing body also need to understand the annual accounts if they are to fully appreciate the financial health of their organisation and the financial impact of the decisions they are making. This guide is intended to provide support to governing bodies to allow them to carry out their stewardship role effectively. It is intended to help members of the governing bodies of CCGs carry out their responsibilities when approving and adopting the annual report and accounts. To discharge these responsibilities effectively, members of the governing body need to be able to ask pertinent questions and challenge the finance team and auditors where necessary. This guide provides the reader with plain English explanations of the various elements of the CCG s annual report and accounts. It also suggests questions that members of the governing body may want to ask their colleagues or the external auditors of the CCG as part of the approval process. We commend this guide to you. David Bacon Chair of the HFMA Accounting and Standards Committee Jon Roberts Partner, Grant Thornton 2

5 Acknowledgements We are grateful to all members of the HFMA Accounting and Standards Committee who give their time free of charge, often in addition to long hours routinely worked by most senior members of NHS finance. The members of the HFMA Accounting and Standards Committee are: Najma Ali David Bacon Jill Boggan Matt Dale Abdul Janmohamed John Evans Stephen Fell Colin Forsyth Andrew Gladwell Ian Hanley Jonathan Lumb Alistair Morgan Sarah Morgan Kate Mathers Keith Morton Ian Ratcliffe Samantha Simpson Pam Tate Annette Watkinson We also gratefully acknowledge the support of the Audit Commission. This publication is based on the earlier joint HFMA and Audit Commission guide to primary care trust accounts for non-executives. Editorial work on this guide was undertaken by Diane Vaight, technical manager, Grant Thornton, Mick Waite, director, Grant Thornton and Debbie Paterson, technical editor, HFMA. Grant Thornton Grant Thornton are the leading firm in the NHS audit market. Our national NHS practice clients comprise 79 clinical commissioning groups (37% of the total), 49 NHS trusts (52%), and 20 NHS foundation trusts (12%). Our national team of experienced NHS specialists, including those who have held senior positions within the sector, provides the growing range of assurance, tax and advisory services that our clients require. Through proactive, client-focused relationships, our teams deliver solutions in a distinctive and personal way, not pre-packaged products and services. Our approach combines a deep knowledge of the NHS, supported by an understanding of wider public sector issues, drawn from working with associated delivery bodies, relevant central government departments and with commercial organisations working in the sector. We take an active role in influencing and interpreting policy developments affecting the NHS and responding to government consultation documents and their agencies. We regularly produce sector related thought leadership reports, typically based on national studies, and client briefings on key issues. We also run seminars and events to share our thinking on health and, more importantly, understand the challenges and issues facing our clients. The Healthcare Financial Management Association The Healthcare Financial Management Association (HFMA) is the UK representative body for finance professionals working in the NHS and the wider healthcare sector. Our aim is to support the NHS finance function, to promote good practice in financial management and to improve the general understanding of NHS finance issues. Our work is informed by a number of committees and special interest groups made up of healthcare finance practitioners. We publish numerous guides and briefings aimed at finance professionals, non-executive directors and non-finance staff. We also provide training and development opportunities including a suite of web based learning modules across all of these groups. 3

