Audit Committee, 12 Mar 2008

Meeting date: Wednesday, March 12, 2008

Official Report 292KB pdf

---

Section 22 Report

---

“The 2006/07 audit of Western Isles Health Board”

Under agenda item 2, we continue our deliberations on the section 22 report on the Western Isles Health Board. From the Scottish Government, I welcome Kevin Woods, chief executive of NHS Scotland and director general health; Alex Smith, director of the health finance directorate; and Paul Martin, from the chief nursing officer directorate and interim director of the health workforce directorate.

I want to put on record an issue that arose at our previous meeting. I draw members' attention to statements that were made by Dick Manson and David Currie in relation to the Cook report. Both witnesses denied any knowledge of that report. We have been able to determine subsequently from Western Isles Health Board that such a report exists. We will consider that report, which we have now obtained, later in private. The evidence that we heard from both those witnesses was not accurate, and they have written to us subsequently to confirm that they were aware of the Cook report.

I also put on record that Trevor Jones is unable to attend today's meeting because of a prior commitment that could not be rearranged. We will have an opportunity later to decide how to deal with that matter.

I invite Dr Woods to make a brief opening statement. Will you also tell us whether you have read Mr Manson's and Mr Currie's evidence from our previous meeting and whether you have any comments on it?

I do not intend to make lengthy comments at the outset; we are here to answer any further questions that the committee might have. Since we last appeared before the committee in Stornoway on, I think, 11 January, we have corresponded. I wrote to the convener about requests for additional funding. We have looked into the matter as thoroughly as we could and, so far, we have been unable to identify any written requests for additional funding, with the exception of one request for some non-recurrent help in one year. That request arose as a consequence of correspondence between the board's director of finance and the deputy director of finance in the Health Department. I set that out in my correspondence to the committee, and I hope that members found the clarification helpful.

You asked me to comment on the evidence of Mr Manson and Mr Currie—that is a wide-ranging question. Perhaps when we engage in discussion of more specific questions, I might have some observations on specific points. For instance, if you were to ask me about the Cook report, I would say that it is evident from the material that has been seen subsequently that the witnesses were indeed aware of the report, as was the whole board at the end of June 2006.

Thank you for the range of written evidence that you have given us over the past few months, which has been helpful, comprehensive and well set out. The committee has found your responses to a number of our questions helpful.

In a recent piece of correspondence, you refer to a drawdown of £250,000 of which you were not aware. Is that normal procedure?

The allocation was discussed in correspondence between the Health Department's deputy director of finance and the board's director of finance. It is possible for officials to make such allocations. There was consultation on the issue with Alex Smith, the Health Department's director of finance; Mr Smith may want to comment further.

When I returned to the office to pursue the matter, I identified that the director of finance at Western Isles Health Board had made a request to the deputy director of finance at the Health Department. The request was for assistance of a special nature relating to staff costs in the board's finance directorate, not for recovery of debt or for a general increase in the allocation. The deputy director decided that it was appropriate for the Health Department to provide that support, because the costs in question were unusual and non-recurring. We did so within the departmental rules for such allocations and from funding that was available in the contingency fund.

When I gave evidence to the committee on 11 January, I indicated that it is within our normal procedures for us occasionally to make non-recurring allocations to boards. Such allocations are of the nature that Mr Smith described, although they need not be for the specific reasons that he has given. Had we been aware of the correspondence on 11 January, we would have told the committee about it.

The evidence that we have received indicates that someone with financial expertise was appointed on a temporary basis, until, I think, April or May 2006. Is that correct?

Yes. The gentleman's name was Murdo McDonald. I hope that I have pronounced it correctly.

Clearly, the Health Department's concerns were sufficient to justify the appointment for a period of someone with specific expertise.

The appointment was made in response to a request for additional support from Western Isles Health Board. Our assistance was sought because the then director of finance, Donnie MacLeod, had moved to a risk management position within the board. Mr McDonald was identified as someone who was able to provide that support and who was willing to go to the Western Isles. Mr Smith can provide the committee with further details.

We received a request for assistance at the time when a new finance director was being identified and recruited. That person started work at the beginning of the following financial year. The arrangement was to provide cover for the period between Donnie MacLeod's move to his new post and the appointment of the new finance director. Murdo McDonald was recruited as head of finance, rather than director of finance, but in time his duties became akin to those of a director of finance. However, the appointment was for a very short time.

It intrigues me that the request was of sufficient significance for you to agree to it, at a time when change to "the board's financial position was deteriorating rapidly." Someone was put in place, with your agreement, but nothing seems to have been done at your level.

I am not entirely sure what happened in the department at that time—it predates me.

When did you start?

At the beginning of 2005, so these—

With all due respect, Dr Woods, that person would have been in post up until April or May 2006. Someone was therefore in post, with your agreement, for about a year or a year and a half while there was a seriously deteriorating financial situation about which nothing seems to have been done.

If I may, convener, I would like to check the dates in that regard. My recollection is that a new director of finance was appointed and took up post early in 2005. We were concerned about the deteriorating financial situation, but the person from the Health Department, as it was then, was seconded in, I think, late 2004. Mr Smith may be able to quote the precise date.

That is correct, but that person stayed until April or May 2006. Is that not correct?

They were there for only about five to six months.

So they were not there until 2006.

No.

Categorically, they were not there until April or May 2006.

Our understanding is that they were there for only about six months between the end of 2004 and the beginning of 2005. However, because of how you have posed the question, I would like to double check exactly when Mr McDonald left the island. The crucial point is that Mr McDonald was made available to the board to help with the transition from the previous director of finance to the incoming director of finance, who took up post in the early part of 2005. That is my understanding, but we will check all those facts.

