Jerry Buttimer (Cork South Central, Fine Gael)
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I remind those in attendance to place their mobile phones in silent or airplane mode, as it helps with the broadcasting of the meeting. We have apologies from Deputies Billy Kelleher, Eamonn Maloney, Dan Neville, Catherine Byrne, Ciara Conway and Sandra McLellan, and Senator Imelda Henry.

I thank members for being here. Our meeting this afternoon is to discuss procurement practices for the purchase of hospital medical supplies and equipment. I welcome the chief executive officer of the Beacon Hospital, Mr. Michael Cullen; from the HSE, Mr. Liam Woods, national director of the acute hospital division, Mr. Michael Flynn, national director of internal audit, Dr. Geraldine Smith, assistant national director of internal audit, and Mr. John Swords, head of procurement; and Mr. Thomas Lynch, chairperson of the Ireland East Hospital Group. I thank Ray Mitchell and his staff for liaising with the committee today.

We invited St. Vincent's Healthcare Group to discuss the matter with us. As members will know from correspondence and from a telephone conversation I had with the group, it declined to attend. The correspondence shows that it declined to attend on the grounds that it was conducting an internal investigation and it would be inappropriate for its representatives to appear before the committee today. It is disappointing and regrettable that they decided not to participate in today's meeting. Its representatives assured me in writing and during our conversations that they would come before the committee once the internal investigation had been completed. I believe I speak on behalf of all of us when I say we would prefer if they were here today.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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The Chairman is certainly speaking on behalf of the committee in expressing our collective disappointment that the St. Vincent's Healthcare Group is not coming before us today. I find it absolutely unacceptable. I do not believe that its coming before the joint committee would in any way compromise the investigation that is under way, or indeed any other investigation in matters pertaining to that hospital or any other hospital site.

This is an important engagement and I welcome the Beacon Hospital and the HSE representatives who are here today. They are here in the spirit of what we in the committee had set out to address following the very serious matters that have come to light only in the past week in the "Prime Time" programme.

I ask the Chairman, on behalf of the committee, to communicate with Professor Michael Keane, the acting chief executive officer at St. Vincent's University Hospital. I see we have a separate communication, further to the first notice that it would not attend today, from a Mr. Jermyn, who is described as director of strategy of the St. Vincent's Healthcare Group, which I presume includes St. Vincent's Private Hospital. I ask the Chairman to communicate to both Professor Keane and Mr. Jermyn our serious disappointment at their failure to come before us at this time.

Jerry Buttimer (Cork South Central, Fine Gael)
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On that point, we do not have the power to compel witnesses to come before us. St. Vincent's Healthcare Group indicated in the telephone conversation and in the final paragraph of its letter that it would be prepared to come before us once its investigation has been completed. I think the Deputy's points are well made.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Is there an indication as to when that might be?

Jerry Buttimer (Cork South Central, Fine Gael)
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No.

John Crown (Independent)
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I am in a slightly embarrassing position today, being an employee of St. Vincent's and one who famously does not enjoy particularly good relations with the board of management, so I have to be careful. I would also like to acknowledge that I would be perceived as working for a competitor of the Beacon Hospital, which is a very fine institution, and for that reason I am going to recuse myself from asking any questions about the Beacon, because I think it would be inappropriate.

I have some questions that I ask the Chairman to put to St. Vincent's Healthcare Group. One thing that is troubling me is why Mr. Nicholas Jermyn is in the line management command and control structure dealing with this issue or correspondence relating to it. My understanding is that he is the former chief executive officer of the organisation, which now has an acting chief executive officer and a deputy chief executive officer and a number of senior management staff who would be in line management over issues such as procurement and financial oversight. I am a little curious as to why a person whom we were led to believe had the role of a consultant specifically on strategic matters is the person who is actually dealing with correspondence in this regard. I might also just ask whether it is possible that our HSE colleagues may be able to cast some light on this, because they would have an interest and an historical opinion on management structures in St. Vincent's.

I do not wish to personalise this at all, but I do not think it is appropriate that somebody from KPMG is conducting an independent investigation. Mr. Menton, the chairman of the hospital, is also a senior partner at KMPG, and I am sure everybody is acting in perfectly good faith-----

Jerry Buttimer (Cork South Central, Fine Gael)
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Ms Gallagher of KPMG is not here to defend herself.

John Crown (Independent)
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I am not attacking her.

Jerry Buttimer (Cork South Central, Fine Gael)
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I am sure she is a person of the utmost integrity and independence.

John Crown (Independent)
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I am sure she is a person of incredible rectitude, but if somebody is offered a contract for which one is qualified, he or she would normally take it. The question arises from our level of satisfaction with St. Vincent's effectively investigating itself. The questions that need to be asked are not only about the person who is in line management on procurement issues but about the institutional reaction to it. For the hospital to say it will not come to a statutory body such as our committee because there is another investigation under way, when it has commissioned the investigation and picked the people who will do it, is, I believe, entirely inappropriate, and it should not be an excuse for them not to come to the meeting today. We should, I believe, have an opinion as to the adequacy of an investigation that is being conducted in that way. The specific questions I would ask about the people carrying out the investigation are as follows. How were they picked? How much are they being paid? What are the terms of reference and who drew them up? I do not think it flies.

There is form in this regard, and it is on the public record of the Seanad that I drew attention to major concerns about an issue that was highlighted in The Irish Timesin December 2013, as well as a time, 11 years before, when I had grave concerns about certain issues that had arisen in St. Vincent's. At the time it was stated that an independent investigation had been conducted. I provided documents in the House which showed that the investigation team had again been chosen by St. Vincent's and paid for by the hospital, and the terms of reference had been drawn up by St. Vincent's. This is not the way publicly funded bodies should be doing their business. I do not think that we should be happy that they have deferred their attendance to answer valid questions being put to them today because of another investigation that they have undertaken.

Colm Burke (Fine Gael)
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St. Vincent's hospital is getting substantial amounts of taxpayers' money. I accept fully what it is saying about the investigation. My concern is that the letter does not set out a timeframe for how long the investigation is likely to take. The representatives say they are happy to come before the committee once the investigation is completed, but when will that be? Will it be in a week, a month, three months or three years? I am concerned that no timeframe has been set. I certainly think the committee should write to them stating that members expect them to come before the joint committee within a certain period to answer the valid questions that members want to ask. Taxpayers' money is being channelled from the Department of Health to the HSE and to them. They are accountable back along the line, but they are also accountable to the Joint Committee on Health and Children. It is extremely important that we get answers to the questions that are being raised.

Joe Costello (Dublin Central, Labour)
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I too wish to be associated with the remarks of the Chairman and colleagues who have expressed their disappointment that St. Vincent's has declined to come before us. It has a responsibility to do so, as taxpayers' money is involved. It is totally wrong for St. Vincent's to hide behind an internal investigation. A separate Garda investigation is being conducted. In respect of the internal investigation, we have no idea of the terms of reference or the timeline, as others have mentioned, and there is a possible conflict of interest in respect of the person who has been appointed. I would have thought that if we received a letter from St. Vincent's Healthcare Group it would have come from somebody who is more relevant to the issues we are concerned about today, namely procurement, and not from the director of strategy, who is not responsible for procurement. Probably, it should have been the chairman of the St. Vincent's University Hospital, Mr. James Menton, or the chief executive officer who communicated with committee. The concern is that Mr. Menton is a partner at KPMG and the person heading up the investigation is a member of staff in KPMG. We would like to ask why that particular choice was made. There are serious questions that are relevant to the entire procurement process and the manner in which the investigation is going to take place that we would have liked St. Vincent's to answer and that it still should answer. The message that should go out in writing from this committee is that St. Vincent's University Hospital should reconsider its decision, that there is an onus on it to do so, and that, while we may not be able to compel it, that does not exempt it from its responsibility to be here before us and to account for taxpayers' money.

Peter Fitzpatrick (Louth, Fine Gael)
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I would like to express my disappointment that representatives of St. Vincent's hospital did not attend this meeting. I am very concerned about the questions that Senator Crown raised. The public and members would like to see the answers. I am sure the Chairman will be writing a letter to St Vincent's hospital expressing our disappointment at its non-attendance and raising the questions that members wish answered.

I thank the representatives from the Beacon Hospital for coming to today's meeting, and I also thank the representatives of the HSE. It is very important that many questions are answered. I know that the public, like me, would like to know the answers. I hope that after this afternoon's meeting, the committee will write a letter to St. Vincent's hospital expressing our disappointment.

Jerry Buttimer (Cork South Central, Fine Gael)
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It seems to me, based on the tone of the letter we received and on the conversation I had with Mr. Jermyn, that the hospital was not trying to obfuscate by not appearing before the committee. It would have been better if the hospital had been represented here to answer the questions raised by members. Is it agreed that we will write formally to the hospital following today's meeting on the basis of members' comments, questions and proposals? Agreed. Is it agreed to go into private session at the end of the meeting if necessary? Agreed.

I welcome Mr. Michael Cullen, who is the chief executive of Beacon Hospital. As we know, this meeting has been arranged not only to deal with the issues arising from last week's "Prime Time" programme, but also to consider procurement practices. The Minister for Health has referred to separate allegations in relation to procurement practices in a number of hospital settings. The Committee of Public Accounts has highlighted the issue of non-compliance with procurement rules by the HSE. This committee has significant concerns about the implementation of procurement policy across the health service. Today's meeting gives the committee an opportunity to get an update from the HSE. Since the creation of the hospital groups, there have been issues around how they are being managed.

I thank all the witnesses for being here. I thank Mr. Cullen for accepting our invitation to discuss this matter. Before I ask him to make his opening statement, I remind witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice and ruling of the Chair that they should not comment on or make charges against a person outside the Houses or any official by name or in such a way as to make him or her identifiable. I ask Mr. Cullen to make his opening remarks.