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7 Chapter 1: Introduction The statutory framework for the annual report and accounts CCGs have a statutory duty 1 to produce an annual report and accounts. The annual report and accounts is the key way in which CCGs demonstrate their effective stewardship of public money and discharge their accountability to tax payers. The annual report and accounts is a single document which should present the story of the CCG s activities during the previous financial year ending 31 March. The form and content of the annual report and accounts is directed by NHS England. They must meet the requirements of the Department of Health s (the Department) manual for accounts 2 (MfA), in practice, this is achieved by following NHS England s annual reporting guidance (ARG 3 ). The CCG s annual report and accounts must contain:. An annual report. A statement of the accountable officer s responsibilities. A governance statement. Four primary financial statements. Notes to the accounts. A report and opinion from an independent auditor. It is the responsibility of the CCG s accountable officer to prepare the annual report and accounts. Usually, the governing body approves the annual report and accounts for submission to NHS England and wider publication, but this may vary depending on the CCG s constitution. In approving the annual report and accounts, the members of the governing body confirm that they are satisfied they present the CCG s year in an appropriate, comprehensive, balanced and coherent way. Before 30 September each CCG must present its annual report and accounts to stakeholders, including members of the public, at an annual general meeting. How to use this guide The purpose of this guide is to assist members of the CCG and its governing body through the process of reviewing and approving the annual report and accounts. It explains what each part of the annual report and accounts means and what it must include. It also includes suggested questions that members of the governing body may want to ask themselves as they review the annual report and accounts. The questions are included throughout the document and also as an appendix. They are not meant to be used as a checklist but to help members of the governing body ensure they understand the key features of their CCG s accounts and can approve them with confidence. A glossary at the end of the guide provides an explanation for those words and phrases which may be unfamiliar to those new to accounts or the NHS. 1 Paragraph 17 of Schedule 2 of the Health and Social Care Act 2012 ( the 2012 Act ). 2 af01c57de5465a b7c0054c281?opendocument 3 5

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9 Chapter 2: Annual Report CCGs have a statutory requirement to prepare an annual report 1 which sets out how they have discharged their duties in the previous financial year. NHS England has directed 2 that CCGs must comply with its ARG when preparing their annual reports. Whilst the ARG prescribes the contents of the annual report, it is for each CCG to decide how best to present that information in order to tell the story of their year. It is important to remember that the annual report and accounts are published as one document so the two must be consistent in the story that they tell. The annual report consists of several sub-reports:. Member practices introduction. The strategic report. The members report. The remuneration report. Member practices introduction This is an independent report produced collectively by the GP practices which make up the membership of the CCG. In practice, this report will be prepared by the council of members. The content of the report is for the GP practices to decide themselves but the ARG suggests that it should include:. Reflections on the CCG s progress and performance in relation to the health priorities of the local community as set out in the CCG s strategy and business plan. Consideration of the impact the council of members and governing body have had in key areas. A statement which sets out how the annual evaluation of effectiveness of the council of members and/or governing body was conducted and how any recommendations are being taken forward. Strategic report and members report The contents of these reports are based on the requirements of sections 414A, C and D and section 416 of the Companies Act 2006 tailored to be relevant to CCGs. The strategic report should stand alone but can include summarised information cross referenced to other parts of the annual report. The ARG sets out the required content for the strategic report and the members report. 3 1 Section 14Z15 of the National Health Service Act 2006 ( the 2006 Act ) as inserted by section 25 of the 2012 Act These sections of the Companies Act were revised from 30 September 2013 and require the preparation of a strategic report and a directors report. 7

10 Introductory Guide CCG Annual Report and Accounts Table 1: Contents of the strategic and members reports Each CCG must decide how best to present the following information Required contents Comments Strategic report A description of the principal activities of the CCG during the year as well as a brief history of the CCG and its statutory background. A review of the CCG s business and description of the principal risks and uncertainties it faces. An explanation of how the CCG has:. Fulfilled its functions with a view to securing continuous improvement in the quality of healthcare services. Exercised its functions with regard to the need to reduce healthcare inequalities in relation to access and outcomes. Made arrangements to consult with patients or provide them with information in relation to the planning of and developments in commissioning. A review of the extent to which the CCG has contributed to the delivery of any joint health and wellbeing strategy to which it is a signatory. This section will include the fact that CCGs came into being on 1 April 2013 as a result the Health and Social Care Act It will also include a description of the governance arrangements and the CCG s constitution as well as any conditions associated with the CGG s authorisation by NHS England. The section will also include details of the CCG s functions, the services it commissions and the population it serves. The strategic report informs the reader how the CCG has performed during the year by considering:. The CCG s objectives and strategies. The risks and uncertainties facing the CCG. Where there is doubt about the CCG s financial position the reasons for concluding that the CCG is a going concern. Key policies affecting employees, social, community and human rights issues. Information about essential working relationships with other entities. Overall, the strategic report must a balanced and comprehensive analysis of the development and performance of the CCG during the year and at the year-end using key financial and non-financial performance indicators. The strategic report must be consistent with the governance statement, and report issues and problems as well as good news. It must also include a statement that the annual report and accounts have been prepared in accordance with a direction issued by the NHS Commissioning Board under the NHS Act These are requirements of the NHS and Social Care Act and may be included within the strategic report or as a standalone section. When preparing this part of the annual report, the CCG should consult with the appropriate Health and Wellbeing Board (HWB). It must also include a statement that the annual report and accounts have been prepared in accordance with a direction issued by the NHS Commissioning Board under the NHS Act Section 14Z15(2) of the 2006 Act 8

