NHS Tayside axed own rules to use charity cash to pay for new IT system after running out of money

Read more: NHS Tayside needs new bailout worth up to £12m

NHS Tayside is already under fire after it emerged executives "cooked the books" for six years from 2012 by transferring money earmarked for eHealth – an umbrella term for digital health care – to a general fund to improve the look of its balance sheet

However in a move likely to plunge the health board into deeper controversy, it has now emerged that at least £2.71 million was also plundered from its charity pot to cover general NHS running costs.

Read more: NHS Tayside 'misrepresented' its accounts for six years 

Ironically, bosses used £2.3m of the charity cash to replenish the eHealth project they already raided.

It is understood the money was spent on a new IT system.

The charity cash was transferred from a pot of money known as an endowment fund, which is made up of donations from members of the public or bequests in wills.

It is ring-fenced for spending on extras such as toys for children’s wards, refurbishing days rooms or buying medical equipment not available on the health service.

Using it for routine costs which should be funded from the core NHS budget is highly controversial though NHS Tayside has form for this practice. In 2004, it was condemned for taking £400,000 from its endowment fund to buy new nurses’ uniforms.

Analysis: The public donate in good faith - this is a betrayal of trust

Professor Alan Boyter, a retired NHS director who now runs his own HR consultancy, said he would never have agreed to using endowment cash in this way. 

Prof Boyter, who served on a number of health boards including NHS Lothian, Lanarkshire, Greater Glasgow and Clyde and Tayside, where he was HR director from 2004 to 2007, said: "One of the golden rules about endowment funds is that you don't ever use charitable donations to fund exchequer spending.

"The idea of the endowment fund really is that it pays for the 'extras' that the NHS can't pay for itself.

"It pays for the Imperial Leather rather than the Carbolic, so to speak. [An IT system], funded retrospectively, is not an appropriate use of the endowment fund."

Read more: Auditor General warns that NHS Tayside needs to save £200m in five years 

Papers reveal that when NHS Tayside was "faced with a funding deficit" in 2013/14, the trustees of the endowment fund "were asked to retrospectively fund projects already approved by the [health board]" to the sum of £2.71m.

(excerpt from NHS Tayside Endowment Fund accounts 2013/14)

This was banned under the rules set out in the health board's own constitution. As a result, the constitution was suspended for one month to enable the transfer to go ahead.

Current chief executive, Lesley McLay, was in charge at the time and is understood to have sat in the meeting where this was signed off.

The Herald understands that several trustees were "very uncomfortable" and challenged the request.

However, the issue is complicated by the fact that all executive and non-executive members of the health board automatically double up as trustees of the endowment fund.

As the endowment funds are registered charities, trustees have a legal responsibility to act in its best interests.

However, one NHS source close to the events said trustees came under pressure to put the health board's deficit first.

The source said: "The trustees of the endowment fund are the same people who sit on the board of NHS Tayside. Although they try to wear a different hat when they're sitting there, basically they were told on the day that they authorised this transfer that if they didn't, beds would be getting closed, wards would be getting closed.

"They were basically coerced and threatened that if they don't do this it's going to be bad publicity for the board."

The source added that the actual sum signed off was £4.3m, although only £2.71m of it was spent in 2013/14.

(excerpt from NHS Tayside's Endowment Fund records held by OSCR, showing spike in expenditure in financial year ending 2014) 

The case also exposes a potential frailty in the auditing of NHS Tayside's accounts.

Another NHS Tayside source, who asked not to be named, said internal auditors from NHS Fife and Forth Valley questioned how endowment fund cash was being used, but were warned they risked losing their contract with NHS Tayside unless they backed off.

The source said: “It’s easy to threaten internal auditors with the suggestion that they will lose the contract if they rock the boat – they are treading fine line between being employees and independent arbiters.

"I just think it's horrendous because if I'd given money to NHS Tayside on the basis that that was a donation to provide services that weren't necessarily provided elsewhere, and found that that money had been siphoned off to make the financial targets, I would be horrified."

A spokeswoman for Scottish charity regulator, OSCR, said it would "consider" the case.

In a statement, NHS Tayside said: "All funding applications are considered by an Endowment Advisory Group, to support a range of purposes, such as the purchase of items to improve patient care, additional staff training, funding to support research, to enhance the healthcare environment and, critically, support for innovation to improve service provision or care. The annual accounts of the Tayside Health Fund are subject to annual external audit.

"The eHealth application in 2013/14 was for a range of pilot programmes which were leading in the field of eHealth in the NHS in Scotland at that time. These programmes and systems were supporting change and innovation in patient care and were endorsed by clinical leads.

"The Board of Trustees, led by former Chairman of NHS Tayside, Mr Sandy Watson, approved this application as part of a number of proposals that were recommended by the Endowment Advisory Group for retrospective support."

Nonetheless, the current chairman, Professor John Connell, said such funding arrangements would be probed as part of the ongoing external review of NHS Tayside's finances launched in the wake of the eHealth accounting scandal. 

Prof Connell said: “I would stress that the projects supported were appropriate for endowment funding but that the retrospective decision making element of this will form part of the planned externally-led review of NHS Tayside’s financial governance.”