“The 2014/15 audit of NHS 24: Update on management of an IT contract”
Agenda item 3 is consideration of three section 22 reports: “The 2014/15 audit of NHS 24: Update on management of an IT contract”; “The 2014/15 audit of NHS Tayside: Financial management”; and “The 2014/15 audit of NHS Highland: Update on 2013/14 financial management issues”. We propose to take each report in turn. We will receive an opening statement before members then have an opportunity to put questions individually on those statements. I understand that the Auditor General for Scotland has a brief opening statement to make on NHS 24.
Thank you, convener. Again, Fraser McKinlay will lead on my behalf in briefing the committee. Nick Bennett, who is at the end of the row here, is the appointed auditor for NHS 24, on whose annual audit reports my report is based. He will help us to answer any questions that the committee may have.
First, it is worth briefly highlighting that the external auditors of the three health boards gave unqualified opinions on the 2014-15 accounts, which means that they were satisfied that the accounts provided a true and fair view and that there were no significant errors in them. However, we have prepared the section 22 reports because we believe that there are issues of significant public interest that have been highlighted in the auditors’ reports to the Auditor General, and the Auditor General felt it important to bring those to the attention of Parliament and the public through this committee.
I will turn first to the report on NHS 24. I am sure that the committee will be well aware of the issues arising from the implementation of a new information technology system in NHS 24. In October 2014, the Auditor General reported under section 22 on some of the issues in NHS 24 but, due to legal action that was under way at that time with one of the external IT suppliers, Capgemini, the report was fairly brief. Now that the mediation process has been completed and the legal action has been withdrawn, we are in a position to give you a fuller update.
NHS 24 started work on the future programme back in 2009. It was originally due to go live in June 2013, but it was subsequently delayed to October 2013 and then postponed due to the new system’s failure to meet critical patient safety performance measures.
Since then, through the legal process and subsequently, NHS 24 has worked with both suppliers involved—Capgemini and BT—to develop the system and try to resolve the patient-handling performance issues. The board agreed at its February 2015 meeting to a two-phase approach to implementation. The first phase was implemented on schedule in October. As I am sure the committee will be well aware—it certainly will have been so since we laid the section 22 report in Parliament—the board has subsequently decided, because of concerns over the system’s performance and patient safety, to delay implementation until 2016, particularly to ensure patient safety over the winter period.
Clearly, the programme’s costs have increased significantly—total costs have risen by 55 per cent to £117.4 million compared with the outline business case cost of £75.8 million. The cost covers the 10-year contract period, and the increases are due to the changes in the contract specification and the costs associated with the delays.
The board continues to incur significant costs in running the existing systems. NHS 24 incurs about £450,000 in additional costs for each month that the future programme is not operational. If implementation is not successful, double-running costs will increase still further during 2015-16.
NHS 24 has included the cost of implementing the future programme in its financial plans. However, given the scale of the challenge, the auditor’s view is that delivering the financial targets will be difficult and will largely depend on achieving significant in-year efficiency savings.
We would be delighted to answer any questions that you have on the report.
You refer to contract management in paragraph 15. A challenge that we always face when we consider section 22 reports is whether anything could have been forecast or foreseen. My contribution is along similar lines to Mary Scanlon’s during the previous agenda item. We have been referring to IT reports in this Parliament since it was formed in 1999. The lack of specialist knowledge comes up in every single report. Surely those who were planning the IT system’s requirements should have been able to recognise that they did not have the necessary specialist knowledge and that they would have to go through the appropriate procedures so that they did not have to rely on the private contractors. If a company were running the programme, it would be bankrupt. It would not have public money to keep on pumping into it. Is there an issue concerning those who are managing the project?
We absolutely recognise and share that frustration. You took evidence just recently from the Scottish Government on “Managing ICT contracts: An audit of three public sector programmes” and I think that you have the chief information officer coming next week as part of your witness panel on that issue.
It is enormously frustrating that we continue to see the same mistakes being repeated. I had a conversation with my team yesterday about whether there was anything more or different that we could do as auditors because, as you say, we have been saying the same things a number of times. I would also say that the responsibility lies with the people who are planning and managing the projects. It is surprising that, at the outset of such a significant IT programme, some of those lessons were not learned. As you say, we see lots of the same issues repeated here to do with experience, optimism bias and a whole bunch of stuff. It is disappointing and problematic that NHS 24 has to spend such a lot of public money on getting the system fixed.
When we reported previously, it looked as though the project would be delivered. Of course, now we know that it has not been delivered. The other point to make to the committee is that Nick Bennett and his team, with my team in Audit Scotland, will continue to keep a very close watch on what happens with the new system. Some specific review work is under way and we expect to see that reported on soon. We will look to see what the detailed plans are for implementing the system. Clearly, the Auditor General has the option of reporting back to the committee.
The issue for me is having a clear pathway to who is responsible for how the contracts are prepared and for the recruitment. Would that be the chief executive or the digital team? Who are the individuals or individual responsible?
10:45
Ultimately, the accountable officer for NHS 24 is accountable for everything that happens in the board. That is where I would start. Clearly, there is then a question about the way in which significant public sector IT projects are supported by the wider environment, and that is where the Scottish Government and the digital team come in. We also have NHS National Services Scotland, which has a big procurement function and is experienced in IT, so there is a wider system question about how we bring the experience in the system to bear on big contracts such as this one.
Do you accept my point that, if this was a private company, it would be bankrupt? We cannot keep pumping public money into something that is clearly not working, but that is what has happened here. People have said, “There’s public money, so let’s just prop it up.” That is what is going on here, is it not?
I will ask Nick Bennett to come in and offer a view. I suppose that the specific answer to your question is that it depends on the private company. Some private companies might have gone bankrupt, whereas some bigger ones might also have had to throw money at the problem. I do not think that it is necessarily the case that the private sector always gets this stuff right.
NHS 24 is a special health board and is relatively small compared with some of the other health boards. A project that costs a forecast £117.4 million is considerably above its annual expenditure.
I am trying to understand this. Paragraph 7 states:
“It subsequently became apparent that there were flaws within the contract documentation, including the performance measures specified in the tender negotiation documents not appearing in the final contract agreement.”
Who drew up the contract documentation? Whose fault is it? Was the NHS at fault? Did it not specify clearly what it wanted? Was Capgemini at fault because it did not meet the specifications that were in the contract? I did not quite understand the comment that
“there were flaws within the contract documentation”.
Will you clarify that?
Again, I will ask Nick Bennett to come in in a moment. Basically, I think that there was a gap and a difference in understanding between NHS 24 and the contractor about what it was supposed to deliver, and when—
I apologise for interrupting. Should that not have been sorted out before? If someone is going to build a house, they will come to an agreement about where the bricks will go before they start. Should that not have been sorted out before any money was paid over?
