“The 2013/14 audit of NHS Highland: Financial management”
“The 2013/14 audit of NHS Orkney: Financial management”
Agenda item 3 is consideration of two section 22 reports. Before I get to them, I should remind members that a section 22 report entitled, “The 2013/14 audit of NHS 24: Management of an IT contract”, which was laid on Friday 24 October, is not on the agenda. That is because under rule 7.5 of standing orders, which relates to matters that are sub judice, consideration of that report will be deferred until such time as any investigations are resolved.
I thank the Auditor General again for appearing before us again. This time, she is joined by Stephen Boyle, assistant director, Audit Scotland, and Tricia Meldrum, senior manager, Audit Scotland.
I invite the Auditor General to speak to the reports.
Thank you, convener.
As you have said, this morning, I bring to the committee two more reports, which highlight concerns in NHS Highland and NHS Orkney and were included as case studies in the report that we have just discussed. I prepared the reports under section 22 of the Public Finance and Accountability (Scotland) Act 2000, which, as you know, allows me to bring to the Parliament’s attention issues that have arisen from the audit of the accounts of public bodies.
At the outset, I highlight the fact that the external auditor, Stephen Boyle, gave unqualified opinions on the 2013-14 accounts of those organisations, which means that he is satisfied that the accounts provide a true and fair view of the boards’ financial positions. However, I have prepared reports on the boards because I believe that Mr Boyle’s report highlights issues of concern that should be brought to the Parliament’s attention through this committee.
I will cover the main issues in the two reports in turn. Both relate to weaknesses in financial management. As public sector budgets continue to tighten, effective financial management has never been more important and, indeed, is fundamental in helping those in charge of governance make informed decisions.
In relation to NHS Highland, the auditor reported that weaknesses in financial management were a major factor in the board’s needing brokerage of £2.5 million from the Scottish Government to break even in 2013-14. That was mainly because of an overspend on the operating costs for Raigmore hospital. The auditor highlighted the fact that weaknesses in financial management at the hospital emerged late in the year, and other factors that contributed to the need for brokerage included financial pressures in the acute sector from costs associated with hiring agency staff, especially locum doctors, and meeting national waiting times targets. The auditor also highlighted the board’s continued reliance on non-recurring savings.
Up until February 2014, NHS Highland forecast that it would break even at the end of the financial year. Monthly reports throughout the year to its board of directors forecast a break-even position at year end, but the actual outturn position showed significant overspends against the budget each month, and no sufficiently detailed plans were in place to bridge the gap between the board’s in-year deficit position and its forecast break-even position.
In February 2014, NHS Highland approached the Scottish Government to agree brokerage of £2.5 million to enable it to break even. Brokerage can be positive and give more flexibility if the board and the Scottish Government plan for it appropriately as part of a clear financial strategy. In this case, however, the board had to request it late in the financial year when it would have been unable to break even without the additional funding. Officers of the board did not formally report the brokerage agreement to the board members until close to the end of the financial year. I also note that NHS Highland is due to repay the brokerage over the next three years.
NHS Highland continues to experience financial pressures in 2014-15, and the auditor has reported that its financial position will remain challenging for the next five years. He also highlighted that the cost of delivering adult social care services in Highland continues to pose a financial risk to the board. The board has put in place a new management team at Raigmore hospital, and training is being organised for all budget holders. A programme board has been set up to oversee the delivery of savings, and the board is focusing on delivering savings to achieve financial balance.
With regard to NHS Orkney, weaknesses in financial management were again a factor in its requiring brokerage of £1 million from the Scottish Government to break even in 2013-14. In that case, the need for brokerage was mainly due to the hiring of locum doctors to cover vacant medical posts. The board continues to face difficulties in recruiting staff, and that remains a cost pressure. The auditor also highlighted the board’s continued reliance on non-recurring savings and concerns about the capacity of the finance team, given the financial pressures facing the board.
Throughout the year, NHS Orkney was reporting an overspend against its revenue budget and continuing to forecast that it would break even. However, like NHS Highland, it did not have detailed plans about how it would bridge the gap between its on-going overspend position and the forecast break-even position at the end of the year, and it did not provide reports to its board of directors about how it would achieve that. NHS Orkney approached the Scottish Government in February 2014 to request brokerage of £0.75 million, which was later revised to £1 million in March 2014. The chief executive asked the board’s internal auditor to undertake a detailed review of the 2013-14 financial position, including its approach to budget setting and in-year financial management. That report was presented to the board’s audit committee in late September 2014 and the board is currently developing an action plan.
