NHS Tayside financial governance arrangements: independent review

An independent review by Grant Thornton UK LLP on agreed areas of NHS Tayside financial governance arrangements between the financial years 2012/13 – 2017/18.

Use of endowment money to achieve the 2013/14 break-even financial position of NHS Tayside

Scope of our work: Our work considered the openness and transparency of the decision taken by the NHS Board in respect of using endowment money to meet NHS Board expenditure and support NHS Tayside in achieving its 2013/14 financial position. We considered the evidence available, including the timeline, to support the decisions made and what information was made available to the NHS Tayside Non-Executives to inform the decision. Internal Audit in 2013/14 produced an internal audit report on endowment arrangements and we considered this report and how internal audits work was reported.

As part of our work we reviewed the Endowment Fund Board of Trustee minutes, as they informed our understanding of the timeline and the decision making taken by the NHS Board.

We have not considered, as agreed in the scope, the nature of the £3.6million respectively endowment fund transaction and whether the funds spent met the charitable purposes of the Endowment Fund as this is one of the areas being considered by OSCR as part of their inquiry.

In January and February 2014 a decision was taken by the NHS Endowment Fund Trustees, on advice of the NHS Tayside Board to retrospectively use endowment monies to support NHS Tayside achieve its year-end financial position. The breakdown of the £3.6 million has been agreed as follows:

Title Objective Bid amount* £000s Approved amount** £000s Final charge £000s
MH Improvement programme Patient benefit 180 180 180
Theatre Training and Education Patient and staff benefit 94 94 94
Minor work Patient and environment benefit 11 11 11
Children with complex disability Patient benefit 22 22 22
Maternity services Patient environment and staff benefit 812 776 773
Ward 2 PRI Urgent Care Patient benefit 46 46 46
EHealth – 32 projects Patient benefit and pioneering services 2,382 2,312 2,382
Paediatrics Patient and environment benefit 130 130 130
Total 3,677 3,641 3,638

*The balances were agreed to the projects approved by the Endowment Fund Board of Trustees in February 2014

We have set out below the key timeline of events in relation to the use of endowment funding. The key decision was taken in January 2014 and the Endowment Trustees approved a selection of projects in February 2014 where expenditure had been incurred by NHS Tayside of £3.6 million, and this expenditure was them met retrospectively from endowment money.


Key events

Comments and observations


November 2013

Finance and Resources Committee

The Committee received an update on the financial position as at 30 September 2013.

The report presented by the Director of Finance, highlighted an operational overspend of £2.7 million which was approximately £800,000 greater than trajectory in the Strategic Financial Plan for 2013/14.

However, the Director of Finance set out that through forecast reductions in spend in the remaining five months of the year, and through targeted "slow-down" of spend by £1 million, the Board were still forecasting and reporting a year-end breakeven position.

This was the first report that went to Committee to indicate the financial position was no longer on track but at this stage the Director of Finance was clear that NHS Tayside were still projecting a break-even position and there was no indication in the paper or minute of an underlying financial problem.


December 2013

Tayside NHS Board meeting

The minute of the meeting of the Finance and Resources Committee from 17 October was presented to the Board. This covered the financial position to 31 August 2013. The Board noted from the minutes the following key points:

"noted performance to 31 August 2013 and the slow identification of savings in 2013/14 which was c50% of the overspend to date."

However, there was no evidence of significant risks or concern noted around ability to breakeven.

The financial information reported to the Board related to the minute of the meeting of the Finance and Resources Committee in October reporting the financial position as at 31 August 2013. This meant the information being presented to the Board was over 3 months out of date.

NHS Board's report financial position to the SGHSCD one month in arears so on this basis more up to date information, as reported to SGHSCD would have been available.


January 2014

Finance and Resources Committee

At the meeting on 16 January 2014, the Committee received a verbal update on the financial position as at 31 December 2013.

It was reported that financial position was £2.6 million overspent as at 31 December 2013 which was now £1 million greater than trajectory and it was noted that " progress with achievement of efficiency savings targets has continued but the planned improvements in the overall position has not materialised due to sustained pressures around both Family Health Services spend and secondary care prescribing costs".