Yes, it should. Absolutely. I think that what happened was that some of the stuff in the original tender documentation about performance standards had not been transferred into the contract documentation. That is what NHS 24 discovered, but that came to light only when it was trying to implement the system in 2013. NHS 24 was saying, “This isn’t working like we said that it was supposed to,” and Capgemini was saying, “Well, actually, it’s working like it says it is supposed to in the contract.”
If there were flaws in the documentation, the project should not have gone ahead until they were ironed out. The accountable officer should have said, “Let’s get this straight so that we know exactly how we are going to spend the money before you make a start.”
Again, I agree. The problem was that they did not identify that there were flaws until much later in 2013, when they tried to implement the system.
At that point, who discovered that there were flaws?
The discovery came because there was a difference of opinion between the contractor and NHS 24. The contractor believed that it had supplied the system that it tendered for and NHS 24 felt that there were patient safety requirements that had not been met. At that stage, the differences between the contract that was intended and the contract that finally went out were identified.
Convener, I hope that I am not straying on to dangerous ground, but I understand that the matter has been in court. I think that it was at the High Court. Has any decision been made? Have judges made any ruling? It seems that NHS 24 is left with brokerage of over £20 million, costing it about £500,000 a year in additional costs. Were any costs found against Capgemini or did the High Court find in favour of Capgemini, with all the costs falling to the NHS and the public purse?
As part of the overall agreement, the legal case was withdrawn by NHS 24.
It would not have withdrawn the case if it thought it was going to win. Why did it withdraw it? I am sorry, but I have not followed the case in detail.
It is very complicated. At paragraph 9 of the report, we try to set out a little bit of what happened. NHS 24 went through a whole series of contractual processes because in a contract such as this one there are escalation procedures. In June 2014, NHS 24 served what is called a default notice, which could have led to NHS 24 terminating the contract. However, instead of doing that, NHS 24 decided to go into mediation, to undertake some diagnostic work and to work with the contractors to try to salvage the project. That was the judgment that the board made at the time—it decided to try to build on rather than lose the £37.9 million that had been invested by that point.
So NHS 24 had already spent £38 million. Am I right in saying that Capgemini is still working on the project and that BT has been brought in as well?
Yes, both suppliers are part of the project.
I am just trying to understand—apart from the £21 million Scottish Government loan that NHS 24 has been lumbered with, will something satisfactory come out of the project?
That is the million-dollar question. We will need to keep a very close eye on it.
It is a bit more than a million-dollar question—the convener is saying that it is quite a few million.
Indeed. It is a several-million-dollar question. When we wrote the section 22 report, we envisaged having this conversation with you about a system that was up and running. That would have been bad enough, given how much it had cost and the significant overruns and so on, but that is not where we are. It is even more problematic and worrying for us that NHS 24 has spent what it has spent to date and is running up costs of £450,000 a month in keeping the current systems going.
NHS 24 has worked hard with the supplier and our sense is that, contractually and in its relationship with the supplier, it is in a better place than it was. However, clearly it was a big decision that was not taken lightly to in effect pull the plug on the system once it had gone live in October—for all the right reasons, I have to say. If there were concerns about patient safety, you would expect NHS 24 to make that decision.
The system is only 55 per cent over budget, compared with the common agricultural policy payments system, which is 300 per cent over budget, so, realistically, it is not too bad. However, it is still a serious issue within the NHS. Do you have a crumb of comfort to offer? Will the flaws in the documentation and arrangements between Capgemini, BT and NHS 24 be solved in the months ahead?
We are not in a position to say that today. I can say that NHS 24 is taking the issue seriously.
I should hope so.
Indeed. It has responded as we would expect. The chief executive has asked for a detailed review to be undertaken. Nick Bennett, as the auditor, will get sight of that review report soon, we hope. We should then have a better understanding of what happened at go live. When the detailed implementation plan—for when NHS 24 wants to try to reimplement the system in 2016—comes through, we will be looking carefully at that as well. However, given the history of the project, it would be a brave man or woman who would give any assurance on how it is all going to end up.
You have answered one of my questions. The costs are £450,000 per month, so when the system was abandoned in October, those costs started again and they will run until the system comes in and they may even run a bit beyond that. We are not going to get the system until the spring—it is going to be another four, five or six months—so NHS 24 will require another £3 million or £4 million of brokerage.
My understanding is that the system will not go live before the end of June 2016.
When I was involved in dealing with IT projects—not at this scale, I am glad to say—that involved developing software systems, we used an iterative process. In other words, you started with a basic goal, which you agreed with the contractor, and then started to develop it, using your clinicians to test the system as you went along. That was before you got to beta testing, which is the point at which the final system is being tested before launch. I therefore find it astonishing that we have got to this point in this particular situation. I understand the original problem, which was that the tender documents and the contract documents did not match, but I do not understand what happened subsequently. In terms of your overall view of information and communications technology, what systems are used to try to prevent this final thing that has happened?
Like you, we do not fully understand what happened subsequently, either. For us, the challenge is that, at the time the report was written, the iterative process of testing that you describe had taken place—the system has clearly been around for a long time and a lot of work has been done on it. One of the things that the board will now be examining is why that process did not pick up some of the stuff that became quite clear over a particular weekend of operation, once the system went live.
As you know, it is difficult to fully replicate a live environment, so systems can be fully tested only once you press the button. However, what has been striking about this situation is that some of the performance issues were so significant that it is surprising that they were not picked up sooner. You would expect teething troubles and the odd glitch, but the fact that NHS 24 got to the point of pulling the plug on the system altogether within a few days clearly shows that something went wrong in the testing process. However, we do not know what that was yet.
Paragraph 25 of your report mentions several reviews of the programme: a gateway review; an independent review by Ernst & Young; and an independent lessons learned review by PricewaterhouseCoopers—I do not know who paid for all of those, by the way. It is astonishing that, even with all those reviews, we are still constantly being faced by ICT problems.
Mr Bennett made the point that this is a small board with a focused purpose and, I suspect, almost no experience in ICT whatsoever. To me, the fault lies right at the top. Why was a contract of this sort not reviewed by the most senior part of the digital section of the Government? The gap between the contract and the tender was such a fundamental error that it should have been picked up by the chief information officer—we can ask him about it next week. You must be concerned about the situation. If it happens with one project, it could happen with another. We are handing these projects out to the nine special boards that we have—we are a tiny country, yet we have nine special boards. If each of them tries to run an ICT project in these circumstances, we will be faced with these problems again and again.
I advise colleagues that we are supposed to be focusing on the Auditor General’s report. There will be some policy issues that we can take up with the Government representatives and possibly other people. We need to be careful.
First of all, it is worth saying that some of the arrangements that we described to you in relation to our last ICT report were not in existence when this all kicked off in 2009. I absolutely agree that, if you have relatively small organisations without the experience of doing things at this kind of scale—as Nick Bennett said, the system is costing more than NHS 24 has to spend every year—you would expect a degree of external support and help to be not only offered but required. I am sure that that is one of the things that the Government will be considering.
