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Chamber and committees

Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, November 3, 2016

Agenda: Decision on Taking Business in Private, Section 23 Report, Section 22 Reports


Contents


Section 22 Reports


“The 2015/16 audit of NHS 24: Update on management of an IT contract”

The Convener

Item 3 is evidence on the Auditor General’s report, “The 2015/16 audit of NHS 24: Update on management of an IT contract.” The Auditor General is now joined by Carol Calder, senior manager for Audit Scotland, and Nick Bennett, a partner at Scott-Moncrieff. The Auditor General will make an opening statement before I open the meeting out for questions.

Caroline Gardner

Thank you, convener. I bring two further reports to the committee this morning that highlight matters of public interest in NHS 24 and NHS Tayside. I have prepared the reports under section 22 of the Public Finance and Accountability (Scotland) Act 2000. I highlight at the outset that, in both cases, the external auditors gave unqualified opinions on the accounts of the organisations, which means that they are satisfied that the accounts provide a true and fair view of the bodies’ financial position.

I have prepared reports on the boards because I believe that there are issues of public interest that should be brought to the attention of Parliament through this committee. I will start with NHS 24. The report on NHS 24 provides an update on implementation of a new information technology system called the future programme. I reported to your predecessor committee in October 2014 and again in November 2015 on how weaknesses in contract management had led to delays and escalating costs in the programme.

In October 2015, NHS 24 attempted its planned launch of the new system. Following a serious deterioration in call-handling times as NHS 24 staff struggled to use the new system, NHS 24 reverted to its previous system in order to protect patient safety. NHS 24 now plans full implementation by December 2017—four and a half years after the original intended implementation date of June 2013.

Last year I reported that the total cost of the programme had risen by 55 per cent to £117.4 million, in comparison with an outline business case cost of £75.8 million. NHS 24 now estimates that the total cost of the programme will be £131.2 million, which is 73 per cent more than the cost in the original business case, mainly as a result of additional double-running costs. The Scottish Government provided additional loan funding of £20.75 million to NHS 24 over the period 2012-13 to 2014-15 to help it to manage the additional costs. Of that brokerage, £20.35 million is still outstanding.

Over the past nine months, under the leadership of its new chief executive, NHS 24 has undertaken a fundamental look at what needs to be done to implement fully the new system. Although significant challenges remain, I believe that the board is now taking reasonable steps to reduce the risk of further delay.

I am joined today, as the convener said, by Nick Bennett from Scott-Moncrieff, whom I appointed auditor of NHS 24. Between us, we will do our best to answer the committee’s questions.

Thank you. Colin Beattie has the first question.

Colin Beattie

Auditor General, I accept what you have said about patients not being impacted. However, what you have outlined about the NHS 24 information technology contract is part of an on-going story with information technology projects. The committee has repeatedly heard evidence about their being mismanaged—the NHS 24 IT contract has clearly been mismanaged.

Do the measures that are outlined in paragraphs 22 and 23 on page 7 of the report not seem like overkill? It seems that, immediately following the realisation that there was a problem with the contract, umpteen management groups were formed to oversee it and—I presume—trip over each other. At one time when I worked in the private sector, I had an IT division reporting to me—I could not imagine having to work through the sort of complexity that is outlined in paragraphs 22 and 23. What is your take on that?

Caroline Gardner

I will ask Nick Bennett to comment in a moment, but my view is that most of what is outlined in those paragraphs was almost certainly required. The review that the new chief executive undertook when she took up her post highlighted—as we note in the report—that some problems came from failure to engage with people in health boards who need to join up services with what NHS 24 does. A great deal of the new architecture that is highlighted in paragraph 22 is about ensuring that those relationships are in place and are working effectively. Nick Bennett is closer to that and might have a perspective that you will find useful.

Nick Bennett (Scott-Moncrieff)

I agree with the Auditor General’s point. The groups that have been set up provide the scrutiny and challenge that are required for the project. There are highly experienced senior individuals in the groups who will be involved in a sign-off process for any subsequent phased development of the project. The groups are certainly a useful development in governance.

Are they not compensation for the fact that we do not appear to have people with the right skills to manage the contract, with the response therefore being to form a committee?

Nick Bennett

In the past, we have commented on the lack of appropriate skills in NHS 24. In response, the board has brought in outside experts to scrutinise and challenge.

Are we paying money for people from outside the NHS to sit on the groups?

Nick Bennett

The people are all internal to the NHS or are from wider public sector bodies. They are highly experienced senior individuals and are all from the public sector.

Colin Beattie

Okay. One of the big concerns is the financial obligations in the IT project. On “Financial implications”, the report says that it is unlikely that any of the additional costs can be recovered. Do we have a feel for what the total additional costs will be over the period?