Mr. Michael Cullen:

I thank the Chairman and the members of the joint committee for inviting me to attend this afternoon's meeting. As this is the first time representatives of Beacon Hospital have been before the committee, I would like to outline some brief information on the hospital. The hospital opened in October 2006 and is now established as one of Ireland’s most advanced high-tech private hospitals. It has 183 acute care beds and nine operating theatres. Last year, it treated 100,000 patients. Some 800 health care professionals are working out of the hospital. They provide world-class acute care services in many areas, including orthopaedics, cardiology, women’s health, urology, vascular surgery, ear, nose and throat, neurology, general surgery and comprehensive cancer care. The hospital is known for providing an excellent standard of care to all patients and visitors while conducting its business to the highest ethical standards.

From the outset, I would like to say how shocked and disappointed the entire team and staff at Beacon Hospital were after RTE broadcast its "Prime Time" programme last week. The hospital has strict procurement policies and procedures in place. Any alleged breach of these policies and procedures is taken extremely seriously.Likewise, the hospital has a comprehensive staff handbook and conflict of interest policies governing relationships with suppliers and patients. Following the allegations made in the programme, an internal investigation was launched. As part of this investigation, we have brought in an external independent forensic auditor to review our history of dealings with the supplier in question and all suppliers. The auditor will also audit and evaluate the hospital’s procurement procedures and processes to ensure the controls within the procurement chain are robust. This investigation is ongoing. I can confirm to the committee that an employee at the centre of the allegations has since resigned his position.

I understand that a criminal investigation is under way. I do not want to make any further comment that may prejudice the outcome of such an investigation. I have a summary of our procurement policy, which I can read into the record if the Chairman wishes. It is also contained in appendix A of our submission. While I am happy that our procurement policies and procedures are robust, I look forward to receiving the findings of our internal investigation and implementing any recommendations. On behalf of everyone working at Beacon Hospital, I would like to reiterate our commitment to excellence across all aspects of the hospital’s clinical and non-clinical operations. I thank the joint committee for its invitation. I will be happy to take any questions that members may have.

Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Cullen. There is no need for Mr. Cullen to read the part of his submission relating to procurement policy because it will be seen as part of his testimony.

Robert Troy (Longford-Westmeath, Fianna Fail)
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I would like to begin by thanking the whistleblower for highlighting the alleged impropriety with regard to procurement policies in public and private hospitals. I would also like to thank RTE for giving this matter the publicity it deserves on "Prime Time". I think any fair-minded taxpayer who is looking in would be sick to the bottom of his or her stomach because of the use of scarce taxpayers' money. Individuals have been getting holidays, e-mails have been exchanged through private accounts, commercially sensitive-----

Jerry Buttimer (Cork South Central, Fine Gael)
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I remind the Deputy that these are all allegations.

Robert Troy (Longford-Westmeath, Fianna Fail)
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Yes. I used the word "alleged".

Jerry Buttimer (Cork South Central, Fine Gael)
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Okay. Thank you.

Robert Troy (Longford-Westmeath, Fianna Fail)
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It is alleged that commercially sensitive information was shared and people were referred to as being "good to know." Funnily enough, the holidays were reimbursed with cash so that there was no traceability. It is amazing and sickening.

I acknowledge and thank Mr. Michael Cullen of Beacon Hospital for coming forward. As the chief executive officer of a private hospital, he is not under a statutory obligation to come forward here today. His presence is appreciated. It is sickening to think that Mr. Cullen's counterpart at St. Vincent's hospital - the chief executive officer of a hospital that is publicly funded by the taxpayer - did not see fit to come to this meeting to answer questions. The comparison between the two is unbelievable. I thank Mr. Cullen for coming forward. While Beacon Hospital is a private hospital, it is funded by the public through private health insurance. We all know that the cost of private health insurance has been increasing significantly in recent years. The alleged impropriety that seems to have been ongoing has been helping to drive up costs. Once again, struggling families who are being put to the pin of their collars to maintain their private health insurance are being left to carry the can.

When did Mr. Cullen become aware of what was happening? Did he make the HSE aware of it? He said the hospital was carrying out an investigation, and I welcome that. I note that he felt he could come forward at today's meeting even though an investigation is being carried out. The authorities at St. Vincent's hospital do not seem to share that perspective. When will this investigation be complete? How much has the alleged impropriety cost the hospital? How will that be reimbursed? Does the Beacon Hospital provide any services for the public sector through procurement or otherwise? As the chief executive officer of a private hospital, does Mr. Cullen believe the sanctions or penalties that are provided for in current company law are sufficiently strong to prevent people from sharing information with competitors during a tendering process?

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I welcome Mr. Cullen here this afternoon and thank him for his presentation and for his willingness to answer questions. We are told a dossier was presented to the Minister last September that referenced seven hospitals, which were not named, to my best knowledge. I understand a number of those are taxpayer-funded, while some clearly were not. Could Mr. Cullen advise us whether the Beacon Hospital was one of the hospitals referenced for that investigation, which I understand is being conducted by the Garda Bureau of Fraud Investigation? Were there any earlier indications, prior to the "Prime Time" programme last week, of wrongdoing in respect of procurement practices at the Beacon Hospital?

I understand that an investigation into these matters is ongoing within the hospital, and I hope externally also, but in terms of the recent programme, which focused on a single supplier, and what he may or may not know at this point in time, will Mr. Cullen confirm to the committee if he will be looking at all procurement and suppliers and not just the entity named in the programme? Will he confirm that his investigation and his co-operation with any external investigation will be holistic in terms of addressing this matter in the round? This is hugely important. I do not believe anyone is of the view that this is isolated to a single supplier. The practices that have been exposed very likely apply in a number of situations.

Mr. Cullen's statement aside, would he accept, given the understandable extent of public anger at what has been witnessed and what has been demonstrated to us across our television screens, that some of the reportage in the media about getting gifts is a very mild way of presenting something that is far more serious? Quite frankly, these are pay-offs, no matter what way one looks at it. It is very serious because, quite clearly, the matters under investigation are not just about pay-offs for favouritism but are about procurements approved for highly inflated costs.

Jerry Buttimer (Cork South Central, Fine Gael)
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Does Deputy Ó Caoláin understand that is an allegation?

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Yes, and that it is, of course, under investigation. Whether one is in the private health business or the public health sector, as are the others before us here today, this is absolutely unacceptable in any shape or form and is a very serious matter. I will conclude on that and I would appreciate Mr. Cullen's responses at the appropriate time.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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I join with the Chairman and the other members of the committee in expressing our disappointment, frustration and a certain amount of anger at the non-attendance here this afternoon of management from St. Vincent's hospital, which is absolutely unacceptable. I would like that message to go out in the strongest possible terms from the meeting.

I thank Mr. Cullen for attending. Will he provide some details of the investigations he has commenced? Who is conducting the investigation and what are its terms of reference, the timescale proposed and any related facts he might wish to provide? How does the internal hospital audit operate? What is its basis? Is there an internal audit section or a head of internal audit? How often are sections of the hospital audited and how often is there a general independent audit of the hospital?

Jerry Buttimer (Cork South Central, Fine Gael)
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I wish to draw the committee's attention to correspondence No. 1401(a) and (b). Professor Keane, the acting chief executive officer, is on annual leave. I refer members to the last paragraph of the correspondence, in which the hospital has said it will come before the committee. I also wish to make it clear that it is important that people do not give opinion regarding the nature of the incidents. They are allegations, they have not been proven and there is an ongoing criminal investigation.

Mr. Michael Cullen:

To address Deputy Troy's questions, I first became aware of these allegations on Thursday, 2 July, when we received a call from the investigator at RTE's "Prime Time" asking us for a copy of our employee guidelines, staff handbook and codes of conduct. We thought it was an unusual request and were a little mystified as to why we would be asked such a question. It became more apparent later that day when the employee at the centre of the allegations came to see me with a letter he had received from "Prime Time" containing all the allegations that were the centre of his participation in the programme.

Deputy Troy asked when the investigation would be complete. I am hoping it will be complete within a couple of weeks. I cannot give an exact time because it is ongoing. The Deputy also asked how much was involved. All we can say at the moment is that the employee allegedly received a holiday from the supplier which was, according to the programme, to the value of €8,800 or thereabouts.

Deputy Troy asked if we receive HSE work. We do. We tender for HSE waiting list initiative work, and in 2014 that was to the value of approximately €250,000. We have tendered this year for a greater level of work and I would anticipate that it could be worth more than €1 million but probably less than €1.5 million for the calendar year, although I do not know for sure at the moment.

Deputy Troy asked if company law is strong enough. I believe it is strong enough. There is a Garda investigation into this matter. We have been in touch with the Garda twice following the programme and will participate fully in any investigation and provide it with anything it wishes to conduct it.

Deputy Ó Caoláin asked if the Beacon Hospital was referenced in the September 2014 investigation. I believe not. As I said in response to the earlier question, the first we heard about it was on Thursday, 2 July. We had no prior knowledge or indication of a problem in our procurement department.

Deputy Ó Caoláin asked if we were investigating other suppliers. I can confirm that we are.

We are examining our entire procurement process and procedures and engaging in a historical look-back and comparison of past activity.

Jerry Buttimer (Cork South Central, Fine Gael)
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Prior to that, how robust was the hospital's auditing and reviewing of its stocktaking and procurement practices?

Mr. Michael Cullen:

Apart from our annual statutory audit, we have occasional internal audits. As the Chairman will note from the summary of our procurement policies attached to my opening statement, there is quite strong senior management oversight of all matters related to procurement for all purchases over €1,000. This alleged activity has disappointed and shocked us. I believe the procedures and policies are strong and robust, but I do not believe they are foolproof, and therefore I am looking forward to receiving the recommendations from the forensic auditor to see how we can improve the process and prevent this type of activity from happening again.

Deputy Ó Caoláin asked if we would be co-operating. Quite obviously, we will be co-operating with all investigations. We have no evidence to suggest there are other suppliers involved, but we will be having a very detailed look to confirm that. I absolutely agree with the Deputy's sentiments regarding gifts, pay-offs, favouritism, inflated costs or the passing of information to competitors. It appals us and has no place in a company such as ours. I believe that addresses the Deputy's questions.

Deputy Healy asked about our audit. We have brought in a very experienced internal auditor from Pinnacle Consulting. As I said to Deputy Troy regarding the timescale, I hope it will be within a number of weeks. The terms of reference centred initially on the supplier at the centre of the "Prime Time" allegations, but this is much broader than that and includes evaluating, studying and looking back at our entire procurement policy, procedures and history. It will involve significant diligence and cost comparisons of all our purchases. As I said to the Chairman, we have an annual statutory audit and occasional internal audits such as the one that is taking place now.