The Committee was informed of the forthcoming meeting with SGHSCD on 21 January 2014 " around measures to be taken in terms of local initiatives and further access support to ensure a successful delivery of financial targets in 2013/14".

In this instance it was only a verbal update received by the Committee members where we would have expected a formal finance paper to have been presented. From reading the minute, while the Director of Finance highlights financial challenges facing the Board, there is no indication that break-even wouldn't be achieved without certain measures, and there was no discussion on potential brokerage or endowment monies.

Pressures were discussed, but did not appear to have monetary values attached. However, confidence still appeared to be in place over the year- end position.

20 January


Draft Finance Paper for Board Development Event 23 rd January

We have obtained a draft paper "Revenue Forecast" that is dated 20 th January 2014 that was due to be presented at the Board Development Event on 23 January. From review of the Development Event agenda we cannot see the paper and there are no recorded minutes of this meeting.

The paper outlines the financial position at 31 December 2013, as reported to the Finance and Resources Committee on 16 th January and " incorporates further factors that will impact on performance during the financial quarter". The paper identifies a forecast out-turn position without intervention of £6.559 million. This incorporates £2.634 million of overspend as at 31 December 2013 with further "additional pressures" identified in quarter four totalling £3.925 million.

The paper notes that "officers are examining various sources of funding to help address the situation". It notes that SGHSCD has indicated only minimal central support is available and that the Chief Executive and DOF are meeting with SGHSCD " to demonstrate a number of local measures to mitigate the forecast exposure". The paper also goes on to note that following a review of exchequer expenditure a number of projects had been identified that are believed to "meet the Endowment Fund criteria" and that the proposal was, subject to the Trustees retrospective approval, to fund these through the use of Endowment Funds.

The paper was drafted in the name of the Chief Executive, Medical Director, Nurse Director, the Director of Finance and the Assistant Director of Finance, who were in post at that time.

As there was no minute from the Board Development Event we cannot determine whether the paper was presented. It does not appear on the Agenda.

However, the paper does highlight that four days after the Finance and Resources Committee meeting on 16 th January management had significant concerns around the Board's ability to achieve a break-even position for the year, which does not appear to coincide with the messages to the Finance and Resources Committee on 16th of January.


January 2014

Email exchange between Chair of NHS Tayside, the Director of Finance and Chief Executive of NHS Tayside, subject: Briefing on Financial Position

The email exchange involves the then Director of Finance providing a summary of the financial position of the Board to the former Chair in advance of a meeting with SGHSCD. The email references "discussions" on Friday 17 January although we have been unable to locate any record of this. The exchange outlines that the "total forecast March 2014 (overspend) c£6.5m".

The then Director of Finance outlined that " October 2013 overspend of c£2.6m was considered manageable as Board still had £1.1m reserves and based on prior years an overspend of the balance of £1.5m has historically managed over the final 5 months in the year."

Since then the position has moved and the envisaged downward trend did not occur. As a result the position was

"finance Outturn at December 2013 £2.634m TTG forecast Costs Quarter 4 £2.525m Primary Care / Secondary Care Drugs £1.1m

Delay on Asset sales £0.3m" (Total: £6.559 million)

The email exchange provides a summary of the movement in financial position compared to that previously communicated to the Board.

However it does highlight the lack of transparency in the financial monitoring reports presented to the Finance and Resources Committee that, whilst identifying risks to the outturn position, consistently between November 203 and February 2014, forecast a breakeven position for the year.


January 2014

NHS Tayside and SGHSCD meeting

On 21 January 2014, there was a meeting between NHS Tayside Chief Executive and Director of Finance and the SGHSCD around local initiatives and further access support to ensure delivery of financial targets in 2013/14.

The Proposed variation to Tayside NHS Board Endowment Fund Policy and Procedures Report (which went to the Endowment Fund Board) stated "minimal central support" was available to the Board. There is no record to support this comment within SGHSCD records.