NHS Orkney still faces significant challenges in making the savings it needs to meet its financial targets. The board has set out its plans to break even in 2014-15, but it continues to place a high reliance on non-recurring savings, which might not be sustainable in the longer term.
As you have said, convener, alongside me today is Stephen Boyle, the appointed auditor responsible for the audits of NHS Highlands and NHS Orkney. Together with Tricia Meldrum, we will do our best to answer the committee’s questions.
Thank you, Auditor General. You have mentioned weaknesses in financial management in the boards highlighted in both reports. Are these the only boards in Scotland that have weaknesses in financial management?
They are certainly the most significant weaknesses that came out of last year’s audit. In the previous evidence session, we talked about the financial and other pressures that face the NHS right across Scotland, and they are also a factor in these two cases. In my view, however, financial management was not good enough in these two boards, which is why we are here today.
You said that their weaknesses were the most significant. Does that mean that other boards have weaknesses in financial management, but they are not as significant?
Financial management varies across public bodies right across Scotland, and there are often areas where there is room for improvement. These are the two bodies in the health service where I felt that the weaknesses were significant enough to merit my bringing them to the committee.
You also identified in both boards problems associated with the costs of hiring agency staff, particularly locum doctors, although I presume that, in the case of NHS Highland, that would refer to other staff as well. With regard to our previous discussion about the costs associated with that, are there other boards in Scotland where this is also a significant problem but where, because of their finances, it does not impact on them as badly as it does on these two boards? Are these two boards more exposed to this problem?
I will ask Stephen Boyle to respond in a moment, but my view is that they are more exposed to this problem because of where they are and the challenges that they face in providing services in very remote and rural areas. However, the weaknesses in financial management made those pressures even more difficult for the boards to manage.
10:45
The experience we saw in both Orkney and Highland was twofold. There was the challenge of filling the posts and a large increase in the hourly rates that the health boards had to pay to secure the services of temporary members of staff during the year that contributed to the significant increase in costs at both health boards.
There are clearly a number of factors behind that. In Orkney, in particular, it was noted that the organisation thought that it had secured key clinical posts only to find that the successful candidates later changed their mind. That compounded the financial challenges experienced.
That does not sound as though it is a problem that is likely to disappear any time soon. If there is a general shortage of staff in certain areas of specialism in the NHS across Scotland and if these areas are seen as less attractive to work in—for whatever reason, possibly remoteness—those who have the skills can drive the price. Is there any indication that the problem will not recur in future years?
The indications are that the pressure will continue, especially for NHS Orkney. It is probably worth noting that the committee heard from NHS Grampian a few weeks ago that, for different reasons, it faces some of the same challenges. In a part of Scotland that has a high cost of living, the board is struggling to recruit staff to fill key vacancies. It is another financial pressure on the health service, and one that affects different parts of Scotland differently.
Can you give me a significant example of non-recurring savings?
Stephen, do you want to talk through your experience in either or both of the boards?
Perhaps the best example of non-recurring savings is vacancy management. The previous question was about the inability to fill a post. During the period between that being identified and the new postholder taking up the position, that gap would be an example of a non-recurring saving.
Obviously, these reports do not make for happy reading. There are two things that I do not see coming out in the reports: one is retribution and the other is resolution. Are the people responsible for the situations still in place? I see that one of head of finance is being replaced, but there must be other people who are responsible—who failed to give the information that the board required. It is a serious failing.
The Scottish Government is working closely with both boards to understand what went wrong and to resolve it. Stephen might be able to give you more information about the specifics on each of the boards as it currently stands.
I will start with NHS Orkney. It is safe to say that it is a small organisation—it is our smallest territorial health board—but the demands on the finance team are the same as in any other territorial health board. The nature of the changes in that team were such that the head of finance left the organisation—I think in December 2013—and the organisation thought that it had sufficient capacity to deal with the requirements that would be placed on it in the intervening period. Perhaps what compounded the factor in NHS Orkney during the year was that it had to deal with the five-year revaluation of its land and buildings estate. During the course of that revaluation exercise it was identified that it was more complicated and more difficult than it had anticipated. As a result of that experience, the board sought to review its requirements again, and it has now appointed a replacement for the post of head of finance, so it is back to the level of finance capacity that it previously operated with.