Caroline Gardner

I think that NHS 24 is confident that it can deliver what is required within the figure that is included in my report. A significant amount relates to the double running costs of implementing the new system while keeping the old one up and running. Clearly, there might be change over time, but what is in the report is the latest estimate from NHS 24 regarding its projection of what the project will cost. In my view, it is based on a more thorough understanding of what is required than was the case in my previous reports.

10:00  

The reference to additional costs is purely about the double running.

Caroline Gardner

We have tried to break that down in exhibit 1, where we compare the original business case, the projected costs last October and the projected costs in June from NHS 24. You will see that most of the increase has been in the implementation costs, including the double-running costs, which have gone up by £39.1 million to 132 per cent of the original estimate. The on-going support costs for the contract itself have gone up by a relatively much smaller amount.

You seem to be confident that, now that NHS 24 has a grip of the project, it will be delivered within the timescale and budget indicated—is that correct?

Caroline Gardner

I am now much more confident that the board understands the scale of what needs to be done and has put in place appropriate mechanisms for doing it. It is for the board to provide assurance and deliver that. However, I now feel more comfortable about the project’s prospects than I was a year ago.

Clearly, there is a bigger issue that I hope the committee will address in due course.

Liam Kerr

I appreciate that you have looked at the matter a couple of times previously, but I was not about then and I want to explore the contractual arrangements. In the report, you state that the contractual arrangements were “flawed” and you provide a useful chronology on page 12, in appendix B. The omissions in the tender document were discovered in August 2011 and a contract was awarded two months later. Six months later, NHS 24 staff identified that things were missing and, two years later, the matter was reported to those in charge. To me, that was an enormous failure. Who was found to be responsible and what were the consequences?

Caroline Gardner

You are right—it was a very significant failure, and it was of serious concern to your predecessor committee. None of us likes to see an IT system getting out of control. However, what the audit work and the inquiries uncovered, which was that a member of staff was aware of omissions in the contract documentation that were not brought to the attention of the chief executive until much later, was a serious failure of governance and accountability.

Nick Bennett will keep me straight on this. There have been significant departures of staff, from the chief executive down, among those people who were originally responsible for the project. NHS 24 is now in the final stages of appointing a new permanent chief executive, who has been involved in turning the project around and will be accountable for taking it forward from here.

Nick Bennett

That is correct. A new chief executive has been appointed. Most of the senior management who were involved in the original procurement of the future programme have now left the organisation, and most of the non-executive directors have changed as well.

Liam Kerr

That is encouraging, but we are now running under various letters of intent, and contractual documents are not due to be signed until December despite the fact that the contractual review has been running since January 2015. What is your view on that? Is it good business to be running the whole project and changing the senior management when there are not even any contracts in place?

Nick Bennett

It is an area of risk, for sure. The board is trying to finalise the contracts. The new contracts have been sent to Cap Gemini and BT, and negotiations are going on to finalise those direct contracts. It is an important area that needs to be finalised pretty quickly.

Liam Kerr

You mentioned that a final cost will be available only at launch. In paragraph 27, the report states:

“A final, definitive cost for implementing the system will only be available once it has been launched and is operating successfully.”

As auditors, are you comfortable with that?

Nick Bennett

Because the whole project has been beset by problems and delays, we are not going to know whether the final implementation is in accordance with the timetable that is laid out until it happens. Also, given that a lot of the costs are costs of double running the existing system, the final cost is not going to be known until the new system goes live successfully.

Liam Kerr

That is extraordinary. You have said that the total projected cost is £131 million. I appreciate that we are talking about a complex system, but it cannot be unique. Fundamentally, things look like each other. Do you have any idea, or is there any way to establish, what an equivalent cost would be in the private sector? If the private sector commissioned a system to do something similar to what the NHS 24 system is supposed to do, what would be the cost of that? Has that comparison been done?

Nick Bennett

Not as far as I know. The outline business case was originally for £75 million but, to be fair, the new system has progressed significantly since that. One of our recommendations is that a business case be prepared on what the new system delivers—not only what it costs but the benefits. Once the business case has been prepared, the board will be in a better position to answer that question.

Liam Kerr

To prepare the business case must be a good recommendation but, meanwhile, the contracts are still being negotiated and the systems are still being progressed in the absence of that business case. At what point does it become a good idea for NHS 24 to step back, hit pause and say that, because the system has not worked, it needs to review what is going on and what it needs the system to look like rather than trying to negotiate in the background and run the system?

Nick Bennett

We reported to your predecessor committee that there had been a detailed review of whether NHS 24 should progress with the system. The last time the system failed to go live, there was a deep-dive review of whether the board should abandon it, which concluded that it should continue to develop the system on which it was working.

Liam Kerr

Right. This is not the first time that the committee has considered the matter or that it has considered IT projects. Do you have any idea who is taking the macro learning from it? Various IT projects are in significant trouble; do you see any evidence that that is being acknowledged and that the process for future IT projects is being future proofed?