NHS Tayside and SGHSCD do not have a minute or action note from this meeting.


January 2014

Board Development Event

On the Board Development Event on 23 rd January 2014, members of the Finance and Resources Committee and the Standing Committee Chairs were briefed by the Director of Finance on the financial position of the Board. We understand at this point in time the identified gap was £6million.

This meeting was not minuted and from inspection of papers we cannot find detailed financial forecasts.

This meeting was out-with the formal Committee structure at NHS Tayside and was two days after the SGHSCD meeting, and less than 7 days from the Finance and Resources Committee meeting where no fundamental concerns or issues were raised with the Committee by the Director of Finance.


January 2014

Central Legal Office guidance sought

The Finance Manager at NHS Tayside contacted the Central Legal Office ( CLO) in relation to the legality around the application of approving funding retrospectively on expenditure that has been incurred.

This request happened one hour before the meeting of the Endowment Fund Board of Trustees (who were being asked to approve the decision at that meeting) and there is evidence in this email that pressure was in effect put on the CLO for a quick turn-around and a response needed that day.

The CLO responded which referenced applicable guidance that the funds should not be used for expenditure covered by core funding but that:

" The Trustees have discretion, and that the guidelines are just that". From a legal perspective as long as "the Trustees operate within the Trust purposes, their decisions may not be challenged".

The CLO also state that "As a result of the Trustees' discretion, regulators may not be able to do much, however there are still concerns. The decision is likely to attract adverse publicity. The decision may also be open to challenge. Ultimately, in extreme cases leading to an action in damages against the Board as Trustee for breach of trust" (extracted from CLO email)

The correspondence with the CLO was requested the same day the Trustees were being requested to make a decision, and the correspondence received from the CLO was not shared with the NHS Board or the Trustees.

We also note the CLO advice requested was from the perspective of the NHS Board.

Lastly work had been undertaken by the Finance team to already consider NHS Tayside expenditure which could retrospectively by paid for from endowments, which could be seen to pre-empt the decisions made by the Trustees. The list of projects is broadly similar to the final list approved by the Trustees.


January 2014

Extraordinary Meeting of the Endowment Fund Board of Trustees

On 24 th January, at the extraordinary meeting of the Fund Board of Trustees, received a report prepared by the Assistant Director of Finance on the "Proposed Variation to Tayside NHS Board Endowment Fund Policy and Procedures". This is the same draft paper we noted on 20 th of January, with only the Assistant Director of Finance's name on it.

The purpose of the report was to advise Trustees of the current revenue forecast of the NHS Board and to seek approval for temporary variation to Tayside NHS Board Endowment Fund Policy and Procedures.

At the meeting the Director of Finance informed the Trustees that during the briefing with the NHS Tayside standing Committee Chairs (23 rd of January), it was agreed to look at temporarily suspending the retrospective element within the endowment fund's policy and procedures "to allow certain application to come forward for consideration by the Endowment Advisory Group ( EAD), and/or Board of Trustees".

The Director of Finance advised the Trustees that the Assistant Director of Finance and the Endowment Team had conducted work around OSCR, Central Legal Office ( CLO) and National Guidelines and that there were "no conflicts".

One Trustee commented that "the news had been completely unexpected, especially given there had been a Board of Trustees and Finance and Resources Committee meetings just last week"

There were concerns raised by Trustees surrounding the potential reputational and legislative risks of the proposals as evidenced in the minutes.

Verbal assurances were provided by the Assistant Director of Finance that "the charitable purpose of the Endowment Fund is within the legal framework of the Health Service Act 1978, and the definition is as broad as 'for advancement of health', which means the Endowment Fund can fund anything it can as long as it is for health advancement".

The Director of Finance provided verbal assurances that anything being put forward "would be appropriate and relevant for endowment funding".

The Chairman advised that "the reality was if the clause was not suspended (to allow retrospective approval), the Chief Executive and Director of Finance would have to put together massive cuts package, and the content of that would be damaging"

The Trustees agreed the temporary variation in the Endowment fund's Policy and Procedures to allow retrospective applications to be considered.

