Report: Investigation into why changes were made to procedures in respect of payments made to Trades Unions under the Action Plan for People Management
Internal Audit Directorate,Health Service Executive,
Phoenix Hall,
St Mary’s Hospital,
PhoenixPark,
Dublin 20.
Tel: 01 603 8900
Fax: 01 603 8915
Report
To:Mr.Sean McGrath, National Director, HR- HSE
From:Dr. Geraldine Smith, Assistant National Director Internal Audit.
Subject:Health Services National Partnership Forum:
Investigation into why changes were made to procedures in respect of payments made to Trades Unions under the Action Plan for People Management
Approved by:Mr Michael Flynn, National Director, Internal Audit
Date:9th December 2011
Ref:DMLD008HRES1211
Table of Contents
PageExecutive Summary
- Audit Objectives
- Background
- Context
- Key Audit Findings - Summary
- Management Comment
- Statement from Former Director - HSNPF
- Audit Opinion
- Acknowledgement
Main Report
- Introduction
- Background
- Audit Objectives
- Audit Scope and Methodology
- Management Comment
- Audit Opinion
- Overview
- The Issues
- Statement from Former Director - HSNPF
- Context
- Audit Findings
- Appendix I – Statement from Former Director HSNPF
- Appendix 2 – Statement from Former Director HSNPF (Extract from 2010 Statement)
- Appendix 3 – Health Services National Partnership Forum Constitution and Rules
- Appendix 4 – HSNPF Income 1999 to 2010
- Appendix 5 – HSNPF Expenditure 1999 - 2010
- Appendix 6 – HSNPF Procedures for Disbursal of Trade Unions APPM funds
- Appendix 7 – Membership of APPM Monitoring Implementation Committee
Executive Summary
Investigation into why changes were made to procedures in respect of payments made to Trade Unions under the Action Plan for People Management
Audit Objectives
To examine the circumstances that led to changes being made to HSNPFprocedures in respect of payments made to trade unions under the Action Plan for People Management which resulted in a situation whereby instead of the HSNPF receiving and validating claims from trades unions, it paid the funding over in lump sum form to one trades union, SIPTU, for it to validate and disburse to other trades unions. A total of €750,205 was paid to SIPTU in this manner between December 2005 and December 2008, (being €50,205 – December 2005, €200k – February 2007, €250k – September 2007 and €250k December 2008) some of which was subsequently paid by SIPTU to other trades unions. Supporting documentation for the disbursal of this funding was not sought by HSNPF from SIPTU.
In total, between August 2004 and December 2008 a total of €925,964 was paid to SIPTU of which €770,000 was unvouched ( and of which €750,000 was paid in four lump sums) and a further €48,324 was inadequately vouched. (See Table 3 for detailed analysis)
Background
A HSE Internal Audit report on HSNPF issued in December 2010 identified significant findings in relation to governance arrangements in operation at the HSNPF
One key governance finding identified that guidelines drawn up by the HSNPF management to manage trades unions Action Plan for People Management (APPM) funding were not adhered to by the HSNPF and instead of the HSNPF receiving and validating claims from trades unions for APPM funding, it paid the funding over in lump sum form to SIPTU for it to validate and disburse to other trades unions. An undocumented change to the process governing this fund resulted in four payments totalling €750,205 being made to SIPTU in four lump sums, some of which were subsequently paid to other unions. Following contact from HSE Internal Audit, four unions confirmed they had received, but had not yet spent the funds and that they would repay the money to HSE. In total the four unions refunded €275,283.13 to the HSE.
SIPTU received €924,963 from the APPM fund. All payments to SIPTU were paid to the SIPTU National Health and Local Authority Levy Fund. SIPTU has stated that this account was not an authorised account of the union.
The Committee on Public Accounts in its “Final report on: Appropriation Accounts 2008 &2009; Annual Reports of the Comptroller & Auditor General 2008 & 2009; and Special Reports of the C&AG (Hearings of the Committee in the period July 2009 to January 2011)”. (published July 2011) recommended that:
The HSE should investigate the manner in which changes were made to procedures in respect of payments made to trade unions under the Action Plan for People Management(Recommendation (vi))
Following the December 2010 audit, the HSNPF and its functions were subsumed into the HSE HR directorate.
CONTEXT:
Total APPM funding received and disbursed by HSNPF between 2003 to 2008 was approximately €1.6m (representing 4% of HSNPF’s total income and expenditure between 1999 to 2010.
This report deals, in the main, with issues relating to a specific and distinct set of transactions – namely thirteen payments of APPM funds made by HSNPF to the SIPTU National Health and Local Authority Levy Fund. These specific transactions occurred between 2004 and 2008 and their value was €925,964. These transactions represented approximately 2% of the HSNPF’s total income and expenditure between 1999 to 2010.
In reading this report it is important to note that the circumstances and issues attaching to these specific and distinct transactions are not applicable to other HSNPF transactions and processes.
