February 2017
To: NHS trust chief executives
Wellington House
133-155 Waterloo Road
London SE1 8UG
T: 020 3747 0000
E: [email protected]
W: improvement.nhs.uk
Dear Colleague
NHS trusts: annual governance statement requirements and update on going concern
2016/17 annual governance statement requirements
I am writing to confirm the requirements for the completion and submission of NHS trusts’
annual governance statements for 2016/17. The annual governance statement forms part of
the annual report requirements as set out in chapter 2 of the Department of Health’s Group
Accounting Manual1 (paragraph 2.30).
This letter does not apply to NHS foundation trusts. Those bodies should solely refer to NHS
Improvement’s Foundation Trust Annual Reporting Manual2 (FT ARM).
NHS trusts should submit their annual governance statement in line with the accounts
timetable for NHS trusts3:


26 April 2017: NHS trusts are no longer required to submit the draft annual
governance statement to a central mailbox. However your regional team contact at
NHS Improvement may request sight of your draft AGS on or after this date.
1 June 2017:
o Auditors submit original copy of annual governance statement to the
Department of Health as part of the annual report and accounts submission
process
o NHS trusts should also submit a final copy of the signed annual governance
statement to NHS Improvement. This should be sent by email to
[email protected] with the email subject line being “Rxx – Annual
Governance Statement” (where “Rxx” is the organisation’s NHS code).
NHS trusts’ governance statements will be assessed by the teams working with your NHS
trust. Any significant issues identified that warrant attention at national level will be brought
1
https://www.gov.uk/government/publications/department-of-health-group-accounting-manual-2016to-2017
2
https://improvement.nhs.uk/resources/nhs-foundation-trust-annual-reporting-manual-201617/
3
https://improvement.nhs.uk/documents/538/NHS_Improvement_NHS_trust_timetable_letter_Nov_201
6.pdf
NHS Improvement is the operational name for the organisation that brings together Monitor, NHS Trust Development Authority,
Patient Safety, the National Reporting and Learning System, the Advancing Change team and the Intensive Support Teams.
to the attention of the DH for their preparation of the overarching DH group governance
statement.
This letter contains:


Annex A: Guidance for preparation of the annual governance statement
Annex B: Key elements to be covered in the annual governance statement
If you have any queries regarding this exercise, please contact [email protected]
Going concern for NHS trusts
In recent years the NHS Trust Development Authority issued letters where required to NHS
trusts confirming that the Department of Health would continue to make funding available to
the trust. The letters issued in March 2016 confirmed that such letters would not be issued
for 2016/17.
This does not affect the going concern basis for NHS trusts, although additional disclosure
may be required in the annual report and accounts for some trusts. More details are
provided in annex C.
Yours faithfully
Ian Ratcliffe
Head of Sector Financial Accounting
Annex A: Annual Governance Statement guidance
The Chief Executive of NHS Improvement, in his capacity as the Accounting Officer (AO) for
the NHS Trust Development Authority legal entity, requires NHS trust Accountable Officers
to give him assurance about the stewardship of their organisations. The governance
statement records the stewardship of the organisation to supplement the accounts. It will
give a sense of how successfully it has coped with the challenges it faced and how
vulnerable performance is or might be.
This statement will draw together position statements and evidence on both corporate and
quality governance, risk management and control, to provide a more coherent and
consistent reporting mechanism.
The governance statement should be a ‘live’ document reflecting the organisation’s
governance procedures and systems. It should not be produced through a process
designed solely for the annual report and accounts.
The governance statement should refer to the Board’s committee structure, changes in
personnel of executives and non-executives, the Board’s performance, including its
assessment of its own effectiveness and that the required standards are achieved.
It should also include an explicit statement on how the NHS trust assures the quality and
accuracy of elective waiting time data and the risks to the quality and accuracy of this data.
There is no set template for the governance statement as it will be important for each
organisation to set reporting in the context of its functions and operating environment.
However, in Annex B to this letter, I have set out the key elements that must be covered
within the governance statement. This is to ensure compliance with HM Treasury guidance
and to ensure that the DH’s Principal Accounting Officer is able to draw the assurance
needed to sign an overarching DH group governance statement.
The organisation’s external auditors will review the governance statements. They will report
on:


inconsistencies between information reported in the statement and their knowledge
of the audited body; and
any failure to comply with mandatory requirements as detailed in this letter.
Annex B: Key elements to be covered in the Annual Governance Statement
Scope of responsibility
Describe the AO responsibilities including, responsibility for maintaining a sound system of
internal control that supports the achievement of the organisation’s policies, aims and
objectives, whilst safeguarding quality standards and public funds.
Acknowledge the AO’s responsibilities as set out in the Accountable Officer Memorandum
demonstrating an understanding of propriety and accountability issues.
The governance framework of the organisation
This should include:

information about the board’s committee structure, its attendance records and the
coverage of its work;

the Board’s performance including its assessment of its own effectiveness;

highlights of Board committee reports, notably by the Audit Committee;

an account of corporate governance, including the Board’s assessment of its own
corporate governance. NHS trusts are not required to comply with the UK Corporate
Governance Code. When reporting on corporate governance arrangements they are
advised to draw on best practice available including those aspects of the UK
Governance Code considered to be relevant to the NHS trust and best practice.
Monitor has previously issued the Foundation Trust (FT) Code of Governance for
NHS FTs which reflects the different accountabilities that NHS FTs have. The FT
Code of Governance does not apply to NHS trusts.