We do not consider that the legal advice received from the CLO was fully disclosed to the Trustees.

In addition, we understand that there was no correspondence with the Scottish Government or OSCR, and we did not locate any evidence of correspondence during our review.

The meeting referred to on the 23 rd with the Standing Committee Chairs sets out the decision was taken at this meeting. This is not a formal committee of the NHS Board and therefore would highlight that they don't have this decision making power.

Overall, there should have been greater communication and dialogue with Trustees around the nature of guidance received, and the guidance should have been a complete picture to allow them to make an informed decision.

4 February


Tayside NHS Board Endowment Trust Advisory Group

Less than two weeks from the initial decision to allow retrospective application of funds, at the meeting of the Tayside NHS Board Endowment Trust Advisory Group on 4 February, 2014, a number of funding application requests were submitted for consideration by the Group.

Through consideration of the various proposals, the Group agreed to recommend to the Board of Trustees funding allocations to NHS Tayside for the application of funds (of £3.6 million).

At this meeting reports were prepared and presented to the members of the group outlining the case for the expenditure to be met from Endowment Funds. The Endowment Advisory Group approved the majority of the applications, and this approval totalled the £3.6 million requested by the NHS Board to support NHS Tayside achieve break-even.


February 2014

Further correspondence with the CLO

On 19 th February, the Finance Manager, wrote again to CLO asking OSCRs powers in relation to the Endowment fund on the hypothetical scenario that the Trustees were to approve expenditure which OSCR subsequently found to be inappropriate. Also in the event that OSCR were of the view expenditure was in support of core activity "what could they do about it."

The CLO provided a response highlighting the potential actions and sanctions that OSCR could pursue in the event that the trustees were found to be acting inappropriately or the charity no longer meets the charitable test.

The subsequent correspondence with the CLO was not formally communicated with the Trustees.

The nature of the communication suggests that management had concerns around the potential for future legal challenge however this does not appear to be formally communicated to the Trustees. This advice was also requested less than 24 hours before the Endowment Fund Board approved the retrospective £3.6 million.

At this point OSCR were not contacted, and they were asking the CLO to pre- empt/Judge potential advice from OSCR.


February 2014

NHS Board Endowment Trust Board of Trustees and Finance and Resources Committee

The Board of Trustees considered the recommended funding applications for approval. These were considered and subsequently approved.

At the meeting of the Finance and Resources Committee on 20 th February (immediately after the Endowment Trustee meeting), the financial report to 31 January was presented.

While the overspend to date had slightly reduced the figures continued to report an overspend as due to timing did not account for the retrospective funding from endowment funds.

However, the forecast outturn remained breakeven and we noted no reference either in the finance paper or minute to retrospective application of endowment funds.

There is a lack of clarity in the financial monitoring position reported to the Finance and Resources Committee members of the Board and that communicated to Trustees. While we recognising there was a timing issue, this disconnect represents a clear example where the lines of governance were blurred between that of Trustees and that as Board members at NHS Tayside.

We note that the NHS Board Endowment Trust Board meeting ran directly into the Finance and Resources Committee meeting which could have blurred the lines in respect of responsibilities.


February 2014

NHS Tayside NHS Board meeting

The Committee noted the Finance and Resources Committee from 21 November 2013. The Board noted the contents of the paper including financial challenges identified within it.

The financial information reported to the Board related to the minute of the meeting of the Finance and Resources Committee in November 2013 and was therefore 3 months out of date.


March 2014

Finance and Resources Committee

The committee were verbally informed of the financial position as at 28 February 2014.

Following the approval of Endowment funding of £3.6 million (including £2.7 million retrospectively), and through agreed brokerage with Scottish Government of £2.85 million, the Board were on track to breakeven for the year.

There was limited challenge or scrutiny documented around the underlying financial position and how it was being achieved.

March 2014

Internal Audit Endowments Report

Internal Audit meeting with Endowment's team identified that there had been agreement to retrospectively review funding applications for endowment funds. Between March and May we understand there were various meetings between Chief Internal Auditor ( CIA), and NHS Tayside Director of Finance.