Jerry Buttimer (Cork South Central, Fine Gael)
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Are they unannounced?

Mr. Michael Cullen:

Yes. They are unannounced. All of this is fed to our senior management team on a regular basis.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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Is there an internal audit function?

Mr. Michael Cullen:

Our finance department, the hospital chief financial officer, CFO, and group CFO perform that.

Jerry Buttimer (Cork South Central, Fine Gael)
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I will take one question from Deputy Troy and then go back to the members of the committee.

Robert Troy (Longford-Westmeath, Fianna Fail)
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The point in question is not the cost of the holiday involved, because we are aware of that. Knowledge of it was originally denied and then receipt of that information was acknowledged. Can Mr. Cullen quantify the potential loss to the Beacon Group, bearing in mind that the possibility of sharing of information could potentially have led to the Beacon Group paying inflated prices for services?

Mr. Michael Cullen:

The investigation is still at a relatively early stage, but the indications so far do not show that we have paid in excess of what we should for these instruments and for capital equipment and supplies that were purchased from the company in question. We have been doing an international comparison with the prices of these products in other countries and, so far - and this is literally right up to date - there is no indication that we have been overpaying. I am unable to give the Deputy more information than that at this stage. All I can say is that I hope the investigation will be able to quantify the loss, if any, to the hospital through this practice.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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I thank Mr. Cullen for coming before the committee. Like my colleagues, I am very disappointed that representatives of St. Vincent's hospital did not appear before the this committee today. I have read the Beacon Hospital's procurement policy and it reads very well. Mr. Cullen referred to the supply chain management team maintaining confidentiality of all prices and terms and conditions of vendor agreements. In his submission there is a reference to "prohibiting gratuities and favours from vendors, and preventing the release of confidential information". The policy reads well. I note Mr. Cullen's statement that while he was happy that the policies and procedures in terms of procurement were robust, he looked forward to receiving the findings of the internal investigation. If the policy and procedures were so robust, why did it take "Prime Time" to go in and blow it out of the water? In the preceding years, did Mr. Cullen ever contemplate that this could happen? It is written into the hospital's procedures. Had it ever happened in the past? What procedures would the hospital have been taking in the previous five years to ensure that nothing like this happened on Mr. Cullen's watch?

Jerry Buttimer (Cork South Central, Fine Gael)
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These are allegations, of course.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Absolutely. They are allegations.

Joe Costello (Dublin Central, Labour)
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I thank Mr. Cullen for attending. His attendance is in stark contrast to St. Vincent's hospital. I have a few questions. First, could Mr. Cullen give us the name of the person who has been appointed as the external independent forensic auditor? Whatever about the flaws in St. Vincent's, it was able to provide us with the name of the person who is conducting its internal investigation. Second, could Mr. Cullen provide the committee with a statement of the terms of reference?

On the procurement policy, Mr. Cullen stated that the hospital had an internal audit process. There is a strong suggestion that oversight has not been satisfactory in this case. An employee has resigned, which is prima facieevidence that something has happened, and the fact that he or she has-----

Jerry Buttimer (Cork South Central, Fine Gael)
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I ask the Deputy to withdraw that remark, because he cannot prove it.

Joe Costello (Dublin Central, Labour)
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I am saying that the employee resigned following the "Prime Time" programme, and therefore there are questions to be answered in that respect. Have the hospital's previous internal audits highlighted any indication of flaws in the system? How robust is Mr. Cullen's oversight of hospital's procurement policy? I know from the Committee of Public Accounts that there are constant problems with various public sectors in terms of adhering to the public procurement guidelines, something that is constantly an issue for the Comptroller and Auditor General. Is that something that has been brought to Mr. Cullen's attention by auditors in terms of the hospital's purchasing activities? Can Mr. Cullen give us an idea of the extent of procurement annually in financial terms? How large is that?

Finally, I wish to ask whether Mr. Cullen has preferential suppliers. He says that any procurement or purchase over €1,000 is subject to procurement tendering and so on. Can he give us an idea of the type of suppliers he has and how large the procurement tenders are? Can he also indicate whether there is a trail of the same companies successfully tendering for the same contracts on a regular basis?

Colm Burke (Fine Gael)
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I thank Mr. Cullen for attending the committee and for his presentation. I want to ask about the overall cost of running a private medical facility, and the cost increases that have occurred in recent years. I presume that previously external auditors were brought in to review the costs and what patients had to be charged. Can Mr. Cullen give an idea of the total cost of medical supplies each year, including those for individual patients' use? If these events resulted in a difference of 5%, what kind of difference is Mr. Cullen talking about in real terms? He said that his group started out in 2006. I presume he has worked out the annual cost per patient, so has there been a substantial rise in the cost of such items over the past ten years in real terms? For instance, we have seen the cost of pharmaceuticals go up quite substantially between 2000 and 2010, but have we seen the same increases occur for surgical gloves or other items that are used daily by hospital doctors and nurses? I wonder if Mr. Cullen can give us some kind of guideline on that issue.

Jillian van Turnhout (Independent)
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I wish to echo my colleagues' statements that representatives of St. Vincent's hospital should be before us today. I thank Mr. Cullen for coming in. In a previous life I worked in procurement, although it was in the office supplies business, so it is an area that I know a lot about. Unfortunately, I am not surprised at what the investigation by "Prime Time" came out with, having seen the ugly aspects of procurement. Therefore, my specific questions are based on my knowledge of that area.

I notice that within Mr. Cullen's processes, he said that the supply chain management team was prohibited from receiving gratuities and favours. Does that apply to all staff of the Beacon Hospital? Does the hospital have a policy of declaring gifts above a certain amount? How does it deal with this? Of course, there are certain exchanges, and people can have a cup of coffee, but we are not talking about that. What is the level at which people must declare? For example, there could be indirect things, such as days at sporting events, that do not necessarily have a set value, but they can be an implied gift.

As regards the Beacon Hospital's external forensic audit, will the auditor be examining the stock levels held by a supplier? Very often, overstocking by a certain supplier can be one of the areas of concern. In addition, is there a coincidence with the timing of orders concerning suppliers? Very often, a salesperson needs to reach a target and therefore the orders are done conveniently to facilitate that, but do not necessarily benefit the company in question.

Mr. Cullen spoke about going out to tender, but I would imagine that the hospital has preferred suppliers, so how does it review the supplier relationships? Is an audit undertaken, every two years or so, to look at how key supplier relationships are maintained, who the contacts are, and the level of ordering from those suppliers? I am talking about the audit within that supplier relationship.

Mr. Michael Cullen:

Deputy Mitchell O'Connor asked why it took "Prime Time" to report on this, what the auditors did, and whether we had a look back. As I said earlier, we were both shocked and disappointed. It is an obvious question, but I believe that our policy procedures are robust. However, as with any relationship between a member of staff and a supplying company, there is an element of trust, and that trust is open to abuse at times. Although these are merely allegations, it suggests that this trust may have been misplaced. I am hoping that our investigations will prove that one way or the other, as I hope the Garda investigation does. It has taken a whistleblower to bring this to everyone's attention, as Deputy Troy said. We are grateful both to the whistleblower and RTE for the fact that this has been exposed and brought to our attention. I think that answers Deputy Mitchell O'Connor's questions.

Jerry Buttimer (Cork South Central, Fine Gael)
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I wish to come back to Deputy Mitchell O'Connor's questions for one second. In the appendix to Mr. Cullen's statement, it said that invoices are subject to a three-way match before payment is authorised, namely matching the purchase order, receipt and invoice.

Mr. Michael Cullen:

Yes.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is that done routinely, as a matter of fact?

Mr. Michael Cullen:

It is a matter of fact with every purchase in the hospital.

Jerry Buttimer (Cork South Central, Fine Gael)
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Did this apply to the cases mentioned in the "Prime Time" programme?

Mr. Michael Cullen:

Yes, absolutely. As I said in an earlier answer, while the investigation is still ongoing, we are satisfied that we have received all of the goods ordered. We are satisfied that everything has been accounted for in our stock levels. The investigation is now dealing with the appropriateness of the cost, which went through our procurement process without question at the time. We are now looking back at why that was and whether there was anything suspicious within that process.

As regards Deputy Costello's question, Pinnacle Consulting is the name of the internal auditor, and Mr. Michael Whelan is the principal. I do not have a copy of the terms of reference, but I can send it in to the committee.

Jerry Buttimer (Cork South Central, Fine Gael)
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Was the hospital asked to compile the terms of reference itself or were they given to it by the HSE?

Mr. Michael Cullen:

No, it was ourselves, in our engagement with the internal auditor. The procurement policy, the summary of which is at the back of my statement, shows how the process works in our hospital, and how the oversight of our SMAT, supply, management and action team, works. No doubt there are flaws, which allowed what has allegedly happened to take place. There had been nothing previous in our history to suggest that this was happening. The process has been audited a number of times in both our statutory and our occasional internal audits, and nothing has come to our attention before.

Joe Costello (Dublin Central, Labour)
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No breach of procurement guidelines?

Mr. Michael Cullen:

Not that we are aware of.

As regards our annual spend, there is some information that is commercially sensitive. However, our annual accounts will show an annual turnover of €82 million.

We do not have preferential suppliers, but, having said that, a number of our clinicians have a preference for particular surgical instruments. In most cases, that brand would have an exclusive distributor in Ireland. Given that we are led by clinician choice, that restricts somewhat our ability to negotiate with individual suppliers. Having said that, we receive three quotes in all cases with regard to particular types of product. While the clinician might have a preference for brand A, we will obtain quotes for brands B and C to ensure that brand A was appropriately priced. If it was not, the clinician would be shown this and asked if there was a possibility of changing brand, or we would go back to the distributor of brand A to look for a more competitive price. This is a normal, everyday process that the employee in question would have been doing with a very wide range of products that the hospital purchases. That answers those questions.