Key Audit Findings - Summary
- The Union Joint Chair /SIPTU Representative in effect became the manager of a substantial proportion of the trade union APPM fund provided to HSNPF and for which HSNPF was responsible
- While HSNPF initially established procedures to control and disburse these funds , from 2005 it breached its established procedures and paid lump sum amounts totalling €750,205 (viz. €50,205 - 2005, €200,000 - 2007 €250,000 – 2007 and €250,000 – 2008) to SIPTU without seeking supporting documentation in breach of its own procedures
- There is no documentation to indicate if the change in procedure was approved by the Forum (i.e. the Board of the Forum)
- HSNPF management relied on the Union Joint Chair’s written assertion that he had validated the claims of other unions
- HSNPF management assumed that the disbursement of the funds by SIPTU would be subject to SIPTU’s own control processes.
- Due to the lack of records maintained by the Union Joint Chair/SIPTU representative, SIPTU is unable to provide documentation to state how the funds were expended
- The former Director (CEO)of HSNPF assumed that backing documentation continued to be obtained by HSNPF officials from SIPTU
- The former Director of HSNPF informed HSE Internal Audit that various audits (internal and external) and HSNPF internal controls raised no concerns over the payments in question over the years
- HSNPF managementdid not consider the APPM trades unions funding to be HSNPF funding and it did not consider HSNPF to be accountable or responsible for the funding
- HSNPF management considered HSNPF to be a conduit for the funding received from Health Boards/HSE APPM Implementation Monitoring Committee (hereinafter referred to as the APPM Implementation Monitoring Committee) to the trades unions
- The Union Joint Chair/SIPTU representative held the position of the HSNPF Joint Chair for 12 years since the establishment of the HSNPF. This is not in accordance with good governance.
- The Union Joint Chair/SIPTU representative was considered by HSNPF management to be a key driver in establishing the HSNPF. This resulted in a close working relationship forming whereby the Union Joint Chair’s role as chair of the Forum (i.e. Board) overlapped with the executive role of HSNPF management. This resulted in a lack of distance between the Union Joint Chair/SIPTU Representative and HSNPF officials.
The audit also identified findings relevant to the HSE APPM Implementation Monitoring Committee (i.e. these are not relevant to HSNPF). These findings are included in this report as they represent a key aspect of the APPM Implementation Monitoring Committee’s application approval process for the allocation of APPM funding. These findings are:
- The fact that there was very little difference between the wording of the proposal for funding submitted each year to the APPM Implementation Monitoring Committee by the Union Joint Chair/SIPTU Representative on behalf of the trades unions and the fact that the cost profile was exactly the same in the final three years’ applications would call into question the robustness of the applications.
- There was a lack of separation of function in the APPM Monitoring Implementation Committee application approval process as members of the APPM Implementation Monitoring Committee adjudicated on applications from their own organisations (e.g. the Union Joint Chair/SIPTU representative submitted the application for trades unions funding to the APPM implementation Monitoring Committee and he was a member of the committee which approved the funding for his application.
Management Comment
On 2nd December 2011 Internal Audit issued a draft report to the National Director of HR for his comments.
In his response on 8th December, the National Director stated:
This reports outlines that there was significant governance and control failures, including financial, associated with the administration and management of the HSNPF. It shows the consequences that can result in the confusion between what is ‘stakeholder involvement’ and what is Governance and Accountability.
As a result, many of the governance issues and control weaknesses that have emerged in this audit report, and the December 2010 audit report, arise from the nature of the operating model – existing as it did – as a satellite entity outside of the mainstream management control system. It is of particular concern that these failures were not highlighted or addressed until HSE’s Internal Audit carried out a review the operation of the HSNPF in 2010.
HSNPF has now been fully subsumed and integrated into the HSE.
Statement from HSNPF former Director in response to draft report
The former director of the HSNPF (retired since March 2009) provided the following statement to HSEIA on 1st December 2011.
The HSNPF had in place satisfactory systems and procedures for handling applications for funding, processing these applications and making payments. All the transactions were reflected in its annual accounts which were thoroughly audited by the Comptroller and Auditor General and reported to the Forum. In addition the HSNPF employed a professional internal auditor who carried out quarterly in depth audits of all its financial transactions. These reports are all available on the HSNPF files.
HSNPF management felt assured by the various audits (internal and external) and internal controls which included committees on finance, risk and audit. All these committees included Members of the Forum and Trustees. The HSNPF employed a part time professional accountant, part time professional internal auditor along with competent, experienced administrative staff.
To further the development of workplace partnership in the health services in the context of national partnership involving Government, employers and trade unions, the Forum’s Union Joint Chairman/SIPTU representative over a number of years persuaded the Department of Health and health service management to invest in training and development of union representatives.
