Ms Laverne McGuinness:

I am grateful for the invitation to attend today's committee meeting on section 38 and section 39 agencies. The Chairman has already introduced my colleagues Mr. Barry O'Brien, national director of human resources; Ms Paula Lawler, assistant national director of human resources; and Ms Patricia McCormack, general manager in the national contracts office.

The HSE acknowledges the very significant role and contribution of the voluntary and non-statutory service providers in the development and provision of health and personal social services, and is committed to the continued enhancement of effective governance arrangements within the sector in accordance with the Health Act 2004 and within the requirements of best practice.

These organisations have a long history of providing health and personal social services in Ireland. They vary in scale and complexity, ranging from large acute hospitals to local community-based organisations providing personal social care services.

The HSE funds over 1,900 voluntary agencies to a value of approximately €3.1 billion. Forty-four of these agencies, accounting for €2.5 billion are funded under section 38 of the Health Act, while the remaining agencies of which there are more than 1,800 are part-funded under section 39 of the Health Act.

Under section 38 the HSE may enter into an arrangement with a service provider for the provision of health and personal social services on its behalf. Under section 39, the HSE may give assistance to a person or body to provide a service that is similar or ancillary to a service that the executive may provide.

The governance context in which the HSE engages with section 39 agencies is distinctly different from that which applies in the case of section 38 agencies. For example, the employees of section 39 agencies are not public servants, are not members of public sector pension schemes and, unlike their section 38 counterparts, are not directly bound by the Department of Health consolidated pay scales.

In 2009 the HSE developed a national standard governance framework with the non-statutory sector. In 2010 under this governance framework, service arrangements were introduced between the HSE and section 38 agencies. Such arrangements serve as the contract between the HSE and each individual agency and it specifies on an annual basis the services to be delivered for the funding provided. Under the service arrangement, agencies are obliged to give certain undertakings relating to compliance with a range of standards and statutory requirements.

In 2013 the HSE sought to enhance its governance arrangements with the section 38 agencies and also to strengthen the direct relationship between the HSE and the boards of each of these agencies. Part of this enhanced governance is the introduction of the annual compliance statement process and annual meetings which take place between the HSE and the chairs of section 38 agencies.

Each section 38 agency has also been supplied with the HSE’s requirements for board and corporate governance which are in line with best practice requirements. These requirements form an integral part of the compliance statement process. The requirement for the annual compliance statement came into effect on 1 January 2014 and applies to the agency’s 2013 financial statements. The HSE acknowledges that not all agencies will be in full compliance in respect of 2013 and agencies have been provided with the opportunity to put a plan in place to achieve compliance in 2014.

The annual compliance statement requires the chairman and a director of the board to sign the annual compliance statement which sets out requirements for compliance in eight key areas including Government pay policy. This process will strengthen the overall governance arrangements in place within funded agencies.

Members will be aware from our previous update provided to the committee on 14 April 2014 that the process which has been ongoing with section 38 agencies to reach compliance with Government pay policy is nearing completion. Since 8 April 2014 work has been ongoing with each agency through the office of the national director of human resources to assist agencies in reaching compliance with Government pay policy by the deadline date of 1 July 2014. As at today’s date, of the 143 business cases made, confirmation has been received advising that arrangements have been made to cease a total of 47. I have set out in the table a summary of the position from which members will see that 47 have ceased; three have a case for a one-person-one-salary principle; 67 have contractual obligations seeking red-circling and documentation regarding their legal contracts has been submitted; 14 have indicated contractual entitlements and will be seeking red-circling, but the documentation is awaited; in the case of four we are working with agencies to achieve compliance; and the CRC is under a separate process whereby the new board will engage with it. That gives a total of 143.

It should be noted that the submissions received to date seeking approval to red-circle arrangements on a personal-to-holder basis include documentation supporting contractual entitlements on behalf of the individual staff concerned. These submissions have been made by agencies having obtained independent legal advice to ensure that action taken is done so in a legally compliant manner thereby mitigating risk to the greatest extent possible. This documentation is currently being reviewed by the HSE and where considered appropriate the HSE will seek formal approval from the Department of Health on behalf of the agencies to red-circle these arrangements as personal to holder.

The support for these particular cases will be on the strict understanding that once the current post holder no longer holds the roles and responsibilities attaching to the role then the non-compliant remuneration will cease. In addition, when the post holder vacates the position all future appointees will be remunerated in line with the Department of Health consolidated salary scales.

In addition, when the post holder vacates the position, all future appointees will be remunerated in line with the Department of Health consolidated salary scales. It is anticipated the remaining issues to be addressed will be achieved over the summer. It is our intention to present a full detailed report in September 2014 at which time we expect all issues to be fully addressed, resulting in all agencies being in compliance with the Government’s pay policy.

Since the introduction of the national standard governance framework with the non–statutory sector, the HSE, Health Service Executive, has been reviewing and strengthening the arrangements in place with funded agencies. One such enhancement was the introduction in 2013 of a requirement on all agencies covered by a service arrangement, both section 38 and 39 agencies, to complete a template setting out details of the remuneration arrangements for senior managers at grade VIII and above. While employees of section 39 agencies are not public servants and are not members of a public sector pension scheme, each section 39 organisation is requested to have due regard for overall Government pay policy in respect of the remuneration of their senior managers.

A process to verify and validate the remuneration templates from the section 39 agencies commenced earlier this year with a priority focus given to the larger agencies. Details of the organisations in receipt of funds in excess of €3 million annually have been provided to members in a briefing document prepared for today’s meeting. Based on this information, it has been established that a total of 136 senior managers, grade VIII and above, are employed by these organisations. Of these, 24 senior managers are in receipt of an annual salary in excess of €100,000. In addition, 34 of 136 management positions across eight of the agencies receive additional benefits, such as private health insurance, company car, etc. A breakdown of the salary ranges for the 136 senior management positions has been provided to members in advance of today’s meeting. To address the issues raised, arrangements have been made to engage further with these agencies in the coming weeks regarding their obligations under their service arrangements to have due regard to the Government’s pay policy.