a summary of quality governance, including arrangements for assurance on the
content and publication of the Quality Account, clinical audit, never events, SUIs and
explanations of follow-up action; and

confirmation that arrangements in place for the discharge of statutory functions have
been checked for any irregularities, and that they are legally compliant.
Risk assessment
Describe how risk is assessed, including the organisation’s risk profile, and how it has been
managed, include:

a brief description of the organisation’s major risks, including clinical risk;

any newly identified in-year risks and future risks; and

a summary of any data security breaches or lapses including the advice of the
Caldicott Guardian and any issues that were reported to the Information
Commissioner.
The risk and control framework
Describe how the risk and control mechanism works including the leadership given to the
process and how staff are trained and equipped to manage risk. This should cover the key
elements and why they were chosen to deliver reasonable assurance for:

prevention of risks;

deterrent to risk arising (e.g. fraud deterrents); and

management and mitigation of risks and how outcomes are measured.
The annual governance statement should also include an explicit statement on how the NHS
trust assures the quality and accuracy of elective waiting time data and the risks to the
quality and accuracy of this data.
Review of the effectiveness of risk management and internal control
Give an assessment of the evidence about the effectiveness in practice of the risk
management processes in place. Include an outline of the actions taken, or proposed to
deal with any significant internal control issues or gaps in control. This should include
reference to any improvement notices, risk assessments or reports published about the
organisation by internal audit. In doing so, you should disclose any revealed deficiencies as
risks have materialised.
Significant issues
You should, at least, consider these factors when determining whether an issue is
significant:

might the issue prejudice achievement of priorities?;

could the issue undermine the integrity or reputation of the NHS?;

what view does the Audit Committee take on this point?

what advice has the internal or external audit given?

could delivery of the standards expected of the Accountable Officer be at risk?

has the issue made it harder to resist fraud or other misuse of resources?

did the issue divert resources from another significant aspect of the business?

could the issue have a material impact on the accounts? and

might national or data security or integrity be put at risk?
Give full details of any significant issues including a description and an account of remedial
action taken.
The statements must be signed by the AO.
Annex C: Going concern for NHS trusts
In recent years the NHS Trust Development Authority issued letters where required to NHS
trusts confirming that the Department of Health would continue to make funding available to
the trust. The letters issued in March 2016 confirmed that such letters would not be issued
for 2016/17.
The Department of Health’s Group Accounting Manual (GAM) 2016/17 states:
4.88 The FReM notes that in applying paragraphs 25 to 26 of IAS 1, preparers of
financial statements should be aware of the following interpretations of Going
Concern for the public sector context.
4.89 For non-trading entities in the public sector, the anticipated continuation of the
provision of a service in the future, as evidenced by inclusion of financial provision for
that service in published documents, is normally sufficient evidence of going concern.
DH group bodies should therefore prepare their accounts on a going concern basis
unless informed by the relevant national body or DH sponsor of the intention for
dissolution without transfer of services or function to another entity. A trading entity
needs to consider whether it is appropriate to continue to prepare its financial
statements on a going concern basis where it is being, or is likely to be, wound up.
4.90 Sponsored entities whose statements of financial position show total net
liabilities should prepare their financial statements on the going concern basis unless,
after discussion with their sponsor division or relevant national body, the going
concern basis is deemed inappropriate.
4.91 Where an entity ceases to exist, it should consider whether or not its services
will continue to be provided (using the same assets, by another public sector entity) in
determining whether to use the concept of going concern in its final set of financial
statements.
4.92 Where a DH group body is aware of material uncertainties in respect of events
or conditions that cast significant doubt upon the going concern ability of the entity,
these uncertainties should be disclosed. This may include for example where
continuing operational stability depends on finance or income that has not yet been
approved.
Therefore unless an NHS trust expects its services to cease to be provided in the public
sector, the going concern basis is assumed. If an NHS trust is dependent upon financing
which is not confirmed, this would ordinarily be an uncertainty for the going concern basis
and paragraph 4.92 of the DH GAM requires that these be disclosed in the annual report and
accounts. However while this uncertainty is being disclosed, it does not affect the going
concern basis itself. The Trust should consider preparing a paper for its Board and/or audit
committee if necessary.
If your external auditor considers this disclosure to be of sufficient importance for the
understanding of the entity, they may enter an ‘emphasis of matter’ as part of the audit report
(audit opinion). This does not constitute a ‘qualification’ of the audit report and would not in
itself cause a concern for NHS Improvement, as long as the matters referred to are
consistent with NHS Improvement’s existing understanding.