In respect of NHS Highland, its financial management circumstances were such that they were compounded by the situation in Raigmore hospital, and the extent of its financial position only became clear later on in the financial year. That prevented it from delivering the forecast break-even position that it had been working on over the course of the financial year, which then resulted in the requirement to seek brokerage funding from the Scottish Government.
I do not get the feeling that the situation has really been taken a grip of as yet. You may have more information on that. Are you satisfied with the steps the boards are taking to bring everything under control?
It is a positive step that NHS Orkney is back to a full complement of finance professionals in the team. I would not say that that will guarantee its financial position or alleviate the financial pressures that it faces, but I think that it is a positive development that it now has the level of skills and expertise that it requires.
As a by-product of its circumstances during the audit of financial statements, NHS Orkney forged strong links with NHS Fife to allow it to deliver the conclusion of the financial accounts and audit. That may be a mechanism to allow it to draw on expertise as and when required in future.
NHS Highland has an experienced team. It has also taken steps to address some of the financial challenges in Raigmore hospital through the installation, as the Auditor General mentioned, of a new management team at the hospital, complemented by a programme board chaired by the chief executives, to identify recurring savings to secure its financial position in future years.
These failures are not just within the finance team; they are outside as well. Other people are responsible.
The responsibility for governance and financial management is clearly an organisation-wide responsibility that rests formally with the board. We have reported as clearly as we can the circumstances in both Orkney and Highland, and the circumstances are different in each place, but it is the board’s responsibility to ensure that it has the full picture on both the finances and the performance of the board and that it is applying appropriate challenge to that.
Convener, I do not think that we can let this matter lie, so it might be appropriate to ask the Scottish Government, perhaps in writing, to give us more information on what steps have been taken, since the Auditor General says that it is closely involved in bringing the solutions through.
We will discuss that under item 6 of the agenda.
Before I bring in Liam McArthur, I want to ask Mr Boyle something. You mentioned that Orkney had co-operated with NHS Fife to deliver some of the financial services. Is there any value in organisations such as NHS Orkney pooling and sharing the delivery of certain services—such as finance, personnel and IT—with other boards, or is there value in them retaining a stand-alone function?
It would be right for all boards to look at how best they deliver what are traditionally known as back-office services to ensure that they are achieving best value in securing value for public money. The example that prompted NHS Orkney this year was perhaps not in the kindest of circumstances, but it has allowed it to draw on expertise in the function in future, much like NHS Orkney does for its clinical services through the variety of arrangements it has to receive services from other health boards when it does not have the required level of expertise or facilities on the islands.
Auditor General, if that is something that you identify as an issue or concern, will you be recommending to boards that they should co-operate and share services in order to ensure that the qualified staff are available to provide the required function?
As Stephen Boyle said, a fair amount of that sharing already goes on, not least through the NHS directors of finance meeting regularly and having a strong network that allows them to call on help when it is required.
When a specific issue such as the ones in Orkney and Highland comes up, the challenge is being able to get the right help quickly enough and well enough plugged in to what is really happening to make a difference while it is still possible to recover the situation. There is probably a recommendation about doing that in a more proactive way, rather than waiting for a problem to be clearly on the table.
I was interested in the point that Stephen Boyle just made about shared clinical services. The closest relationships in NHS Orkney are with NHS Grampian and NHS Highland, but for obvious reasons that would not necessarily have been the most appropriate link in relation to the issues we are discussing.
Colin Beattie is right that the NHS Orkney report makes for alarming reading, particularly when you are a constituent of NHS Orkney as well as the elected representative. As well as the problems in the finance department, what clearly come through in the report are the problems relating to recruitment and the knock-on consequences in terms of the high cost of locums.
I can understand why there are perhaps similarities in the pressures faced by both NHS Highland and NHS Orkney in relation to recruitment, but I would expect the similarities to be greater between NHS Orkney and, for example, NHS Shetland and NHS Western Isles. Could you suggest anything from the audit process that those health boards appear to be getting right in terms of recruitment and from which Orkney could learn lessons? Similarly, in relation to the locum procedures, if it is inevitable that locums must be used, what things could be improved in order to bear down on the costs?