Okay.

Having just looked at the correspondence, I can confirm that that is correct. He was there for six months, to April 2005, which was when the new finance director took up post. It was a temporary attachment.

My apologies, and thank you for that helpful clarification.

In the evidence that we took from Mr Manson and Mr Currie, a point arose about the Cook report. That has now been corrected, but there is another area that I am still unsure about. I refer to the circumstances surrounding the departure of Mr Currie and Mr Manson in their roles as chairman and chief executive. Can you enlighten us about that?

Mr Currie tendered his resignation. He had obviously found the period up to the point at which he resigned increasingly demanding. He chose to resign, and the minister accepted his resignation. I would need to check the precise dates in the files to tell you when that was. However, he surrendered his office.

Mr Manson had intimated at some point in 2006, although I cannot remember when, that he would like to move on. It was a general conversation about how things were and how he felt about the future. I think that he recognised that the situation was difficult and that the kind of improvement that was required was not being achieved. We were all concerned about where the Western Isles was at.

Who was that "We"?

Officials in the department. All of us in the department were concerned that the kind of improvement that we had wanted to see in the Western Isles, following the review in September 2005 that the minister chaired and which had assured us that various things would happen, had not happened.

Towards the end of my evidence to the committee in Stornoway, I indicated that, by the middle of 2006, it was becoming evident that, despite the considerable efforts of Mr Martin in trying to improve the industrial relations climate and partnership working, such improvements were not occurring. Mr Martin can elaborate on that if the committee would find it helpful. Issues in the board were spilling over into the public domain and the weakening of proper governance processes was hindering appropriate financial recovery.

I put it to you that the minister asked you to require Mr Manson to give up the post. Is that not the truth?

All of us could see that the situation was not improving. Mr Manson indicated that he would like to find a way of moving on. I was happy to try to arrange that and I had identified some work that might be suitable for him to do.

Football chairmen say that a manager left by mutual consent, which usually means that he was sacked. Did Mr Manson leave by mutual consent?

Ronnie Cleland, the interim chair, presented the proposal for Mr Manson's secondment to the board's remuneration committee and the committee supported the proposal. I believe that the secondment was then formally approved by the whole board.

Mr Martin may want to comment, but at that point, we had to reflect on the position of the board as an employer and the alternatives that it faced in terms of the future of one of its employees.

So he left by mutual consent.

Yes.

He was sacked.

No, he was not sacked. Perhaps Mr Martin will explain the employment legislation and our procedures.

It is important to recognise the responsibility of the board as the employer. The board has the responsibility to investigate and/or determine any concern that it has for any employee, whether or not they are the chief executive.

The board faced the introduction of a support team, which meant someone—Malcolm Wright—playing the chief executive support role. In effect, two people were involved and it became clear to all concerned that having two people in the role was difficult and would become increasingly difficult.

As Dr Woods suggested, Mr Manson was seeking an opportunity to move on from the Western Isles. One route was for him to secure an opportunity elsewhere. The board did not instigate, and has not instigated, any proceedings against Mr Manson of which we are aware that constitute a termination of his employment.

A range of things, including the community care arrangement with Western Isles Council and the recovery plan, was not done. When Malcolm Wright and the interim team took over, those things were undertaken immediately. Does not that indicate that Mr Manson was not doing his job properly?

It is undoubtedly the case that the situation in the middle part of 2006 was unsatisfactory. We were not seeing the progress that we wanted to see. Nobody disputes that; we are clear about that. We had concerns, and I think that the board had concerns. Many of the issues were played out publicly in the press. No one could have been happy with the situation in the Western Isles Health Board in the middle of 2006.

The point that is being made, quite separately, is that the health board, as employer, did not, as far as we know, take any action concerning performance or discipline in relation to Mr Manson at the time. Although the board subsequently commissioned audit reports, which have raised questions, and although it is discussing them with Mr Manson, it is still up to the board to consider whether disciplinary action should follow for any official who is working for the board, including Mr Manson. As far as I am aware, it has not done that.

I have two questions that follow from what you have said. First, had the minister not encouraged you to consider a mutual consent solution, would that have been done anyway?

The situation was becoming untenable. Once we had decided to put in the support force and had identified an incoming chief executive, whom we wanted to be the accountable officer, it was not possible in any practical sense for two people to be in that position. Clarity was needed about who was in day-to-day charge of the board. I think, therefore, that that would have happened once the decision had been made that the support force needed to be put in place. The fact that Mr Manson had indicated previously that he thought that it would be desirable for him to move on to some other opportunity enabled that to happen.

My second question concerns that specific point. Mr Manson had indicated that he wanted to move on to another opportunity. You said earlier that things were becoming unsatisfactory in 2006 under Mr Manson's leadership—I added the words "under Mr Manson's leadership" to put what you said in context. The situation was becoming unsatisfactory while Mr Manson was leading Western Isles Health Board. You also said that no one could have been happy with the situation. Given that, were you satisfied that Mr Manson's performance was good enough to justify his appointment to a very senior position in the health service elsewhere in Scotland? Do you have absolute confidence in his ability given that, in 2006, the situation was becoming unsatisfactory and no one could have been happy with it?

My comments about the situation with the board relate to the whole board, including Mr Manson. It is important for the committee to understand that the problem was widespread. We were not happy because we were concerned about the functioning of the board and its business being played out in public in a damaging way. The auditors commented on that in 2006—that was itself becoming a problem for achieving recovery.

Lord Foulkes mentioned the community health and care partnership. We were concerned that progress was not being made in that direction. There were many dimensions to the matter. We were concerned about the partnership working that was not taking place. At that point, the secondment arose.