11 Annual Report Required contents A section on statutory compliance including a self-certification about continued delivery of statutory duties. 5 A sustainability report. An equality and diversity report. Members report A list of GP practices that make up the membership of the CCG and the composition of the council of members. The names, job titles, committee membership, periods in post and short biographies of:. All members of the CCG s governing body. Members of committees and sub-committees who are not on the governing body. Managers who are classed as senior managers in the remuneration report. 8 Comments The timetable for the preparation and approval of the annual report and accounts therefore needs to include adequate time for a request to and response from the HWB. This is a requirement of the CCG Assurance framework and will cover how the CCG has promoted or supported:. The NHS Constitution. NHS England. The involvement of patients, their carers and representatives. Patient choice. Innovation, research, education and training. Wide consultation. Emergency planning. The relevant HWB and its preparation of Joint Strategic Needs Assessments. Safeguarding and the welfare of children. CCGs are required to include a sustainability report in their annual reports. The report s contents are based on a return 6 made to the Sustainable Development Unit which is part of NHS England. The report covers the CCG s sustainability policies and performance against its plans to reduce carbon emissions and become more sustainable. As public sector bodies, CCGs are required to comply with the Equality Act This Act and its associated regulations require public bodies to publish relevant, proportionate information demonstrating their compliance with the equality duty. This should also include a breakdown of people of each sex in the following groups:. the council of members and the governing body. other senior managers. other employees. The list of GP practices should be the same as in the CCG s constitution. The list of names must include everyone who has been a member of the governing body or a subcommittee at any time during the current and previous financial year up to the date that the annual report and accounts are signed. The ARG requires short biographies of each. It is for each CCG to decide whether to include photographs. This information could be included in the remuneration report rather than the strategic report. 5 Page 17 of the Assurance framework issued by NHS England 6 The NHS sustainability reporting framework 2013/14 available from 2_Reporting_guide%20to_sus_rep_in_ARs.pdf Occasionally, at the discretion of the accountable officer, managers who are not members of the governing body are included in the remuneration report where they have such a significant management role that they can influence the operations of the CCG and its financial position. 9

12 Introductory Guide CCG Annual Report and Accounts Required contents Interests and conflicts as declared in the CCG s register of interests. Comments Where members of the CCG hold company directorships or other interests which may conflict with their management responsibilities at the CCG, these must be disclosed. CCGs can disclose this in the members report or in the remuneration report cross referenced to the members report. The CCG may wish to include reference to how the register of interests may be accessed. Principles for remedy. The Parliamentary and Health Service Ombudsman 9 published six principles that represent best practice when dealing with mistakes made by public bodies. The annual report should refer to these principles and state to what extent they have been adopted by the CCG as part of its complaints handling procedures. Pension liabilities. A cross reference to the part of the accounts which describes the accounting treatment for pension liabilities. Sickness absence data for staff. This is a requirement of HM Treasury. It is included in the annual accounts so it can be cross referenced to the members report. Data loss incidents. Any incidents where the CCG has lost or inappropriately disclosed patients personal data need to be disclosed. Any data losses should also be referred to in the governance statement. Charges for information. A statement that the CCG has complied with HM Treasury s guidance on levying charges for the provision of information. A statement that, as far as the members of the governing body are aware, there is no relevant audit information of which the CCG s auditors are not aware. The name of the external auditor and details of payments made to them. Details of the CCG s policy on using external auditors for non-audit work and ensuring the auditor s independence. Employee matters. Emergency preparedness This is supported by a statement from each member of the governing body that they have taken all necessary steps to be aware of any relevant audit information and to establish that the auditor is aware of that information. In practice, this means that members of the governing body should have had a dialogue with the auditors about the information they would expect to see and have considered whether there is anything they think they should bring to the attention of the auditor. These payments will be disclosed in the annual accounts so can be referenced in the members report. A statement about the action taken by the CCG to provide information to and consult with employees. Also, a statement on the CCG s policy on disabled employees. Prescribed self certification that the CCG has an incident response plan in place which is reviewed and improved on a regular basis