We understand it was agreed that as external audit were reviewing the transactions, they would be excluded from the internal audit review. This is the reason stated for this in the final endowments internal audit report.

There is no clarity as to which external auditors, internal audit were referring – the Endowment Fund External Auditors or the NHS Tayside External Auditors. This lack of clarity also flowed through in the Audit Committee meetings when the term external audit was used interchangeably.


May 2014

The CIA met with the Director of Finance to discuss the cover report for the "Internal Audit Annual Report to the Endowment Advisory Group". The cover paper contained references to significant concerns around the advice provided to Trustees and the assurance provided. However the CIA agreed to remove these references given they had agreed to remove the retrospective application of endowment funds from the scope of the internal audit review.

The changes to the cover report significantly change the tone and message of internal audit and may have been then interpreted differently by the Trustees.


June 2014

Endowment Advisory Group

The group received the copy of the final Internal Audit annual report and the Endowment Fund report. The cover paper for the Annual report had been amended to remove referenced concerns around the advice provided to the Trustees.

The Internal Audit Report on endowment arrangements goes to the Endowment Advisory Group but we would have expected this go to the Endowment Fund Board of Trustees. We also note it went to the NHS Tayside Audit Committee on 17 June.


June 2014

NHS Tayside Audit Committee

On the 17 th June the draft financial statements and NHS Tayside's Board's External Audit report on the Audit of the Board was presented to the Board's Audit Committee. Both the financial statements and the audits report made reference to the retrospective application of endowment funds (factual reference to what had occurred). However there was limited debate or discussion documented in the minutes of the meeting.

The financial statements of the Fund and external audit report of the Funds auditor, MMG Archbold CA, were presented to the Audit Committee of the Board. The financial statements included specific reference to the retrospective application of the endowment funds within the published financial statements.

Within the financial statements of NHS Tayside there is specific reference within the governance statement:

In February 2014 the Board of Trustees of the Tayside NHS Board Endowment Fund approved a number of submissions for funding totalling

£3.64m, of which £2.71m was retrospective spend. The content of all the bids were agreed by Trustees to be within the normal criteria for funding and in line with the charitable purpose of the Fund.

No significant issues were noted in relation to the retrospective application of endowment funds at the Board's Audit Committee.

We note that the external Audit Report for the Endowment Fund is presented by the Assistant Director of Finance (Governance & Corporate Finance) where we would have expected this to have been presented by the independent auditor.

We note the wording in the governance statement (opposite) states 2.7 million was retrospectively applied but based on the analysis we have seen and the review of the papers the correct value of retrospective spend is £3.6million. It is unclear based on the records where

£2.7million arose from.


June 2014

Endowment Board of Trustees

The financial statements of the Trust are audited by MMG Archibald CA. The auditor is responsible for expressing an opinion that the financial statements represent a true and fair view of the Fund's financial performance and position.

The financial statements of the Trust were approved by the Trustees at the meeting on 24 th June. The financial statements disclosure the retrospective application of £2.7 million to projects that Tayside Health Board had commented. The external auditor issued an unqualified opinion. Within their Audit Findings Report, the external auditor referenced the Endowment Fund audit report issued by NHS Tayside's internal auditors, and recommended that " The Trustees must be mindful of the distinction between their duties and responsibilities towards the trust and NHS Board".

While we understand Internal Audit raised concerns around the retrospective application of funding, this was excluded from the scope of their work on the basis it was being reviewed by external audit. External audit (Endowment Fund) commented on the application but apart from reiterating the concerns around clarity of roles and responsibilities as Trustees and Board members, no concerns were raised.

We note that the Internal Audit Annual Opinion on their work related to Endowments did not go to this Committee but went to the Advisory group instead. Usual governance practice is for the Head of Internal Audit Opinion to go to the Board of Trustees as part of the information pack before the Trustees sign the financial statements.

