Auditor issues disclaimed opinion on troubled trust’s 2019/20 accounts

The trust failed to submit accounts at the end of 2019/20 after issues were raised by the auditor, and set about restating the financial statements. This work has focused on the restatement of the balance sheet. And the auditor Grant Thornton has now issued a disclaimed audit opinion on the trust’s financial statements due to risks of material misstatements as a result of management override of control and inadequate journal control. It said both are pervasive to the trust’s financial statements.

The auditor was unable to secure appropriate evidence due to a limitation on the scope of the audit and its inability to attend a stock take due to Covid-19. The scope of the audit was narrowed partly due to the management focus on the balance sheet, which limited the scope of the audit of income and expenditure, including payroll. It added that material misstatements remain in the comparatives.

In its audit letter, Grant Thornton also issued an adverse value for money conclusion over a number of concerns, including its assessment that the trust was not financially sustainable, and its financial reporting arrangements and governance had been inadequate.

The trust has a recent history of issues with its financial statements. In June 2019, the external audit of the trust’s 2018/19 accounts unearthed issues with its finances, accounting treatments and controls. Under a new interim chief financial officer, the trust found ‘inappropriate financial adjustments, irregularities and aggressive accounting policies’ that impacted on its financial position in 2019/20.

The external auditor stated its intention to issue a disclaimer form of opinion on the 2019/20 financial statements due to material misstatements. Subsequently, the draft 2019/20 accounts were not recommended to the board for adoption.

Improved accuracy

Measures have been taken to improve the accuracy of the financial information, such as a restatement exercise and changes in board members, including the appointment of a new substantive chief financial officer and chief executive.

The audit letter said it had received 15 versions of the trust’s financial statement for 2019/20, with the reported deficit moving from just over £67m in the first version.

The final reported position for 2019/20 is a deficit of just over £124m. The auditors have agreed an adjustment to the 2018/19 deficit, which has moved from the originally stated £46.5m to nearly £65m.

The delay in producing accurate financial statements and the material changes are primarily due to a mix of factors, the auditors said. The issues with the trust’s financial reporting, accounting policies and misstatement of its year-end position stemmed from the previous board’s ‘inappropriate focus’ on achieving its financial control total. The letter noted the new board is working closely with the auditor.

Management override under the previous regime had led to misstatements. ‘Prior to the introduction of the new management team, management intentionally misstated both the trust’s in-year financial position and its year-end financial position. It has done so through the inappropriate recognition of both income and expenditure, changes in accounting policies, and the inappropriate use of journals’ the auditor said.

There was a breakdown in control, which, combined with an underinvestment in the finance team, led to a failure to account appropriately in a number of areas. The trust anticipates receiving a qualified audit opinion for 2020/21, and an unqualified report for the 2021/22 accounts.

The audit letter also notes the trust has made improvements – delivering a £52m surplus in 2020/21 (subject to audit), largely due to the additional funding available during the Covid pandemic. It has carried out substantial work to improve the accuracy and robustness of its financial information and reporting, though its underlying deficit and the lack of a worked up and agreed plan to tackle this deficit remained a significant risk.

The trust has also improved its governance, the auditor said, though work remains to be done, especially around understanding and ownership of financial responsibilities in its seven clinical management groups. Evidence indicated the trust was delivering good quality services despite the issues with the financial position and the pressures of the Covid pandemic.