I will ask Stephen Boyle to answer in a moment, but the context is that, particularly for the island health boards, losing one or two key people can have a really significant impact because of the scale of what we are talking about. Part of the picture is simply that Orkney has been hit with a number of vacancies this year—it could have been Shetland or Western Isles. That unpredictability is a factor that must always play in.
I will ask Stephen to pick up on whether there are wider lessens to learn.
The Auditor General has touched on the issue. There is not an abundance of non-clinical professionals or clinical professionals in the board, and the loss of one person can be very significant to the delivery of services. NHS Orkney has connections with NHS Grampian and NHS Highland in particular, but it has also forged links with colleagues in the Western Isles and Shetland—through the islands care model—as a means of sharing best practice. Indeed, there is no guarantee that, when faced with particular challenging circumstances, it would be straightforward to resolve.
Obviously, recruitment is born out of an inability to retain. Are there particular examples of what is happening in the other island health authorities? Their retention rates are higher, and therefore they are not facing the problem of having to recruit in a market in which skills in certain areas are at a premium, which, as the convener says, increases the difficulties and the costs.
There is nothing that we are aware of, but that is not to say that there may not be lessons to be learned.
One of the other clues came out in something that Stephen Boyle said earlier, which is that the issue is often less about the health board or the post than about the individual’s personal circumstances. The things that make some people willing and very happy to live and work in an island community for a long time may be the things that make it harder for another individual because they have young children, a spouse who works, or whatever it may be. We know that factors about the individuals have made a difference from time to time, as well as there potentially being things about the way the board manages things that can make it easier or harder in what are always difficult circumstances.
11:00
I will take us on to the issue of the recurring and non-recurring savings.
Obviously, there are concerns about the level of non-recurring savings that NHS Orkney is making. There is perhaps more of a concern given the earlier predictions of recurring savings. I also note that in paragraph 10 of the NHS Orkney report there is an acknowledgement that NHS Orkney is about 12.2 per cent—£4.8 million—below its target funding allocation. There is an acknowledgement of that, and the Scottish Government has plans in place to increase the allocation by £0.5 million in 2015-16 and £3.8 million in 2016-17. Those are significant sums in relation to NHS Orkney’s budget. Would it be reasonable to be making recurring savings when there is an acknowledgement of underfunding and there is a plan in place to provide that funding?
NHS Orkney, like all other health boards, would probably argue that it has made savings down to the bone where it can, and the danger of making further savings is that you dig very deeply into critical services. Colleagues referred to an ageing population and the pressures that it brings because costs are magnified in an island setting where there is a dispersed population. Should the expectation be that NHS Orkney will look to make recurring savings, or is it a process of trying to bridge the gap until the additional funding, the absolute essentialness of which has been acknowledged by the Scottish Government, is put in place?
That is a really good question. As well as the increased funding due over the next two or three years, there will also be a move to a new hospital, which will provide new opportunities for providing services in different ways and generating longer-term savings or efficiency improvements. The concern is about making sure that the planned savings are delivered in practice, whether they are recurring or non-recurring. The challenge that non-recurring savings bring is that you have to look for them all over again next year. Stephen Boyle will know more about the specifics in Orkney.
We have sought to report the board’s performance against its own plan and the level of recurring and non-recurring savings that it has identified in its local delivery plan submitted to the Scottish Government and which it expects to make.
Recurring savings are clearly a far more sustainable way of securing financial balance, but over a number of years NHS Orkney has used non-recurring savings as a means of securing its financial position. It is also the case that some non-recurring savings are used to support non-recurring expenditure. As the Auditor General mentioned, that is the case with the new hospital, which will come online in a couple of years. NHS Orkney will have a period of non-recurring expenditure between now and when it opens the new facility.
Overall, fundamentally, we seek to report NHS Orkney’s performance against its own plans.
You gave the example to the convener earlier of the recruitment of senior staff that then fell through, meaning they had to be replaced by locums at short notice. Are there other examples? In a sense, something of that scale in a smaller budget can account for a significant percentage of either the non-recurring costs or the problems being identified in a single year within the report.
I am trying to think of a good example, Mr McArthur, over and above the vacancy management. I suspect that there will be many, albeit in a non-clinical setting, such as identified savings in the facilities costs on the estate. Perhaps, as has been suggested, there is the level of on-going upkeep for the old hospital relative to the new facility. If I can think of a better example, I will come back and answer your question later.
