Mr. Seamus McCarthy:

The HSE incurred expenditure totalling €15.2 billion in 2017, representing an increase of around €727 million, or 5% up on 2016. As shown in Figure 1, on members’ screens, HSE direct expenditure on pay and pensions accounted for over one third of the expenditure, totalling €5.36 billion. This included around €300 million paid for agency staff services. Grants to section 38 and section 39 agencies accounted for just over a quarter of the expenditure and totalled €4 billion. Expenditure on primary care and medical card schemes, including drugs refund schemes, accounted for a fifth of the expenditure, or just under €3 billion.

The HSE recorded income for the year totalling €15.1 billion. The bulk of this - 94% - came in the form of a revenue grant paid to the HSE out of the Vote for the Department of Health. The balance of the income comprises charges to patients using HSE services, and a range of miscellaneous sources, including employee pension contributions paid by HSE staff and the proceeds of pension-related deductions in the health sector, which the HSE retains.

Notwithstanding the increase in income in 2017, the HSE’s outturn for the year was a net operating deficit of €140 million - a significant deterioration year on year. The 2016 deficit was €10 million. The operating deficit in a year represents an effective first call on the following year’s recurrent grant funding provided from the Vote.

The HSE financial statements also include a capital income and expenditure account. For 2017, this recorded income of €462 million, mainly comprising capital grants from the Vote. Expenditure in the year totalled €454 million, resulting in a net capital surplus of €8 million, which the HSE carried forward to 2018. A capital surplus of €15 million was brought forward from 2016 into 2017 but the HSE had not obtained formal ministerial sanction to do so, as is required under the Health Service Executive (Financial Matters) Act 2014.

The audit report on the HSE’s 2017 financial statement drew attention to a continued significant level of non-competitive procurement by the HSE. We found a lack of evidence of competitive procurement in regard to 36% of a sample of €51 million worth of goods and services procured in 2017, spread across five HSE locations. This is consistent with our findings in similar testing for many years past. The HSE’s statement on internal financial control outlines the steps it is taking to deal with this problem but states that it will take a number of years to fully address procurement compliance issues.

The audit report also drew attention to inadequate monitoring and oversight of HSE grants to outside agencies, which is a continuing concern.

Members will recall last October examining chapter 19 of the Report on the Accounts of the Public Services 2016, which reviewed the HSE’s framework for monitoring grants to service providers in the context of the audit of the 2016 financial statements of the HSE. Our work for the 2017 audit, and that of the HSE’s own internal audit, found that similar weaknesses recurred in 2017. The HSE acknowledges the audit findings in the 2017 statement on internal control.

The appropriation account for Vote 38 - Health - before the committee relates to 2016. As a result, the financial periods of the two sets of financial statements on today’s agenda are out of step. However, the substance of the relationship between them is the same during both years.

The majority of the Department’s expenditure comprises recurrent and capital grant funding paid to the HSE. This is accounted for across 17 subheads of the Vote, reflecting the historic basis for allocation of resources, rather than the programme-based type of presentation used in other Votes.

This is accounted for across 17 subheads of the Vote, reflecting the historic basis for allocation of resources rather than the programme-based type of presentation used in other Votes.

Non-HSE related expenditure under the Vote for health includes grants paid to a range of research, development and advisory bodies; payments in respect of hepatitis C compensation and other legal claims against the Department; and the Department’s own administration costs.