He was acknowledged as the lead advocate and organiser for the unions in making submissions to the APPM Monitoring Committee whose membership included Department of Health and Children, health service management and trade union representatives. The Secretary to the APPM Monitoring Committee recognised his position in correspondence on a number of occasions, for example she wrote directly to him in 2008 informing him that €250,000 had been granted for the training and development of union representatives. This letter was copied to the HSNPF.
In 2004 the HSNPF agreed to a request to act as a conduit for payment of APPM funds to the unions, by having the funds lodged to its account for the purpose of onward allocation. The HSNPF did not have control of these funds insofar as they were not at its disposal.
In the course of the 2006 audit the Comptroller and Auditor General’s office discussed the matter of the APPM payments to SIPTU with HSNPF staff and expressed no concern. Nor was the matter raised in the C and AG’s annual management letters approving the annual accounts over the years. The HSNPF’s Internal Auditor on a quarterly basis assessed adherence to HSNPF Financial and Accounting Processes, Procedures and Internal Controls and raised no concerns.
The Union Joint Chair/SIPTU representative had strong working relationships across the health and local authority services. His relationship with HSNPF officials was not in any way inappropriate. It is not accepted that he exercised an executive role since 2002.
Audit Opinion
With effect from 1 January 2005 HSNPF should have been integrated into the HSE. However, action did not take place until 2010 to subsume and integrate HSNPF activities and processes into the HSE.
While this report relates to transactions representing approximately 4% of HSNPF total income and expenditure between 1999 to 2010[1] the size of the APPM transactions relative to the size of HSNPF’s total transactions is not important. What is important is that all taxpayers’ funds are properly controlled, expended and accounted for. This did not happen in the case of €818,324 (€770,000 unvouched and €48,324 inadequately vouched) APPM funding provided to SIPTU. The majority of these transactions occurred between 2005 and 2008.
HSNPF had initially established operating procedures for the disbursal of these APPM Trades Unions funds and in 2004 - 2005 the process operated, in the main, in accordance with the procedures. In December 2005 the operating procedure was changed whereby the balance of the trades unions APPM funding was paid to the SIPTU official in lump sum form without vouching and this practice continued each year from 2007 when the full annual allocation was paid to the SIPTU official for him to validate trades unions’ claims and disburse to other trade unions.
This report has shown that the level of diligence usually shown by the HSNPF in controlling and disbursing public funds was not extended to its distribution of APPM funds to SIPTU as it allowed its established procedures and controls to be undermined and diminished.
This has resulted in situation whereby the HSNPF was, in effect, unable to account for its disbursement of €770,000 in tax payers’ funds to SIPTU. This is unacceptable for a public body entrusted with taxpayers’ funds.
The HSNPF management is of the view, for reasons outlined in this report, that the APPM funding provided for trades unions was not HSNPF funding and consequently it considered
HSNPF could not be deemed to be responsible for it. Indeed the fact that this view existed since at least 2005 is supported by the reference by the Union Joint Chair/SIPTU Representative in HSNPF minutes that HSNPF would operate in a “caretaker manner” for the funds. However, the fact that the HSNPF’s audited annual financial statements for the years 2003 to 2008, compiled by HSNPF Management and signed by the HSNPF Joint Chairs (including the Union Joint Chair/SIPTU representative), included APPM Income and expenditure reflects the actuality of the situation viz. that the HSNPF was accountable and responsible for the control and disbursement of the funding.
The APPM funds were not, contrary to HSNPF’s belief, the trades unions’ money for which HSNPF was not responsible and accountable. Therefore HSNPF management should not have allowed the Union Joint Chair/SIPTU Representative to have had an involvement, or an entitlement to an involvement, in the disbursement and control of the funds.
HSNPF management speculated that, in hindsight, the reason the procedures were changed at the request of the Union Joint Chair/SIPTU Representative was probably because the Union Joint Chair/SIPTU Representative feared that the funding, which had been allocated late in the year might have been clawed back by HSE if unspent by HSNPF at the year end. In Internal Audit’s opinion this represented an attempt to circumvent public financial procedures and HSNPF management should not have acceded to this change in the procedures for these reasons.
A number of unions repaid €275,283 to the HSE when HSE Internal Audit sought confirmation of the level of funds they had received from, and copies of the documentation they submitted to, SIPTU. The fact that the majority of other unions informed HSE that the funding was unspent as they had not identified suitable projects for the APPM funding provided to them by SIPTU, is contrary to the SIPTU Official’s assertions to the HSNPF management (in November 2006) that he had validated the other unions’ claims. HSNPF officials relied on, and continued to rely on, this assertion and assumed, incorrectly, that the same level of controls normally exerted by the HSNPF would be replicated in a third party organisation. HSNPF officials did not verify their assumption and trusted that, if necessary, all documentation would be available from SIPTU should HSNPF seek it. Trust is important, but with verification. At the very least it was remiss of HSNPF management to hand over full control of the disbursement of APPM trades unions’ funds to SIPTU without implementing compensating controls to assure itself that the funds were properly expended and accounted for.