The question is perhaps best put by asking what our view is of the way in which Mr Manson has performed with the responsibilities that he has had since he moved. As far as I am aware, no concerns have been expressed about the quality of his work or performance in that role.

I beg to differ. Notwithstanding what you say about the performance of the whole board, Mr Manson was the chief executive. You said that the situation was unsatisfactory and that no one could have been happy with it. Presumably, conclusions would have been drawn about the collective leadership of the board and the leadership of individuals. Were you satisfied at the time that Mr Manson's performance was such that it gave you confidence to appoint him to a senior position elsewhere in the national health service?

The formal assessment of Mr Manson's performance would have rested with the chair and the board. If they had consulted me, I would have given them my views and expressed my concerns about that. I was content that in moving to this secondment, Mr Manson would be able to undertake the duties that he has. In applying for any subsequent position, he would have to be assessed fairly and properly against the job description, the candidate specification and the qualities of the other people who would apply. I am not sure that I can answer the question in the way that you have posed it.

Okay. Do you accept that there is a perception—certainly in relation to the department and possibly in relation to other branches of the civil service—that when someone is failing in one position, the system for dealing with them is to move them to another senior position, rather than address the specific problem? I refer not specifically to Mr Manson, but to the situation in general.

That perception may exist. The issue that arises is what the process has been within an employer in respect of dialogue with an employee about performance. Before anyone reaches any conclusions about the performance of an individual, we must be satisfied that there has been a clear set of objectives and proper dialogue about performance. If people are failing—to use your word—in some aspect of performance, we have to be satisfied that they have been given an opportunity to address that and that there have been development opportunities and so on. The responsibility rests with the employer. In this case, the employer did not take any action in relation to Mr Manson's performance.

Have you experienced working in the private sector?

No.

Would you not regard it as extraordinary if a senior executive in the private sector who was not performing his job properly was moved to a better-paid position within his organisation, rather than being dealt with? That would be regarded as extraordinary in the private sector. Why is it regarded as acceptable in the public sector?

Both sectors are governed by appropriate legislation in relation to employment matters. On all the employment issues that arose in the Western Isles, we took great steps to ensure that the board was complying with legislation and the framework that we have put in place through staff governance to ensure that people's performance and assessments are managed properly. We received assurances about that in relation to the Western Isles.

I am not sure that I can comment on practices in the private sector, because, as you ascertained, I have not worked in the private sector. We operate within the framework for the public sector, and the NHS in particular, and within the legislation. We did what I believe was right. We sought assurances from the employer that it was managing all the issues in accordance with public sector practices. We went to some length to satisfy ourselves about those things. For instance, in April or May 2005—a few months after I had taken up position and had become aware of some discontent—I asked Mr Martin to go to the Western Isles to satisfy himself that the proper procedure was being followed. Mr Martin can elaborate on that. That led to a period of sustained engagement over the following year. In general, the assurances that we received were that the procedures were being followed.

I was concerned that Mr Manson went on neatly to a rather well-paid job in the NHS. Were you aware that Mr Manson had faced a vote of no confidence in Carstairs and that he faced a vote of no confidence in the Western Isles, which included a public vote of no confidence? Was that not taken into account when you gave him his new position?

I was certainly aware of the vote of no confidence in the Western Isles, which extended to Mr Currie and the medical director. I do not know whether there was a vote of no confidence at the state hospital. My recollection of Mr Manson's evidence is that there was no such vote.

No; I recall that he admitted that there was. I see that Mr Martin is also denying that there was such a vote. We can read the Official Report to check whether Mr Manson admitted to there being a vote of no confidence in him at Carstairs.

Perhaps we can check the Official Report. Again, I repeat that we were faced with a situation in the Western Isles in which the employer had not taken any performance or disciplinary action against Mr Manson—

You keep referring to the board, but we are talking more about your responsibilities, Mr Woods.

I am very happy to accept my responsibilities, but I can discharge them only in the light of the formal evidence about the position of Mr Manson's then employer. Remember that the Western Isles Health Board remains Mr Manson's substantive employer. If it has concerns, whether they are about his performance at that time or disciplinary matters arising from that, it is still a matter for the board, which still has the power to raise those issues formally with Mr Manson as his substantive employer. The fact that he is on secondment has not removed him from proper scrutiny of his performance at that time by his employer.

Do you know of any other health board in Scotland in which there has been a similar vote of no confidence from the staff in the chairman and chief executive?

I cannot recall one.

I cannot either; I think that it is unprecedented. I can find no one who knows that it has happened anywhere else.

What is the role of the department in protecting the public interest by securing good governance? You said that the department moved in when the situation became untenable, but prior to that you said, in relation to whether Mr Manson was employed, that the department took a hands-off approach and that it was up to the board to deal with matters. However, it was clear that the board of management was in deep financial and organisational turmoil. What exactly is the department's role in ensuring good governance and financial management? Is it a hands-off role or do you intervene?

I begin by quoting from the Official Report, which has just been passed to me. When Mr Manson was asked about votes of no confidence at Carstairs, he said:

"During my time at Carstairs, when I was promoting change and forcing it through, votes of no confidence were threatened on several occasions. However, there were no votes of no confidence during my time there."—[Official Report, Audit Committee, 27 February 2008; c 379.]

That is what I recalled in answering the previous question.

The department takes a close interest in the issues to which Mr Welsh refers. As I said, when discontent reached my ears in the spring of 2005, I asked Mr Martin—who might wish to elaborate on this—to go to the Western Isles to satisfy himself that the proper procedures were being followed.