I would like that point to be expanded on, Mr McKinlay. We have already considered ICT contracts in general and have asked the Government about the arrangements—particularly the governance arrangements—for them. I think that several of us went on record as saying that the arrangements seemed extremely complicated. It is tempting to say, looking at these cases, that the arrangements might not be working incredibly well. Richard Simpson has already picked up on paragraph 25, which seems to show large bills being run up with consultants of one sort or another telling us things that are probably pretty obvious, because we can see them anyway.
On reflecting on all of that, of which the issue that we are discussing is but a small part, I wonder whether the Scottish Government’s ICT structure is appropriate or whether it is beginning to look inappropriate. If it is inappropriate, is that because of its complexity? Is the issue perhaps that we just do not have the skills and we believe that the contractors should have the skills and the Government should not? What is the audit perspective on all that?
11:00
The audit perspective is what we said in the report—the report is very recent, so that remains our view. The arrangements are still pretty new. If the arrangements for delivering IT projects were effective, we would expect them to be managing such things. We are not yet in a position to say whether those arrangements are right or wrong or whether they are working—because they are relatively new—but clearly we would expect the governance of digital things in this country to avoid stuff such as this happening in future. The frustrating thing is that the report gives yet another example of where those arrangements have not worked.
What fraction of ICT contracts do not work? There is a risk that we focus on the ones that we see as a failure in some sense. I presume that quite a lot of contracts out there have worked.
That is a good question, but I am not sure that I have the answer to it. As auditors, we tend to be professionally sceptical—that is how we describe it. When things go so badly wrong, that approach is obviously in the public interest. It is a fair question and I will take it away and see what we can dig out.
Thank you. In fairness to those concerned, it might be nice to know how many contracts have gone well, because I suspect that it is quite a large number.
Paragraph 9 mentions the board’s decision
“not to jeopardise the £37.9 million investment already made.”
I have considerable past experience of quite large IT projects, and I know that it is a classic error to continue to throw bad money after good. Was the board’s decision at that point reasonable?
That is a great question. Obviously, we have the benefit of hindsight and, as you say, sometimes the best decision that a board can make is the decision not to not proceed with something and just take the hit. I will ask Nick Bennett to say a little more about the circumstances at the time, but I genuinely think that that is a question for the board. It took a judgment, based on all the information that it had, that the system could still be made to work.
In that context, it is worth saying that what NHS 24 is trying to achieve is a good thing. No one argues that the future programme is ill conceived as a concept. I guess that the board was seeing a significant prize, because the new system will be an important part of not just how NHS 24 operates but how the whole NHS system operates. It is part of managing the pressures in that system, which we discussed earlier. We should not underestimate the scale of a decision to pull the plug on the programme at that time.
Nick Bennett might have a bit more detail on that.
NHS 24 had taken on a future programme director, who was quite experienced and who undertook a full risk assessment in relation to whether the board should proceed with the system. The risk assessment was comprehensive, so I would not be critical of that decision at the time.
Was the board aware of the potential increases in costs at that point? Did it take those on board?
The board had already incurred £37.9 million of costs, so there were additional costs that are included in the figure of £117.4 million, which represents the full 10-year cost of running the service. Therefore, at that point, the board knew that there would be additional costs to be incurred.
Did the board know that the total would be £117 million compared with £75.8 million?
No—not at that particular time.
So the board took the decision without actually knowing how much it would cost to go forward.
At that stage, the board did not anticipate that the cost would be £117.4 million.
How much did the board anticipate that the cost would be?
I do not have those figures to hand.
It would be interesting to know that. About the only good thing in the report is that services to patients were not affected.
The last sentence in paragraph 10 says:
“A review of the contractual obligations is currently on going”,
and paragraph 14 says that the auditor’s opinion is that
“the financial implications remain significant and on going.”
What is the risk going forward? Is there any clue as to whether there is a financial risk or a performance risk?
I think that my answer would be, yes, there will be both those things. Nick Bennett has reported and will continue to keep a very close eye on financial risk specifically in relation to the project and the knock-on impact that that will have on the board and its ability to continue to break even at the end of the year. Clearly, the brokerage repayment schedule is an additional pressure that the board will have to live with and deal with. Of course, we have already said that we know that the board will incur additional costs in running the existing system and, presumably, in doing whatever needs to be done to get the new system up and running. That is absolutely a financial risk.
As you said, it is not so much that we think that there is a performance risk in terms of how the service is being delivered, because it is managing to keep going as it has done. The performance risk is probably more one of opportunity cost, because what the future programme was designed to deliver is not being delivered yet. As Nick Bennett said, we do not expect it to be delivered and operational within the next six months. The longer that goes on, the longer we do not have a system that can help to provide a better service.
Paragraph 7 refers to flaws in the contract documentation. Who actually had responsibility for the contract negotiation?
At the time, it was NHS 24.
Did NHS 24 do it itself? Did it get any outside lawyers, for example, to review the contract details? As far as I can see, the issue is not just that bits were missed off in the specifications of what was to be delivered, but that there were flaws in how the document was put together in relation to the delivery terms and all the rest of it.
External lawyers were involved by NHS 24, but I think that the internal procurement processes were not comprehensive enough. It did not undertake a complete read-through of all the key documents, and the sign-off and checking were inadequate.
Are you talking about NHS 24?
Yes.
NHS 24 did not read the documents.
A full read-through was not done, so NHS 24 did not identify the elements that were missing from the revised contract.
Is it not a little bit odd that the contract was not read? I used to read my contracts.
It is a bit odd. A page turn should have been done on the various documents to make sure that they were complete and comprehensive, but that did not happen.
Can you clarify the cost of the contract? NHS 24 did not read through the contract document, but what was the cost of the contract that it signed for?
The total cost of the future programme is forecast to be £117.4 million.
Would it have been the accountable officer who signed off that contract?
To be fair, £117.4 million was not the cost at the time. When the contract was signed, the outline business case was anticipating a cost of £75 million, but that is still a lot of money.
Would it have been the accountable officer who signed off the contract?
Yes.
Yes.
The accountable officer signed off a contract document when neither he nor anybody else in the organisation had read through the entire document. [Interruption.] Can we have some order, colleagues?
I am not saying that the contract was not read through at different stages, but when the contract was signed, a page comparison was not done to make sure that some of the elements that were included in the original outline business case had been properly copied into the final contract document.
Okay.
That is fascinating, Mr Bennett. Did the three reviews that you and Mr McKinlay described earlier find exactly the point that you have just made? Did they look into why that contract did not include those details?
I do not believe that that was picked up by those reviews.
So what did those reviews achieve, if anything?
I think that they highlighted the fact that there were weaknesses in the overall governance of the project. Changes were made as a result of that and more expertise was brought in. I mentioned that the future programme director was brought in, which was a positive development.
But the system is still not up and running and it is still costing £450,000 a month, so we may have brought in one new person, but it has not made any difference to delivering the project, has it?
Currently, that is the case.
I want to clarify the numbers. You said that the current estimated cost is £117.4 million. Is that the real number, as of today? Is that still the number that we are working from?
That was the forecast cost when the section 22 report was drafted.