Our key findings in respect of the use of endowments:

Based on our work we would highlight the following:

  • Reports presented to the Finance and Resource Committee were either verbal or difficult to follow and understand, and maintained in our view an overly positive outlook. From looking at the Finance and Resources Committee papers after the decision was taken on endowments it is difficult to see reference to the £3.6million and how it contributed to the overall year-end position.
  • The SGHSCD and NHS Tayside Director of Finance met in January 2014 to as part of the routine monitoring of the NHS Tayside financial position. However, there is no minute or action note retained to evidence the discussions
  • We have reviewed the monthly finance returns to SGHSCD (numbers and narrative) in 2013/14 and in particular the period January 2014 to end of March 2014. SGHSCD Finance returns are one month behind it terms of reporting for example the January 2014 finance return to SGHSCD was dated 19 February 2014. In the paper that went to the Trustees of the Endowment Fund on 24 January 2014 it is indicated that NHS Tayside were forecasting an overspend unless measures were taken of £6.559 million. However, the SGHSCD finance return for January only indicates an overspend position of £2.068 million. There is no mention in this return of the intended use of endowment money. In the February SGHSCD return an overspend of £0.787million is referenced with a forecast of break-even acknowledging the agreed brokerage from SGHSCD of £2.85million. There is no mention in the February return of the use of endowments, with the February return being submitted to SGHSCD on 19 March 2014 when the transactions had already taken place. Lastly the March 2014 SGHSCD return, dated 17 April 2014 shows an overall underspend for the year of £0.029 million and again no mention of how the use of endowment money has supported the achievement of this position.
  • The decision making process, including the steps to determine why using endowment money in this way was considered to be an option cannot be explicitly seen in the documentation. In particular by February 2014 the financial position of the Board was such that it would not break-even with the use of endowment funds alone, and ultimately brokerage of £2.8million was received.
  • We understand the decision in respect of endowment funds was taken by the then Chair of the Board, the Director of Finance and in a meeting with the Chairs of the Standing Committees. This was not a formal constituted meeting and there were no minutes or papers to support the discussion and decision.
  • The then Chair of the Board is reported in the minutes as stating "The Chairman advised that the reality was if the clause was not suspended, the Chief Executive and Director of Finance would have to put together massive cuts package, and the content of that would be damaging".
  • Recorded in the minutes of the extraordinary meeting of Tayside NHS Board endowment Fund Board of Trustees held on 24 January we note it is recorded that "The Director of Finance advised Trustees that the Assistant Director of Finance and the Endowment Team had conducted work around OSCR, CLO and the national guidelines to ensure there were no conflicts". This work was not presented to the Trustees for consideration and during our work we did not find any evidence that OSCR had been consulted. The minute of this meeting is set out in Appendix 3 for information.
  • As reflected in the minutes verbal assurances were provided by the Director of Finance, the Chairman and the Assistant Director of Finance but it is unclear on what basis these assurances were being provided – from the point of view of the NHS Board or the perspective of the Trustees and what information the individuals had sought to allow them to provide the respective assurances.
  • The NHS Tayside finance team requested a quick turnaround from the Central Legal Office of legal advice related to the decision taken by the NHS Board (on the day of the meeting to agree the approach to use endowment money on 24 January 2014).
  • The CLO advice obtained was never shared in its entirety with the Trustees or NHS Board. Certain sections were extracted by Management and presented to Trustees in the form of frequently asked questions in April 2014 but this was only extracts.
  • The request to the CLO for advice on 24 January listed out possible projects and discussed a potential of £5million coming from endowments retrospectively. The email mentioned retrospective approval via suspending the Endowment Fund policy but did not ask for specific advice related to the suspension of policy.
  • The CLO were further contacted on 5 June 2014 by the Assistant Director of Finance. This was a phone call followed up by an email as a file note. In this correspondence the CLO acknowledge they were not aware of the suspension in policy to allow retrospective funding and had not provided previous advice in respect of this. The Assistant Director of Finance notes external audit concerns but it is unclear which external auditor were raising concerns. Based on review of the NHS Tayside external audit report and the External Audit report for the Endowment Fund (separate auditors) no significant concerns are raised or discussions around the subject highlighted and we are unclear if they were provided with the CLO June advice.
  • From our review of the Finance and Resources Committee, Audit Committee and Endowment Trust Fund Committee minutes we note concerns were raised, and on a number of occasions recurring concerns. Whilst recorded in the minutes, they were not tracked in matters arising for formal update and closure at future meetings, and many went unaddressed or further verbal assurances were provided by Management.
  • As the Trustees were all NHS Board Members we did note that the differing responsibilities become blurred over the period of time. There is no discussion of the retrospective approval of endowments within the NHS Board, and no wider discussions or linkage with this to the overall financial sustainability of NHS Tayside. There is no evidence in the formal minute that the NHS Board approved the use of endowment money to support the achievement of NHS Tayside's financial performance.
  • The use of endowments as one source of supporting the achievement of break- even in year is not subsequently acknowledged in a transparent way in the future finance papers presented to Finance and Resources following the decision taken in January 2014.
  • The covering papers used in the Audit Committee, the Finance and Resources Committee and the Board do not identify or draw the Committee's attention to key changes or areas for consideration. For example the use of endowment money was not in the first draft of NHS Tayside's Governance Statement (late April 2014). It subsequently appeared in the final draft at the Audit Committee on 17 June 2014 yet the cover paper mentions minor typing changes but not the inclusion of this disclosure.
  • SGHSCD received the final signed copy of the financial statements at the end of June 2014. However, we have been unable to identify any evidence that demonstrates the use of endowments was raised and discussed with SGHSCD
  • The NHS Tayside' Board's External Auditors identifies the use of endowment money to support the achievement financial break-even in 2013/14 within the executive summary of their Annual Report to those charged with Governance and the Auditor General for Scotland. This is a factual statement extracted from the wording in the NHS Tayside's Corporate Governance Statement. There is no further commentary on this, and no associated action identified.