Caroline Gardner

You are absolutely right that, sadly, it is not an isolated incident. I have reported a couple of times on the bigger picture for developing major IT systems in the public sector. The Government has made some changes: it has appointed a chief information officer and has plans in place to develop capacity within Government that can support smaller bodies such as NHS 24 when they make large investments in IT. We have also made some recommendations about the importance of focusing effort at the beginning of a project to be clear what the body intends to achieve, what the right contract structure is and how we will know that good progress is being made.

The committee has taken evidence on that overall strategy a couple of times. It is too soon to be clear that it is having the desired effect, but it must be the right approach to invest in a central core of expertise at the right level to undertake IT projects and to ensure that bodies do not start off such projects without the right expertise, understanding, IT skills and legal skills to make them work.

I hope that we will not see a situation similar to that in NHS 24 again. It is too soon to say that the changes that the Government has made will deliver that.

Alex Neil

I have two questions. The first concerns the outstanding loan of more than £20 million that NHS 24 has to repay to the Government. That is on top of the normal requirements for efficiency savings. I appreciate that the repayment period has been extended, but £20 million is not an insignificant amount to take out of such an organisation. What other services will be cut back to enable NHS 24 to pay the £20 million to the Government? Something has to give.

The project has now been running for four or five years and the point was to introduce new, leading-edge technology. Given the pace at which technology changes, is the technology still leading edge? Is it up to date? What will be the life-cycle of the technology, given that the system is five years beyond the date when it should have gone live?

Caroline Gardner

I will start off by saying that repaying £20 million to the Government would obviously be very significant for a board of this size. It is also worth noting that the revised repayment plan has been agreed between the board and the Government. Nick Bennett might be able to add more detail on where the board intends to make savings in order to deliver that, or it might well be a question that should be directed to NHS 24.

Nick Bennett

Inevitably, savings will have to be made to repay the brokerage and the additional costs that will be required to be met. A number of the initiatives that had been planned have had to be put back, but it is probably best to address the question of the other savings that the board will have to make to the health board itself.

We should write to the board and ask those questions.

Nick Bennett

On the issue of technology, one of the reasons for asking for a full business case is to identify the changes that have been made to the original future programme and any benefits that have been brought that were not envisaged when the original business case was drafted. After all, significant changes have been made to the technology over this period.

Will this technology be fit for purpose and, if so, for how long?

Nick Bennett

I think that that is another question for the board.

Well, you are the auditor, so you should surely have a view on the matter.

Nick Bennett

We would like to see the full business case prepared, because that will identify the benefits that will come to the board over the next 10 years.

I think that we should take that up with the board, too.

Has the total cost of the future programme changed since the AGS’s report was published?

Caroline Gardner

No. The board is projecting £132 million as of June this year, I think, and there has been no change to that of which we are aware.

The Convener

The estimated total cost is now £55.4 million higher than that envisaged in the business case, and the Scottish Government has loaned the £20 million as discussed. Does that mean that there is a deficit of £34.7 million, and have the auditors discussed how that might be met?

Caroline Gardner

The difference in the cost between the £20.35 million that has been provided in brokerage and the £55 million total has been and will be met by the board itself from its overall budget during the period. As Nick Bennett has said, that has meant delaying some projects that the board had planned to undertake and making efficiency savings elsewhere, but the board has not run a deficit with the brokerage available from Government. It has hit its tight financial targets.

Nick Bennett

It is also worth pointing out that the £132 million includes £62.5 million for on-going support costs, which are, in effect, the support costs over the 10-year period hence. In other words, those costs have not yet been but will be incurred.

Thank you very much. I suspend the meeting for a five-minute comfort break before the next item.

10:12 Meeting suspended.  

10:19 On resuming—  


“The 2015/16 audit of NHS Tayside: Financial sustainability”

The Convener

Item 4 is our evidence session on the Auditor General for Scotland’s report “The 2015/16 audit of NHS Tayside: Financial sustainability”. The Auditor General is joined by Carol Calder, senior manager in Audit Scotland, and Kenny Wilson, a partner at PricewaterhouseCoopers.

The Auditor General will make an opening statement before we move to questions.

Caroline Gardner

As we discussed earlier, the NHS is under increasing financial pressure for a range of reasons. I prepared a report on NHS Tayside for the committee last year that highlighted the board’s reliance on brokerage from the Scottish Government to meet overspends, difficulties in achieving its planned savings and delays in selling surplus property.

This year’s report highlights my continuing concerns about the board’s financial sustainability. In 2015-16, NHS Tayside received a total of £5 million in brokerage from the Scottish Government to enable it to break even. The board has now received a total of £24.3 million in brokerage over the past four years, of which it has been able to repay £4.3 million. NHS Tayside did not repay any brokerage during 2015-16, and it does not anticipate that it will be able to repay any of the outstanding £20 million in 2016-17. It is currently discussing a revised repayment plan with the Government.

