A BRIEF EXPLANATION OF THE ANNUAL REPORT AND ANNUAL ACCOUNTS FOR 2014/15 AND THE KEY ISSUES FOR THE TRUST
- Introduction
As in previous years and in line with best practice this explanatory paper outlines theannual accounts submission process following Board approval. This paper also provides an interpretation of the accounts and highlights the key issues, to assist the Board’s understanding of the financial performancefor the year. A similar report will accompany the approved accounts when they are published, to help improve other readers’ understanding. This will be delivered through the Operating and Financial Review, whichis incorporated within the Trust’s Annual Report.
In writing this commentary, the purpose is to give the reader an easy tounderstand narrative supporting the Trust’s annual financial accounts for the year. This paper highlights significant messages in the accounts and linksthese to the key objectives and activities of the Trust for the year.
This report includes:
(i)Key financial information covering the year ended 31st March 2015.
(ii) An explanation of the content and structure of the Annual Accounts.
(iii) A brief explanation of the four main statements within the Annual Accounts,including key points.
(iv)A summary of the Certificates and documents which require signatures. (Appendix 1).
(v) The approval and submission procedure (Appendix 2).
- Key financial information covering the year ended 31st March 2015
In 2014-15 the Trust earned £100.378m income and had an overall deficit for the year of £4.456m including impairmentsand donated asset charges.After excluding impairments and the impact of donated assetsthe Trust has improved upon its planned deficit of £4.950m for the year with an actual deficit of £3.902m and this was an improvement of £1.048m.
The External Financing Limit (EFL) is a target on how the Trust must manage its cash flow and borrowing requirements. For 2014-15 the Trust has operated within its EFL set bythe Department of Health (DH) and has met this target.
The Capital Resource Limit (CRL) is the maximum amount that the Trust can invest in property, plant, equipment and intangible assets during the year.The Trust has operated within its Capital Resource Limit.
The Statement of Financial Position shows total assets employed of £64.136m, which includes a net increase in the Trust's assets as a result of the revaluation £734,000 (£785,000 net gain on revaluation less £51,000 impairment charge on land).
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- Content and Structure of the Annual Report and Annual Accounts
The Annual Accounts are produced in a standard format that is used throughout the NHS. They follow the accounting requirements of the Department of Health Group Manual for Accounts (Mfa) 2014-15 which adopt International Financial Reporting Standards, to the extent that they are meaningful and appropriate to the NHS.
The Mfa sets the accounting policies to be followed by members of the Department’s Consolidation Group and provides principles-based guidance to NHS bodies on how to prepare and complete their annual report and accounts.
The application of the principles contained in the Mfa depends on the individual circumstances of an NHS body and the accounting treatment is a matter between the NHS body and its external auditors.
The Mfa follows the Government Financial Reporting Manual 2014-15 (FReM) requirements from which there are no significant divergences in 2014-15.
The Annual Report and Annual Accounts comprise:
- The Trust’s Annual Report for 2014/15
- The Remuneration report
- A statement of the Chief Executive and Directors’ responsibilities
- The auditors opinion on the accounts
- The Annual Governance Statement
- Four main statements:
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Taxpayers’ Equity
Statement of Cash Flows
●Notes to the accounts detailing how the accounts have been prepared
●Notes providing more detail and breakdown of the figures held in the earlier four main statements.
- Four Main Statements
Statement of Comprehensive Income for the Year ended 31st March 2015
This statement shows the total income and expenditure for the year and the surplus or deficit. It is a standard format with further details given in the supporting notes.
For 2014-15 the Trust had a retained deficit of£4,456,000, compared with the previous year’s retained deficit of£5,117,000.
The retained deficit of £4,456,000 includes the impairment charge of £393,000 and a £161,000 netadjustment as a result of the elimination of the donated asset reserve. As per the Department of Health guidance on break even duty for NHS Trusts thesetwo items are excluded when measuring a Trust’s breakevenperformance. Therefore, taking this into account, the Trust has improved upon its planned deficitof £4,950,000forthe year with an actual deficit of £3,902,000(£4,683,000 deficitfor 2013/14).This was an improvement of £1,048,000 on the Trust’s planned deficit of £4,950,000.
The operating deficit shows the position after ‘normal’ activities and operations, and is before any ‘financing costs’ such as interest and dividends, but includes £393,000for the impairment charge. This is made up of£342,000for obsolete IT hardware and £51,000 for the reduction in land value at Drove Road where no balance was held on the revaluation reserve.For full details see note 17 in the annual accounts.
