Mr. Seamus McCarthy:

As the Acting Chairman explained, the financial statements of the Health Service Executive before the committee are for the financial years ending on 31 December 2015 and 31 December 2016.

As shown in Figure 1, the HSE had recognised income totalling €13.9 billion in 2015 and €14.6 billion in 2016, a year-on-year increase of 4.9%. Exchequer funding represents the largest source of income for the HSE and amounted to €13.5 billion in 2016. Changes introduced by the Health Service Executive (Financial Matters) Act 2014 required the HSE to deliver services within the grant funding allocated to it annually by the Oireachtas. A deficit in 2015 of €7.9 million was brought forward and met from the 2016 Exchequer grant funding. The HSE incurred an operating deficit of €10.3 million in 2016 which, likewise, was carried forward and met from its 2017 Exchequer grant allocation. Income from patient charges in hospitals accounted for approximately 3% or €450 million of the HSE’s total income in 2016. Three quarters of the total, €335 million, was derived from charges imposed on private patients in HSE hospitals and other care settings. Other income totalling €611 million includes employee pension contributions and pension related deductions from staff salaries which the HSE retains.

As shown in Figure 2, the HSE incurred expenditure totalling €14.58 billion in 2016. Approximately 80% of this expenditure was spread across three main areas. HSE pay and pensions accounted for just over one third of the expenditure totalling €5.1 billion; grants to section 38 and section 39 agencies accounted for just over one quarter, or €3.8 billion, of the expenditure, while expenditure on primary care and medical card schemes accounted for one fifth, or just under €3 billion, of the expenditure. The HSE enters service arrangements with a wide range of service providers under sections 38 and 39 of the Health Act 2004. Agencies funded in this manner vary in scale and complexity, ranging from large acute hospitals to local community-based organisations providing personal social care services. The audit report on the 2016 financial statements drew attention to weaknesses acknowledged by the HSE in its oversight and monitoring of grants to these agencies. The statement on internal financial control discloses that 2016 service arrangements and grant aid agreements with a number of agencies had not been put in place by the end of April 2016; evidence of regular monitoring meetings and review of periodic financial reporting was not documented on file; there was no evidence in a number of cases of the receipt of funded agencies' annual audited financial statements and-or their review by the HSE, and that a number of funded agencies had not complied with public procurement guidelines or public sector pay policies.

The audit report on both sets of financial statements drew attention to a significant level of non-competitive procurement by the HSE. This is consistent with our audit findings in earlier years, on which I reported previously. We examined a sample of procurements worth €30.8 million in five HSE operating units in 2016 and found a lack of evidence of competitive procurement processes in relation to 49% by value of the sample. Similarly, an examination of a sample of procurements worth €29.6 million in five HSE units in 2015 found a lack of evidence of competitive procurement in relation to 30% by value. The HSE’s statement on internal financial control outlines the steps being taken to deal with these matters.