In addition to the commitment to repay brokerage, the board is projecting a potential deficit of £11.65 million for 2016-17, and it needs to make efficiency savings of £58.4 million in the same year. Overall, I have concluded that there is a significant risk that the board will not achieve its financial plan for 2016-17 and future years.

I am joined by Kenny Wilson from PricewaterhouseCoopers, whom I appointed as the external auditor for NHS Tayside. Again, we will do our best to answer the committee’s questions.

Thank you, Auditor General. Alex Neil will open the questioning.

Alex Neil

Am I right in saying that NHS Tayside owes the Scottish Government £20 million, has £58 million of savings to make and is projected to make a deficit of £11 million this year? How on earth is it going to achieve any of that?

Caroline Gardner

It is in discussion with the Scottish Government about its financial position. Our expectation is that it will agree a revised repayment plan for the outstanding brokerage and likely additional support for the current year. We have done the report because I am concerned about financial sustainability with that widening gap.

Alex Neil

NHS Tayside has to repay the existing £20 million-plus, and this year’s deficit of £11 million presumably has to be funded by the Scottish Government through brokerage or a loan. That is more than £30 million. Where is the board going to find £30 million to repay the Scottish Government while making £58 million of savings at the same time? That is a huge reduction in service provision. Surely that is totally unachievable and unsustainable.

Caroline Gardner

I will ask Kenny Wilson to comment in a moment but that is really a question for the board. The reason for Audit Scotland reporting to the committee is that I am concerned that the board’s financial position looks to be increasingly unsustainable.

Kenny Wilson (PricewaterhouseCoopers)

The board has put in place a five-year transformation plan and it hopes to make savings of £175 million in that five-year period. There is no doubt that, in 2016-17, £58 million of savings is required to achieve financial balance, which is significantly more than the board has saved in previous years. That will be a challenge, but it is worth saying that the board has a number of good opportunities to make those savings through a redesign of the whole service. The board has certainly embraced that.

The board’s average patient cost and prescribing cost are higher than those of other boards. With more than 26 hospital estates, it has one of the largest property footprints in comparison with other boards. More than 60 per cent of the board’s property is more than 30 years old, which is older than that of other boards.

There are therefore a number of things that the board can do. Those will take time, but it is planning to make those savings in its five-year transformation plan. The board has an ambitious plan but is working to try to achieve it.

Alex Neil

As you know, a redesign of services takes a long time. I do not know the detail of NHS Tayside’s proposals for redesign, but I presume a significant redesign will be required to facilitate the repayment of such a large amount of money and will take years.

We have already seen that one of the board’s failures is its failure so far to dispose of assets on anything like the required scale. Surely it is very optimistic to assume that it will suddenly be able to dispose of assets on the scale required in order not to make very deep cuts in service provision? As auditors, you must recognise that. We cannot just say to patients in Tayside, “Because of the incompetence of your board, we are going to hammer you with service cuts.” That is just not sustainable. If this were the private sector, the board would be a basket case.

Caroline Gardner

We are not saying that services must be cut to fund the gap that I have highlighted. The reason for bringing the report to the committee’s attention is so that the committee and the Parliament are aware of the challenges and have the opportunity to explore with the board and the Government how they plan to address the problem.

Alex Neil

We need to talk to both the Government and the board about the situation. The potential impact on service provision in Tayside worries me. What is being proposed sounds unacceptable to me in terms of the service cuts that would need to be made in order to pay for the board’s incompetence.

In your report you talk about the payment of enhancements during leave. Paragraphs 12 to 16 clearly tell a story of management incompetence. I am not suggesting that that is the only factor because we all know about the pressures on the national health service, but it is clear that things have not been managed very well in Tayside. Have any heads rolled? Has anyone been hauled over the coals for that? It shows rank bad management by people who are paid extremely well.

Kenny Wilson

No. I am not aware of anyone being held to account for that or having lost their job as a result.

So no one has been held to account for this mess.

Kenny Wilson

The board recognised the challenges that it has and is regularly discussing with Scottish Government how it can address those. However, as far as I am aware, no one has been held to account for anything that has happened in the past.

Alex Neil

Do you not think that that sends out the wrong message to everyone in the health service? If people are in very well paid senior positions—we are talking not about medics, but about managers—but are delivering that kind of performance, surely something has to happen.

Kenny Wilson

Yes. Something should happen. Action is being taken to address some of the concerns and challenges that the board is facing, and that is encouraging.

Does the current management team have the competence to take the necessary action, given that it got the board into the mess that it is currently in?

Kenny Wilson

The current management team was put in place relatively recently. The chief executive has been in post for only the past couple of years, along with the director of finance. Those are the two key executives who are making changes in the transformation plan. With the new management in place, progress will be made.

Alex Neil

I wish I were as confident as you are about that.

We need to invite in both the board and Paul Gray from the Government. I do not see how the board is going to be able to get anywhere near the savings that are required to repay the money without making very deep cuts in service provision, which I think would be unacceptable to patients in Tayside.