I may have answered some of Senator Colm Burke's questions. I am happy to tell the Senator that our cost per patient has been decreasing over the past number of years, driven by a number of elements. One is the economic crisis, which forced a reduction in the reimbursements we receive from insurance companies. We received decreases of significant percentages from 2009 onwards, which forced us to be more aggressive in our purchasing. Our hospital and many others, both public and private, have driven the cost of care down through necessity. This has been a huge part of the management's activity both in purchasing and in senior management over the past number of years.

Senator van Turnhout asked about gratuities. We have a limit of €50, which is appropriate. More often than anyone in management or the supply chain, it is nurses and clinicians who are given gifts following the care of patients. We have a strict policy on this and we do not believe we have a problem in that regard. The investigation is looking at our stock levels and timing of orders, and I have previously talked about our preferred suppliers.

Jerry Buttimer (Cork South Central, Fine Gael)
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Does Mr. Cullen believe there is a culture of inducement or incentivisation in terms of companies or service providers engaging with people to try to get their products or services into a particular hospital? Has there been any engagement from the HSE about any company over which there may be a question mark? Has anyone ever raised an issue with Mr. Cullen about a particular company that deals with him or provides services for him?

Mr. Michael Cullen:

To be quite honest, no. In all sales and supplies, it is obviously a competitive business. As I said earlier, a great deal of the product we purchase is governed by clinician choice, and therefore it is rare that two or three companies are selling the exact same product. That makes it easier to purchase, but more difficult to negotiate. If somebody has exclusivity on a particular product that a surgeon wishes to use, it makes it difficult. However, we always get alternative quotes.

I do not believe there is a culture of inducement. I have not seen it and it has just added to the disappointment we had when we all watched "Prime Time" a couple of weeks ago.

Colm Burke (Fine Gael)
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Mr. Cullen said the cost per patient had decreased. Can he give us an idea of the percentage decrease?

Mr. Michael Cullen:

We had a decrease of approximately 6% in our cost over the period since 2010.

Mr. Michael Cullen:

I am led to believe that our hospital was not mentioned in that, but nobody at the Beacon Hospital had any knowledge or awareness of this or any other procurement issue until we were contacted by "Prime Time" on the afternoon of 2 July.

Mr. Michael Cullen:

No.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is the investigation just about purchasing, or the whole service level agreement regarding the servicing of expensive equipment and the issues around that?

Mr. Michael Cullen:

It is the purchasing of capital equipment, the servicing and maintenance of same and the purchase of consumables within that. It encompasses the entire procurement within the hospital.

Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Cullen for his presence and his very forthright answers. On behalf of the committee, I pay tribute to the work that Mr. Cullen and his staff in the hospital are doing. They are welcome to stay with us as part of the meeting or to excuse themselves.

Mr. Michael Cullen:

I would be very happy to stay.

John Crown (Independent)
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Some of my researchers have asked me to be clear on the following. Mr. Menton is most accurately described as a retired partner in KPMG. I apologise for any ambiguity.

Jerry Buttimer (Cork South Central, Fine Gael)
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The second part of our meeting is our engagement with the Health Service Executive, HSE. I welcome the officials and thank Mr. Ray Mitchell and Mr. Paul Connors of the HSE for facilitating the meeting. We are discussing procurement of health equipment and products and service level agreements.

I welcome Mr. Liam Woods, HSE national director, acute hospital division, Mr. Michael Flynn, national director of internal audit, Dr. Geraldine Smith, assistant national director of internal audit, Mr. John Swords, HSE head of procurement, and Mr. Tom Lynch, chairman of the Ireland East Hospital Group. The meeting is to provide us with an update on issues around procurement practices in hospitals under the public purse and the HSE. Representatives of the HSE come before us to answer questions as part of a quarterly meeting. Today's meeting is specifically about expenditure and procurement and I ask members to confine their remarks to the topic rather than raising other HSE matters.

Just for the record, the HSE budget for the procurement of goods and services is approximately €1.6 billion, which represents 13% of the health service budget. A 10% reduction in procurement expenditure will result in a saving of approximately €160 million, which is equivalent to the combined cost of the drug payment scheme and long-term illness scheme, which is €157 million.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. I thank the witnesses for attending and invite Mr. Woods to make his opening remarks.

Mr. Liam Woods:

I thank the Chairman and members of the committee for the invitation to attend the committee meeting to discuss last Thursday's "Prime Time" programme. In order to assist in providing as much information to the committee as possible, I am joined today by a number of my colleagues, namely, Mr. John Swords, HSE head of procurement; Mr. Michael Flynn, national director internal audit; Dr. Geraldine Smith, assistant national director internal audit; and Mr. Tom Lynch, who is here today in his capacity as both chairman of Ireland East Hospital Group, of which St. Vincent's University Hospital is a constituent element, and as an experienced chartered accountant and auditor.

Health business services, HBS, is a division of the HSE. HBS procurement is responsible for sourcing, purchasing, storage and distribution of goods and services within the HSE. The value of goods and services that the HSE procures on an annual basis is approximately €1.6 billion. The total spend on non-pay goods and services in the public health environment is just under €4 billion, some of which is in voluntary bodies and some in the Office of Government Procurement. Significant procurement savings have been achieved by the health sector of €230 million between 2010 and 2014 across a wide range of goods and services. A further saving of €28 million has been achieved in 2015 to date. The HSE and all section 38 and section 39 agencies funded by the HSE are required to comply with the HSE's procurement policy, national financial regulations and framework for corporate and financial governance, and with the code of practice for the governance of state bodies. The HSE's national financial regulations, NFR 1 purchase to pay, sets out, inter alia, the requirements for sourcing suppliers and the tendering and contracting requirements.

Procurement throughout the HSE is subject to internal audit by the HSE's internal audit division and external audit by the Comptroller and Auditor General. Procurement is reviewed as part of the HSE's annual internal audit plan and the findings of all audits are regularly reported to the HSE management and audit committee. In the past two years, 42 audits dealing with procurement, or aspects of procurement, have been completed. Recommendations to address control weaknesses identified as part of these audits are advised to management for implementation and the control weaknesses are reflected in the HSE's annual review of the statement of internal financial control. The status of management implementation of the audit recommendations is regularly tracked and reported to the HSE's audit committee and leadership team.

Section 38 and section 39 agencies are independent entities with their own boards of directors and management teams. As independent entities, they are responsible for establishing and overseeing their own systems of internal control and are subject to audit by their own internal and external auditors. St. Vincent's is a section 38 agency. As part of the one voice for health sector procurement reform plan, future contracts for St. Vincent's hospital will be included in the overall health sector requirements. Other non-health goods and services outside of this will be channelled through the Office of Government Procurement. We are currently working with all the newly established hospital groups to generate a three-year procurement plan.

With regard to the "Prime Time" programme, which outlined a number of allegations regarding two staff members of St. Vincent's University Hospital and a medical and surgical company, these allegations referred to the provision of holidays, the receipt of a gift voucher and the provision of confidential commercial information to a particular medical and surgical company. Should these allegations be proved, the actions are entirely unacceptable and ones that the HSE would condemn in the strongest manner. The actions are only allegations. St. Vincent's is investigating them and it is important to allow due process to take its course. The actions alleged would be unfair to competitors and minimise the opportunity to obtain best value for money. As per the Ethics in Public Procurement document, public procurement must at all times be discharged with probity, transparency and accountability in a manner that secures best value for public money.

In September 2014, the Minister for Health received correspondence from Deputy Emmet Stagg, which was copied to the Minister for Justice and Equality, enclosing specific allegations made to the Garda Síochána in June 2014 against named staff at five private, voluntary and statutory hospitals. The HSE's national director of internal audit met with the Garda Bureau of Fraud Investigation, GBFI, in November 2014 and offered to provide any possible assistance it might require in respect of the two HSE hospitals referred to in the communication from the Department and agreed to carry out a review in the HSE hospitals named by the whistleblower, namely, Mullingar and St. Columcille's, to ascertain any evidence to support the claims made and so assist the GBFI in its overall investigation into the allegations.

The internal audits of St. Columcille's and Mullingar identified deficiencies in procurement controls but no evidence of wrongdoing. Collusion between supplier and purchaser, as alleged in this case, is very difficult to be detected by management, internal audit and external audit. The whistleblower contacted and met gardaí with specific allegations but did not meet or provide the Department or the HSE with any direct evidence of the allegations made. The allegations are the subject of an ongoing Garda investigation and care must be taken not to prejudice or hinder the Garda investigation in any potential prosecution.

I will outline the actions the HSE has taken regarding the allegations raised in the "Prime Time" programme. The HSE has suspended payments to Eurosurgical pending further clarification and investigation. The HSE has arranged and met with the company to outline its concerns and, in particular, to seek assurances from the company regarding security of supply and patient care. The HSE has requested full disclosure regarding allegations of Eurosurgical's involvement in arranging holidays etc. for health procurement staff or any health staff, and on receipt of this will conduct a comprehensive investigation. The HSE has sought and received information regarding Eurosurgical's internal investigation. The HSE has been in contact with St. Vincent's University Hospital and has been informed that it has suspended, without prejudice, the two members of staff in question, pending the completion of an internal forensic investigation by the hospital. A communication was issued to procurement staff reaffirming their obligations under the HSE's procurement rules and regulations.

The overall HSE expenditure with Eurosurgical for 2014 is €6 million of which approximately €4 million relates to the HSE directly and approximately €2 million to the voluntary sector funded by the HSE. Since the "Prime Time" programme, the HSE has reviewed €1.08 million worth of contracts with the company and the HSE has no concerns arising at this time. Regarding the balance of the expenditure, HSE procurement is in the process of reviewing it. HSE is currently in a tender process for surgical consumables, including the type of items provided by Eurosurgical, and the outcome of the process is near completion.

The health service is currently undergoing a series of further reforms which will see the development of hospital and community groups to strengthen the delivery of front-line health and social care services. To support these changes, the directorate of the HSE has established Health Business Services, HBS, a shared service division which includes procurement in its range of functions. The HBS strategy was adopted in February 2014 and is currently being implemented. A key component of this strategy is "one voice for health sector procurement". In accordance with the Government decision of 23 April 2013, all agencies funded via the HSE are required to collaborate regarding procurement, delivering "one voice for health sector procurement". The HSE Director General has requested HBS procurement to lead the development of the concept and its subsequent implementation. Requirement for additional procurement capacity has been identified as part of the reform programme to meet the increasing complexities of the procurement process.