Just remind me of when that was.
I do not have the exact date, but it was in October and it was before we knew that the plug had been pulled. As we said earlier, we anticipate that that number will go up, because we will not have the system for another six months or so, at best. That forecast was made on the basis of the system going live in October.
So there will be an additional cost of £450,000 per month from October all the way through to June—that is what Mr Bennett said. That is the current estimate; in other words, we are talking about an additional cost of at least £4 million.
Is that right, Nick?
I think that that is subject to negotiation as well. I understand that the impact on the financial cost in 2015-16 will be £1.1 million.
Who is paying for that extra £450,000 a month? Is the Scottish Government paying that to NHS 24?
Again, I understand that negotiations are going on between NHS 24 and the Scottish Government about how that will be financed. There could be an extension of brokerage.
I just wanted to clarify that it is public money that is being used; the extra cost is not being paid by Capgemini or BT, which are the suppliers.
No.
Why not?
I think that we will have to wait to find out what lessons are learned and the reasons for the delay before we can come to a conclusion.
Is this going to end up in court, given how far over budget the programme is? I do not understand why it came out of court. What did NHS 24 get for coming out of court? It does not have a system, the cost is £117 million-plus and it is no better off.
Those are all great questions, but I do not think that we are in a position to answer them today. It is more appropriate for questions about the decisions on such judgments to be directed to the board.
What we can say is that significant risk remains, both financial risk and risk in relation to the performance of the system. As Nick Bennett said, lots of discussions will be going on with the suppliers and with the Government. Exhibit 2 shows the brokerage repayment schedule. I expect that what that looks like in future will be part of the discussions—it might be necessary to rephase some of it. We need to continue to keep a close eye on the situation, because it is a very fast-changing picture.
I totally accept that.
It would have helped us—and it might also have helped to address your frustration—if the report had included as clear a line of responsibility as it was possible to achieve, because I find it very hard to work out who is responsible for what. You helpfully said to the convener that the accountable officer is the accountable officer, but there are many other people involved. What responsibility did the people who did the three reviews that Mr Don rightly referred to have? Did they just do a review and then go away? Did they have no responsibility for the terms of those reviews and what they did? I do not have the answer to any of those questions, but when it comes to learning from has happened, what is the point of carrying out three reviews if they do not take us any further forward? I wonder whether Audit Scotland might want to reflect on that for future reference.
That is a helpful bit of feedback. With the benefit of hindsight, it is clear that the review processes have not delivered a successful project but, as Nick Bennett mentioned, that does not necessarily mean that nothing useful came out of them.
I would like to highlight one positive point that the report makes, which Colin Beattie touched on. As paragraph 13 says, while the project has been under way there has been no risk to patient safety. That is a very important point to highlight for anyone who reads the Official Report or watches these proceedings online later.
Paragraph 7 highlights the flaws in the contract documentation, and paragraph 10 highlights the failings of Capgemini and BT in looking at the project. That highlights, once again, that the public sector can get things wrong but so, too, can the private sector. We are looking at NHS 24—that is the responsibility of this committee—but the two private sector organisations had a role to play as well, particularly in looking at the contract at the outset. There are failings on all sides; it is not just NHS 24 that is at fault.
Paragraph 17 of the report touches on the external appointment. Did the individual come from within the NHS or from elsewhere in the public sector, or were they from outside the public sector?
11:15
The appointment was of someone from within the NHS.
Did they have experience of IT projects or of any projects that were relevant to their taking on this particular project?
I am not aware of her specific experience, but she held a very senior position within the NHS.
There are clearly challenges for every organisation that undertakes an IT project of scale. Every organisation is different and has its own internal workings and culture. I understand that, when an organisation—whether it is NHS 24 or any other—is trying to introduce a new IT system, it can be difficult to get IT experts who have experience of the organisation’s culture so that, when the initial contract or proposals are being set out, the two can be married up at the very beginning. The private sector gets IT contracts wrong, but it has the benefit of being able to charge its customers more money to cover the cost of overruns; it is a different scenario in the public sector, as we all know.
After reading the report, and given the committee’s discussions of previous reports, I wonder whether NHS 24 is too small an organisation to undertake a piece of work of this magnitude on its own.
I ask the member to get to his question.
Do you have a view on that, or is it a policy question that you are not able to answer?
It is a policy question. Thank you for giving me a way out.
As Nick Bennett said, in looking at the scale of the project compared to the size of NHS 24, you need to bear in mind that NHS 24 does a very specific thing and its requirements for the project were, therefore, very specific. It is not just a boilerplate solution that can be rolled out and plugged in again—it is not at all straightforward. I go back to the point that, when any organisation starts out on such an exercise, its capacity—in terms of people, skills and expertise—must be part of the process of deciding how it is going to do it. The argument is not necessarily about size; it is about undertaking a more robust risk assessment at the outset to see whether the organisation has all the things that are required to deliver a very big and complex IT project such as this one.
Do you think that NHS 24 had those things?
No—it clearly did not. That is the conclusion that one comes to.
Mr Bennett, I want to go back to the question of the contract, which is at the core of whatever has gone wrong. You said that it had not been read; you also talked about a page-turning exercise at the time of its signing, but those are two different things. Do you know whether the board members actually read and understood the contract before they signed it off?
I will outline what actually happened. The procurement strategy that NHS 24 followed had an output-based specification. Obviously, the key performance measures that relate to that contract are quite critical—
Can you define that?
It is a specification that is based on the output that is to be delivered. The performance measures are important.
There were two errors in the procurement process. When the output-based specification was loaded on to the NHS 24 procurement software, some of the performance measures were omitted.
Was that a clerical error?
It was a copying error that happened during an upload to an IT platform.
Is there no check on the system?
No check was done, no.
The procurement software forms the basis of the tender that is bid for. The problem was further compounded by the fact that there were also omissions in the final contract. Again, some of the performance measures had not been copied across to the final contract that was signed by NHS 24 and Capgemini.
I find that quite incredible. Was nobody responsible for checking the contract and verifying that it said what NHS 24 wanted it to say?
The accountable officer is ultimately responsible but, as I said, the problem was that there was no complete read-through of the various documents to make sure that the copying and uploading had been done accurately.
Would the external lawyer have been responsible for that? Would it have been delegated to them?
It could have been the responsibility of a number of individuals, including members of NHS 24 staff.
So we do not know who was responsible.
We are not absolutely clear, Mr Beattie, but the point that we are making is that neither is NHS 24. If someone had been responsible for the error, that would have been clear. If I understand Nick Bennett properly, the read-through should be a final check and balance, so that is not the only thing that went wrong; it just compounded a whole bunch of other stuff that happened up to that point. We should bear it in mind that this is a big, complex process, and the fact that it is output based means that there are no long lists of tasks for people to do; it is about delivering. In some ways, that is a good thing because it focuses everyone on what they are trying to deliver, but it means that performance measures and the expectations of all parties have to be crystal clear. That did not happen here, as became clear when NHS 24 tried to implement the process in 2013.