Caroline Gardner

I completely agree that the situation is very serious. The powers that we have are to report to the Public Audit and Post-legislative Scrutiny Committee so that the committee is aware of the issue and can explore with the Government and NHS Tayside the action that they are taking.

Mr Wilson, how appropriate are pay enhancements for senior managers, given the state of NHS Tayside’s finances?

Kenny Wilson

Pay enhancements are in place not just in Tayside, but across other boards; they are in line with other boards. The practice has been in place for a number of years and the question whether those pay terms should be amended would be a matter for discussion with the Scottish Government.

Is whether to award pay enhancements in the hands of the Scottish Government?

Kenny Wilson

Enhancements are certainly part of the packages that are given to reward staff and therefore I guess that they are just like any other aspects of rewards—they can be adjusted through negotiation with staff.

In your audit, did you reach a figure for what the pay enhancements totalled over the past year?

10:30  

Kenny Wilson

Yes. I will just double check in my papers for the annual cost of pay enhancements. There are two elements to pay enhancements in Tayside. There is the one-off catch-up for the error that was made in previous years. That totalled a provision of close to £10 million—

Sorry—to clarify, I am talking about senior managers rather than the enhancements programme.

Kenny Wilson

Are you asking about enhancements for senior management?

Senior managers, yes. Awards were made very recently that were significantly above 1 per cent. I wondered whether you had totalled those during your audit.

Kenny Wilson

I do not have that number to hand but I can certainly provide it to the committee after the meeting.

The Convener

Okay, thank you.

You talked about the five-year transformation programme, which I am familiar with and which was discussed at NHS Tayside’s annual review just a few weeks ago. You also talked about a redesign of the whole service being appropriate—I think that the Auditor General said that as well—but what exactly does that mean?

Kenny Wilson

The executive team has set up work streams to look at all aspects of the health board. As I said, the board has a number of areas where the operating cost model is higher in comparison with other boards. The work streams include workforce planning, property planning, realistic medicine, better buying and procurement, and facilities and estates, so the board is looking right across a number of areas at how best it can make the service more efficient and more effective.

Could that mean a reduction in the number of jobs?

Kenny Wilson

In a number of areas, such as clerical and administrative staff, there is a higher proportion of staff in comparison with other boards. That indicates that savings could be made if the number of jobs were reduced, hopefully without any impact on the service.

The Convener

The report talks about brokerage, and we know that NHS Tayside has had to go to the Scottish Government for the past four years for brokerage. Can brokerage be provided indefinitely? Could it be waived by the Scottish Government? If brokerage is required for Tayside possibly into next year, which would mean a total of five years of brokerage, does that suggest that brokerage is not really about unexpected change to planned expenditure?

Caroline Gardner

Brokerage is certainly intended to be a short-term loan that responds to unexpected expenditure. In order to receive brokerage, a board normally has to demonstrate to the Scottish Government that it is able to repay it in future years. A repayment plan is part of the conditions for brokerage.

In this case, it appears that the repayment plan was not realistic. The health board has not been able to repay very much at all of the brokerage that it has received. It has no plans to repay it this year and discussions are under way about future years.

There is no reason why the Scottish Government could not waive brokerage if it chose to do so. My concern for the health service as a whole, as well as for NHS Tayside, is that a more strategic, longer-term financial plan is needed—one that provides a realistic balance between the funding that is available and the costs of providing services. Tayside is the health board where the gap is most apparent.

So if the Scottish Government decided to do so, it could waive the debt that NHS Tayside has incurred over the past four years.

Caroline Gardner

As far as I am aware, there is no reason why the Government could not do that if it so decided. It would have to think about the impact on NHS Tayside and on the wider health service, but I think that waiving it would be at the Government’s discretion.

The Convener

The brokerage model is about unexpected change. NHS Tayside has had to go for brokerage for the past four years, but clearly the future debt, the planned savings and so on are not unexpected, as you have identified. It is very much expected that it will be very difficult for NHS Tayside to meet its savings targets—I hope that it will not do so through a cuts agenda. Does the Scottish Government require a model that is different from the brokerage model to meet NHS Tayside’s very difficult situation?

Caroline Gardner

Again, I put this in the context of the NHS as a whole. I think that two things are needed. First, committee members might recall that this year and in previous years we have reported on the need for a more flexible regime that does not require each health board to balance its revenue and capital spending to the penny every year. Such an approach focuses a lot of attention on that particular year’s targets instead of long-term sustainability. Secondly, as we have been discussing in relation to the overview report, part of the solution is to put in place a longer-term financial plan for the NHS as a whole to ensure that its finances are sustainable and that change is happening. I completely agree that the way in which brokerage is being used here is not helping to address the underlying questions about the board’s financial sustainability.

Given the very difficult situation, would you recommend to the Scottish Government that it come up with a different model to help out NHS Tayside?