In implementing the strategy, the section 38 and section 39 agencies are mandated to use framework agreements and contracts awarded by HBS procurement and the Office of Government Procurement. This is in line with a recommendation by the Comptroller and Auditor General in his 2013 report regarding the wider use of framework contracts. The HSE has in place a national financial controls assurance group that is a evaluating areas of expenditure with a view to reviewing risk, and will undertake detailed further review in areas of deemed high risk. I am happy to take questions and may ask my colleagues to answer some of them.

Robert Troy (Longford-Westmeath, Fianna Fail)
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I thank the witnesses for attending.

I am somewhat amused by the contrast between the number of officials from the HSE and the one person who was sent to represent the Beacon Hospital.

It is a matter of fact that, as a result of a procurement process, a publicly funded hospital paid ten times what it would previously have paid for services provided to it. Do the witnesses believe this is right or appropriate? Not for a moment do I believe that this is an isolated case. What monitoring process has been put in place to prevent something like this from happening? Why did it take a whistleblower and an investigation by "Prime Time" to make the general public aware of what was occurring? When was the Minister informed? What actions has the HSE taken since it became aware of what was happening, and was the Minister informed of these? In light of what my colleague Senator Crown stated, are the witnesses confident that the current investigation is fully independent and transparent?

The whistleblower referred to five hospitals, including Mullingar, St. Columcille's and St. Vincent's. What are the remaining two hospitals and what investigation has the HSE undertaken to ensure this issue is not occurring on a wider scale? Last week, it published an annual financial report that confirmed that the value of contracts awarded by it without a tendering process had increased by €38.7 million between 2013 and 2014. Why are so many lucrative contracts being awarded without going to public tender? We are discussing taxpayers' money.

I have been contacted with a number of queries that I hope the witnesses will be able to answer. Will the officials confirm whether the HSE procurement unit has ever taken a trip with a supplier? Are they familiar with a supplier called PEI - and an officer in that company whom I will not name now, but whose name I am happy to provide afterwards - which has a franchise for INTCO products and previously worked with Hartmann products?

Jerry Buttimer (Cork South Central, Fine Gael)
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The Deputy is making allegations.

Robert Troy (Longford-Westmeath, Fianna Fail)
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No. I am asking questions.

Jerry Buttimer (Cork South Central, Fine Gael)
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I ask the Deputy to be careful.

Robert Troy (Longford-Westmeath, Fianna Fail)
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I am not saying these concerns are true, but I am raising them, as they have been brought to me by a citizen. That is the purpose of this meeting.

Jerry Buttimer (Cork South Central, Fine Gael)
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Part of it.

Robert Troy (Longford-Westmeath, Fianna Fail)
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Will Mr. Woods confirm whether an employee of the Mater public hospital was referred to in the "Prime Time" programme? Will Mr. Woods explain how the Mater public hospital purchased a patient management system last year for €500,000 without going to tender? Can hospitals use private funds to get around the procurement system, either from donations or their own foundations? If so, how can this allow them to get around the tender process? Will Mr. Woods confirm whether the HSE cut prices in 2011 for all section 38 agencies? Was the effect of this to increase prices for hospitals, which were then used in the hospital procurement service group arrangement? Effectively, prices increased for large hospitals and decreased for small ones.

Will Mr. Woods explain how the contract to supply mattresses, including pressurised mattresses, to Midland Regional Hospital Tullamore and my local hospital, Midland Regional Hospital Mullingar, works? When was the last time that contract went to tender?

Will Mr. Woods confirm whether it is a HSE policy that employees or members of a board must declare any interests in pharmaceutical or medical supply companies? Is he aware of whether anyone has declared such an interest? How many people working within the HSE have such an interest?

Jerry Buttimer (Cork South Central, Fine Gael)
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I ask Deputy Troy to conclude, please.

Robert Troy (Longford-Westmeath, Fianna Fail)
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These are important points. Given the exposé and allegations of the reimbursement of PAYE workers for holidays through cash, we must ask what is happening.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I thank Mr. Woods for his address and his colleagues for also attending. Regarding the dossier that we have already referenced and that the Minister received last year in respect of a number of hospitals, it was said at the time and since, most recently in the context of the "Prime Time" programme, that the allegations contained in the dossier were worse than those presented in the programme. The Garda bureau of fraud investigation is continuing to investigate, yet we have seen a public statement of denial of any knowledge of the above by the St. Vincent's Healthcare Group. While there are two hospitals identified as HSE hospitals, Mullingar and St. Columcille's among them, is it Mr. Woods's understanding that the St. Vincent's Private Hospital, part of the St. Vincent's Healthcare Group, was indeed another of that number of hospitals? Will he fill in the missing pieces in respect of the other entities involved?

How would Mr. Woods view it that the St. Vincent's hospital group only recently denied any knowledge of a Garda investigation that was allegedly set in train last September, yet here we are two months off its first anniversary? What is the extent of the Garda investigation and how could it possibly be that the management of such a facility would be absolutely unaware of it? How focused and how active is this investigation, to the best of Mr. Woods's knowledge?

We are told that there are two staff on paid leave at St. Vincent's and one, as Mr. Cullen has indicated, has resigned from the Beacon Hospital. Are there others at any of these other hospital sites, either before or since the programme, who are either on paid leave or have resigned consequent on questions arising in respect of procurement practices?

As I asked Mr. Cullen earlier regarding the named business entity, the supplier company, is the HSE encouraging the widest possible address of possible other cases of inappropriate relationships between suppliers and various hospital sites? What steps is the HSE taking regarding procurement in its widest application across all HSE sites or, indeed, HSE-funded sites, either in whole or in part? We know of internal investigations taking place at St. Vincent's and the Beacon Hospital, but what has the "Prime Time" programme incited the HSE to do across all of its hospital sites and all of the other health-related facilities that come under its charge either in full or in part?

In the opening remarks of Mr. Woods's statement to us this afternoon, he stated: "The amount of goods and services that the HSE procures on an annual basis is approximately €1.6 billion."

My sense is that these goods and services do not include drugs and health-related equipment, and I ask for clarification on this. I am aware the drugs bill is significantly greater. These procurement practices likely cannot be confined to the type of situation exposed in the "Prime Time" programme. Billions more are spent by the HSE on behalf of citizens in ensuring we have a health service to meet our needs. What has the HSE undertaken in light of the "Prime Time Investigates" programme to address the huge expenditure in procuring not only goods and services but also drugs and health-related equipment and whatever other expenditure? Quite clearly, there is room for abuse right across this public spend. As a committee member, I would like an assurance that this is being addressed as it should be.

I suggest to Mr. Cullen, who is still here, and to the HSE that while the focus of the "Prime Time" programme - and it almost directs the investigation towards them - was on those directly involved in procurement, I am mindful of what Mr. Cullen said in response to earlier questioning on the more likely recipients of a thank-you. Most of these - all of them, one would hope - were bona fide small gestures, such as a box of chocolates or whatever the case may be, but Mr. Cullen stated that the likely recipients were practitioners and clinicians. Is there a way of addressing this? The likelihood is that the procurement staff might very well be at the bottom of the buy-off pyramid. Others can influence procurement policy and practices. Is this also being taken on board?

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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I thank the HSE for coming before the committee. The allegations that have already been made are very worrying. The real concern of the committee, and what is at the back of everybody's mind, is whether this is the tip of the iceberg. What we hope to have from the HSE this afternoon is confirmation of the safeguards that are in place to ensure that allegations such as those we have heard do not arise. I accept what Mr. Cullen stated earlier about the question of trust in this area. Having said this, systems and safeguards must be in place to ensure there are no areas where allegations such as these can arise. The safeguards must be such that everything is above board. This is what we need from the HSE. We need an outline of the procurement procedures in place at present. Does it happen on an individual hospital basis, a group basis, an area basis or a national basis? How is it done? What safeguards are built into the system?

What is health business services? I have not heard much about it. Apparently, it has a key role in procurement. What are the terms of reference of this organisation? Is it part of the HSE? Are there others on a board? How does the process work? We also need to hear from the internal audit people, and I am delighted they have come before the committee. This is another crucial area in this matter. How often do internal audits take place at whatever level, be it at hospital or group level? Are they indicated in advance? Are they done on specific locations or specific groups of hospitals? Are they done on specific items of equipment? One of the areas addressed by a number of speakers is how the purchase of equipment is driven by specialists and how this area is covered and safeguarded.

Mr. Woods referred to a requirement for additional procurement capacity. What does this mean? We need to be assured that this is not the tip of the iceberg and that safeguards and procedures are in place to ensure this.

Mr. Liam Woods:

To answer Deputy Troy with regard to the number of people here, we bring the people we hope are best suited to answer committee members' questions. We are conscious that the public health system spends a gross €4.8 billion, and the need for accountability is serious.

Jerry Buttimer (Cork South Central, Fine Gael)
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To be fair, the people before us are from various sectors. Mr. Woods does not necessarily have all of the answers, and they are here to assist us in our read into this. We should welcome the fact that so many people who are key to the operation of what we are discussing today are here.

Mr. Liam Woods:

The issue of something being ten times the price is an allegation, and we need to bottom it out and understand the conclusion of the investigation. Deputy Troy asked what monitoring process is in place and a number of committee members asked about the control environment for procurement in the HSE, so I will take the opportunity of answering Deputy Troy's question to answer the others also. I will ask my colleagues, including those in internal audit, to contribute where relevant. The accountability environment in the HSE is that we have a directorate under legislation. We have an audit committee with an externally appointed chair. We have a delegated management accountability structure to national director and group and community health organisation level in the system.

On the hospital side, gross expenditure of €4.8 billion goes through seven hospital groups, including paediatrics. I will start with the voluntary element, which is the entities that are not directly funded by the HSE. As I said in my statement, these are accountable through their own boards for their own governance, but the HSE has a service-level agreement in place with them which includes requirements to comply with the national procurement standards of the HSE. It also seeks the annual signing of a compliance statement with such requirements - not only procurement but other requirements - and this process has been in place. We will speak more about this if required.