May I clarify something, Mr Boyle? You mention vacancy management as a non-recurring saving, but if a vacancy runs beyond one year or is eliminated permanently, surely that will then become a recurring saving?
That is correct, convener. The key to that is the duration of the vacancy.
Is there a balance between the non-recurring savings due to vacancies and the recurring savings that are due to vacancies?
We would expect savings of a recurring nature to be planned and identified and for there to be a service redesign analysis and a workforce plan. That would then have a connection with a financial plan. With savings of a non-recurring nature, the issue would be about the circumstances that the health board encountered as it went through the recruitment process or the time that it took to complete any recruitment cycle.
I would like to start with vacancy management and the point the convener just made that if that continues over a certain period, non-recurring becomes recurring. Is vacancy management being used to balance the books—is it a recruitment problem or a financial problem?
I mention that because in recent weeks local newspapers have been doing freedom of information requests to NHS Highland and have discovered, for example, that 104 patients had to go elsewhere in Scotland in recent months for orthopaedic surgery. I support that, because it is important that they get their surgery. However, we are finding that the issue is not all about recruitment. Patient waiting times are longer now. I do not think that I have ever known a time in which I have heard from more patients in NHS Grampian—my region covers Moray—and NHS Highland, given the waits for diagnosis, for scans and for treatment and the waits to see a surgeon.
There appears to be a serious impact on patient care. I appreciate that you are mainly looking at the finances, but, given that 104 patients in recent months have been travelling elsewhere, is it reasonable to say that this is becoming very serious indeed?
I will start with your specific question about vacancies. It is clear that you can use vacancies to manage the finances by choosing not to fill a post for a period and, if that post is required, it is likely that that will have an impact on service levels, whatever the job is—whether it is a consultant post or a key post in the finance team. You may have a difficulty in recruiting somebody, which gives you an unintended saving but also, again, has an impact on the service that you are able to provide.
Stephen Boyle may be able to tell you more about what we know about what is happening in NHS Highland, but I think the key is in the point that he made about linking workforce planning to financial planning. Every board should be clear on what staff it needs to provide the services that it is responsible for, and its financial plans should be very closely linked to that. Vacancy management, other than at the margins, is not a sustainable way of making the savings that may be needed to balance the budget. If what you need is to reshape your staffing, you should do that and recruit to the new staffing structure, rather than keep posts empty for long-term periods. Short-term flexibility may be sensible; long-term vacancies are not.
I think that it is worth mentioning that it is about a 350-mile round trip for patients before and after surgery.
Absolutely, and clearly there are particular circumstances in both the boards that we are talking about today; there is no question about that.
I am not sure whether I have any specific examples of the specialties and the impact on patients in NHS Grampian or NHS Highland, Ms Scanlon.
Okay.
A second ago, the Auditor General said that it was the board that had responsibility for the finances. My question is really on the back of Colin Beattie’s question. I do not think that in the three years that I have been on the committee, I have ever seen a paper that states:
“The chief executive and director of finance discussed the board’s financial position with the Scottish Government”—
which of course they should do—
“in December 2013 but did not formally advise the Board”
about the fact that the board was not going to break even. That is stated on page 5 of NHS Highland report, and I would have thought that it was tantamount to gross misconduct. How serious is it that, one month before the end of the financial year, the board—NHS Highland—was made aware that it would not break even?
We understand that the board’s financial position was discussed informally with the board during board development sessions, but I agree with you that it is the sort of matter that should be formally on the board’s agenda and available for the board to understand, to discuss and to challenge where appropriate. We have talked before to the committee about each board having a really central role in governance—in being able to take that big picture of the way the finances and clinical and other performance are looking and to provide the required level of oversight, scrutiny, challenge and support. One of the reasons why these reports are before you is the concern about financial management and, for Highland, the particular question of transparency.
It is very difficult for us as an audit committee and, to be fair, for the Scottish Government to hold that board to account when it is being kept in the dark by its chief executive and financial director, as you state in your report.
The chief executive and, I think, the director of finance are both members of the board. The issue is both whether the board was able to fulfil its role, and the legitimate public interest in such concerns. Earlier we talked about the need for debate about the way financial and other targets work together in the health service. I think that it is entirely legitimate to say these are the sorts of issues that should be discussed, at the appropriate level of detail, by a board.