Caroline Gardner

Our understanding is that NHS Tayside and the Government are already in discussion about the future. I do not know what those discussions are covering, and that might well be an issue that the committee will want to explore with both parties.

Your report says that reliance on agency staff has risen by 39 per cent just over the past year. Why is that figure so high?

Kenny Wilson

One of the key issues that the board is looking to address is the use of agency workers and increasing its nurse bank. In 2016-17, the aim is to reduce the costs of non-contract agency workers by 30 per cent, which is encouraging. Part of the reason for that approach is to ensure that the board has a good nurse bank on which it can draw instead of having to use agency workers, and that is certainly one of the issues that it has been trying to work at. That said, I am unclear as to the reasons for the high reliance on agency staff. You will have to ask the board about that.

The Convener

Okay. When we spoke about jobs, you said that because of NHS Tayside’s expensive operating model, clerical or administrative posts might be part of service redesign. I am very concerned about that, given that we obviously do not want staff to bear the brunt of financial mismanagement at NHS Tayside. Why is its operating model so expensive?

Kenny Wilson

As I think I mentioned earlier, a number of factors have probably had an impact. It is unclear to me why, say, agency and prescribing costs are higher, but those are two things that drive a big cost difference.

I should also point out that NHS Tayside has 26 hospital sites, which is a large number, and there is a need to look at consolidating some of them in order to make some savings. Again, the five-year transformation plan is looking at all such options. Moreover, the board has an older property estate, which tends to be more inefficient; because of its age, it takes more effort and costs more to look after it. Some of the estate has a very low occupancy, so there is an opportunity to consolidate things.

As I have said, a number of factors have contributed to the position, and that is what the board is looking to address.

The Convener

That brings me to the issue of non-recurring savings, which we touched on in our discussion of the overview report. How concerned are you about the high percentage of non-recurring savings, given the huge amount of savings—£60 million—that NHS Tayside has to make this year?

Kenny Wilson

It is of grave concern that the proportion of recurring savings is so low. That is partly because achieving such savings requires some more structural change, which tends to take longer to put in place. However, there is no doubt that the board would be in a far better position if it had a lower percentage of non-recurring savings.

Prescribing has been identified as one of the costs. Was prescribing identified as a factor in your report on NHS Tayside last year, too?

Caroline Gardner

I have to confess that I cannot confirm that from here. We can do it immediately after the meeting.

The Convener

Mr Wilson talks about redesign of the service and much more structural change. One of my concerns, though, is that the initiative on prescribing was launched only about three weeks, or at most a month, ago. Why has NHS Tayside not managed to deal with those issues a lot sooner? It has been aware for a long time that prescribing has been an issue.

Kenny Wilson

That is true. It is probably best to ask NHS Tayside that question. I cannot answer it.

The Convener

I come to my last question, which is on a minor point of clarification. Paragraph 21 refers to an

“efficiency savings target for 2016/17 ... set at an unprecedented level of £58.4 million”.

Is that unprecedented for Tayside or for Scotland? The general report, “NHS in Scotland 2016”, suggests that Shetland’s target may be slightly higher, but that might be as a percentage rather than in terms of total cost.

Kenny Wilson

It is certainly unprecedented for Tayside. The Shetland savings target is more like 7 per cent.

Caroline Gardner

Our report shows it as 8.7 per cent, but that is obviously a percentage of a much smaller overall spend for the board. It is still significant for Shetland, but it involves a much smaller sum of money.

So, in terms of efficiency saving targets in pure numbers—in hard cash—this efficiency saving target for NHS Tayside is unprecedented across Scotland.

Caroline Gardner

From the information that is available here today, yes—it is higher than anything across Scotland in cash terms. More important, as Kenny Wilson said, it is unprecedented for this board in terms of its ability to deliver savings in recent years. It is a significant increase which, as you and other members have highlighted, is very challenging for the board.

Alison Harris?

I think that you have asked everything that I was thinking about.

Liam Kerr?

Likewise.

Colin Beattie

I associate myself with Alex Neil’s comments. Looking at the report and all the financial indicators, I think that it is unfortunate that the management team did not handle this better. There are clear deficiencies here. The board has higher staffing and higher costs than other NHS boards and cannot even meet more than five out of 15 national targets. It would be bad enough to have the extra costs and so on, but not to meet the targets as well is pretty shameful.

This bears a great deal more investigation. In paragraph 29, you highlight a series of workstreams that the board is putting in place to try to sort the thing out, which are all basic management activities that should already have been dealt with. They are not new—they represent day-to-day management that does not seem to have been taking place.

I pick up on something that Kenny Wilson said. We are talking about awards to senior staff. We should be clear that the Government may set the policy on those awards but it is the local board that makes the awards. The Government is not directly involved in giving awards.

I come back to the property side, which is obviously a great concern. These are one-off sales, which are not sustainable. In a previous report, Auditor General, you talked about Ashludie hospital. There was a particular issue in respect of the accounting for the sale of that hospital. Has that gone away? Has it been adjusted through the accounts? Is Ashludie one of the properties that are still awaiting sale?