There is an extensive set of financial and procurement regulations in the HSE, which specify how procurement is to be transacted, our requirement to comply with public sector tendering and our duties to our staff. There are codes of behaviour in our code of governance, which are legally set out as required under the 2004 Act. All of this information is on our website and we can make it available to the committee in succinct form if it is helpful. The code of governance sets requirements for individuals in terms of their personal behaviour. Staff equivalent to and above grade 8, which is middle management level, are bound by the Ethics in Public Office Act, with which committee members are familiar. The voluntary sector is accountable for its own arrangements and gives assurance to HSE.

More lately, as I said in my statement, the Government has adopted an approach of seeking to integrate the purchase of common goods and services throughout all Departments in pursuit of public value.

The HSE is a major contributor to that. Over €2 billion of total contract negotiation for goods and services within the HSE is now moved to the Office of Government Procurement, which is also doing similar activity with other Government Departments and entities. The HSE is directly contracting for direct health related product. The tendering the HSE will do in the future is primarily for health related product or technical and supplies products that are so intimately linked into the health environment that they require a direct health sector involvement. At the end of last year we signed a memorandum of understanding with the Office of Government Procurement regarding the way that relationship is to work and we are working co-operatively with that office.

Jerry Buttimer (Cork South Central, Fine Gael)
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What does that mean? It sounds great on paper, but if that was the case and if we applied everything from A to Z, there would not have been the "Prime Time" programme last Thursday night and we would not be debating it here. How does that apply to the operational matter here? We have the set of principles written down, and Mr. Cullen included his procurement policies in Appendix A, but how does it happen in real terms to ensure that what was reported in the "Prime Time" programme will not happen again?

Mr. Liam Woods:

The Chairman's point is well made. There is actually a strong system of governance and accountability operating, and it is well documented. However, as you rightly point out, there can be breaches or alleged breaches that are significant matters of concern. From our point of view, as I said in the opening statement and I will ask my colleagues in internal audit to say more on it, we audit our compliance internally and we are audited externally by the Comptroller and Auditor General. That brings to light issues within procurement where we must take action to rectify them.

To make another point on the general context, we have also developed a document called "One Voice for Health Sector Procurement" with some third party support. It is an integration of the buying between voluntary and statutory entities in the HSE. The observation in the opening statement that goods contracted in the future for St. Vincent's Hospital or any other public entity will be part of wider contracts is in support of the recommendation of the Comptroller and Auditor General in the chapter referred to in the 2013 report.

We must also consider what we must do to ensure that the rule set in complied with, how failures occur and what happens when we see those. In terms of compliance, management review is the first point of responsibility. Then there is internal audit and external audit. Regarding where there is alleged collusion or collusion between parties internally and externally, and I will return to the detail of Deputy Troy's questions shortly, to refer to the point made by Deputy Ó Caoláin it is correct that ordering of goods is not unique to procurement. In the HSE there is wide scale distributed ordering of goods. Indeed, one of the audit recommendations we would face as a challenge is that being such a distributed organisation the segregation of duties can be difficult at times, because we do not always have people in remote locations to sign off in the three way reference the Deputy mentioned with our colleague from the Beacon clinic. To be blunt, where there is collusion or alleged collusion we require extra vigilance and we must learn from any such incidents.

The rule set is there to give a general assurance that we have good procedures in place. The practices we must engage in after that are constant reviews. Regarding incidents such as this, I will speak in detail later in the answers to questions on what we have done since we saw this incident. It is referred to in my statement. Of course, we must act, and act with great vigilance and urgency to ensure this is not happening at a wider level. We would share a concern regarding a requirement for constant vigilance in this area. This is not solely a procurement issue, and I take that point on board.

I will ask my colleague from internal audit to say a little more about the financial governance and internal audit component of that.

Mr. Michael Flynn:

I am the national director of internal audit. Internal audit in the HSE is a separate function and is totally devolved from any line management responsibility. We do not have any other function than to carry out audits.

Jerry Buttimer (Cork South Central, Fine Gael)
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Mr. Flynn is employed by the HSE.

Mr. Michael Flynn:

Yes. I am a HSE employee, as are my team. We report directly to the chairman of the audit committee, who is an external person and a very senior chartered accountant. I also have a strong reporting line to the director general of the HSE.

We conduct a programme of audits every year throughout the HSE. We also audit some of the funded agencies on a programme of audits. We have approximately 40 staff in internal audit within the HSE, all dedicated to the work of internal audit. I am pleased that over the last six to nine months we have received sanction to increase that number and we have recruited a number of new staff, including a number of people with specific investigation skills. We are building up the number of internal audit staff.

We look at procurement, payroll, income, cash and other such areas throughout the HSE. As one can imagine, it is a very diffuse organisation and there are many entities within it. However, we visit the hospitals, the primary care locations. We look at the backroom operations as well. We produce a number of reports every year. Most of our reports would have adverse findings in respect of improvements that could be made to the controls we have, and procurement would be no different in that regard. A number of our reports would contain recommendations for improving controls over procurement. Our work is reported to the audit committee and our findings also go to the leadership team of the HSE. We also regularly issue our audit reports under freedom of information to the media, so the work we do is widely commented on and is distributed throughout the organisation.

That is a thumbnail sketch of internal audit in the HSE. It is a stand-alone, dedicated function.

Mr. Liam Woods:

I will answer the detailed questions from Deputy Troy. Regarding when the Minister was informed, the HSE was advised by the Department so the Minister was not advised by the HSE of this allegation. He was advised separately from us. I do not wish to give a wrong date but I believe the timing of that may have been September last year.

The Deputy asked if the current investigation is independent. In terms of the work taking place within the HSE at present, the HBS division, which includes procurement, is undertaking a line-by-line transaction review. Internal audit, which has an independent role within the organisation, will then support that in terms of undertaking any further inquiries. However, as I said in the statement, we are reviewing every transaction. That would include both supplies and capital, and I will return to capital under Deputy Ó Caoláin's question because he referred to it.

Regarding the other two hospitals, the two HSE hospitals referred to are St. Columcille's and Mullingar. Beacon Hospital and St. Vincent's Private Hospital were referred to and the media reported that the Bon Secours hospital was the fifth hospital reported in the original allegation.

On contracts out for tender and the reference to €38 million, the Deputy is referring to the section 40/02 disclosure requirements for the HSE for contracts over €25,000 in value that have not been subject to tender. The Deputy asked why that figure is growing. There are a couple of basic reasons. Part of the reason for contracting without tender would be that we contract with sole suppliers and there is no alternative, so it may be a valid reason to contract without tender. In other circumstances, and they would be more significant in scale than the one I just mentioned, what we are seeing is a non-compliance with the requirement to use the procurement processes. That is something that both internal audit and procurement then seek to enforce. Indeed, the national financial controls assurance group I mentioned seeks to enforce proper compliance in local operating units of the HSE.

The Deputy asked if I was aware of any trips associated with HSE procurement and if I was aware of an individual company. I am aware of the name of the company but that is all. I would be happy to receive more detail from the Deputy. I have seen a reference to an employee of the Mater in the media, but I do not know any more than that at this stage. I will have to revert to the Deputy on the patient management system that was not tendered for. One valid possibility is that it is a sole supply and a single system already in place, but we would need to check and refer back to the Deputy. I will do that.

Did the HSE cut prices for all section 38 organisations? During the years of austerity the HSE imposed price freezes and negotiated price reductions across the entire environment, not just the voluntary sector.

I am not aware of some agencies being disadvantaged because others benefited. If there is more information on the matter then I would happily take it from the Deputy.

Jerry Buttimer (Cork South Central, Fine Gael)
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In the opinion of Mr. Woods, did what Deputy Troy mentioned take place? Were section 38 or section 39 organisations pitted against a hospital or part of the hospital group?

Mr. Liam Woods:

Is the Chairman referring to the claim made by Deputy Troy about the hospital procurement services?

Jerry Buttimer (Cork South Central, Fine Gael)
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Yes.

Mr. Liam Woods:

That group is now part of the single approach. The procurement experience of voluntary hospitals over a number of years, and the people involved in that, are now part of the HSE's national procurement team. That means they are working together to get the best price. Working together allows for a singular approach to market to get the best result for everybody. I hope I have answered the question, but that is the way we have proceeded with the matter.

A specific reference was made to mattress contracts at Mullingar and Tullamore hospitals. We will come back to the committee about when was it tendered for and how it works.

In regard to policy on employees and board members, I gave a general answer at the beginning in terms of our control environment and framework. If it is helpful to the committee at any point, we can set out some detail and present it back to the committee for reference. The information is published on our website.

Deputy Ó Caoláin stated that the allegations in the dossier might be worse than those aired on "Prime Time". I think the allegations, to the extent that I am aware of them, have been reasonably well rehearsed in the public domain. Is St. Vincent's Private Hospital in that? The answer is "Yes." It was one of the named entities. The Deputy asked me to name the other two. They were the Bon Secours group and-----

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I remember what Mr. Woods said a few moments ago. He mentioned the Beacon Hospital.

Mr. Liam Woods:

Yes. Sorry; I was missing the third one. I forgot that Mr. Michael Flynn was sitting in front of me.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I ask the Chairman to allow me to clarify the point-----

Jerry Buttimer (Cork South Central, Fine Gael)
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Very briefly.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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-----with Mr. Cullen because I asked him the question earlier. He is still in the bear pit and I hope it is okay for me to ask the following question again. Was he surprised to find that the Beacon Hospital was named in the evidence given by Mr. Woods this afternoon as one of the entities or hospitals involved?

Mr. Liam Woods:

No. I wish to clarify that the Beacon Hospital was not named in the allegation, to my understanding.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Are these the hospitals that were referred to the HSE in September of last year?

Mr. Liam Woods:

Yes.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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What reference did Mr. Woods make to the Beacon Hospital and the Bon Secours Group? My understanding was that they were the missing pieces, which is what I asked him. We had identified Mullingar and St. Columcille's hospitals. Mr. Woods has clarified again that St. Vincent's Private Hospital was the third of five.

