Within our review we have identified examples where we have evidenced poor financial management and governance practices. Alongside potential indicators, in particular in 2013/14, where the culture at NHS Tayside was not fully aligned with the behaviours, expectations and guidance appropriate to those of a public sector organisation.
The use of endowments to bridge the NHS Tayside Board financial position in 2013/14 is clearly acknowledged in both the NHS Tayside financial statements and the Financial Statements of the Endowment Fund. In both instances it is acknowledged that the decision was made to support NHS Tayside in achieving its financial target of break- even. However, the decision making process related to the retrospective £3.6 million use of endowment funds was not subject to fully open and transparent governance processes.
We considered various documents to understand the timeline for the endowments decision in 2013/14. We also sought to link this decision with NHS Tayside's governance and financial reporting arrangements. Based on our review it would appear that the NHS Tayside Board historically did not have full visibility of the NHS Tayside financial position, and in particular in 2013/14 when the optimism of achieving in-year financial balance declined.
Our review identifies a number of weaknesses in NHS Tayside's financial management arrangements alongside a lack of open and transparent governance which may have evolved based on NHS Tayside's organisational culture and historic working practices.
Leadership and culture (people)
Within the public sector and NHS Boards there is a framework of guidance which applies to management and also specific requirements that apply to Non-Executives. In Appendix 2 we have outlined certain relevant extracts from this guidance.
The guidelines are clear on the expected organisational and individual behaviours and build on core principles of honesty, openness and accountability. We have considered these principles when reviewing the arrangements and have included comment in the relevant report sections where relevant.
Controls framework (system and processes)
NHS Boards have a series of internal controls and processes, set out in policies, financial and operating systems and working practices, which apply in practice and are designed to ensure an effective financial governance and decision making framework is established.
An effective control framework is based on a culture of openness and transparency, with leadership setting the tone for the organisation. This includes ensuring that organisation values and behaviours are demonstrated throughout the organisation and applied consistently.
A good controls framework, linked to the management of risks, considers the controls and therefore assurances over a layered framework of control:
- Line 1: Management control for example policies and procedures being applied; management decision making and escalation and line management
- Line 2: Scrutiny and Assurance of the decisions made
- Line 3: Independent assurance
This control framework is designed to ensure decisions (aligned to risk and the failure to achieve the NHS Board's strategic objectives, including protecting against reputational damage) are considered at appropriate levels within the NHS Board and decisions are subject to scrutiny at various check points by Management, Non- Executives and independent assurance providers for example internal audit and external auditor (as appropriate to their respective role).
In the case of the decision to retrospectively apply endowment money of £3.6 million we have evidenced examples within NHS Tayside where the anticipated financial controls, particularly across management; scrutiny; and assurance were either not in place or did not operate as effectively as intended.
Below are our overall comments which are then supported within our detailed findings in the sections of the report:
- A sense that the retrospective application of endowments was the only option available, supported by the portrayal that the consequences of NHS Tayside failing to meet the financial targets would have a significant impact on the NHS Board. Although, the Board received brokerage in 2012/13 and also in 2013/14 so there is an assumption that the Board should have been aware of requesting additional brokerage was available to them
- A potential sense of urgency to find an identified solution, for example the quick turnaround time requested of the Central Legal Office advice, and the initial paper going to NHS Tayside Committee Chairs and then Trustees with the projects and expenditure determined in less than one month. This was triggered in early January when despite confidences by the Director of Finance to the Finance and Resources Committee that financial break-even would be achieved it appeared to became clear that this was not going to happen;
- A lack of clarity over NHS Tayside's overall financial position during the year due to reports which were either hard to follow in our view or only verbal updates being given according to the minutes. Based on our review of financial reports over the period this was historic, although improvements started to be made from 2015/16 onwards. In 2013/14 the financial information being reported up to the Board was typically three months out of date based on our review, although more updated finance information was available as this was submitted to the Scottish Government. In addition the practice of verbal updates to the Finance and Resources Committee would not have allowed Non-Executive Members to effectively scrutinise the position in our view and could lead to inconsistencies and misunderstanding of the actual position at a point in time.
Findings and recommendations
In each section of this report we have summarised the:
- Scope of our work
- Our key observations and findings
- Where relevant recommendations for further consideration
Our work has been based on the evidence available and we draw conclusions on this basis.
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