Caroline Gardner

I will ask Kenny Wilson to give you the up-to-date position. You are absolutely right that one of my previous reports raised concerns about the accounting treatment, whereby proceeds were being recognised in advance of a sale being agreed, which is clearly contrary to proper practice.

Kenny Wilson

In 2014-15, we reported that we made the board adjust for that. It had recognised the sale of Ashludie in its accounts in 2014-15. That was reversed out and was not recognised in that year.

You say “reversed out”. What impact did that have on the accounts?

Kenny Wilson

The impact was a requirement for additional brokerage—the figure was about £5 million—in 2014-15. The sale was finalised in 2015-16 and correctly recognised in the accounts as a profit.

The same sum?

Kenny Wilson

Yes—the same sum was recognised correctly in 2015-16. The sale was concluded in October 2015.

10:45  

So that one-off sale has reduced the brokerage.

Kenny Wilson

Yes—in discussion with the Scottish Government, the board was allowed to take it into the revenue numbers for 2015-16.

Colin Beattie

With regard to the outstanding properties, the report notes that the board anticipates receipts of £7.6 million from the sale of 24 properties and sites. That seems to be an awful lot of properties and sites. What do they consist of? I have no feel for it. That is not very much money for such a number of sites.

Kenny Wilson

One of the challenges that the board faces in the current environment, given where the sites are, is to find buyers that want to convert them to a different use. The board has had a lot of challenges in finding appropriate buyers, and it has outlined that it hopes to sell the sites for £7.4 million. It will take the board some time to achieve the maximum value that it can get.

There are a fair number of properties. Presumably, a substantial number of them must be empty and awaiting sale.

Kenny Wilson

Yes.

So there is a cost for maintaining them, providing security and so on. Although there is a one-off benefit from selling them, how much benefit would there be on the revenue side in reducing those costs?

Kenny Wilson

There will certainly be on-going savings from disposing of the properties, through reducing maintenance.

Anything significant?

Kenny Wilson

I do not have a number for those particular sites, but I can try to find out what the potential savings would be. The majority of the sites are unoccupied and not in use.

As we well know, providing security for some of these sites and keeping them safe can be quite expensive.

Kenny Wilson

Yes, it can be—you are right.

It would be interesting to know what the potential impact on revenue would be. That would be a recurring saving as opposed to a one-off saving.

Kenny Wilson

Yes, it would be.

My suspicion is that it will not swing the board round.

Kenny Wilson

No, but it will certainly help. I can find that number and provide the committee with it after the meeting.

Okay—thank you.

Are there any other questions from members?

Monica Lennon

I had a question, although Colin Beattie has picked up some of it. It is on the issue of assets held for sale. From reading the report and hearing the evidence today, my sense is that there is quite a strong reliance on those 24 properties. The report highlights that the vast majority of them have been held for sale for quite a long time—13 for over a year and three for more than four years. I assume that the figure of £7.6 million is based on projected market value.

What advice is the board receiving? Does it have internal expertise? What is the plan for marketing those properties? Is it being kept under review? From reading the report and hearing what you have said, I am not convinced that the £7.6 million is achievable any time soon, and there does not seem to be any fallback. What can you say about the professional advice that has been made available to the board?

Kenny Wilson

I am aware that the board is working closely with skilled people and experts in the Scottish Government, and the Scottish Futures Trust has been advising it on the disposal of properties. You are absolutely right—it is taking the board longer than it would like to sell the properties. I think that it will take longer than the board anticipates. The values that it has put on the properties are estimates that it has been given by professionals—those are the prices that the board thinks that it can get—but unfortunately only time will tell whether it can receive the amount that it highlights.

It is fair to say that the values that the board has achieved to date in selling properties have not been as high as people thought might have been achieved or as high as the board would have liked. The management team has done a lot of work to understand what the properties are and to try to ensure that the estimates are realistic. The timeframe for selling the properties is difficult to measure, and there is a trade-off between maximising the value and trying to dispose of them quickly.

Have offers been made but rejected on the basis that they are not achieving good value?

Kenny Wilson

Offers have been made on a couple of properties and the management has taken steps to accept them, because the board recognises, as Mr Beattie says, that it is better in some respects to dispose of the properties and move forward on them. The board is working on that, and it is taking advice from the right people, I believe.

Are those offers below market value?

Kenny Wilson

The offers are around market value for some of the properties and below for others. You are probably best asking the board for an update on exactly where it is with that.

Monica Lennon

If properties were being sold on the cheap, how would that be reported at the board? As far as transparency is concerned, how would we find out whether there was good value, with properties not being sold off too cheaply?

Kenny Wilson

That is certainly part of every audit. We would see the value coming through the accounts as a loss on the disposal of the properties. We would be able to see from the annual accounts what the impact of that was.