Mr. Liam Woods:

Yes.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Then I asked Mr. Woods for the other missing pieces, and he named the Bon Secours Group-----

Mr. Liam Woods:

Yes.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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-----and the Beacon Hospital.

Mr. Liam Woods:

No. It was Tallaght hospital. I am sorry; if I said Beacon then I did so in error. It is Tallaght.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I can see Mr. Cullen is greatly relieved to hear that.

Mr. Liam Woods:

Yes, thank you. I apologise to Mr. Cullen.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I withdraw my question.

Mr. Liam Woods:

There was a reference to St. Vincent's denying any knowledge of a Garda investigation. I think the Deputy asked more generally about the nature of the proceedings of a Garda investigation, which, of course, is a matter for the Garda. We were in communication with the Garda on the internal audit side later last year and, in fact, more recently. We will meet them again to discuss and assist progress in their investigation in any way we can.

Jerry Buttimer (Cork South Central, Fine Gael)
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In regard to the investigation by the "Prime Time" programme, in correspondence received by us on 21 July, the director of strategy states:

As of now we have yet to receive any information behind the allegations from the Department of Health, the HSE or an Garda Síochána, that will help us to carry out our investigation in a thorough and complete manner. We have written to the HSE requesting details of the allegations relating to our hospitals and it has indicated that they will make this available to us.

Has that been done? Has the HSE communicated in full with St. Vincent's Healthcare Group in regard to the issues surrounding the "Prime Time" programme?

Mr. Liam Woods:

I received a letter from the chairperson of St. Vincent's hospital this week and I have responded to it, copying a redacted version of the allegation to the chairperson so that he could see it. I was surprised that they had not seen it, to be blunt.

I was asked whether there are any other staff who are on unpaid leave or have resigned. Not that I am aware of. That question was asked by Deputy Ó Caoláin.

Is the HSE taking the widest possible view of this matter? Yes, we are. We understand that there is a constant and ongoing risk in an area such as procurement, and it is not solely in procurement. In terms of our response, we will focus on the individual incident and understanding the nature and detail of same, and assist the Garda in any way we can in terms of the investigation. While this whistleblowing was not to the HSE, it would in any event be our duty, under circulars of government, to report such matters to the Garda and allow them it investigate. We will work in support of that to any extent possible.

In regard to steps regarding procurement at all sites, we have communicated again centrally with all procurement personnel about the need for probity and compliance with existing standards. We are also holding workshops nationally. Both the chief financial officer and Mr. Swords are attending workshops nationally dealing with both the understanding of and the need for compliance with our national standards.

A comment was made about drugs and health care expenditure. Yes, our capital spend is separate. There is a €330 million capital budget in the HSE, so items of capital, and issues around management of procurement relating to capital, also come to bear.

The Deputy also indirectly referred to the purchase of drugs within the community services, which, from memory, is between €1.8 billion and €1.9 billion. That is a very significant number, so these issues apply.

One will see organisations such as the Irish Pharmaceutical Healthcare Association moving towards voluntary declaration of transfer of value from their member organisations to staff. The association is comprised of 40 large pharmaceutical firms. One will see similar trends with the Irish Medical and Surgical Trade Association in terms of codes of ethics and behaviour for their members, and it represents about 90% of medical surgical suppliers. The spend is wide; that is very true.

I have already mentioned drugs and health-related expenditure. Ordering in the HSE is widespread, and it is not just procurement. We have referenced that.

Deputy Healy asked whether this matter was the tip of the iceberg. We have to have effective procedures in place, vigilantly ensure they are being complied with, and act when we see non-compliance. Our procedures are strong, and our need to ensure compliance is constant. In terms of the environment that we work within and the audit reports that we receive, there was a particular chapter on procurement in the last report which made some observations that we need to follow through on. They were about ensuring, in effect, aggregated tendering on a group basis through the use of frameworks.

Jerry Buttimer (Cork South Central, Fine Gael)
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Yes. In 2013, the Comptroller and Auditor General said that 36% of contracts did not comply with procurement processes. What is the compliance figure today?

Mr. Liam Woods:

I think that reference was to the use of frameworks within procurement.

Mr. John Swords:

Yes.

Mr. Liam Woods:

It is not a breach of a procurement process, but it is the use of a better process to ensure public value that the Comptroller and Auditor General referred to. I ask Mr. Swords to comment.

Mr. John Swords:

The area of compliance was really the issue. As referenced in the opening statement, and as mentioned by Mr. Woods a few moments ago, the chief financial officer and I are engaging with senior management and staff of training programmes, and we have met more than 350 people to date. The last meeting took place in Cork just two weeks ago, which had 106 people in attendance. The initiative is also supported by a training programme on the web, in which we ask people to bring the programme back to their own staff and introduce it in that way. The initiative has had the effect of raising awareness. The matter is relevant to Deputy Troy's comment about the 42 reports. In some ways, that has increased, but that is due to awareness. People are more aware of the need to declare non-compliance by way of regulation and that comes from the compliance training that we have done. While it is not good that it exists, it is good that people are aware of it, and that allows us then to address it through procurement. We have also noticed that consistently over the past year and a half we have increased requests for procurement support right across the whole sector, which again conveys that-----

Jerry Buttimer (Cork South Central, Fine Gael)
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What kind of support?

Mr. John Swords:

Contracts and tenders that our system works on. Our budget holders come to us for support in terms of their requirements and as a result of that we go to tender. That practice fits in with the new model entitled One Voice for Health Procurement. In terms of our approach, the key is more contracts and frameworks and their use and visibility.

Mr. Liam Woods:

I thank Mr. Swords. The follow-on question, by Deputy Healy, was about what safeguards are in place. I have spoken a bit about the control environment, but it might be useful to refer to the creation of hospital groups and community health organisations. I shall ask Mr. Lynch, in view of his experience as chairperson of a hospital group, to make some comments.

In terms of what we are doing, we have a single national procurement organisation that has a duty to create and maintain a rule set and provide a service to multiple entities - hospital groups - and support them in their need. As well as compliance, access to goods and services is a critical component of procurement. Logistics operations are another major aspect of what it does: warehousing and delivery to wards, theatres and such. In terms of improving the accountability environment, members will be aware that the creation of hospital groups is a step forward in providing distributed accountability and responsibility at a more local level while maintaining a national procurement approach to ensure best value. I may ask Mr. Lynch to say a word or two about that in terms of his experience.

Mr. Thomas Lynch:

The hospital groups envisioned in the Higgins report, which was published in 2013, are in the process of being established. Over the last 12 months, we have been putting in place management teams for each of the six hospital groups. One is already in place, for the Children's Hospital Group. The sizes of the groups range from five hospitals to, in the case of the Ireland East Hospitals Group, 11 hospitals, one of which is St. Vincent's. They are a mix of voluntary hospitals and what we call statutory hospitals, that is, those hospitals operated and owned by the HSE. One hospital group in Galway, the Saolta group, is made up of only HSE hospitals. We are in the process of establishing the governance. We are working with the Minister for Health and the HSE on establishing boards for the groups, using the Health Act 2013 or other similar structures. The management teams that are forming will be getting to grips with providing more decentralised local management, bringing the best of what the level 4 hospitals provide to level 3 hospitals around the country. Part of that exercise will be managing procurement in association with the HSE and centralising those functions in the groups, together with the HSE, to ensure that we get the best value for public money. It is early days yet, but we are beginning to see effective management being provided across the hospital system to support the work of the HSE centrally.

Mr. Liam Woods:

There were a couple of further points. A Deputy asked what health business services, HBS, is. There is a plan within the HSE for health business services, which we can make available to the committee. It is a succinct document that fully explains this. Very briefly, given that we are creating hospital groups and community health organisations, some functions within the HSE that run centrally at the moment need not be distributed and are better and more sensibly run from a shared location. The services within health business services that will provide a service to all of the health environment in the future will include procurement, estates management, financial processing, personnel superannuation and HR services, which includes recruitment. Those services can be provided at one time nationally, without duplicating everywhere. Health business services is the name of the division, which has its own director within the HSE, that has a duty to provide those services across the whole organisation. It allows hospital groups to focus on issues related to planning their future direction, dealing with care issues, and dealing with service provision. There is a wider document and I am happy to make copies of that available to the committee if it is helpful. I think we have covered the query on the internal audit approach.

The last question was what it means to say that additional procurement capacity is required. Mr. Swords may add to this, but briefly, there are a few factors involved. There is an increasing demand for procurement services from the organisation. As compliance has been increasingly driven within the organisation over the last few years, there is greater demand on procurement as a service because people need that service to comply with procurement regulation and to buy goods and services in a way that makes good use of public funds. That is an incoming demand. We have also lost staff through the moratorium and the austerity we have been through, which is a factor. Sometimes we are relying on relatively junior staff to do very significant things, which we have to be alert to and we must ensure we support these staff appropriately. In terms of the split that took place between the Office for Government Procurement and us, we have ceded some staff to the Office for Government Procurement to support it in doing things we previously did. The net effect of all of that is that we need to be watchful that we have sufficient procurement resources within our organisation to support our needs. It may be useful for Mr. Swords to make one or two more remarks.

Mr. John Swords:

Our organisation is becoming acutely aware of the demand on procurement and that there are more requirements for the way procurement is to be done. As a result of that, our numbers are an issue. As Mr. Woods said, we had lost 87 people in the HSE across moratoriums, excluding the people who were lost in the voluntary sector. From speaking with Mr. Lynch and our colleagues in Ireland East, I know that numbers are very low. We must resource this area correctly so that we can comply with all the requirements set out for us. The more compliance we get and the more areas we go into with frameworks and contracts, the better compliance we will have with all the regulations, codes of ethics, and so on. The tender process is key to that. Within that, there are safeguards that give greater assurance of compliance with the regulations. We have segregation of duties within the tender process. We have declarations of interest, etc., which are a requirement within the tender process. We have separation of the evaluation of the award criteria within that tender process. That is brought together at the end and the announcement and award of contracts are done in a very compliant way and are audited on a regular basis.