Internal Audit – Endowment Report

As agreed in our scope we considered the Endowments report produced by Internal Audit during 2013/14.

Internal Audit as part of the 2013/14 internal audit plan included a planned review of endowments.

The Chief Internal Auditor ( CIA) was made aware of the retrospective application of the endowment funds in March 2014. As the transactions were being reviewed specifically by the Trust's Endowment Fund external auditors as part of their audit of the financial statements, these were excluded from the scope of the internal audit review as agreed between the CIA and the Director of Finance.

While the scope of the work had excluded the retrospective application of endowment fund transactions, Internal Audit included in their initial draft covering report to their Endowment Fund Annual Audit Report for the year that the group should be aware of limitations in the assurances provided to the Group during the year from management, particularly around the CLO guidance received.

The original draft covering report included the following wording:


The minutes of the extraordinary meeting on 24 January 2014 state that the Assistant Director of Finance and the Endowment Team had conducted work around OSCR, Central Legal Office ( CLO) and the National guidelines to ensure there were no conflicts.' It is also clear from the minutes that at least one member had requested and relied on these assurances. We have been informed by the Assistant Director of Finance (Governance and Corporate Finance) that, in fact, no work was undertaken on OSCR. On the day of the Board of Trustees meeting, the Board did seek CLO advice on the proposals to be put to the Board of Trustees that day. Our concern is that the level of assurance that could be drawn from the CLO email received in response was undoubtedly insufficient to be able to ensure that there was no such conflicts and furthermore, the CLO advice clearly indicated that there were, potentially, areas of conflict with national guidance.

In this respect, we are not content that the assurances provided to the Board of Trustees on 24th January 2014 were accurate or complete.”

This was subsequently amended within the final cover report removing the matter of concern paragraphs and was replaced with the words below, which significantly reduced the tone of concern:

“Internal Audit consider that whilst action was taken to address CLO concerns, the exact nature of CLO advice and the intended response to it should have been presented to the Board of Trustees on the 24 January, although we acknowledge the time constraints arising from the sequence of the Extraordinary Board of Trustee meeting on 24 January 2014 and Endowment Advisory Group ( EAG) on 4 February 2014.

