HSE’s financial chaos drags on

15 September 2008:

A report into the financial affairs of the HSE has concluded that its wasteful and complex accounting problems are still a long way from being solved – leaving it unable to carry out even its most basic aims.

In February 2006, when the Health Service Executive (HSE) had been in operation for 13 months, the Department of Finance commissioned the National Treasury Management Agency (NTMA) to review the HSE’s financial and budgetary arrangements.

Chains of command and lines of authority were still not clear, and many key positions were still vacant. The HSE had gone ‘live’ without many of the key structures in place.

The Department of Finance, in particular, was clearly worried that, since it had given the HSE the role of accounting officer (taken away from Finance), it needed to have a closer look at how the HSE accountants were dispensing the then €12.6 billion annual budget.

In particular, it was already evident that the HSE had inherited an accounting model from the old health boards that bore no relation to the new vote accounting (see details in panel).

The NTMA, originally established to manage Ireland’s national debt, also operates a financial advisory function. This allowed it to do a root-and-branch examination of the HSE’s banking and cash arrangements, and how it was managing the transition from 12 financial and payroll systems in an organisation that employed 106,000 staff.

Its report, concluded in December 2006,was discussed by the Public Accounts Committee earlier this year, but never officially published.

However, its detailed analysis of how the HSE was managing its budget a year after its inception gives a clear insight into the obstacles faced by the HSE in its early days when it tried to bring order to the chaotic systems it inherited, and how little financial planning was done.

It showed that duplication of bank accounts, plus inefficient banking and cash practices, were costing the HSE €20 million a year in potential savings - a significant figure, but not a major amount in a budget of billions.

The NTMA’s report - leaked last month - brought the usual reactions from the political parties: ‘‘tremendous waste’’ (Fine Gael), ‘‘sloppy practices’’ (Labour) and ‘‘further evidence of HSE dysfunction’’ (Green Party).

What is evident from the report is that, nearly two years later, most of the recommendations have not been implemented. The key to an efficient budgetary structure lies in a streamlined, centralised ICT system, something that will take major investment by the government.

‘‘Nine recommendations have been implemented,” said Liam Woods, director of finance with the HSE. ‘‘The bulk of the rest is dependent on the introduction of a single payroll system and a single financial system for purchasing and reporting.”

It is clear, over three years on, that the original aim behind abolishing the health boards - to rationalise decision-making and streamline the administration of services - has so far been successful only in some areas. It is also clear that the resulting chaos could have been avoided with some greater thought and less haste in implementing the changeover.

At a financial level, the HSE inherited a system with widely differing and incompatible payroll systems, 250 bank accounts in seven banks paying €2 million a year in bank charges, and a duplication of personnel in financial services around the country.

The report gives an insight into the problems of trying to centralise this complex system, and how long it was taking.

For example, in 2006, a year after its inception, the HSE had appointed a national director of finance and nine assistant national directors of finance, but the posts reporting to the assistant national director with responsibility for the vote and the treasury functions had not been filled.

At the same time, the HSE was working through four operational geographical areas - equivalent to two or three of the old health board areas. The result was considerable duplication and confusion in cash flows, payments and budgetary planning.

‘‘While the finance function has been aligned to these new areas, as well as focusing upon meeting new corporate requirements, each of the former health boards - along with other agencies which provided healthcare services prior to the establishment of the HSE - operates its own bank accounts under the pre-HSE arrangements,” the NTMA said.

Meanwhile, the National Shared Services Directorate, which was meant to deliver savings through centralised purchasing, HR, procurement, ICT, legal services and primary care reimbursement services, was making progress, but it would be four to five years ‘‘before it was fully operational’’, the report said.

Payroll systems for the wages bill of the 106,000 staff in the HSE varied in 2006, and still do. Almost one quarter – 23 per cent - of staff still received their wages by cheque, with 37,000 staff on the discredited PPARS system.

But the main recommendation and ‘‘an immediate priority’’ - a centralised treasury unit which could efficiently manage its huge cash transactions and bank managements - is still a long way off.

This small team should make maximum use of technology and computerised information systems to ensure clear lines of communication and accountability in the use of cash in the HSE, but that requires a considerable investment on the par t of the government.

The likelihood of that in the current climate is small, with frontline health services receiving priority.

The main problem for the HSE is that, without significant investment in a strong administrative support at its centre, the aim of the whole enterprise cannot be delivered.