Thank you, convener.
As you have said, this morning, I bring to the committee two more reports, which highlight concerns in NHS Highland and NHS Orkney and were included as case studies in the report that we have just discussed. I prepared the reports under section 22 of the Public Finance and Accountability (Scotland) Act 2000, which, as you know, allows me to bring to the Parliament’s attention issues that have arisen from the audit of the accounts of public bodies.
At the outset, I highlight the fact that the external auditor, Stephen Boyle, gave unqualified opinions on the 2013-14 accounts of those organisations, which means that he is satisfied that the accounts provide a true and fair view of the boards’ financial positions. However, I have prepared reports on the boards because I believe that Mr Boyle’s report highlights issues of concern that should be brought to the Parliament’s attention through this committee.
I will cover the main issues in the two reports in turn. Both relate to weaknesses in financial management. As public sector budgets continue to tighten, effective financial management has never been more important and, indeed, is fundamental in helping those in charge of governance make informed decisions.
In relation to NHS Highland, the auditor reported that weaknesses in financial management were a major factor in the board’s needing brokerage of £2.5 million from the Scottish Government to break even in 2013-14. That was mainly because of an overspend on the operating costs for Raigmore hospital. The auditor highlighted the fact that weaknesses in financial management at the hospital emerged late in the year, and other factors that contributed to the need for brokerage included financial pressures in the acute sector from costs associated with hiring agency staff, especially locum doctors, and meeting national waiting times targets. The auditor also highlighted the board’s continued reliance on non-recurring savings.
Up until February 2014, NHS Highland forecast that it would break even at the end of the financial year. Monthly reports throughout the year to its board of directors forecast a break-even position at year end, but the actual outturn position showed significant overspends against the budget each month, and no sufficiently detailed plans were in place to bridge the gap between the board’s in-year deficit position and its forecast break-even position.
In February 2014, NHS Highland approached the Scottish Government to agree brokerage of £2.5 million to enable it to break even. Brokerage can be positive and give more flexibility if the board and the Scottish Government plan for it appropriately as part of a clear financial strategy. In this case, however, the board had to request it late in the financial year when it would have been unable to break even without the additional funding. Officers of the board did not formally report the brokerage agreement to the board members until close to the end of the financial year. I also note that NHS Highland is due to repay the brokerage over the next three years.
NHS Highland continues to experience financial pressures in 2014-15, and the auditor has reported that its financial position will remain challenging for the next five years. He also highlighted that the cost of delivering adult social care services in Highland continues to pose a financial risk to the board. The board has put in place a new management team at Raigmore hospital, and training is being organised for all budget holders. A programme board has been set up to oversee the delivery of savings, and the board is focusing on delivering savings to achieve financial balance.
With regard to NHS Orkney, weaknesses in financial management were again a factor in its requiring brokerage of £1 million from the Scottish Government to break even in 2013-14. In that case, the need for brokerage was mainly due to the hiring of locum doctors to cover vacant medical posts. The board continues to face difficulties in recruiting staff, and that remains a cost pressure. The auditor also highlighted the board’s continued reliance on non-recurring savings and concerns about the capacity of the finance team, given the financial pressures facing the board.
Throughout the year, NHS Orkney was reporting an overspend against its revenue budget and continuing to forecast that it would break even. However, like NHS Highland, it did not have detailed plans about how it would bridge the gap between its on-going overspend position and the forecast break-even position at the end of the year, and it did not provide reports to its board of directors about how it would achieve that. NHS Orkney approached the Scottish Government in February 2014 to request brokerage of £0.75 million, which was later revised to £1 million in March 2014. The chief executive asked the board’s internal auditor to undertake a detailed review of the 2013-14 financial position, including its approach to budget setting and in-year financial management. That report was presented to the board’s audit committee in late September 2014 and the board is currently developing an action plan.
NHS Orkney still faces significant challenges in making the savings it needs to meet its financial targets. The board has set out its plans to break even in 2014-15, but it continues to place a high reliance on non-recurring savings, which might not be sustainable in the longer term.
As you have said, convener, alongside me today is Stephen Boyle, the appointed auditor responsible for the audits of NHS Highlands and NHS Orkney. Together with Tricia Meldrum, we will do our best to answer the committee’s questions.