The auditors are not responsible for the actions that should have been taken. We will have the opportunity to decide whether to take further evidence on that.
Convener, could I—
I will just take a very brief question from Dr Simpson first.
NHS 24’s annual report said that it was committed to a 25 per cent reduction in senior managers. Does your audit demonstrate whether the senior managers who were got rid of had anything to do with the catastrophe? Catastrophe might be too strong a word, but did any of them have anything to do with the problems that we are now facing? It is all very well to say that you will cut a swathe through senior managers but what if you get rid of the people who are responsible for significant programmes, finance or whatever? Did getting rid of those people have any adverse effect?
That is probably a question for NHS 24.
Right, but the audit did not find anything that points to problems arising from the restructuring.
We have not seen any causal link, and lots of other organisations are experiencing the same kind of reductions.
That is what worries me.
The work that we have done has not identified any causal link.
We have talked about the read-through and an output-based specification. How many pages would an output-based specification run to? Surely it is not that many words.
I cannot remember the number of pages. It is a large document, though.
But the output-based specification cannot be that large. I have seen huge documents sitting on the table—I recognise that contracts are often very large—but the output-based specification would be one side of a piece of paper, would it not?
I believe that it is an appendix to the contract.
Perhaps we need to ask to see it.
Thank you, colleagues.
“The 2014/15 audit of NHS Tayside: Financial management”
The next section 22 report on the agenda is on the audit of NHS Tayside. We will have a brief opening statement from Audit Scotland.
The second report in front of the committee is on NHS Tayside. This is the first time that the committee has seen a section 22 report on the Tayside board. The Auditor General has made the report for a few reasons. In 2014, NHS Tayside received £14.2 million in brokerage, in two instalments. It received an initial payment of £8 million to cover retrospective holiday pay enhancements and some overspends in workforce costs and primary-care prescribing. The board later required an additional £6.2 million following an accounting adjustment identified by our colleagues, as auditors of the board, in recognition of the sale of land—formerly Ashludie hospital—in the 2014-15 accounts. This is the third year in succession that the board has required brokerage.
The report says that the board’s reliance on brokerage stems from overspends and an on-going difficulty in selling a number of surplus properties, which means that the board has been unable to generate income from planned sales. The board has agreed with the Scottish Government that it will repay the brokerage from the proceeds of the sale of those properties. The board is currently engaging with the Scottish Futures Trust to develop plans for the main sites for disposal in an attempt to sell those properties more quickly and reduce the risks associated with planning permission applications.
Having said all that, the timing of the disposals remains uncertain. The Scottish Government has indicated that it will discuss repayment options with NHS Tayside should disposal not happen as planned.
In addition to the brokerage repayments, in 2015-16 the board is required to find £27 million of efficiency savings in order to break even. As at 31 July this year, the board had yet to identify £11.2 million of those savings. In the first six months, the board overspent by just over £5 million. As the board continues to rely on the sale of property to address the issues, there continues to be a risk that it will not break even in financial year 2015-16.
I am happy to take questions on the report.
The first question is about the inclusion of the land disposal in the accounts. How unusual is it for a board to include a proposed land sale in its accounts when final sign-off on the sale has not taken place?
I will ask Kenny Wilson to talk to the detail of that. It is unusual, and it was the auditors that required it to be changed. Kenny, would you give more detail on exactly what happened there?
NHS Tayside signed an agreement with Miller Homes in December 2014, in which it agreed in principle to sell the property, depending on a number of conditions. The main condition was achieving planning permission. I think that the board felt that the likelihood of getting planning permission was extremely high and that the risk of not getting it was very small. However, from an accounting standpoint, it is quite right that we should not recognise a disposal until all conditions are met. While the risk of not meeting such an important condition was deemed to be small, we know that these things often take longer than expected to resolve. However, on 23 October, the board concluded the transaction, with planning permission.
Are you saying that, at the annual general meeting, the accounts were proposed to and accepted by the board on the basis that the transaction had taken place? Were any caveats attached to the board’s papers? I take it that you uncovered the issue, rather than it being presented to the board.
Yes, that is correct.
11:30
We have had that with other boards. The committee has made inquiries about information that has been provided by managers to board members to ensure that they can take decisions. For example, we have had an inquiry on brokerage in relation to NHS Highland. Is it acceptable that board members were not made aware that the disposal had not taken place?
Why that was the case is possibly a question for the board, but it was certainly unhelpful that the board members were not totally aware of or did not recognise the real position.
Is there an argument to be made that the issue is one of poor governance? Board members were presented with a set of accounts that included a disposal that had not taken place.
I think that it was possibly more a case of the wrong judgment being made by the finance team in recognising the disposal at that time, rather than any attempt to mislead the board.
I appreciate that, but the matter would have had ramifications for other decisions that the board might have had to take. Is there any record that the board was kept up to date on whether the transaction had taken place and what progress had been made? It is quite a significant omission to say, “These accounts include the disposal” and to make them available for the public record, only for the auditors to come in following that and say, “Actually, this disposal has not taken place.”
You are probably best asking the board why that happened.
Convener, you drew a couple of comparisons, but we see some important differences from the likes of the NHS Highland case that you mentioned. I should also say that adjustments to the accounts after they are signed are not in themselves unusual—that happens all the time. The issue at NHS Tayside is significant due to its scale. There is always judgment and debate between a finance director and an organisation and the auditors, because they come from a position of managing the finances, whereas we come from a perspective of accounting standards and other matters. As I say, there is always a bit of adjustment, which is why there is a period between, in this case, the board signing its accounts and the auditor signing the opinion three or four months later. That is what happens in the process.
I do not think that the issue was necessarily about the board being kept in the dark. You mentioned brokerage. In fact, the evidence that we have, which is set out on page 5 of the section 22 report, demonstrated that a good process was in place. The finance officers kept the board up to date about the financial position and the potential requirement for brokerage, which happened way back in November 2014. That was much earlier than, for example—
To be fair, I am not raising the issue of brokerage in relation to the NHS Tayside issue. The board was told that the accounts included the disposal—the disposal was clearly in the balances that were made available to it. The main issue is whether it was made aware of the fact that the disposal had not taken place before the auditor found that out. I appreciate that that question should be raised with the board directly, but there must be governance issues if board members were not kept aware. I think that the standard practice with disposals is that the money is not put in the bank until the developer gets planning permission. Is that not quite a common arrangement?
I am not aware that the board was aware of that fact until we raised it at the audit committee.
Therefore, decisions that the board took once the accounts had been presented to it may have been impacted. If I were a board member and I was not made aware that the land disposal may not take place or had not taken place, would that not have an impact on my decisions and that of the board? Is that not a governance issue?
Yes, and the—
That is the comparison that I am making.
Sure—
I appreciate that there are brokerage issues in NHS Highland, but the concern relating to NHS Highland is primarily about how the board was provided with information to allow it to take the decisions that it needed to take.