Can I just stick with that for a moment? There is a significant issue here about both the staff and the board. Paragraph 6, at the top of page 5 of the NHS Highland report, states that
“the actual year-to-date outturn position showed significant overspends against the budget each month. Monthly information prepared by the finance team for Board members and the Scottish Government had reported that the deficit would be addressed from ‘management planned actions’.”
The senior staff reported to the board that
“the deficit would be addressed from ‘management planned actions’”,
but you go on to say that the chief executive and the director of finance discussed the problem with the Scottish Government but not the board. I think that Mary Scanlon is right about the dereliction of duty. Surely the senior staff are obliged to report to the board; otherwise, what is the point of having a board? Maybe you can clarify that for me; maybe I am wrong. Maybe the chief executive, the director of finance and other senior staff should report directly to the Scottish Government, rather than the board. Is that the case? Is the board irrelevant in this?
No. I have said that in my view these are exactly the sorts of issues that should be on the board’s agenda. The board is responsible for scrutiny and oversight of the board’s overall performance. We are told that the board discussed the issue informally, as part of a board development session, rather than as part of a formal board agenda, but in my view that does not meet best practice.
Stephen Boyle may want to add more on the background of what we know in the case of Highland.
Sorry, but I have a question just before Mr Boyle does that. Are those staff still in post?
There has been one departure from Raigmore hospital, I think—from the NHS Highland board. Otherwise, people are still in post.
As the Auditor General notes, we would have expected that the forecast financial position, which stated that board would break even, compensated by planned management actions, would include more detail around what planned management actions would entail, and we did not see that during the year.
By way of context, I suppose that I should say that in previous years NHS Highland has also relied on non-recurring savings to secure its financial position and achieve its break-even point. The extent of brokerage, or additional funding, from the Scottish Government that it sought, which was £2.5 million, is only a very small percentage of its overall allocation. Nonetheless, we would have expected that the risks around achievement of the break-even point would have been clearer to board members.
The more I hear, the worse this becomes. Frankly, I think that it is a scandal that these senior officers are treating the board like mushrooms—best kept in the dark. First, they did not advise the board at the time that they discussed the situation with the Scottish Government. Secondly, the same paragraph—paragraph 7 of the NHS Highland report—says:
“Officers did not formally report the brokerage agreed with the Scottish Government to the board until close to the end of the financial year.”
What is the point of having a board if you do not discuss these serious issues with it?
I think the word “formally”, in both instances, is important. From our discussions with the board, we understand that there were informal discussions in board development sessions. I agree with you, convener, that these are the sorts of issues that should be on a formal board agenda, with proper papers and proper minuting of the action that has been taken, as a key part of good governance.
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I think the fact that there was informal discussion makes it even worse, because informal discussion will not appear in any records anywhere that the public can examine and hold the board to account about. The nod, the wink and the private conversation that there is a problem frankly seem to be a way of getting round public scrutiny and proper public accountability. Either the board is complicit in a situation in which there is no proper governance, or the board has been kept in the dark by senior management, but somewhere along the line there is a chronic failure of NHS Highland’s board to hold the executives to account, or a failure of the senior staff to advise the board. Either way, it is significant failure; it may well be both. To have a board that is not formally told of discussions with the Scottish Government about brokerage is an outrage, I think.
I do not know whether that is happening in other boards, or whether it is just a local practice, but, as Colin Beattie suggested, we need to have some discussions with the Scottish Government about the issue, because there is something badly wrong here.
One of the reasons why the report on NHS Highland is before the committee is that the way in which the situation was handled means that there is no formal record of papers to the board or minutes of decisions taken. That makes it hard for us to see and understand the level of board discussion and the actions taken. Those requirements are in place for good reasons, as you say—good governance and public accountability.
Before I go on to my final question, which is on looking at the way forward, I note that the second paragraph on page 13 of “NHS in Scotland 2013/14” says:
“Until February 2014, the board was forecasting that it would break even at the end of the financial year.”
You have told us that there were informal discussions, so the board was aware that there would be £2.5 million brokerage. Discussions took place between the chief executive, the financial director and the Scottish Government in December. Was the board lying about breaking even, was it unaware of the brokerage, or was it just being economical with the truth?