13 Annual Report Remuneration report The remuneration report is a disclosure of payments made by the CCG to all 10 members of its governing body and council of members. The report covers everyone who has been a member of the governing body or council of members during the financial year and the prior year, even if not for the full period. It is often the part of the annual report and accounts subjected to most public scrutiny. There are two parts to the remuneration report. The first, remuneration committee report and the remuneration policy, is not subject to audit, although the auditor does read it to assess its consistency with other knowledge gained from the audit. The second, the remuneration tables, is audited by the external auditor and reported on in the auditor s report. Remuneration committee and remuneration policy report This part of the remuneration report is concerned with how decisions are made in relation to the amount that members of the governing body are paid. This is the part of the remuneration report that is read by the auditor but not covered by their audit report. It must give details on who has made those decisions including the names of the members of the remuneration committee 11 and details on anyone else who has provided guidance on how much to pay members of the membership body or governing body. Details of the numbers of meetings held must be provided along with attendance at those meetings. It must also include details of the policy on payments to the governing body and members of the council of members including details of:. Performance related pay. Expenses and allowances. Contractual termination arrangements payments. How employee remuneration is considered. It must also disclose significant awards to former members of the governing body or council of members. Remuneration tables This part of the remuneration report consists of a series of tables and includes details of payments made to individuals. 12 As with all of the examples in this publication, only the current year is shown. When the CCG has been operating for more than a year, prior period comparatives will be required. This part of the remuneration report is subject to audit and must also be consistent with any other disclosures around remuneration made elsewhere in the annual report and accounts. 10 Occasionally, at the discretion of the accountable officer, managers who are not members of the council of members or the governing body are included in the remuneration report where they have such a significant management role that they can influence the operations of the CCG and its financial position. 11 The membership of the remuneration committee may be included in the members report so can simply be cross referenced here or vice versa. The chair of the committee must be identified. 12 These individuals can be employees (either on the governing body or senior managers), members of the council of members or members of the governing body. 11

14 Introductory Guide CCG Annual Report and Accounts Table 2: Remuneration table The white rows give guidance on the contents of this table Name and title The remuneration report shows payments made to named individuals. Sara A, Chair and Clinical Leader Robin B, Chief Officer James C, Chief Finance Officer (from 1 April to 7 September) Tobias X, Chief Finance Officer (from 8 September) Total salary and fees 13 (bands of 5,000) Salary is the amount paid to the individual for their role on the CCG s governing body. Salary includes other additions to remuneration, for example, London weighting and overtime payments. Performance related bonus payments (bands of 5,000) Bonus payments are any payments which are subject to performance conditions. The report will include two columns for performance related payments - one for those relating to the financial year and the other relating to bonuses earned over a longer term. The exact payment is not included in this report. Instead, the disclosure is made in bands of 5,000. Taxable benefits (rounded to the nearest 00) Taxable benefits are any benefits not paid in cash, for example, a lease car, gym membership or assistance with moving costs. Members of the council of members are only likely to have an entry in this column. The estimated value of non-cash benefits is disclosed. The disclosure is in hundreds of pounds rather than thousands. Pension related benefits ( 000) This is calculated using a method set out in the Companies Act. It is only relevant to those receiving pension contributions from the CCG Total (bands of 5,000) The table must include a total column showing the total of all of the columns. Where a member has not been in post for the full year then their dates in post should be given so that it is clear what period the payment covers. If an existing member of staff is promoted to the governing body part way through the year then the table includes payments made only since they became a member of the governing body. Albert D, lay member with responsibility for finance and governance Marie E, lay member with responsibility for public and patient involvement Dr Steve F, clinical member (secondary care) Fiona G, clinical member (nurse) Where the individual is paid by the CCG for services in addition to their role on the council of members or governing body then this should be shown separately. This is more common for NHS providers where the medical director has a clinical role as well as their board position. 12