In the autumn of 2005—I referred to this in my previous evidence—I sought written reports from all my people who were engaged with the Western Isles so that we could make a comprehensive and careful assessment of where the board was at at that time. Our decision was that we should pursue the issues of governance, financial control and so on at the accountability review, which took place in September, if I recall correctly. On that occasion, we put the issues squarely on the table and made our position clear. The process of engagement that Mr Martin led continued over the intervening months. However, as I said earlier, it was evident by the middle of 2006 that the position was becoming unsustainable.

I will give the committee a flavour of the level of engagement and, I hope, address the question of wider governance. As Andrew Welsh rightly pointed out, the role of the department generally is to pursue good governance within the NHS on behalf of ministers. Clearly, that covers the four domains of corporate, financial, clinical and staff governance.

I will run through my recollection of the chronology of my and my team's engagement with the Western Isles. I took over workforce responsibility in the department in April 2005, when I took on interim responsibility as director of human resources. We heard at that time about concerns around, in particular, the wider industrial relationships climate in the Western Isles. Staff organisations expressed concern not just about staff governance, but about HR processes that the board may have applied.

As I touched on earlier, the department needs to be careful about what it supports boards for and how it supports them, particularly in relation to technical personnel issues. We cannot be seen to confuse the legal relationship between the employer and the employee—doing that would be in nobody's interest. Our job is to ensure the application of good policies and procedures that are recognised nationally through, for example, the partnership information network guidelines—we can share the guidelines with the committee—which are agreed in partnership with trade union and professional organisations across Scotland. We expect boards to practise through those guidelines, as a bare minimum.

In response to concerns that were expressed, I visited the Western Isles in July 2005 and spoke to a number of senior staff, including the chairman and the chief executive. I sought assurances in a number of areas; in particular, I sought assurances that the board was following due and agreed process. I got those assurances, and I followed that up with a letter to the chairman, David Currie, on 9 August, in which I set out the fact that he had given me those assurances and that we were dependent on them, as we had stated.

On 2 September, I received a letter from the chairman, giving me further written reassurance that the board was following the advice that they had got from their legal advisers. I wrote back to the chairman on 21 September reaffirming that that was my expectation. In any contact with any professional organisation or staff representative, my staff and I were clear that any anxieties or concerns needed to be expressed explicitly to the employer and handled through due and recognised process.

However, given that there continued to be concern, I sought further assurances from the board and, as has been touched on, received formal written correspondence from Brodies, the employment law legal advisers that served the board at the time. The legal advisers said that they were satisfied that they were competent to provide advice to the board, that the board was following that advice and that, in doing so, the board was complying with nationally agreed policies and procedures.

We had pursued a number of levels of detail, therefore, to assure ourselves that processes and procedures were being applied. It is not for us to interfere in any process; indeed, it is not for us to comment on the detail or outcome of any process.

Further to Andrew Welsh's comments, we worked with the board through the partnership support unit in the department. We tried to support the board in partnership with the employee director, who was a non-executive trade union and professional organisation representative on the board, to develop, promote and improve partnership working in and through the board.

In February 2006, we became aware that staff-side organisations were seeking, and had secured, a meeting with the chairman to express concerns around a number of issues, including some of the organisational changes that had been proposed through the board's clinical strategy, as it was called. We were advised by the trade unions of a vote of no confidence in the chairman, the chief executive and the medical director of Western Isles Health Board.

We worked with the chairman to encourage him to develop an action plan in response to the concerns that had been expressed by partnership organisations. We encouraged him from the very beginning to communicate with staff and staff-side organisations in a clear, positive and open way. In March 2006, the department was formally notified of the vote of no confidence and of the concerns among professional organisations over the leadership, in particular, of the three individuals whom I have identified.

In March 2006, I met the chair, the medical director and Mairi Bremner, who was one of the non-executives on the board, as well as the full-time trade union officials from the Royal College of Nursing, Amicus, as it was at the time—it is now Unite—and Unison. We discussed the concerns that had been expressed by the trade union officials in their correspondence with the board, which had been copied to the department. There was a series of concerns, not just about leadership but about some of the board's decisions and the way in which they had been taken.

At that meeting, it was agreed with the full-time trade union officers that we would propose a five-point plan to staff. The five-point plan effectively covered patient services, partnership working, service redesign, clinical strategy and wider engagement. At the meeting, I had on both my chief nursing officer hat and my workforce hat. Given the concerns that were expressed by the staff side around patient services, I instructed the chairman to undertake an immediate review of those concerns. It was agreed that Anne Thomson, the RCN full-time officer for the area, would be a partner in that review.

I met staff on 20 April 2006, at the request of staff and the staff-side full-time officers. There was an open and frank sharing of concerns about where the board found itself. I played those back at a meeting on 21 April, which was attended by the full-time officers, local staff representatives, the board chair, the medical director and so on. After that meeting, a statement went out agreeing to the implementation of the five-point plan, which was to be taken forward in partnership. That gave us some reassurance that relationships would be re-established on that basis, albeit that concerns and tensions would continue to exist. At that time, we advised the board that we would secure for it some senior HR support from a technically qualified senior personnel manager.

I indicated that I would revisit the board in July 2006 to reassure myself that it was taking forward the action plan. Carmel Sheriff, the performance manager for the board, and I visited the board on 20 July. It is a matter of public record that I was extremely disappointed with the progress that the board had made against the agreed action plan. That led into a whole series of events in July and August 2006, culminating in the introduction of the support team.

In other words, it did not work.

We tried to offer as much support as we could. It became clear that, collectively, the board was not responding to the challenges that we had placed—we did so explicitly—for it in the action plan. By then, we had a body of evidence that told us that it was perhaps time to take further action. As the committee knows, the form that that action took was the introduction of the support team. At that stage, our patience with the board was running out.