I think that what paragraph 7 is describing is an evolving picture—Stephen Boyle will keep me right. My understanding is that the December 2013 conversation was about the financial position of the board and the challenges that were being faced, particularly at Raigmore hospital. In February 2014, that discussion had moved on to being about the potential requirement for brokerage.
As the NHS Highland report says, the board was formally advised about the need for brokerage
“close to the end of the financial year.”
The discussions were evolving. What is clear is that they were not happening formally on the board’s agenda and that the plans for closing the gap between the month-by-month position and the forecast break-even position were not detailed enough to give us satisfaction that the picture was being managed well.
So what we have is a formal forecast of break-even by the end of the financial year and informal knowledge that that would require a £2.5 million brokerage.
The picture appears to have been that the formal discussions at the board did not take full account of the board’s financial position. They evolved until right at the end of the financial year when the need for brokerage was reported. Stephen Boyle may well want to add to that; he is much closer to the picture on the ground than I am.
The Auditor General’s understanding is consistent with my own. Certainly, the formal reporting of the requirement for brokerage, as the report notes and as Ms Scanlon said, did not take place until
“close to the end of the financial year”,
but it was based on the February in-year position.
So the formal position and the informal knowledge were quite different.
I think that we would agree with that.
I will move forward to the final paragraph of case study 1 on page 13. I hope that you will forgive me, but please could you explain it to me? For the board to break even at the end of the financial year
“a £12.3 million improvement on the financial position”
is required; £9.9 million of that relates to Raigmore hospital. What is
“a £12.3 million improvement on the financial position”?
Is that spending £12.3 million less to break even, or is that £12.3 million of efficiency savings in one department that will be taken and reinvested in another? I do not understand what that means.
The £12.3 million that you refer to is the board’s forecast year-end outturn as at the end of the 2014-15 financial year.
Is that what the deficit will be at the end of the year?
That is what the board projects the deficit will be if it does not take any steps to address that and meet its break-even revenue target.
If it is predicting a £12.3 million deficit—sorry for being the daft lassie, but I want this to be understood—does that mean that it has to cut its spending by £12.3 million to break even on 31 March next year?
I have just one point of clarification. I think that the board is actually projecting a break-even position, but it has identified that—sorry if this is not clear; I will try to be as clear as I can—
I do not understand how it can be projecting that it will break even when it has a £12.3 million deficit.
It is projecting that it will break even, but it has identified that it has a forecast gap of £12.3 million as things stand at the end of period 5 of the financial year. Indeed, it needs to take steps that will address the £12.3 million gap.
So it needs to cut its spending by £12.3 million by the end of the financial year in order to break even. Is that accurate?
Cut spending or identify other revenue streams or deliver services in a different way.
And £9.9 million of that relates to Raigmore hospital. That is a huge financial improvement, cut or whatever you want to call it. Is it reasonable to expect NHS Highland to find £10 million of cuts, efficiency savings or financial improvements in six months?
That would be very challenging in the remaining months of the financial year.
I would have thought so.
It broadly mirrors the financial position of the board last year. As we note in the paper, £9.5 million of the financial challenges that are faced by the board are attributable to Raigmore, so the trend is broadly consistent.
Have you been told how the deficit will be met? Has NHS Highland given you a plan for how it will break even? If so, is that something that the committee could see?
I made reference in my opening remarks to the board’s programme board, which it set up specifically to try to close this gap. It is both monitoring the situation and developing a series of plans for closing the £12 million gap in this financial year and ensuring that the longer-term challenges, which Stephen Boyle referred to in his report, are also met. Is that accurate, Stephen?
Yes.
Before I bring in the at least three other members who want to speak, Auditor General, I am aware that you have to attend the Local Government and Regeneration Committee meeting to give evidence. Are you content to leave at this point and let your colleagues deal with further questions, or do you wish to stay for the rest of the questions?
I think that the Local Government and Regeneration Committee is content for me to stay here until you are happy on this item.
James Dornan has a quick question and then I will call Willie Coffey.
Based on the informal and formal board meetings, did you get any sense during your audit that it had a plan to fill this £2.5 million gap? Was it a case of its saying one thing in public and another thing in private, or was it just sitting there hoping that something would turn up?