I do not believe that there is a plan to sell off the properties at levels that are any lower than the market value. Fortunately, the value at which they are being sold is very much what the market is willing to pay. It is difficult, because the property market in Dundee and Tayside is challenging.

The Convener

I will return to a couple of points. I go back to the 39 per cent rise in the spending on agency staff. I am not clear about why there has been such a huge rise just over the past year. I know that I have asked this question before, but can you shed any light on it?

Kenny Wilson

The challenge that the board has had is that it has not been in a position to have sufficient bank nursing and the right staffing. It is a question that you would be best asking the executive team. It is an area that the board is focused on trying to address. As I indicated, it is looking to reduce agency costs by 30 per cent by the end of 2016-17. It is increasing the nurse bank quite significantly in order to reduce them.

I am unclear as to the reasons why the increase that happened in the previous year got to that level.

Caroline Gardner

I have just been checking with Carol Calder what information we have here now. It is a question that you would need to explore with the board. Looking at the summary information that we have in the overview report, I think that it is clear that the nursing and midwifery agency spending has gone up a lot, but the nursing and midwifery vacancy rate is not particularly high compared with that in other boards in Scotland. The question would be well worth exploring with the board to see what has led to that jump in agency spending. In the submission that it has made to you, the board targets that as one of the key areas where it wishes to reduce spending in order to bring its finances back into balance, although it does not explain what led to the increase in the first place.

The Convener

I know that you considered the matter in your general report, which we studied earlier. Judging from best practice in other boards that have less reliance on agency staff, how do you think that they achieve that, and what lessons do you think NHS Tayside could learn from that?

Caroline Gardner

Three things play into the use of agency staff. One is having vacancies on the establishment. It appears from the figures before us that the vacancy rate is not particularly high in NHS Tayside. The second is having high levels of sickness absence, which create a need to fill the gap across the piece because services need to continue to be delivered and members of staff need to come in. The third is how those short-term gaps are filled—whether by agencies or by the board’s own nursing bank.

Any of those three is possible. The figures that we have here today—the figures in the overview report—suggest that it is not down to either the vacancy rate or the sickness rate. I think that that is an entirely appropriate area to explore with the health board.

So it is a matter of managing the balance between bank nursing and contracted nurses.

Caroline Gardner

I would expect that that is one of the areas to explore. There may be other factors that are unique to Tayside that are not coming through in the submission that the board has made to you. It highlights that it forecasts a 30 per cent reduction this year, which is equivalent to £1.5 million, but it does not focus on why the spend is as high as it is in the first place.

Do you think that that reduction is achievable?

Caroline Gardner

As Kenny Wilson and I have said throughout this session, it is challenging. Whether that specific reduction is achievable will depend on the reasons for the high level of spend in the first place.

Given that you all think that the situation is challenging, could we be looking at the cuts to services in NHS Tayside that Mr Neil mentioned?

Caroline Gardner

That very much depends on, first, the success with which NHS Tayside is able to deliver on its transformation plan, which it summarises in its submission to you, and secondly on the support that the Scottish Government is able to give it while it is implementing the plan. The reason why I have reported to you today is that I am concerned that the board’s finances are currently not sustainable and services cannot carry on being delivered against that financial background.

Do you think that the transformation plan is good enough at this stage?

Caroline Gardner

Kenny Wilson might want to add to this, but I think that our sense is that it focuses on the right areas and that the board has struggled to deliver its efficiency savings in the past.

Kenny Wilson

I agree with Caroline Gardner. It will be a challenging five years. I think that the five-year plan is focusing on the correct areas—the areas that the board needs to focus on. It is clear that there are circumstances unique to NHS Tayside that provide an opportunity for us to make some significant improvements to both its efficiency and its effectiveness. That is good, but there is no doubt that it will still be quite a challenge to implement and make savings of £175 million over the five-year period and to repay the brokerage.

As we said, a deficit is forecast for the current year—2016-17—and the board still has to make just under £46 million of savings. That will be challenging. The amount is more than double the savings that it has made in previous years. There is no doubt that there is risk around the transformation plan, but the positive thing is that the board is totally engaged with that. It is talking closely with the Scottish Government on a regular basis and, from what I have seen, it is certainly doing the right things.

But you fear that that could result in some clerical and administrative posts going.

Kenny Wilson

I think that the board would say that it has higher staffing in certain areas compared with other boards. That indicates that there may be opportunities over a period of time to reduce those numbers without impacting on things. However, that is something that the board will consider, and I am sure that it will be able to talk to you about it.

Finally, has any NHS board in Scotland been in a similar financial predicament before?

Caroline Gardner

In my time as Auditor General, this is the most challenging position that I have seen. In the slightly more dim and distant past, we had real challenges in the Western Isles and Argyll and Clyde health boards, but they occurred before I had my current responsibility, so I cannot compare them in that sense.

Thank you for your evidence today. We now move into private session.

10:58 Meeting continued in private until 11:09.