The bottom part of the income statement shows other comprehensive income which is made up of all othergains and losses that are not recorded in the revenue section at the top. This item does not impact on theretained surplus or deficit and therefore does not impact on the breakeven duty. These figures can all be referenced to theStatement of Changes in Taxpayers’ Equity.
Within this section the net gain on revaluation of property, plant & equipmentwas£785,000. Thiswas as a result of Trust's land and buildings being revalued as at 31st March 2015 by the DVS Valuation Office. The net increase in the Trust's assets as a result of the revaluation was £734,000 (£785,000 net gain on revaluation less £51,000 impairment charge on land).
Statement of Financial Position as at 31st March 2015
This statement shows the Trust’s total assets and total liabilities as at the 31st March 2015.
For 2014-15 the Trust has total assets employed of £64.136m, compared with the previous year of £62.733m.
The Trust's land and buildings were revalued as at 31st March 2015 on a Modern Equivalent Asset (MEA) valuation basis and this resulted in an increase in the value of buildings by £3.769m offset by a reduction in the value of land by £3.035m.
The movement between the net current assets and liabilities is a reduction in net liabilities, from £3.54m to £2.568m, of £0.972m. The principal changes are an increase in cash and cash equivalents of £2.28m less a decrease in trade and other receivables of (£0.813m)and less an increase of trade and other payables of (£0.383m).
The bottom half of the statement records the Trust Taxpayers’Equity:
The Public Dividend Capital (PDC) of £68.057m represents the ‘public’ stake in the current and non-current assets of the Trust. The movement in year relates tofunding of £4,950k Public Dividend Capital (PDC) Revenue Support approved by Independent Trust Financing Facility Committee and new PDC received for the Order Communications phase two capital project of £124k.
The retained earnings include the Trust’s accumulated deficit since its inception in 1991 and movements form other reserves.
The movement on the revaluation reserve from £12.591m to £12.555mis made up of the £0.684m transfer between retained earnings and the revaluation reserve for the reversal of impairment charges that were previously charged to retained earnings plus £0.137mfor the difference between the current cost of depreciation compared to the historic cost of depreciation less the net increase in the value ofthe MEA valuation £0.785m.
Statement of Changes in Taxpayers’ Equity for the year ended 31st March 2015
This statement shows the movementin reserves in the period. It shows ingreater detail how taxpayers’ equity isused to finance the total assetsemployed and the changes between thecurrent and previous year.
Statement of Cash Flows for the year ended 31st March 2015
This statement shows all cash transactions during the year. The majority of cash items will go through the Statement of Comprehensive Income but some, for example capital expenditure, do not and are shown within this statement. Also the statement removes any non-cash transactions (i.e. movements in trade and otherpayables and receivables) to determine the actual cash flows in the year.
5.Notes to the accounts detailing how the accounts have been prepared.
Note 1 – Accounting policies – These set out the accounting rules that all NHS Trusts arerequired to follow. They explain the basis on which all entries in the accounts are made.The policies are largely dictated by the Department of Health’s Manual for Accounts,although the Trust is able to tailor the policies as it sees fit. One of the main requirementsis for the accounts to be reported on an accruals basis, which means that income andexpenditure are recorded in the year they arise, regardless of when the cash istransferred.
Note 1.5.1 - Critical judgements in applying accounting policies -The Trust has prepared the accounts on a going concern basis. The Directors have a reasonable expectation that the Trust has adequate resources to continue in operational existence for the foreseeable future. This is in the context of determining the future organisational form and during the transitional period it is assured that it will secure sufficient working capital with the agreement of the
NHS Trust Development Authority. For this reason the going concern basis has been adopted for preparing the accounts. The Trust has a planned deficit in 2015/16 of £7.95m and this requires £7.95m revenue PDC cash support from the Department of Health to maintain cash flow in 2015/16. Directors have received confirmation from the NHS TDA that it will support the Trust's application for cash support for 2015/16.
Note 10.6 – Pension costs – This note sets out the provisions of the NHS pension schemeand explains that it is accounted for as a defined contribution scheme. As a result, theTrust cannot disclose any share of pension assets or liabilities in its financial statements.