Surely the objective was to secure financial and organisational competence. This is all about content and competence and yet all I have heard about is process and procedure. What was the department's role in turning things around? You were having those discussions—which do not appear to have produced much by way of results—and yet the reality was that a quarter of a million pounds of unallocated money was given to the health board during that time of transition. The board had deep financial problems, which your department must surely have known about. Nothing that you have said addressed that. Were you are aware of the depth of the financial and organisational malaise? What did the department do about it?

We were aware of those things. We need to remember that the £250,000 related to a much earlier period than the one to which Mr Welsh refers. We were concerned. As I said, at the annual review on 12 September, we raised the issues and—

In which year?

In 2005. We set the board a very clear set of objectives and held successive meetings in the early part of 2006. As the audit report for 2005-06 indicates in several places, we were not prepared to sign off the detail of the financial recovery plan. We were not satisfied that the content was sufficiently thought through or detailed enough to ensure delivery. That, too, was part of our dialogue with the board.

In other words, we had the board under very close scrutiny. We were trying to support it to overcome some of its governance issues. We were also trying to get it to come up with a realistic and deliverable set of plans but, by the middle of 2006, that was not achieved. Things had deteriorated to the extent that we did what we did.

Audit Scotland refers to some of that in its 2006 report. Although it recognises the continuing weaknesses in, for instance, internal control, it also notes that the board had made progress on a number of important areas. If committee members have not had an opportunity to study the report, it may be helpful for them to do so.

I do not want to diminish in any way the fact that we had serious concerns, but our first job was to try to restore the whole board to effective functioning. By the middle of 2006, when Mr Currie resigned, we decided to step in.

You have spoken about your concerns, which developed over the piece, and you said that things had deteriorated to such an extent that you did what you did. You promoted the chief executive.

No. I do not believe that we promoted the chief executive.

Was it a sideways move?

The chief executive was seconded to another position. He was not promoted.

At the same salary or a higher salary?

I do not have the salary details at my disposal. It would have been a secondment on his Western Isles terms and conditions. Perhaps Mr Martin has more information.

We have his salary range. My understanding is that he was seconded on the terms and conditions that he was on at the time, but we can check the detail for the committee.

So his position was protected. Things had deteriorated to such an extent and yet his position was protected.

He sought a secondment, which was to do a piece of work, as Dr Woods identified.

Mr Manson remains an employee of the Western Isles Health Board although—clearly—there is a commitment that he will not return. That was part of the remuneration committee's deliberations and it was agreed by and with Mr Manson. If, while he remains an employee of the Western Isles Health Board, the board determines that investigation and action are required, it is free to do so, as the employer.

The public who are listening to this and the residents of the Western Isles must be increasingly horrified at how the situation is unravelling. Apparently, when Mr Manson and Mr Currie took up their posts, Western Isles Health Board was in surplus, but when they left their posts, there was a deficit that was approaching £3.5 million. For the chief executive then to be moved sideways—or promoted or whatever—will be regarded as incredible. Dr Woods, you said that that was entirely appropriate and within public sector framework guidelines and so on. However, if it was entirely appropriate, how on earth are we to restore public confidence that such a situation cannot happen again?

What I am trying to convey to the committee is that decisions about the board's employees are the board's responsibility, for which the board must have effective governance procedures. We stepped in and tried to ensure that proper governance procedures were put in place—I believe that that has increasingly been done.

It remains the case that Mr Manson is formally an employee of the Western Isles board. If the board reaches the conclusion, on the basis of the subsequent audit reports that have been received or the material that is being presented in evidence to this committee, that there is a case for Mr Manson—or, indeed, any other board officer—to answer, it is for the board to undertake that action in accordance with the law and the procedures that we apply in NHS Scotland. Those are the safeguards that the public has, and the procedures generally work extremely well across NHS Scotland. I think that there is evidence to that effect in the overview report, which we will talk about later.

Nobody disputes the fact that the situation in the Western Isles was deeply unsatisfactory. However, as I said, our first effort was to try to restore effective governance. I repeat that issues relating to individuals remain a matter for the employer; if there are concerns about the conduct of an employee, even if they are on secondment, such concerns can be properly addressed by the employer.

Can I ask you about your responsibilities as an employer? You have indicated clearly that Mr Manson remains an employee of Western Isles Health Board. As the employer of your staff, do you follow normal employment procedures and have fair and open practices?

I think that that is essentially a question about how the civil service conducts its internal work. The Scottish Government employs me and I am a member of the civil service, so is it a question about the civil service or a question about—

You are also head of the health department. When posts become vacant in the department, do you advertise them internally or externally? Are all employees entitled to apply for such posts?

We have clear procedures in the civil service about the filling of posts, but we also have a large number of people on secondment in the health directorates. We find the interchange of people from the Scottish Government and the health service to be valuable to our work, given the nature of what we do.

But in the health department—I am not talking about exchanges between the civil service and the health department—and in relation to your wider responsibilities, when senior posts become vacant, there is transparency and fairness, and anyone is free to apply for such posts and will be judged on their merits, without fear or favour.

Yes, that is indeed the policy.

Was the post that Mr Manson was put into advertised? Were there a number of applicants?

No. We were in an extremely difficult position. We had put another chief executive into the Western Isles. The Western Isles had not pursued any action against Mr Manson. Mr Martin outlined the range of options that might have been available. Mr Manson recognised that it was time for him to go somewhere else and we recognised that that would be desirable. I acknowledge that, to that extent, the arrangement was specific to the circumstances.

Was the post created for Mr Manson?