It is difficult for me to talk about what is discussed in the informal sessions because, as has been said, we are not present at the meetings and we do not receive minutes. I could conjecture that the experience of NHS Highland’s financial position has been such that it has delivered its financial position in previous years and anticipated that it would do so again in 2013-14, but the late detail around the challenges at Raigmore compounded its financial position and prevented it from doing so and it therefore required brokerage.
You came in earlier for the second time, convener, on a number of points that I wanted to raise, but I nevertheless want to ask the Auditor General a couple of questions.
This story reminds me of the Western Isles case of a number of years ago, when I served on this committee, in which significant management failures were pinpointed. We hoped that lessons would be learned. They were certainly learned in the Western Isles, but it seems to me, without knowing the detail, that similar management failures are happening again. What is extremely worrying is that it seems to be pointing to a lack of ability or willingness to scrutinise what is being said by whom to whom. A board cannot seriously say that it is going to outturn in balance through management actions, while projecting a shortfall, and not even decide to inquire what those might be. That sounds like what we heard in the Western Isles some years ago.
I cannot think of any possible reasonable or rational explanation that might explain this other than—well, I am not going to say. I just cannot understand why that would be the case. When in the process did it become clear that brokerage was required? Was it right at the end of the financial year, with a month or so to go? When did it occur?
The picture that we have tried to paint for you is that it was clear that there were real financial pressures from at least December 2013 onwards. Although, as Stephen Boyle said, there was a history of making the savings that were required in previous years, the difficulties were compounded this year by the weaknesses in financial control at Raigmore and by the ambitious work that is taking place in Highland to integrate adult health and social care under the health board’s leadership. The question is how well understood the reasons for that financial position were. In particular, how well positioned was the board to ask the right questions about the underlying reasons, about how good the plans for moving toward break-even were and about what other action may have been required? As Stephen said, we cannot be sure about that because the meetings were not held formally, so we do not have access to papers or minutes. However, it is the board’s responsibility, and there are good governance requirements for good reasons, as the committee is exploring.
This is ringing another alarm bell in connection with our past experience. We have examples when even internal audit recommendations were ignored. The question that it raises is how on earth we ensure that what is said and reported in internal or external audits is done and scrutinised.
Hear, hear.
It is one thing to report and make recommendations, but it is another to do those things and have someone else—if necessary, someone external—come in at a later stage to look at whether it has been done. That has to be in process. It is the responsibility of the board. It seems as though the same mistakes were made by these two boards. Lessons need to be learned pretty quickly to stop this happening again.
11:30
I have a similar question about the board meeting. We know that it was reported to the board later on, but maybe I have missed something of what has been said—I apologise if I have. I am trying to get an idea of what actions the non-executive directors of the board said should be taken in response. I want to see whether there was some form of dissent, comment, acceptance or whatever. I do not know whether I missed that or whether that information is not available because it is in minutes that you have not seen. It would be interesting to know whether the executive members, who are responsible for the day-to-day running, and the non-executives, who are supposed to be there for a specific reason, are up to the job of carrying this on.
It might be worth noting that the board issued a response to the section 22 report, which stated that it takes the report seriously and intends to address the points in it. We have already commented about the timeline and the information that was provided to the board in the formal and informal sessions. It is perhaps worth noting that the basis for the Auditor General’s section 22 report is the annual report on the audit. I presented it to NHS Highland’s audit committee in September 2014, if memory serves me correctly. There is an action plan that accompanies the report, and I make recommendations for improvement. They were responded to positively, in my mind, and the next steps were discussed in full at that meeting.
I would have liked to know what the initial response was. I know that, in doing the action plan, they have to agree to a series of forward plans to alleviate the problem, but I want to find out what the initial formal reply from the non-executive directors was when they found out that brokerage was required at virtually the last meeting of the year. If they accepted an informal discussion, that brings in the problem of whether the non-executives should be pushing for it to be formalised. Did they know about it? What was the initial reaction? I would really like to know how the board reacted initially when confronted with this. That would give us an idea of whether there were problems with the executive function of the board.
The best answer that I can probably give, from my experience of that meeting, is that there was a degree of recognition among some non-executives who serve on the audit committee—that is not all the non-executives of the board—that they were familiar with the board’s financial position. I am not sure that I could give you clarity about whether that then translated into an expectation or understanding that it would require brokerage from the Scottish Government to secure break-even.
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