Note 11.1 – Better payment practice code- The Trust is expected to be able to payinvoices received within 30 days of receipt. A target of 95% compliance has been set bythe Department of Health. At the end of the financial year, the Trust had paid 96.7% of all invoices against the Code. This compares with 94.9% ofinvoices in 2013/14.
Note 15.3 -- Property, Plant and Equipment – This explains the impact of the District Valuer’s valuation of land and buildings which is undertaken in accordance with the Trust accounting policy in note 1.9 on a five yearly basis.
Note 39 – Financial instruments – This note identifies the value of assets and liabilitiesarising from contracts. The definition of a financial instrument is ‘a contract that gives rise to a financial asset of one entity, and a financial liability or
equity instrument of another entity’.Risks, such asthe impact of changes in the value of money, e.g. exchange rate shifts; of interest rates,for deposits and loans; liquidity or availability of cash are also disclosed here.
Note 40 – Events after the reporting period - This note identifies any significant eventsthat occur, after the end of the financial year, but before the accounts are signed off.These events are likely to have a significant impact on the future activities and financesof the Trust.
Note 41 – Related party transactions – The Trust is required to identify any significanttransactions that Board members, managers, or close members of their family haveundertaken with the Trust. As the Department of Health is seen as a related party, allNHS organisations with which the Trust has had significant transactions during the yearare also listed.
Note 42 – Losses and special payments – This note identifies financial costs that havebeen incurred, by the Trust, that are not planned and do not fall within the range ofactivities that Parliament would have intended healthcare funds to be used for. All of thecases recorded in this note have been reviewed and approved by the Audit and Assurance Committee.
Note 43.1 – Breakeven performance – This note shows the history of the Trust’s financialperformance from 2005-06 to 2014-15.
Note 43.3 – External financing – The Trust is given a cash limit for external financing, which enables the Department of Health to keep cash payments in the NHS overall,within the level agreed with Parliament. The annual limit is set by the DH and NHS Trust Development Authority,determining how much more, or less, the Trust can spend in addition to what funds itgenerates from its activities. The Trust delivered this requirement in 2014/15, reporting a£2,498kunder-utilisation of the planned limit.
Note 43.4 – Capital resource limit – This is the level of capital expenditure financed in theyear and is set by the Department of Health each year. The note shows that the Trust’scapital undershot the limit by £186k.
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John Hurley
Financial Controller
June 2015
APPENDIX 1
A SUMMARY OF THE CERTIFICATES AND DOCUMENTS THAT REQUIRE SIGNATURE AND BY WHOM:-
1.The annual accounts are made up of:
- TheChief Executive’s statement of responsibility as Accountable Officer – to be signed by the Chief Executive x 3 copies
- The Directors’ statements of responsibilities – to be signed by the Chief Executive and Finance Director x 3 copies
- The Auditors’ report – to be signed byGrant Thornton x 3 copies
- The Annual Governance Statement – to be signed by the Chief Executive x 3 copies
- Four primary statements (Statement of Comprehensive Income; Statement of Financial Position – to be signed by the Chief Executive x 3 copies; Statement of Changes in Taxpayers’ Equity and Cash Flow Statement), and
- Notes to the accounts
- The certificate relating to the summarisation schedules - to be signed by the Chief Executive and Finance Director x 2 copies
- The summarisation freetext - to be signed by the Finance Director x 2 copies
2.The letter of representation for the audit process of the Trust to be signed by the Chief Executive and Chair of Audit and Assurance Committee.
APPENDIX 2
Pre-audit
Completed and validated unaudited forms should be returned to the NHS TDA through the mailbox in accordance with the national timetable by no later than midday, on Thursday 23 April 2015
On completion of audit, the auditor must be given a completed “Directors’ certificate for the FMA forms”. This effectively approves and authenticates the final version of the FMA forms. The certificate must be completed in non-black ink.
Post-audit
Audited accounts forms should be submitted by the Trust Auditors no later than 9 a.m. on Friday 5 June 2015.
The audited FMA forms (checked for consistency against audited accounts and without validation errors unless agreed with the DH) in the manner prescribed by DH Financial Information & Accounts.
Signed “free text sheets”.
Audit submission letter
Statement of Chief Executive’s responsibilities as accountable officer
Statement of Directors’ responsibilities in respect of the accounts (can be original when included with accounting officer responsibilities)
Statement of Directors’ responsibilities in respect of internal control
Auditor’s Report on the financial monitoring and accounts (FMA) forms
Auditor’s Report on the full statutory financial statements
30 December 2018
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