15 Annual Report Where a severance payment has been made to a member of the governing body, this is disclosed separately either as a note following the table or as an additional column. Where members of the CCG s governing body are not employed directly by the CCG but via a third party (for example a limited company, a GP partnership or an agency) any fees paid to that third party must be disclosed as well as the amount paid for the services of the member of the governing body. Some members of the CCG s governing body may work for more than one CCG, for example, a chief finance officer may hold that role for two CCGs. In this case, the amount paid by the CCG is included in the table but the total amount that they are paid for both roles should be disclosed elsewhere in the report. For the non-lay members of the governing body, there is an additional table covering pensions. These disclosures are sometimes known as the Greenbury disclosures and the numbers are provided by the NHS Business Services Authority. This table should include any member of the governing body for whom the CCG pays pension contributions to the NHS pension scheme or stakeholder pension scheme. It will therefore exclude lay members of the governing body if payments made to them are not pensionable. It may also exclude other members of the governing body where they are not directly employed by the CCG. Where this is the case, narrative disclosure should be added to the report to make the payment arrangements clear. Where disclosures are made in this table, it will be the total amounts of the NHS pension for that individual rather than just the element which relates to their work for the CCG. This is because the NHS pension scheme is one scheme so it cannot be apportioned between employers and also because this is the disclosure required by HM Treasury which follows the requirements of the Companies Act. 13

16 Introductory Guide CCG Annual Report and Accounts Table 3: Pension benefits The white rows give guidance on the contents of this table Name and title Real increase in pension at age 60 (bands of 2,500) 000 The real increase is the movement in the expected value of the employee s pension when they are 60 years old excluding the effect of inflation. Real increase in pension lump sum at aged 60 (bands of 2,500) 000 The real increase is the movement in the expected value of the employee s lump sum when they are 60 years old excluding the effect of inflation. Total accrued pension at age 60 at 31 March 20xx (bands of 5,000) 000 This is the total expected value of the accrued pension at age 60 as calculated by the NHS pension scheme. Lump sum at age 60 related to accrued pension at 31 March 20xx (bands of 5,000) 000 This is the expected value of the pension lump sum at age 60 as calculated by the NHS pension scheme. There will be no lump sum for members of the 2008 section of the NHS pension scheme 14 or members who are over 60. Cash Equivalent Transfer Value at 1 April 20xx and 31 March 20xx (actual amount) 000 This is two columns and is the amount that would be transferred from the NHS pension scheme to secure benefits in another pension scheme at the start and end of the financial year. The value is provided by the NHS pension scheme administrators. Real increase in Cash Equivalent Transfer Value (actual amount) 000 This is the movement in the cash equivalent transfer value from one year end to the next excluding the effect of inflation. The movement cangoupand down depending on the movements in the factors used by the actuary and any movements in inflation. Employer s contribution to partnership pension (actual amount) 00 This is the amount paid by the CCG into a pension scheme other than the NHS pension scheme. The disclosure is in hundreds rather than thousands of s. Robin B, Chief Officer James C, Chief Finance Officer (from 1 April to 7 September) Tobias X, Chief Finance Officer (from 8 September) Many CCG employees will have been employed in the NHS prior to 1 April 2013 and be continuing members of the NHS pension scheme. Therefore, even in 2013/14 these disclosures will show the movement in pension values over the year based on previous contributions to the NHS pension scheme. Off payroll engagements Most people working for the CCG will be paid via the payroll with tax and national insurance contributions deducted at source by the CCG as the employer. Occasionally, the CCG may engage people through a contract for services where the individuals are responsible for their own tax 14 Currently, there are two sections in the NHS pension scheme the 1995 section and the 2008 section. Eligibility requirements and benefits are different in each part of the scheme. The 1995 scheme was closed to new members on 1 April There are further changes proposed to the NHS pension scheme from 1 April

