Thank you for the invitation to attend today's meeting to discuss the Comptroller and Auditor General's 2013 report and appropriation accounts relating to Vote 39 - Health Service Executive and Chapter 14 relating to procurement by the HSE.
I wish to record my thanks to the committee for its kindness and sensitivity in rescheduling this meeting. We have submitted information and documentation to the committee in advance of the meeting and I will, therefore, confine my opening remarks to the following issues.
The first is the 2013 out-turn. The Revised Estimates volume provided a net vote estimate of €12.312 billion for the HSE, a reduction of €209 million from the final 2012 allocation. A net Supplementary Estimate of €219 million was passed by the Dáil on 12 December 2013. The Supplementary Estimate amounted to 1.8% of the original net Vote with €188 million or 1.5% eventually required and the balance of €31 million returned to the Exchequer. From the outset in 2013, the Department of Health and the HSE identified certain risks to the achievement of the very demanding savings targets in the 2013 service plan. Some of these risks materialised, including the delay in finalising and implementing the Haddington Road agreement, which was €70 million; the decision by the Government to defer the introduction of charging for private patients occupying public hospital beds, which was €62 million; and the delay in the introduction of regulations under the FEMPI Act to reduce fees paid to doctors and pharmacists which could not be introduced until the Haddington Road agreement was finalised.
Outside of these areas the HSE delivered a €25-million surplus made up of deficits on core services, primarily hospitals and surpluses on capital and other services. This was a considerable achievement in view of the very challenging environment in which the HSE operated in 2013 given the increasing demand due to demographic pressures, the need to ensure patient safety as a priority at all times and the very challenging targets for service delivery.
The draft management letter for the 2013 audit was issued by the Comptroller and Auditor General on 30 September 2014 on completion of the audit and certification of the HSE accounts. The purpose of sending a management letter in draft format is to set out the Comptroller and Auditor General's observations from the audit and to confirm the factual accuracy of those observations with the HSE. On receipt of the Accounting Officer's response, the Comptroller and Auditor General further considers his observations in light of the responses received before formally issuing the management letter to the Accounting Officer. The Comptroller and Auditor General has pointed out that his management letter should also be considered in the context of the audit certificate and any chapters in the Comptroller and Auditor General's annual report. The final management letter has been received by the HSE and a copy has been provided to the committee in advance of this meeting.
I have set out the actions which have been or are currently being taken by the HSE to address the control issues identified. These issues underline the imperative of specific and sustained focus on compliance at all levels of the organisation. The implementation of these recommendations by management will be co-ordinated by a national financial controls assurance group and progress will be monitored during 2015 by the national performance oversight group and the audit committee. The situation will also be reassessed by the HSE in the 2015 review of the effectiveness of the system of internal control.
The HSE established a compliance unit in 2014 to support the development of a strong and consistent compliance culture across all section 38 and 39 agencies funded by the HSE. A key role of the compliance unit is to safeguard the regulatory and governance obligations of the HSE through ensuring that all funded agencies are compliant with the guidelines and regulations as set out in the service arrangements.
The primary legal framework under which the HSE provides financial support to non-statutory service providers is set out in the Health Act 2004. In 2009, the HSE developed a formal national governance framework with national standard governance documentation known as service arrangements to manage the funding provided to these agencies and this came into operation in 2010. The service arrangements are to ensure a national standardised consistent application of good governance and eliminate the need for individual contracts to be created each time the HSE funds an agency.
In December 2013, the HSE sought to enhance its governance arrangements with section 38 agencies and also to strengthen the direct relationship between the HSE and the boards - as distinct from executive management - of each of these agencies. In particular, the HSE established a formal engagement process with the chairs of the boards, including formal meetings twice a year; introduced a new compliance statement whereby the chair and another director of the board signs and confirms on behalf of the board that the agency had complied in full or in part with eight key areas under its service arrangement; and defined best practice requirements for boards and corporate governance arrangements. The requirement for an annual compliance statement came into effect on 1 January 2014 and is applicable to each agency's 2013 annual financial statements with a requirement for agencies to have a plan in place to achieve compliance in respect of 2014. All section 38 agencies signed the annual compliance statement in respect of 2013.
The committee will have recently received the HSE report on the implementation of recommendations in the HSE's internal audit report on section 38 agencies' remuneration. As the committee will be aware, the internal audit report contained 22 recommendations which dealt, in the main, with issues of compliance with approved public sector remuneration levels for senior management in agencies funded under section 38 of the Health Act 2004. A total of 17 of the recommendations have been implemented in full, a further three are still in progress and it was not possible to implement two of the recommendations due to information gained or decisions made since the audit was completed. One of the recommendations, No. 9, relates to decisions in respect of applications to red-circle remuneration arrangements on a personal to post holder basis due to legal contractual entitlements. A total of 85 such cases have been submitted for consideration from 25 agencies. These applications have been made under section 7(4) of the pay policy and have been made by the agencies after they obtained independent legal advice to ensure that action taken by the agency as an employer is legally compliant. This mitigates the risk of future legal action to the greatest extent possible. The cases were submitted to the Departments of Health and Public Expenditure and Reform and we are awaiting their decisions.
This committee had a significant interaction with St. Vincent's Hospital Group. There remain serious outstanding issues concerning overall governance arrangements in this group, notwithstanding the clear commitments made here and to the HSE concerning "swinging around into compliance" by the then chair of the group board. To be fair to him, he had made some important progress on that before his removal from office by the group's shareholders.