If I were a board member and the set of accounts put before me made it clear that the disposal had taken place and there were no caveats—I appreciate what can happen afterwards—that would be a significant omission. If I had seen those accounts, I would be pretty relieved to be able to say at the board meeting, “Yes, that looks very good now, because the land disposal that we’re expecting has actually taken place”—but that would only be because nobody had made me aware of the caveats. I appreciate that that is a discussion that must take place directly with the board.
How do you expect any health board to make £27 million of cuts in one year? Paragraph 13 of the NHS Tayside section 22 report has the nitty-gritty bit—on top of brokerage, the NHS Tayside board is required to make £27 million of cuts. Is that possible and who decided that that would be done in one year?
The board is required to meet the 3 per cent efficiency savings target annually. Last year, NHS Tayside made £22 million of efficiency savings. The key point to draw out is that 60 per cent of those efficiency savings came from non-recurring items, so it will become increasingly hard for the board to make further efficiency savings. There is no doubt that making £27 million of savings will be difficult.
I have definitely been here too long because I have to correct Fraser McKinlay. It is not the first time that NHS Tayside has come to the attention of the Parliament in this regard. I do not know whether there was a section 22 report, but I remember that back in 2001-02, NHS Tayside had a £16.5 million deficit. The matter came to the Audit Committee and believe it or not, the chief executive resigned, something that does not happen now. He was a chap called Tim Brett, but that is all history.
I want to get into the details of the property disposal. I was brought up in Hillside and went to Hillside primary school, so I am very familiar with Sunnyside. Sunnyside royal hospital has lain derelict for decades. My concern is in relation to the various property disposals that are on the accounts in Tayside, such as Sunnyside. Is it possible that they appear in the accounts at an inflated value that makes the accounts look quite good, but when they come to be sold, the sum realised is much lower than that shown in the accounts? Does that not create an immediate deficit?
We all know that relying on non-recurring savings is bad, but this is a huge amount of land and property. Surely if the land and property was put on the accounts at a certain time in recent decades, given the state that it is in now and the current state of the property market, it cannot possibly be worth the original estimate? Is there not an inherent problem going back to 2001-02 in relation to overpriced properties on the board’s accounts?
Every year, a full valuation is done by valuers on the properties right across NHS Tayside and we review that valuation.
And it is changed over time.
Sorry?
The valuation is regularly changed to reflect the state of dereliction and so on.
That is right. The valuations held in the accounts will reflect the state that the property is in, the original cost and exactly what the valuers think might be realised from selling it, so I believe that the property values carried in the accounts are appropriate.
I appreciate that the Ashludie hospital sale went through in April and was not included in these accounts, but was the amount that it was disposed for pretty well equal to the valuation in the accounts?
The profit for Ashludie was £4 million on final disposal proceeds of £5 million. The net book value was just over £1 million, so a profit was made on the Ashludie sale.
Right. Would you expect the same from Sunnyside? I believe that it is finally on the market after many decades.
It went on the market in August this year and we hope that it will realise at least the carrying value but, of course, the amount will clearly vary depending on each property. That is one of the challenges that the board is facing—it is trying to realise its surplus estate in a difficult market.
I have just one other question on Tayside—because I come from that area, I get a lot of anecdotes. I understand that there is quite an inflated team of directors in NHS Tayside. Did you look at the management team of executives, directors and senior managers? Is the number of people higher than in other health board areas? Are they paid more than in other board areas? Have they been given superior performance-related pay that differs from other board areas? Is that something that you looked at in your audit?
I am sorry, but that is not something that we specifically looked at, and I have not done a benchmark exercise to find out how that compares with other boards.
But you might look at doing that in NHS Tayside in future.
We can certainly take on board and look at that suggestion.
I see some mention of changes to how the public pension schemes are valued. If I am not incorrect, it appears that the additional costs to the pension are £5.5 million.
That is correct.
Is that the deficit?
That is in effect the increase in costs that the board will be paying. It is similar to what is happening in all other boards as a result of the recent revaluation of the national pension scheme.
Okay. That, combined with the national insurance charges makes things quite challenging.
Paragraph 24 of the NHS Tayside report says that
“NHS Tayside recognises that traditional approaches”
to making savings are resulting in a decline in those savings. What are the implications of that? Does that mean that all the soft options have been used and that things are going to get a bit tougher?
I think that that is right. As we have heard, the challenges that face the NHS as a whole go right across Scotland, but we need to be more strategic and look at having a longer-term plan in order to make savings that can be sustained for the long term. Perhaps, as you have suggested, the low-hanging fruit has been picked.
I assume that the overspend of £4.549 million in the first four months that is mentioned in paragraph 27 includes staff payments.
That is right. The additional staff payments in respect of the—
Enhancements during leave.
Yes, the EDL. As those payments were accrued at the end of last year and have been taken care of in the 2014-15 accounts, they should have no impact on 2015-16.
So the £4.5 million is separate from that.
Yes.
And it is not part of the additional staff costs that were accrued as a result of EDL.
That is right.
Okay.
Obviously NHS Tayside is in quite a difficult position. Given the sheer size of the deficit that has to be covered, will its approach be practical on an on-going basis? After all, whether it sells Ashludie or not, that is a one-off, non-recurring asset sale.
It certainly faces challenges and it needs to move away from its reliance on non-recurring items and the dependence on disposals of surplus properties. I know that the board is looking at that situation and is coming up with a detailed plan for addressing it, but it will certainly be challenging.
The report is interesting, not only with regard to the specifics of what is happening in NHS Tayside but because it presents in microcosm the issues raised in our earlier discussion on the overview report. It shows us all the pressures in one board and, as Mr Beattie said, it looks for sure as if it will be very difficult for that board to break even this year.
I have two questions, the first of which is about the sale that was put on and then taken off the accounts. Was that sale declared as part of the board’s efficiency savings for that year?
I think that it was declared as one of its non-recurring savings.
That is what I am talking about. The sale was included in not only the board’s accounts but the report that we received on efficiency savings.
That is right.
It is a fairly significant amount and I presume that it will not appear again as an efficiency saving for this year, even though the sale itself went through this year.
Yes.
Right. I hope that someone has taken a note of that and that we do not get it again.
The issue of the enhancements during leave payments is very interesting. They total four point something million pounds and go back over four or five years, but the staff themselves have said that the situation is inadequate. Is either Mr McKinlay or Ms Gardner comfortable that this is a one-board event? Are we fairly certain that it is not occurring in other boards?
11:45
As you would expect, Dr Simpson, that is exactly the question that I asked when I received the auditor’s annual report. We have done checks with all the auditors that I appoint to NHS boards and we are confident that it was simply one board where an error took place in the treatment historically.
That is probably the one piece of good news that we have had today. I have only just joined the Public Audit Committee, but one of the elements that came up when I was a member of the Health and Sport Committee and we were looking at the future finances of the health service was ensuring that equality of pay was implemented. I think that you qualified accounts in previous years on that issue. I do not see anything in the report before us referring to equal pay issues. Previously, it could not be quantified what equal pay would cost. Has the equal pay issue been dealt with in Tayside?
