Report into NHS Croydon's £23million deficit report cost £1million

A REPORT into how NHS Croydon overspent its annual budget by £22.7 million cost £1 million to compile, the Advertiser can reveal.

The independent investigation concluded a culture of "significant deficiencies" led to the deficit, the full extent of which may never been known.

It exonerates directors and staff responsible for the primary care trust's finances, who insist all the money went on providing healthcare in Croydon.

Yet auditors Ernst & Young were paid £1 million to produce the report because the Audit Commission, paid £275,000, missed the problems to begin with.

NHS London, which commissioned the review, said the cost was justified because it had been an "extremely complex investigation" and it was "in the public interest to get to the bottom of it".

The report, published on Tuesday, concludes that "substandard financial processes" and "misplaced confidence" in NHS Croydon's financial safeguards led the trust to post a surplus of £5.4 million in 2011/12, when it had in fact overspent by at least £22.73 million.

The six-month report could find no evidence of fraudulent activity and blamed "processes" rather than the trust's directors or finance officers.

An NHS London spokesman said: "This report makes it very clear that mistakes were made, and that these were due to poor systems and controls which failed to pick up on errors made but found that no individuals were entirely at fault."

The review did find the problems were compounded by a "culture of limited scrutiny and challenge" from the trust's managers which "increased the likelihood that account irregularities would fail to be identified".

An internal audit, conducted by Deloitte, and an external assessment by the Audit Commission gave the 2010/11 accounts a clean bill of health.

But the Commission assigned Croydon a "low risk" rating, meaning it was not subject to the most thorough examination.

NHS London finance director Paul Baumann admitted this week: "In retrospect they should have conducted a more comprehensive set of tests."

While the Audit Commission has conducted its own review, which found no evidence its inspection had been "inappropriate", it conceded: "In our view the auditor could have done more testing in some areas."

The irregularities went undetected until after February 2011, when NHS Croydon merged with four PCTs to become part of NHS South West London (SWL).

In the months following the merger, new finance officers noticed a "lack of detail and transparency" in the accounts, as well as variances between budget and actual expenditure levels and concluded the £5.5 million surplus posted by NHS Croydon was inaccurate.

SWL began an internal review but when the complexity of the issue became apparent it turned to NHS Croydon, which commissioned Ernst & Young.

The auditors looked at more than 643,000 pieces of electronic data and e-mails from key personnel.

They identified missing journals and accounts, deleted e-mails, incomplete data and a risk that the review set up by SWL "had not been sufficiently independent and objective".

An interim member of the finance team made unwarranted adjustments in the agreement of balances while working "largely unsupervised" in place of finance director Stephen O'Brien, who was on sick leave.

The report said the challenges posed by merging with other PCTs were also a factor in NHS Croydon's financial irregularities, including staff departures which saw the proportion of interims in the finance department increase to 50 per cent.

It also cited the decision to pick it to host the London Specialised Commissioning Group (LSCG), with a budget of £800 million, a role the trust was chosen for due to its "track record of consistent financial performance".

The review concluded that "an environment had evolved in which fundamental governance deficiencies were not identified in time to prevent significant errors and misstatements in the accounts".

Since the deficit, which was carried over into 2011/12, was identified last December, SWL has made £16.4 million of savings. It has also set up a finance committee to scrutinise processes, carried out risk assessments and reviewed the 2010/11 audit processes.

Chairman Sian Bates said: "New financial systems, processes and teams are already in place in Croydon; this will not be able to happen again."

Ernst & Young’s report places too much blame on systems and not the individuals involved in managing NHS Croydon’s finances.

This is the view of Croydon Central MP Gavin Barwell, who was is considering raising the issue with Health Secretary Andrew Lansley.

Mr Barwell said: "There are two bits of positive news. Firstly, I’m pleased the NHS has already implemented most of the recommendations. Action has been taken to make sure it doesn’t happen again and we can be pretty confident on that front.

"Secondly, in response to the action they have taken, the Government has agreed to write off the deficit they produced rather than making us pay it back.

"However, I have concerns when people try to blame things like this on systems rather than people.

"I think it’s perfectly legitimate to ask why the individuals involved failed to recognise what was happening."

Council Leader Mike Fisher said: "We cannot accept the report’s conclusion that this was just a systems failure. Systems are not accountable, people are.

"When control is lost, particularly on this scale, the public need to know not only what happened but also who was responsible.

"We therefore call upon the NHS to ensure proper accountability for what has happened."

Croydon's Labour leader Tony Newman has also rejected the suggestion NHS Croydon’s board of directors was in any way culpable for the trust’s financial problems.

Ernst & Young’s report, published on Tuesday, said the directors and audit committee were part of a 'culture of limited scrutiny and challenge' and relied too heavily on the conclusions of the Audit Commission while failing to ask questions when information failed to materialise.

Councillor Tony Newman, vice-chairman of NHS Croydon at the time, told the Advertiser: "I would totally refute that. The Audit Commission gave the accounts a rating of 'substantial assurance' and we were told repeatedly the finances were as reported.

"Their assurances also reflected the internal auditors had found and our finance officers were telling us.

"With hindsight what is clear is that some individuals were able to pull the wool over many people’s eyes. I feel there has been a complete breach of trust.

"I personally feel betrayed by people who were in charge of the finances, let’s be clear about that. The professional board, the non-executive board and, beyond that, the professional auditors have been taken in by the way the accounts were reported.

"The good things is that there hasn’t been any evidence of fraud. All the money has been spent on health services in Croydon."

He added that it was 'disappointing, to put it mildly' that £1 million had been spent on the review.