17 Annual Report arrangements. CCGs are required to report the number of any off payroll engagements which are for more than 220 a day and last longer than six months. The CCG must also report the arrangements which have been made to gain assurance that appropriate tax has been paid in relation to these contracts. For new off payroll engagements, additional reporting is required about whether those contracts include a clause allowing the CCG to check the tax arrangements and the CCG s assurance arrangements. If the contract does not allow the CCG to check the tax, the CCG must disclose the reasons why. There are additional disclosures required for members of the governing body or senior managers with significant financial responsibility who are paid via an off payroll contract. Pay multiple disclosures The pay multiple disclosure 15 is also known as the Hutton or fair pay disclosure. In 2010, as a response to public perception that the pay and reward packages of public sector executives were too high, the Prime Minister commissioned Will Hutton to provide recommendations on how to introduce a pay multiple to ensure that no public sector manager earned more than twenty times the lowest paid person in their organisation. However, rather than set a hard cap on the pay of executives, the key recommendation was for public sector bodies to demonstrate their accountability for the relationship between the pay of their executives and the wider workforce by disclosing the ratio between the remuneration of the highest paid employee on the governing body and the median salary of their staff. Table 4: Pay multiple disclosures This note includes both numerical and narrative information Content Comment Band of highest paid members total remuneration ( 000) This is the band in the remuneration report which the amount paid to the highest paid member of the governing body falls into. The amount paid is calculated on a full time equivalent, annualised basis for those members in post at the end of the financial year. Where all of the members of the governing body have been in post full time for a full year this should be clear from the table of salaries. 16 However, where members of the governing body have changed mid-year or work part time, then the salary of the members in post on 31 March must be used to calculate the amount that they would have been paid had they been in post for a full year and worked full time. The mid-point of this band is used in the ratio calculation. Median salary ( ) 21,358 To calculate the median salary, the full time equivalent, annualised salary (including overtime and bonuses) of all CCG staff in post at 31 March is calculated. The salaries are then arranged in value order. The median is the salary of the employee mid-point in the list. Ratio 5.3 This is the mid-point of the highest paid member s salary band divided by the median salary. In this case: 112,500/ 21,358 Narrative explanation of movement The note must include a clear and meaningful description of the difference in the ratio for the current year compared with the previous year. 15 HFMA s Practical guide pay multiple disclosures 16 It may not be the total column from the remuneration table as the pension related benefits will be excluded from this calculation. 15

18 Introductory Guide CCG Annual Report and Accounts Suggested questions about the annual report Does the annual report give a balanced view of the operations of the CCG over the year? If you are a member of the CCG governing body and hold company directorships or have other interests which may conflict with your responsibilities to the CCG, are they disclosed? Are you satisfied that your salary has been appropriately disclosed? Has the remuneration report been already considered by the remuneration committee? What was the outcome? Has the pay multiple been explained? Has any movement in the multiple been explained? Are you aware of any relevant audit information which has not been made available to the auditors? 16

19 Chapter 3: Governance Statement The governance statement reflects the arrangements the CCG has put in place to manage and mitigate the risks that it faced throughout the financial year. The governance statement should give the reader a clear sense of the risks which faced the CCG and the controls in place to manage them. It is reviewed by the audit committee and the governing body before being signed by the accountable officer. The headings for the governance statement s content are prescribed by NHS England and certain specified items must be covered to allow them to prepare a summary statement for all CCGs. However, the governance statement should be individual to the CCG and include only those issues which will be of key interest to the CCG s own stakeholders. Whilst the governance statement is prepared by the CCG at the end of the year, it should be built up from processes designed, run and tested throughout the year. In a CCG s early years, the governance statement is therefore expected to describe the journey from a new organisation with immature controls to one in a more mature and stable position. There should be no surprises for members of the governing body as all the issues described should have been discussed at governing body or one of its committees meetings during the year. The governance statement should be consistent with the rest of the annual report. Table 5: Contents of the governance statement The governance statement should be individual to the CCG and its operations in the financial year Required headings Comments Scope of responsibilities. This section describes the responsibilities of the accountable officer and the governing body to maintain a sound system of internal control that supports the achievement of the CCG s policies, aims and objectives, whilst safeguarding public funds. Compliance with corporate governance good practice. 1 The governance framework of the CCG. The risk management framework. A statement that the governing body is satisfied that their corporate governance arrangements are in line with good practice. This section provides information about the CCG s committee structure, attendance and the work covered. Highlights from each committee, particularly the audit committee are included. It should include the key actions taken by each committee. It also includes a review of the governing body s performance, including a self-assessment of its effectiveness. It should include a statement that the CCG has checked its arrangements to discharge its statutory functions, that they are legally compliant and do not include any irregularities. A description of how risk and control mechanisms work, the key elements of risk management and the arrangements in place for the CCG to assure itself that these arrangements are in place. The ways in which risk management is embedded into the way that the CCG works should be described. 1 For example, the Financial Reporting Council s Corporate Governance Code Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx 17