There is a provision for liabilities relating to equal pay in just about every health board’s accounts. The situation in the NHS is now very different from that in local government. At the end of 2014-15, it was possible to quantify the liabilities for the first time. In its accounting treatment equal pay has moved from being an unquantified contingent liability to being a quantified provision, and the amounts involved are coming down quite markedly. That is why I did not draw attention to them in the “NHS in Scotland 2015” report that the committee took evidence on earlier or in the three section 22 reports that the committee is looking at just now.
Good. That is very helpful. Thank you.
There are no further questions from colleagues on the Tayside report.
“The 2014/15 audit of NHS Highland: Update on 2013/14 financial management issues”
We move to “The 2014/15 audit of NHS Highland”. Stephen Boyle, the assistant director of Audit Scotland, has joined the Auditor General and the assistant auditor general. I understand that Mr McKinlay will make an opening statement on this report.
I will try to be brief, convener. The issues around NHS Highland probably need no introduction, but for consistency I will provide one for the committee.
The committee will be well aware that the 2013-14 audit report on NHS Highland by Stephen Boyle highlighted weaknesses in financial management that were a major factor in the board requiring brokerage of £2.5 million from the Scottish Government to break even. As you will know, the need for that brokerage was mainly due to an overspend on operating costs at Raigmore hospital. The auditor, and this committee subsequently in its inquiry, identified significant concerns about governance in the board and the decision making around the decision to go for brokerage.
The Auditor General decided to bring a section 22 report back to the committee this year as an update. After we did our work on the board and the committee had its inquiry, NHS Highland developed an in-year financial recovery plan that detailed how the board expected to address projected shortfalls against its budget and achieve its planned break-even position at the year end. The committee will also be aware that the Scottish Government brought forward £3 million of NRAC money in January 2015 to help the board reach a break-even position in 2014-15.
Based on a review of the work undertaken by the board in 2014, the auditor, Stephen Boyle, concluded that NHS Highland has strengthened its financial management arrangements and scrutiny of financial performance. In 2014-15, NHS Highland achieved its two key financial targets and broke even against its revenue and capital budgets, and 40 per cent of savings made in year were on a recurring basis. Raigmore hospital reduced its budget overspend to £6.9 million, but that fell short of the £6 million target, which adds to the continuing pressure that the board is experiencing this year.
I am very happy to take questions on the section 22 report.
Clearly, there has been tremendous improvement here. It is clear from the Auditor General’s report that a great deal of work has been done. Obviously, it is still a worry that there is such a high level of non-recurring savings, which we also commented on when the previous report was issued. The big problem still appears to be Raigmore hospital. It has reduced its budget overspend, but are you satisfied that adequate steps are being taken to bring the hospital, which contributes such a large proportion of the deficit, back into financial equilibrium?
As you say, Raigmore has responded well to the audit work and to the committee’s inquiry in the past 12 months. As we mention at paragraph 17, an important part of that is the hospital’s three-year recovery plan, which takes it through to 2016-17. I will ask Stephen Boyle to give you a little of the flavour of what is in that plan, but it looks to us as if it covers all the right things.
The issues that the committee raised with the board during its inquiry to do with the way in which clinicians and others at Raigmore were spending money without any real control or reference to their budgets have provided a particular focus for getting the situation under control.
We have certainly seen an improvement in the control environment in Raigmore hospital. We note at paragraph 22 some of the practical steps that the hospital is taking. For example, the director is overseeing and taking control of the authorisation for locum doctors and temporary staff. That oversight is factored into the financial projections for the hospital.
All that said, the financial environment for Raigmore remains challenging. The board’s most recent set of in-year financial projections for period 7 suggests that it is still looking at a potential overspend of £6 million for the year. Given that the hospital, which dominates the board’s overall spend, is not quite making its savings target, and given that the financial environment remains challenging, it will remain challenging for the board to continue to deliver on the financial recovery plan.
Can you remind me of the overall budget, or the overall financial spend, at Raigmore? I am just wondering what proportion of that £6.9 million amounts to.
As exhibit 5 sets out, the hospital’s budget for the current financial year is £145.8 million.
Paragraph 64 of the Auditor General’s report on “NHS in Scotland 2015” states:
“NHS Highland reported that its policy is to hold corporate services vacancies open for at least six months ... to allow it to generate non-recurring savings.”
Those almost become recurring savings if the board does that all the time. How significant a contributor is that element to reducing the deficit? Is it desirable? If a post is empty for six months, does the board need that post?
Stephen Boyle might know what proportion of the total such savings represent.
I am sorry, but I do not have that figure to hand. Flipping a non-recurring saving into a recurring saving has been part of the process that NHS Highland has used over a number of years. If a post is vacant for such a long period of time, the board will—exactly as you suggest, Mr Beattie—take a judgment on whether it is still required.
It would be interesting to know how much that contributes as a proportion of the savings that the board is trying to achieve.
I have one last question. Paragraph 22 of the NHS Highland report highlights an increase in temporary staffing and overtime, and there seem to be additional controls around that. Does the figure of £9.859 million seem disproportionate, or is it a reasonable spend?
We can double-check that. The Auditor General is helpfully seeing whether she can find a number in the overview report just now. We do not have a figure in the NHS Highland report, but we can certainly check and come back to you on how that stacks up in comparison with other boards.
Thank you.
As I have been quite critical of NHS Highland, it is only right for me to be fair where it has done some corrective work. It is also fair to say that Raigmore overspent its budget in the past five years, and that it is really only since Audit Scotland produced its section 22 report that the overspend has gone down from £9.9 million to approximately £5 million. As a Highlands MSP, it is quite annoying to me that, for many years, NHS Highland has not received from the Government the recommended amount of funding in accordance with the NRAC funding formula. Although it got some last year to help it to break even, it has been underfunded for many years.
As you know, NHS Highland and Highland Council were the first organisations in Scotland to integrate health and social care. They really are pioneers, and all credit to them for making that work. My concern is that, although NHS Highland has addressed its issues and the future is looking good—it has corrected a lot of things that were addressed in the section 22 report—it now relies on Highland Council doing its share. This week, Highland Council has learned that it is facing £40 million-worth of cuts. I appreciate that this is new to you but, even though the NHS budget is protected and NHS Highland is doing everything right in order to meet your recommendations, council budgets are not protected—I do not want to go into that—and, because of health and social care integration, NHS Highland has to take some responsibility for the £40 million-worth of cuts that Highland Council has to make. How difficult is the situation going to be in other areas, given the integration of health and social care services? Are you considering the situation, given that many councils have followed in the footsteps of NHS Highland and Highland Council?
We are indeed. In fact, we are publishing our first report on health and social care integration tomorrow. It is due to come to the committee in two weeks’ time, I think.
That is timely.
That will give you plenty of opportunity to consider the issues.