Members have received an advance briefing document on chapter 14 of the Comptroller and Auditor General’s report dealing with procurement by the Health Service Executive. In the conclusion to Chapter 14, the Comptroller and Auditor General drew attention to a number of issues and made a number of recommendations. The HSE accepted the conclusions and the related recommendations and has over the past 15 months implemented actions to address them. It is also important to note that through ongoing work in procurement over the past number of years, significant savings have been achieved by the HSE.
In respect of the recommendations and the actions taken by the HSE, I highlight the following. In November 2010, an agreement was negotiated following an LRC process to implement a single integrated procurement function for the HSE. This implementation necessitated the re-positioning of all procurement staff to the head of procurement. In 2013, a further change was implemented and progressed following the Government decision incorporating the Office of Government Procurement, OGP, and "one voice" for health procurement. A health procurement plan 2016-2019 is under preparation in consultation with budget managers across the health system. A procurement programme management system, PPMS, is being developed to manage work in progress in regard to future multi-annual procurement plans and to provide up-to-date reporting on progress and outcomes. Since the audit, some frameworks have been combined on the basis of similar requirements and also some frameworks are transferred to the OGP. The HSE currently has put 80 national framework agreements in place covering the majority of its common expenditure categories and has in excess of 550 central contracts in place covering an annual expenditure value of €426 million. To improve the communications, awareness of framework agreements and contracts, the HSE has developed a procurement assisted sourcing system, PASS, from which budget holders will be able to access current contracts information.
The HSE is implementing on a phased basis the national distribution centre, NDC, plan which will consolidate stock holding across the HSE, improve contract compliance, increase stock management at the point of use and control and deliver efficiencies in transactional costs. Over the past 15 months, HSE procurement has achieved cost reductions of over €50 million. Since 2010, with the development of a centralised procurement function, total savings achieved to date have been €250 million. Work has commenced on a data warehouse and business intelligence system which will allow for information to be extracted for reporting, data analysis and comparisons across the numerous financial systems within the HSE. The HSE has commenced a new training programme for senior managers outlining the importance of being compliant with procurement rules and national financial regulations. Over 100 senior staff members have been trained to date. Arising out of the finance reform agenda, we are currently considering options to deliver an integrated financial and procurement management system.
These systems and enhanced processes will assist budget holders and procurement personnel in identifying areas where greater efficiencies can be achieved and will support compliance with procurement rules.
A detailed briefing note was submitted to the committee on the issues relating to the Waterford intellectual disability service. I will highlight several points in regard to this very serious and sensitive matter. The HSE has been involved in undertaking an inquiry into the standard of care provided by one foster family in Waterford over an extended period. This inquiry involved two distinct phases. The first, which commenced in 2010, examined the standard of care provided to a person with an intellectual disability who resided with that foster family. This report, the Conal Devine report, was completed in March 2012. A complex legal process followed the completion of the first phase of the investigation. Once that was resolved, the second phase involved a full tracing and look-back exercise in respect of all clients, living and agreeable to this process, who had contact with the foster family concerned.
In addition to the inquiry by the HSE, these matters are also subject to an ongoing Garda investigation, as well as civil proceedings. The matter has also seen the involvement of the Wards of Court office. In this context, the HSE is limited as to what it can comment on publicly. The service and policy issues have been the subject of discussion at the Joint Committee on Health and Children and the HSE has committed to providing that committee with a copy of the inquiry reports once clearance has been received from An Garda Síochána and the Office of the Wards of Court. The Data Commissioner has also been advised of the HSE's intention to publish the reports once clearance is received. In the meantime, the HSE is anxious to assist this committee in so far as possible in its consideration of the procurement issues involved in the process.
The appointment of inquiry teams is not subject to tender for several reasons. The nature of inquiries is that they deal with sensitive issues which it would not be appropriate or even permissible in some cases to discuss or publish for the purposes of conducting an open tender process. Inquiries are often urgent and the time periods for open tendering do not permit the conduct of a tender process in such circumstances. The scope and extent of inquiries often means there may be only one person or collection of persons with the technical expertise to deal with the matter. Professional experience and expertise are critical for the conduct of inquiries.
There are exceptions under procurement rules which mean the HSE is not required to tender in each of the above circumstances. The relevant regulation is Regulation 32 of the European Communities (Public Authorities' Contracts) Regulations 2006, which permits awarding authorities to engage in a negotiated procedure without a call for competition in these exceptional circumstances. In the briefing note that was submitted to the committee on this serious and sensitive issue, we set out the process that was followed in regard to the procuring of Conal Devine, who undertook the first phase of the inquiry, and Resilience Ireland, which undertook the second phase. Resilience Ireland appointed an inquiry team which consisted of two people who previously worked in the health system, and the briefing provides further detail in that regard.
It is important to point out that the expertise required to undertake this broad-ranging and sensitive work included expertise in conducting serious incidents, reviews and investigations, knowledge of the social care services, child protection knowledge and expertise, as well as knowledge and experience of safeguarding practice. This type of expertise is not readily available in Ireland. As a result, the local HSE area asked Resilience Ireland to undertake the review as it had available the specialist staff and knowledge, which included the former health care employees, to undertake the review within the timeframe available. It is important to emphasise that while these former health care employees have worked in the health system in the past, neither has ever held management responsibility for service delivery in the Waterford or south-east areas.