20 Introductory Guide CCG Annual Report and Accounts Required headings Internal control framework. Risk assessment. Review of economy, efficiency and effectiveness in the use of resources. Review of the effectiveness of risk management and internal control. Conclusion Comments There are also prescribed statements in relation to information governance, the NHS pension scheme, compliance with equality, diversity and human rights legislation and sustainability. A statement which says that the system of internal control is intended to manage risk rather than eliminate it. This statement should also indicate how long the system has been in place. The CCG s risk profile, how it assesses and manages risk. A description of the CCG s major risks and how they are being or will be managed. This will include consideration of the risks to compliance with the terms of the CCG s licence. A description of the key processes applied to ensure that resources are used with economy, efficiency and effectiveness. This section will need to be consistent with the auditor s conclusion on use of resources. This is a key section of the report which describes how the risks that the CCG faces are assessed and managed. It should include:. How the governing body lead the risk management process and how staff are trained to manage risk. A description of the process for maintaining and reviewing the system of internal control. An assessment of the effectiveness of these arrangements. Reference to work by internal audit including the head of internal audit s opinion in full and a list of audit reports which have concluded no or limited assurance. A description of the impact of any risks that have crystallised. In the early years of the CCG s existence, this section may describe risks and controls which have been mitigated or changed throughout the year. This section, as well as the rest of the governance report, reflects the whole of the financial year and not just the position at the end of that year. An overall conclusion which refers to significant control issues, if any, which have been identified in the governance statement. Suggested questions about the governance statement Does the governance statement include all of the elements required by the ARG? Is the content of the governance statement consistent with your knowledge of the operations of the CCG over the year? Is the governance statement consistent with statements made and reports the audit committee has received from auditors, or other sources of assurance? Do you have evidence that the systems and procedures underpinning the disclosures set out in the governance statement are robust? Are any significant control issues or gaps in control or assurance recorded consistent with reports received? In particular, does the governance statement include:. All significant risks that you were aware of during the year?. The actions the CCG is taking, or plans to take, to address the identified risks?. The head of internal audit s opinion and disclosure of limited or no assurance internal audit reports?. A conclusion which specifically refers to significant control issues identified in the statement? 18

21 Chapter 4: Statement of Accountable Officer s Responsibilities The CCG is required by statute to have an accountable officer. The accountable officer is responsible 1 for ensuring that the CCG exercises its functions in a way which provides good value for money and complies with its obligations to:. Ensure that the regularity and propriety of expenditure is discharged this means that money should only be spent on things which the CCG has the power to spend money on. Keep proper accounting records. Prepare its annual accounts in accordance with the directions of NHS England. Safeguard the CCG s assets. The accountable officer must sign a statement which says that to the best of his/her abilities they have discharged these responsibilities. This responsibility cannot be delegated to any other member of the governing body. Suggested questions about the statement of accountable officer s responsibilities Based on your knowledge of the CCG and its operations, are you satisfied that the accountable officer has discharged all of his/her responsibilities in the year? If there have been issues concerning efficiency, effectiveness and economy which are reported in the governance statement or the auditors report, are they reflected in this statement? If any of the CCG s functions have not been discharged in the year, is that fact reflected in the statement? 1 The responsibilities of the accountable officer are set out in paragraph 12 of Schedule 1A to the National Health Service Act 2006 and are expanded in NHS England s publication Clinical commissioning group governing body members: Role outlines, attributes and skills ( as well as the accountable officer s appointment letter. 19