No. We had important work that we needed to do in relation to prison health services. That is the work that I had in mind at the time. It would be wrong of me to say that the post was advertised openly, because it was not. We were anxious to enable the Western Isles to move on.

What criteria do you use when you decide that you do not need to advertise a post or seek competition?

In general, we do not make such decisions. I acknowledge that, in this situation, we proceeded in a way that enabled the Western Isles to move on.

Do you have the absolute right and authority to do that with any post in your department?

Obviously, we discuss staffing matters and secondments. Opportunities arise at various times. We have internal processes.

To whom are you accountable? I know that this did not happen, but suppose that, over the years, the head of any department in the civil service, such as your department, decided that people in different areas of responsibility elsewhere were not competent and that posts at headquarters would be created for them. They might even decide to bring in members of their golf club or social circle. That would be entirely acceptable because it would be up to the head of the department to make such decisions. Where are objectivity and responsibility in determining which posts are filled in that way?

The situation that you describe would not arise. I am ultimately accountable to the permanent secretary of the Scottish Government. I acknowledge that we faced an extraordinarily difficult situation. We decided that, given that Mr Manson had expressed an interest in a move—people express interest in moves on many occasions—it was in the interests of the service and the public in the Western Isles that we enabled him to move into a job that was concerned with long-term conditions and prison health services. Ideally, we would wish to make people aware of secondment opportunities. Generally, we want to ensure that posts are filled by a process of fair and open competition. We faced a wholly exceptional situation—there is no question about that. Mr Manson had expressed an interest in a move, we believed that there was useful work for him to do, and the Western Isles, as his employer, had taken no action against him and had not set any procedures in train. Therefore, we took the only practical option open to us.

Do such situations happen at all levels of the department and the health service? If someone is regarded as not fulfilling expectations and they express a desire to move elsewhere, will a post be found for them? Do they just happen at senior levels?

The employer in this situation had not reached a view about Mr Manson in the way that you suggest in your question. We want to ensure that boards operate in accordance with staff governance procedures. Secondments are a normal part of procedures. There is a suggestion that somehow we operate a system that may, to put it bluntly, reward senior managers for failure.

God forbid that I suggested that. It is for others to draw that conclusion.

I think that that was the subtext. I reassure the committee that, in relation to the contracts of senior and executive managers in the health service, we have detailed and careful procedures in place for assessing individuals' performance through staff governance and remuneration committees. The performance assessments of individual senior and executive managers and the reports that come from remuneration committees are independently scrutinised at national level by a committee with an independent chair. That is all intended to ensure that our processes are fair to the employee and consistent across NHS Scotland. That is our general approach.

That is fine. Forgive me if I suggested something about the process that was not there or did not happen, but let me clarify something. Mr Manson described his move as an opportunity, and I think that you did, too. Do all employees of the health department and of health boards, irrespective of their grade, have the same opportunities to move in the way that Mr Manson did?

I wonder whether I could ask Mr Martin to talk a little more about our secondment procedures.

I am aware of the time, so please keep it short.

Sometimes, people are unhappy in their job, or perhaps something impacts on their performance. In such cases, the employee can approach their employer and seek a move. That could mean a secondment, a move to another job or a temporary replacement, to allow them to create some space. It might be an opportunity for the employee to reflect on where their career is going.

Essentially, that is available to anyone in the health department and anyone who is employed by a health board.

Should they have the discussion as part of their personal development plan, the employee can avail themselves of such opportunities. Dr Woods has touched on, and you were pursuing, a unique situation in which the individual—

I have moved on from that. I wanted to know that such opportunities are now available to anyone in the health department, and that they have been used by people of different grades. We can ascertain the details at a later date, but the principle has been established, so that is fine.

I used such an opportunity, when I was a chief executive.

I want to clarify a point that was made earlier. If Mr Manson is no longer working at the health board, but is still an employee of the health board and has been seconded somewhere else, on the understanding that he will not return to the health board, who is paying his salary?

The costs of Mr Manson's secondment are met by the health directorates. He is seconded to NHS National Services Scotland, which is a national organisation that undertakes a range of activities. The funds to pay the costs of his secondment come from the health directorates.

So NHS Western Isles pays absolutely nothing towards his salary and costs.

Not at the moment. The board does not pay his costs. [Interruption.] My colleagues are saying that the board pays him, but that we put it in funds to enable that to happen. He remains an employee of the board.

You mentioned that you had noticed a great deal of problems with corporate governance within the board, although either Manson or Currie told us that full corporate governance was maintained. As Willie Coffey mentioned, the board went from being in funds to being in a serious situation.

I might be labouring the point about Mr Manson's new position—he has been moved sideways, upwards or whatever—but was he at any point pursuing compensation for constructive dismissal? Was his move a way of negating that?

Not to my knowledge—I do not believe that he was.

You do not think so.

No. I do not know whether Mr Martin knows more about that, but I am aware of no such claim.

Do you admit that that would be a good reason to find him another job?

The issue was not on the table when we looked at the matter.

I will follow up Stuart McMillan's point. Mr Manson remains an employee of Western Isles Health Board and the allocation to the board takes account of the cost of his salary. Laurence Irvine was appointed as chief executive, but I gather that he is suspended. Who pays his salary?

Mr Irvine's salary is being paid by Western Isles Health Board as his employer. To clarify the point, I ask Mr Smith to comment on the transfer of funds, so that we are in no doubt.

The arrangement is not costing Western Isles Health Board anything, because the health directorates are refunding the full cost of Mr Manson's salary.

So Mr Manson is still being paid out of the health board's account but, as Mr Smith said, the board is being refunded. Mr Irvine is on suspension and the board is paying his salary. Who pays the salary of John Turner, who is acting chief executive?