Following discussions between management and Internal Audit on 24 March 2014, further information was sought by management from CLO and distributed on 1 April 2014 to Trustees, who confirmed that that they were satisfied with the information provided.”

The Trustees did not see the original wording drafted by the CIA as this was removed following discussions between the CIA and the NHS Tayside Director of Finance.

The CIA informed us that the Director of Finance and Assistant Director of Finance put pressure on him to amend the covering paper. At a meeting on 5 May 2014, to discuss the Internal Audit annual audit report, there were alleged threats made including those of the potential removal of FTF as internal auditors or the removal of him as CIA.

We are unable to substantiate these allegations, but note there were changes between the draft and final versions of the Internal Audit Endowment Annual Report covering paper (as shown above). These changes impact on the emphasis and we believe reduce the concerns initially raised.

We also understand the concerns of the CIA were not raised formally with the Accountable Office or Chair of the Audit Committee.


Based on our work on endowments we would make the following recommendations for future consideration:

NHS Tayside

1. Linked to the wider organisational cultural change programme and focus on leadership, Management should ensure that internal audit play a pivotal role in supporting cultural change, and that their input and recommendations are valued and actioned by Management. Internal audit can support the culture in terms of openness and transparency and continuous improvement if given the profile within NHS Tayside and the strong leadership of the internal audit service.

2. In 2013/14 the NHS Tayside Board only received the Finance and Resources Committee minutes, the Annual Financial Statements and an annual report by the Committee chair. Due to timings information the Board did see was often up to three months out of date. Finance reports, which are clear and easy to understand by a non-finance person should be presented on a timely basis to the Board to allow the NHS Board effective insight and scrutiny of the position. The information provided to the NHS Board should be reconcile to the finance position reported to SGHSCD. This will also allow the NHS Board to better link finances, operational performance and workforce matters.

3. There is an opportunity for the leadership team at NHS Tayside and the NHS Tayside Board to further set out the culture it expects to be in place and demonstrated across NHS Tayside, including continuing to encouraging open and honest conversations based on the promotion of doing the right thing and the wider NHS in Scotland values

4. The NHS Board should explore what additional training and support is needed to support the Non-Executive Members in their role to ensure effective scrutiny and leadership, including ensuring their voice is heard and acted on by management.

Scottish Government Health and Social Care Directorate

1. The SGHSCD should continue to promote an open and transparent culture within the Accountable Officer Group and the Director of Finance group to ensure the continued identification of any early issues and resolution in an upfront way supporting the wider NHS Scotland transformation agenda. SGHSCD could also review the information required in the monthly finance returns to ensure it fully meets their needs and is also easy to follow and understand, in particular tracking movements from month to month

OSCR considerations

There are a number of observations we have made which may be further considered within the OSCR review and so therefore have not raised any recommendations but we would highlight:

  • Within the NHS Board meeting minutes there is no declaration of interests from Non-Executives in respect of outlining their role and responsibility as Trustees of the Endowment Fund so it is unclear how potential conflicts of interest are managed.
  • In most cases the meeting of the Endowment Fund Committee preceded a meeting of the NHS Board. Whilst we recognise this was a practical arrangement taking into account Non-Executives time it did contribute to the differing lines of responsibility and governance being blurred. In addition, a time constraint on the meeting of the Endowment Fund at times was noted as another session was planned in, so in one case the meeting of the Endowment Fund was restricted to 45 minutes for what looked a sizeable agenda and may be an example of the NHS Board reducing time to consider endowment decisions.
  • The advice requested and provided by the CLO was requested by the Assistant Director of Finance on behalf of the NHS Board and not necessarily from the perspective of the Trustees and discharging their responsibilities
  • Internal Audit undertook an internal audit review of endowment arrangements in 2014, and they did this in their capacity as NHS Board Internal Auditors and were not directly appointed internal auditors of the Endowment Fund. This could give risk to a potential conflict and it was unclear how this was managed or addressed


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