The other interesting thing about NHS Highland is that, as well as being the first health board to participate in the integration of health and social care, it is the only board to have gone for what is known as the lead agency model; all other areas have gone for the integration joint board model.
So the responsibility for children is with the council. That is worrying, in light of the £40 million-worth of cuts.
Indeed, and that is why they have swapped those things over.
Without giving too much away about the report that we are publishing tomorrow, I can say that the way in which the money is working in all of this is one of the biggest issues that are proving difficult for NHS boards and councils to bottom out. Tomorrow’s report is really a position statement, given that it is quite early days in the new integration landscape. We are just trying to set out the facts and describe the shape of what is happening. However, we also identify some issues for the future. Certainly, Highland Council and NHS Highland have had a lot of experience of figuring out how the money works, because the model that they developed at the start of the process two or three years ago has had to be adapted as the service has levelled out.
That is the long answer to your question. The short answer is that, yes, health and social care integration will feature heavily in our work programme in the next three to five years.
I am concerned about budgets and how they are set. Exhibit 4 concerns the situation at Raigmore hospital. With the benefit of hindsight, what justification might there have been for the budget, given that it has always been overspent and that it continues to be overspent by a significant amount? It rather looks as though it costs about £145 million to run Raigmore hospital but that the budget has never said as much. Am I being too cynical?
I would not say that you were being cynical; your observation is a perfectly fair one. Stephen Boyle can keep me right, but I believe that, between 2011-12 and 2012-13, there was a process of rebasing the budget, which is why it jumped from £130 million to £135 million. However, that still was not enough money. I absolutely agree that, along with the longer-term financial planning and thinking about budgets, the budget for Raigmore will have to be considered. Of course, the challenge is that, if the budget for Raigmore is simply raised by £5 million or £6 million, that money must be found from somewhere else. As well as considering rebasing the budget, there is a challenge to continually try to push down the costs at Raigmore.
12:00
Which brings me to the bigger question of how on earth these budgets are set. Again, you must forgive me, but when I look at the non-recurring savings column in exhibit 3, I see non-recurring savings of £3 million for every foreseeable year. The board has no idea where those savings are going to come from, so a figure of £3 million goes in and the incredibly accurate figures to the left of that column are, of course, just the difference between the non-recurring savings and the total savings to be found. That is the way that numbers come out, but can the board do any better, or is that just the nature of this kind of budgeting? Is it simply a case of having to work one’s way through this every year and hoping that it can be made to work?
As auditors, we would always say that these things could be done better; in a sense, that is what we are all about. However, there is a point at which you have to make some assumptions and put some numbers into the budget. As we said earlier, the situation can be helped with better longer-term financial planning, better understanding of the demographics, the pressures and all of those things and, as difficult as it might be, some assumptions about the money that the board is going to get. That has to be the right thing to do, which is why—and this was one of the criticisms made in last year’s report—in-year financial management and monitoring are so important. They ensure that the savings that the board says that it is going to make in year are being delivered.
Does the budget come from a build-up of known costs or from the slice that the board gets of the total budget?
Organisations take different approaches such as priority-based budgeting and activity-based costing but, broadly speaking, the budget is put together on an incremental basis. The organisation’s budget and the costs that it is incurring will be inflated for known and anticipated costs, known additional activity, such as work through the treatment time guarantee and so forth, and that broadly leads it to be able to strike a budget in advance of the new financial year.
The incremental approach itself makes it very difficult for a board to make any substantial change, but if your historic costs have never been right and you have never hit your budget, there will be only marginal changes from something that was and which continues to be wrong.
That is exactly the reason why in the earlier report we make a recommendation about the need for greater flexibility and better longer-term planning. If you continue to add bits on to what you have always done, the significant change that we think is needed in the system is simply not going to come about.
Paragraph 22 of the report highlights a staggering reduction of 31 per cent in the first 10 months in locums at Raigmore hospital. What effect has that had on the running of the hospital? People employ locums not because it is fun to do so or because someone needs a job but, I would think, to meet the treatment time guarantee. Such a reduction means that either Highland is going to find it difficult to meet the treatment time guarantee or the difficult question will arise of whether staffing levels are totally safe. I have experienced this situation myself. You have to make an application for a temporary member of staff almost up to chief executive level, and by the time it comes back down, your situation with temporary sickness, maternity leave or whatever is over. In the meantime, your staff sickness rate has gone up because you have put so much blooming stress on the rest of your workforce. It is all very well producing this lovely figure, but do you look at things such as sickness rates, target effects, whether staffing levels are safe or the number of staff complaints about feeling unsafe?
The short answer is yes, but we did not necessarily do it as part of this piece of work, because our focus was on financial management issues.
However, you are absolutely right. One has to be careful here and realise that a reduction in the use of locums is not necessarily a good thing in itself. That said, the last time round, the use of locums at Raigmore was very clearly identified as one of the significant cost pressures, and tightening controls in the hospital was, we think, a good thing to do. We would absolutely expect the board and the hospital to assure themselves that such a move was having no knock-on impact. The exhibit in the overview report shows that there is no doubt that NHS Highland is experiencing pressures on some of the targets. Whether we can draw a direct link between the two things is a different question.
The exhibit in the overview report shows that there is no doubt that NHS Highland is experiencing pressures on some of the targets. Whether we can draw a direct link between the two things is a different question.
We might see it in future years.
What really concerns me is the focus on finance. I know that it is critical, but if you look back to the report on the Mid Staffordshire NHS Foundation Trust, that is where it all started. The staffing was cut, which made the hospitals unsafe. I just ask you to look at staff complaints in the system. Health Improvement Scotland or you should be drilling down into that. We might put NHS Highland under such pressure that we create a Mid Staffs situation.
I absolutely share your concern. There have to be risks, given the pressures that are on the health system just now.
In the report on the management of waiting times that I produced back in 2012 on the back of the problems in NHS Lothian, one of our broader findings was that some boards were focusing on financial performance and quality of performance as though they were different things. We recommend that boards should have information that pulls that together in a dashboard or some other way so that they can see the interaction between financial performance and what is happening to patients. The one cannot be divorced from the other; they are two sides of the same coin.
Are you satisfied that that is now happening as a result of your recommendation?
It is happening to different degrees in different parts of Scotland. The annual audit reports that are produced by the auditors that I appoint to the 14 health boards give that overview of financial performance and the other key targets to which boards are working. Part of our review process in deciding what to bring to the Public Audit Committee’s attention is to look for disturbing patterns.
The issue of vacancy rates came up in the original report and we had quite a substantial exchange when we took evidence on that. It was related to staff morale and sickness levels. Are the vacancy rates still the same as they were previously?
I do not think that we have any information to add, to be honest.
Perhaps you could provide us with that information. The impact of vacancy rates and sickness levels was highlighted in the report and it would help us to see the current position if you provided us with before and after figures.
I remember the discussion well, convener. It was about keeping vacancies open and whether that was having a knock-on impact on morale and absence. I will see what we can dig out on that.
I thank you for your evidence.
Previous
Section 23 ReportNext
Section 23 Report