Mr Turner is an employee of Western Isles Health Board.

So Western Isles Health Board is paying three chief executives—

Excuse me, convener. Mr Martin may have more detail that will clarify the point for Lord Foulkes.

To be clear, as Western Isles Health Board is in a unique situation because its substantive chief executive is suspended, we have seconded John Turner from his post as deputy director of workforce modernisation to the Western Isles. At the moment, our agreement with the Western Isles is that, until 31 March, the department will cover John Turner's costs.

Dr Woods, you said that you wanted to enable the Western Isles to move on and we discussed that when we heard evidence from you in Stornoway, yet one chief executive is on secondment, one is suspended and the other is an acting chief executive. You are ultimately responsible for that. Is that not a guddle—a mess?

I agree. I wish that the situation were otherwise—there is no question about that. Discussing the circumstances that relate to Mr Irvine's suspension would be inappropriate. The board's chair has suspended him as a neutral act while an investigation is under way. In those circumstances, it is normal practice for the employer to continue to pay the suspended individual's salary.

As Mr Martin said, we are covering Mr Turner's costs, because of the extreme situation of the Western Isles, and we are also meeting Mr Manson's costs, so Western Isles NHS Board continues to pay only one chief executive's salary—I think that that is where your line of questioning started.

The sequence of events is clearly undesirable, but we are very encouraged by the progress that is being made in the Western Isles. The board's latest financial forecast is that it expects to break even this year and possibly to generate a small surplus. Mr Turner and the new chair are having a positive impact. I readily acknowledge that the sequence of events that unfolded was undesirable and unusual, but the good news is that the situation in the Western Isles is improving.

Speaking personally and not on behalf of other committee members, I was impressed by John Angus Mackay and John Turner—the chairman and the chief executive—and by what they are doing. However, even if the board is not paying, we as taxpayers are in effect paying for three chief executives: one who is seconded; one who is suspended; and one who is—thankfully—doing a good job.

As the accountable officer for the health service in Scotland, ought you not to be doing something about that urgently? Have you drawn the attention of Nicola Sturgeon to the issue?

Ministers are well aware of the situation. The cabinet secretary conducted the annual review in Stornoway last year, when the situation was the same, so she is aware of it.

I am concerned, but what options are available to me? I must operate within the framework of employment law, and proceedings in relation to Mr Irvine are being conducted strictly in accordance with that framework. With regard to Mr Manson, given that, as far as I know, the board had not raised any issues to do with performance or discipline with him at the point of his secondment, the issue was dealt with as best it could be at the time.

Clearly, it would be much more desirable if the board were in the same situation as the other 21 accountable boards, which have a single chief executive working in a stable governance framework and getting on with business. I share your view of the contribution that the current chair and Mr Turner are making. I believe that they have done a tremendous job in beginning to turn round the board's fortunes. As has been the case throughout, we are keen to provide them with all the support that we can. I have had a number of meetings with both men recently, I will have a further meeting with Mr Turner before Easter and I will go to the Western Isles shortly after Easter to see for myself the further progress that I hope will have been made.

If Mr Manson's secondment ends or you decide that you do not wish to keep funding it, will Mr Manson return to the Western Isles NHS Board?

It was agreed at the time of the secondment that he would not return there. Between now and the end of his secondment, discussions will have to take place between the board, Mr Manson and, no doubt, ourselves about his future.

So, in other words, something will be found rather the issue being brought to a head.

I am not saying that, convener. I am saying that there will need to be a series of discussions, which will be informed by any conclusions that Western Isles NHS Board reaches on the basis of the audit reports that it has commissioned and by the evidence that has been presented to the Audit Committee and any conclusions that it comes to. Decisions will have to be made at that point, when due regard will have to be paid to the interests of the board, the health service and Mr Manson.

You mentioned that the board expects to break even and might even make a small surplus this year. Were you simply quoting Mr Manson's contention of 27 February or do you have other evidence for that forecast?

Mr Manson's contention?

Yes. On 27 February, Mr Manson told the committee that the trend was improving, the deficit was reducing and break-even would be achieved in March.

Mr Manson said—

I beg your pardon—I have got the wrong date.

On what is your forecast based? Such forecasts have been made before—for example, Mr Manson made one that did not materialise.

Oh, I see. I was talking about the current forecast position. I invite Mr Smith to elaborate on why we believe that—

What is the basis of that forecast?

We are now nearly in the middle of March of the financial year 2007-08, so we are obviously better placed to give a year-end forecast.

We are in constant dialogue with the finance director and the acting chief executive of NHS Western Isles. We receive evidence from them monthly and we regularly examine the detail. We are satisfied that the year-end forecast will be delivered. I emphasise that we have virtually reached the end of the financial year, which gives us a great deal more confidence in the figures.

A similar forecast in the past did not materialise.

I will ask about the history of the Scottish Executive Health Department's involvement with NHS Western Isles during the period when the deficit accumulated. Am I right in saying that Dr Woods took up appointment as accountable officer for the NHS in Scotland early in 2005?

That is correct.

When you took up your appointment, were you made aware that there was a situation in NHS Western Isles, or did that develop later?

I was aware of the overall financial position of the health service, including in the Western Isles. During my second week in post I attended a meeting of the Parliament's Audit Committee, to discuss the Auditor General's overview report on the NHS in Scotland. Big issues in the report were the reliance of a number of boards on non-recurring resources to achieve in-year financial balance, and the serious deficits of some boards, in particular NHS Argyll and Clyde, which were a problem. To that extent, I was aware of the issue.