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23 Chapter 5: Independent Auditor s Report The CCG s accounts must be audited by an independent external auditor who is currently appointed by the Audit Commission. Following their work, the auditor signs a formal report which the CCG must include in its annual report and accounts. The exact wording of the report is for each auditor to decide but it will contain the following sections: Table 6: Contents of the independent auditor s report The exact format is for the individual auditor to decide Example independent auditor s report Comments Independent auditor s report to the members of NHS [name] CCG We have audited the financial statements of NHS [name] CCG for the year ended 31 March [year] which comprise the statement of comprehensive net expenditure, the statement of financial position, the statement of cash flows, the statement of changes in taxpayers equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and the accounting policies directed by NHS England with the consent of HM Treasury as relevant to the National Health Service in England. We have also audited the information in the remuneration report that is subject to audit. This report is made solely to the members of NHS [name] CCG in accordance with Part II of the Audit Commission Act Our audit work has been undertaken so that we might state to the members of the CCG those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the members of the CCG for our audit work, for this report or for the opinions we have formed. Respective responsibilities of CCG and auditor in relation to the accounts As explained more fully in the statement of accountable officer s responsibilities set out on page [x], the accountable officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This is the heading of the report which is addressed to the members of the CCG as they are responsible for the governance arrangements of the CCG. The audit report will state exactly which parts of the accounts and remuneration report have been subject to audit. The audit report makes it clear which financial reporting framework has been used NHS England requires that CCGs are compliant with international financial reporting standards (IFRS). This paragraph is sometimes referred to as the Bannerman paragraph. It is inserted to reinforce the fact that, although other parties might read it, this report is for the members only. Each audit firm will have their own version of this paragraph. This section makes it clear that the CCG (in particular, the accountable officer) is responsible for preparing the accounts and the auditor s responsibility is for auditing them. 21

24 Introductory Guide CCG Annual Report and Accounts Example independent auditor s report Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:. Whether the accounting policies are appropriate to the CCG s circumstances and have been consistently applied and adequately disclosed. The reasonableness of significant accounting estimates made by the governing body and. The overall presentation of the financial statements. Opinion on financial statements In our opinion the financial statements:. Give a true and fair view of the state of the CCG s affairs as at 31 March [year] and of its expenditure and income for the year then ended and. Have been prepared properly in accordance with the accounting policies directed by NHS England with the consent of HM Treasury as relevant to the National Health Service in England. [A description of those specific assessed risks of material misstatement that were identified by the auditor and which had the greatest effect on the audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.] Comments This section sets out in high level terms what an audit is. This is the auditor s opinion on the accounts. The wording shown here is for an unqualified opinion. It is unusual for NHS accounts to be qualified which would mean that the auditor is unable to say that the accounts give a true and fair view or have been properly prepared. Auditors need to give advanced warning to the Audit Commission and NHS England if a qualification is likely. In 2013/14, this section of the audit report will not be required. However, this is likely to change in the future to reflect current commercial practice. When the change is adopted, the auditor will have to include information on how they have undertaken and focused their audit. [An explanation of how the auditor applied the concept of materiality in planning and performing the audit. Such explanation shall specify the threshold used by the auditor as being materiality for the financial statements as a whole.] [An overview of the scope of the audit, including an explanation of how the scope addressed the assessed risks of material misstatement and was influenced by the auditor s application of materiality.] Opinion on regularity prescribed by the Code of Audit Practice 2010 for local NHS bodies In our opinion, in all material respects the expenditure and income have been applied to the purposes intended by parliament and the financial transactions conform to the authorities which govern them. This section is known as the regularity opinion. The wording shown here is for an unqualified regularity opinion. Auditors will qualify this part of their report if the CCG overspends against its financial targets. Auditors will also qualify this part of their report if they identify any expenditure on items that the CCG does not have the legal power to incur. If the regularity report is qualified the governance statement and the accountable officer s statement should refer to the qualification issue. 22