Mr. Tony O'Brien:

I thank the Chairman and members of the committee for the invitation to attend to discuss the HSE's annual financial statements for 2015 and 2016. I am accompanied by Mr. Stephen Mulvany, chief financial officer and interim deputy director general; Ms. Mairead Dolan, assistant chief financial officer, finance division; and Mr. Ray Mitchell in his usual role. As we submitted information and documentation to the committee in advance of the meeting, I will confine my opening remarks to the following issues.

On the financial outturn for 2016, following discussions which commenced in May 2016, a Revised Health Estimate was approved by the Oireachtas on 7 July, with an additional €500 million notified to the HSE as part of the revision. This represented a significant commitment to ensuring health and social care services would be placed on a more sustainable financial footing for 2016 and marked a move away from the practice of allocating supplementary funding at year end. The annual financial statements for 2016 reported a combined, revenue and capital, income and expenditure, surplus of €12.4 million before the impact of the first charge mechanism. The result after the first charge related to 2015 was a combined surplus of €4.7 million.

On the financial outturn for 2015, the 2015 annual financial statements reported a combined, revenue and capital, income and expenditure, deficit of €7.7 million, which, under the principles of first charge, was reflected in the financial statements for 2016. This was after a total of €649 million had been provided in supplementary funding for the financial year 2015. It included €212 million in net Supplementary Estimates for the HSE in respect of projected deficits in areas within its direct control which were reflective of financial performance challenges related primarily to cost pressures within acute hospitals and disability services and €437 million for overruns in respect of the primary care reimbursement service, PCRS, pensions and the States Claims Agency, as well additional funding for new initiatives approved after the HSE national service plan was finalised such as waiting list and winter planning initiatives. The €437 million represents approximately two thirds of the total supplementary funding for 2015 and does not reflect any adverse financial performance by the HSE.

To put the HSE's financial performance in recent years in context, looking back over the nine years from 2008 to 2016, there has been €500 million in net Supplementary Estimates for the HSE for areas within its direct control which are reflective of financial performance challenges. This equates to 0.46% of the total original net Vote over the period of €108.512 billion. Also, there was €791 million in Supplementary Estimates to the HSE for the PCRS for medical cards, GP fees, drugs and other demand-led schemes, including the dental treatment services scheme. This equates to 0.73% of the total original net Vote of €108.512 billion over the period. There was €1,948 million in Supplementary Estimates to the HSE for Exchequer related and other items outside the control of the HSE. This equates to 1.8% of the total original net Vote over the period. Further details for the years 2008 to 2016, inclusive, have been provided in the briefing submitted.

On non-compliant procurement, the scale and complexity of the HSE's overall procurement activity are such that it will take a sustained focus for a number of years to ensure high levels of compliance. This is a key focus for the HSE. It continues to progress a number of initiatives which are organised around three key themes: supporting infrastructure, including training, improving data analytics, etc.; sourcing - putting in place additional contracts and frameworks; and compliance - supporting services to move towards compliance with contracts and frameworks.

Further details in respect of the steps being taken to address the issue of non-compliant procurement are contained in the statement of internal financial control within the 2016 annual financial statements.

In the context of monitoring and oversight of grants to outside agencies in 2016, just under €3.8 billion of the HSE's total expenditure related to grants to over 2,000 outside agencies. These range from the large voluntary hospitals and disability organisations to small local community-based agencies. Weaknesses in the monitoring and oversight of these grants to outside agencies have been identified.

The HSE continues to progress the necessary medium to long-term actions to address these weaknesses. Those actions are co-ordinated nationally by the HSE compliance unit established in 2014. This unit is supporting the development of improved grant oversight by our community health care organisations and hospital groups. This improved oversight is intended to raise the level of compliance by grant-funded agencies within the HSE’s governance framework. An example of the actions already taken is the external review of governance arrangements in respect of all section 38 providers. That review is under way.

Further detail regarding the steps being taken to address the issue of weaknesses in the monitoring and oversight of grants to outside agencies are published in the statement of internal financial control within the 2016 annual financial statements. The Comptroller and Auditor General's reporting is, therefore, timely and will assist the HSE in managing these key areas of focus. This concludes my opening statement.