We set about trying to reduce reliance on non-recurring resources and trying to reduce the deficits. The Auditor General's most recent report, which the committee will discuss later in the meeting, indicates that we achieved those aims. The problem has undoubtedly been NHS Western Isles. We have not managed to resolve the problem until this year, when it looks as though we will achieve in-year balance.

In response to the question, I should have said that increasingly we expect the board to provide us with details of its plans to achieve recurring balance, which is the real objective. The board is committed to presenting us, by July, with details of a plan that brings together the clinical strategy for the Western Isles and its finance plans, which is crucial. That, in part, is the purpose of my next meeting with Mr Turner and my proposed visit to the Western Isles in April.

The news that you think that the board is on track is welcome, but I am trying to get to the bottom of how the accumulative deficit arose. You said that you were aware that there was a problem. To what extent were you and the department proactive in trying to address the problem in NHS Western Isles? To what extent did you rely on assurances from the chief executive and the board that they were addressing the problem?

We take a combination of both approaches, in that we rightly interrogate boards' proposals for how they will achieve balance and overcome deficits, but we also rely on the assurances that we get from the leadership. That is inevitable, given that we deal with 22 accountable bodies.

As Mr Martin said in relation to employment matters, we received assurances from the chair, the chief executive and the director of finance that they were making improvements. However, internally, Mr Smith's team considers proposals carefully. On occasion, we have not found the proposals from NHS Western Isles to be acceptable, for example in 2006, when we were not prepared to sign off proposals in the local delivery plan, because we did not believe that the board could demonstrate that it could turn its good intentions into savings. We test proposals proactively, but we rely on boards to generate plans. We try to make suggestions and to offer advice and support. We continue to do that for NHS Western Isles.

I have one more question, which is about financial support for the Western Isles. You mentioned the non-recurring allocation of £250,000. As far as you are aware, is that the only non-recurring allocation that has been made to the Western Isles in your period as accountable officer?

You ask whether that was the only non-recurring allocation. We make non-recurring allocations to all boards for numerous purposes so, to the extent that we make non-recurring allocations—

I am talking about additional non-recurring allocations.

Beyond those that we made to other boards?

Indeed.

I am not aware of any other allocations. Is Mr Smith aware of any?

Is Mr Fraser's question really whether we were asked to contribute towards meeting the accumulated debt or the overall financing of Western Isles Health Board, rather than to provide targeted non-recurring funding for waiting times initiatives or a host of items that are part of our normal business? If so, the answer is that I have been unable to identify anything other than what we have reported to the committee.

So no money was paid. Are you aware of requests from the Western Isles for additional funding?

No.

No.

When Mr Manson gave evidence to us two weeks ago, he said:

"in October 2003, David Currie and I had"

"discussion with Trevor Jones—then the chief executive of NHS Scotland—and his colleagues. I had discussions in later years with the finance director and the deputy finance director about NHS Western Isles getting additional money to see it through. The consistent answer was, ‘No, but we can, perhaps, help with some brokerage, to recognise the fact that it will take more than a year to tackle the underlying issues.'"

The convener asked whether anything had been put in writing, and Dick Manson replied:

"I do not think that I ever made a formal written request."—[Official Report, Audit Committee, 27 February 2008; c 395.]

Are you telling me that you are not aware of any discussions with the Western Isles chief executive about additional funding?

I took up my post in January 2006. I reported more or less the same position at the committee's meeting in January in Stornoway: I was not personally asked in the terms that I have just described to you. In our search of the files, we have not identified written evidence to support the point that was made.

Has anything not been covered? The discussion has been long and exhaustive.

I have one question about the accumulated deficit that I asked Dr Woods in Stornoway. To enable the Western Isles to "move on"—that is your phrase—how will you deal with the accumulated deficit? Will you write off any of it?

As I said in my previous evidence—forgive me if I repeat it, but it describes the position—our first objective is in-year balance and our second objective is recurring balance. We are thinking about the accumulated deficit, but we are proceeding in that sequence.

We do not usually write off an NHS board's accumulated deficit. Our normal practice is to provide a board with brokerage such that it can repay the debt over a period. We do that because if every time somebody got themselves into a financial difficulty, they thought that they would receive an additional allocation from the health department to help them out, that would not be consistent with good financial management.

The answer to your question about whether we will write off any of the deficit is that, to my recollection, we have done that in only one case—that of Argyll and Clyde NHS Board, to which I referred in my previous evidence. Our general approach would be to proceed with brokerage, as we have with other boards.

Time has moved on since we were in Stornoway. There has been a lot of mismanagement, as we have been exploring, some of the culpability for which rests with your department; not all of it lies with the board. You should take responsibility for some of that, by enabling the board to move on. It should not be hampered by having to pay off an accumulated deficit that makes it difficult to run its range of services, in a remote area, in the proper manner. Is that not a reasonable proposition?

As I said before, Western Isles Health Board receives a level of funding that is unusually high in comparison with that received by other boards. If we were to provide it with additional funds, somebody else would have to go without. We would entertain the proposition only if we were convinced that it was the right way in which to proceed.

Our starting point is to think about brokerage. At all times, whether we are talking about brokerage or a write-off, we would want to be satisfied that sustainable plans were being put in place. If we proceeded without having such plans in place, I suspect that you would rightly criticise us for making an allocation without apparent justification.

You said that the department bears some responsibility in all of this. That judgment is one for you and the committee to make. Throughout our engagement with the Western Isles Health Board, we have striven to restore effective governance, and that continues to be our policy. I am glad to say that it looks as if we are beginning to get there, although I would much prefer that to have happened sooner.

On that positive note, I draw the session to a conclusion. I thank Dr Woods, Alex Smith and Paul Martin for their evidence. I will allow time for Mr Martin to leave the table and for John Connaghan to join us.