Colm Burke (Fine Gael)
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In the report it was stated that 42 audits dealing with procurement were carried out and that deficiencies were identified. This has all been kept within the HSE. We have not been given any information as regards the deficiencies that were identified and the cost to the taxpayer where proper procedures were not followed or where there were deficiencies. What action was taken where deficiencies were clearly identified? We have no clarification of whether there were any breaches on that issue and whether action was taken in respect of the people employed. We are talking about 42 different audits and there were deficiencies but we have no information on that. As a health committee, we are entitled to information on what the deficiencies were and what action was taken to deal with them.

The second issue I want to raise is budgets within hospitals. We have heard the complaint over a period of time about end of year, where units are afraid that if they do not use up their budget, it will be cut for the following year. An example of that was presented to me in the last two months in the southern region regarding the rush to get orders in before the end of the year. Has that practice changed? If so, what is now the procedure if a hospital or a unit does not use up its full budget and is penalised the following year? It may not have used up its full budget because it has become more efficient.

The third issue relates to pharmaceutical items. I have become aware of instances where, for example, a medical unit has a budget for drugs and pharmaceuticals and rather than using this up internally, it gives a prescription. The patient goes out and gets the item in a pharmacy and comes back into the unit for the treatment with that prescription. Therefore, there is an additional cost to the HSE in the process. Has that been audited at any time and are procedures in place to ensure there is no additional cost to the taxpayer?

Robert Troy (Longford-Westmeath, Fianna Fail)
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I asked Mr. Woods whether he was confident that the investigation under way in the public hospital was independent. He indicated he remains open to the possibility of an external investigation being carried out on foot of the completion of the internal investigation if he is not confident. Will he clarify this statement and provide a timeframe for the completion of the investigation?

Before commenting on unusual arrangements between staff members and certain medical companies, it should be noted that I do not wish to cast aspersions on anyone. It has been brought to my attention, however, that senior personnel in the procurement section of the Health Service Executive benefited from off-site hospitality. Mr. Woods is joined today by the head of procurement in the HSE. I ask the head of procurement to confirm or deny that he or any of his staff has benefited from any off-site hospitality. What is the staff complement of the section he heads?

When will Mr. Woods revert to me on the €500,000 patient management system at the Mater public hospital and the contract for mattresses in Mullingar Regional Hospital?

I noted that the HSE cut prices across the board in 2011. In some instances, large hospitals were getting more favourable prices than those that were introduced at the time but ended up paying increased prices for services.

Jerry Buttimer (Cork South Central, Fine Gael)
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We must move on.

Robert Troy (Longford-Westmeath, Fianna Fail)
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As I did not respond when the witnesses answered my earlier questions, I would like to obtain some clarification on the points I raised. I appreciate the Chairman's leniency.

I asked a question about the policy on employees or members of boards declaring any interests with pharmaceutical or medical supplies companies. Has anyone declared such an interest and, if so, how many have done so? What is the policy in this regard?

Jerry Buttimer (Cork South Central, Fine Gael)
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I ask Deputy Ó Caoláin to be brief.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I am very unimpressed with the decision of representatives of the St. Vincent's Hospital Group not to attend the meeting. Nevertheless, I do not for one moment doubt the veracity of the group's statement on the back of last week's television programme in which it states that there was no investigation under way in the group's private hospital with regard to the report made by the whistleblower to the Department in September 2014. We were informed that this report relates to seven hospitals, whereas the witnesses identified the number involved as five. I will accept the latter figure. It beggars belief that the Garda has had this information since June 2014, 13 months ago. The St. Vincent's Hospital Group has now contacted the Garda and Health Service Executive seeking information regarding the allegations. We are told that the allegations are even more serious than those aired in the "Prime Time" programme last week and that there has been no contact with the Garda for 13 months. It is also ten months since the matter was brought to the attention of the Minister.

Mr. Woods confirmed that the Minister for Health received correspondence from another Deputy in September 2014, which was copied to the Minister for Justice and Equality, in which he was made aware of the detail of the matters relating to five hospitals. Did the HSE not consider it appropriate to alert the private hospital in the St. Vincent's Hospital Group to the irregularities that were taking place? Did the Minister not believe he, his office or the Department should have communicated this information, irrespective of whether it related to a public or private hospital?

I am not impressed that the Garda bureau of fraud investigation is carrying out an investigation into these matters if, 13 months later, at least one of the hospitals in question knows nothing about the matter. The reason Mr. Woods has been able to confirm the role of Mullingar and St. Colmcille's hospitals is that the HSE took a proactive approach to the issue. As his statement makes clear, the HSE met the Garda bureau of fraud investigation only a short time after the allegations were made, namely, in November 2014. I presume, therefore, that it played a part in the initiation of the Garda investigation. However, the St. Vincent's Healthcare Group has known nothing about it since, and I wonder whether an investigation has been taking place at all.

Mr. Liam Woods:

In response to Senator Burke's question about the 42 audit reports, we publish our audit reports six-monthly in arrears. They are a matter of public record. In terms of the Senator’s points about the nature of the issues arising through those reports, the audit committee in the HSE tracks and reports them. We could probably synthesise those to give the committee a view of the type of issue we are considering and the compliance with the resolution of those issues. There is no problem about that per se. If it is of help to the committee, we are happy to do that.

I will ask some of my audit colleagues to comment on costs and loss. They are not always about costs and loss, but to the extent that we can make such an observation we will of course do so.

In respect of the end-of-year budgets in hospitals and the use-it-or-lose-it mentality regarding resources, there has been a deliberate desire to move away from an environment in which that is a practice. We have done that very deliberately because we have a strong view that we want to incentivise and encourage hospitals to live within their resources and not to penalise them for running a small surplus. We do not want to live in a land where we always have deficits in hospitals and the incentive is to spend money, and spend more than they have. The most strategic move taking place that will affect that is the move to an activity-based funding approach whereby we will increasingly fund hospitals for what they do, not what they spend. We will use comparative analysis of the costs of similar services across the country to inform that, and work is under way on that. The Minister may have mentioned it to the committee. Our activity-based funding strategy will influence how we resource hospitals and will move us further from the use-it-or-lose-it mentality, which we have no desire for within the system.

I would need to get further detail to answer the Senator’s question about prescriptions. I have not come across it and I do not know if the audit section has come across it, but I would be interested in getting more information from the Senator on it.

Colm Burke (Fine Gael)
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It is happening.

Mr. Liam Woods:

If there are any specific details available I would be happy to get them. I am aware that the high-tech drugs scheme has that type of arrangement but not the return one that the Senator referred to.

In response to Senator Bradford’s question about private clinic autoclaving, I was not previously aware of some of the specific information he provided. I am aware, from the allegation, of a reference to a central sterile supply department, but not a specific allegation such as the Senator mentioned. That would need to be followed up separately. It is new information to me and I cannot say much more about it.

In response to his point about medical equipment, we have asked our national lead on medical engineering to review all of the equipment costs in this supply environment over the recent period, and that work is under way separately.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is that part of the internal investigation into the cost of expensive equipment being serviced in the Beacon?

Mr. Liam Woods:

It is. The Senator asked were there any earlier indications. There was a phone call to St. Columcille’s in 2011 which was a complaint in this general area. No specifics were provided. Internal audit undertook a general review to determine whether it could identify any concerns under several suppliers. That did not turn anything up at that time. There was an anonymous allegation that was never followed through that came by phone to a staff member at St. Columcille’s Hospital. That is the only earlier engagement we are aware of.

Jerry Buttimer (Cork South Central, Fine Gael)
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How often would the HSE get phone calls from whistleblowers or people concerned about procurement or other practices within the HSE about supply of goods and services?

Mr. Liam Woods:

They may be channelled towards internal audit.

Mr. Michael Flynn:

We get several every year. Sometimes they are very detailed and specific and we can follow them up quite easily. Sometimes they are quite vague and difficult to investigate fully.

Jerry Buttimer (Cork South Central, Fine Gael)
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Are they all followed up?

Mr. Michael Flynn:

We would follow them up, yes.

Mr. Liam Woods:

Deputy Troy asked whether I was satisfied that the investigation is independent. I am satisfied with the bona fides of the people in terms of procurement and internal audit and our estates function centrally who are undertaking this work in response to this event.

Jerry Buttimer (Cork South Central, Fine Gael)
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Did the HSE give any information, advice or guidelines to the St. Vincent’s Healthcare Group about its internal investigation?

Mr. Liam Woods:

No. It has commenced an internal investigation under its terms of reference.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is Mr. Woods satisfied it has all the information it needs from the "Prime Time" programme and the issues raised with the HSE? In the letter to us it says otherwise.

Mr. Liam Woods:

I have responded to a letter from the chairperson about the nature of the allegations. We will be in future dialogue with St. Vincent’s hospital around assurance of its process.

I did not actually refer to an external review, but if we thought it necessary to have external support in doing this we would engage it. It is not unusual for us to do that in any event around our own compliance and assurance processes.

With regard to unusual arrangements and off-site hospitality-----

Mr. John Swords:

I am not aware of any. The Deputy asked me directly about that and about staff, but I am not aware of that. If the Deputy has information on that he can give it to us.

Robert Troy (Longford-Westmeath, Fianna Fail)
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How many staff are under Mr. Swords’s remit?

Mr. John Swords:

Within the staff complement across the country in the HSE, 540 work in procurement, which includes logistics and all the operational side at hospital level right through logistics, stores and sourcing. There are approximately 50 on the sourcing side. Our complement from the Department of Public Expenditure and Reform for the change process we are undergoing is 73. We have to determine what is in the voluntary sector, plus our own, and we estimate that the gap is 19 people. We are short 19.

Robert Troy (Longford-Westmeath, Fianna Fail)
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In Mr. Swords’s office how many are there?

Mr. John Swords:

I have approximately five in my own office.

Robert Troy (Longford-Westmeath, Fianna Fail)
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To Mr. Swords’s knowledge, has no-one benefited from off-site hospitality?

Jerry Buttimer (Cork South Central, Fine Gael)
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If Deputy Troy has information he might liaise with the HSE on that.

Mr. Liam Woods:

In reference to price reductions, I understood the Deputy was asking whether it is an issue if we undertake a tender, for a group of hospitals or nationally, for a service or product and negotiate a price in the marketplace, but some hospitals which were on a lower price are then mandated to go onto the contracted price. It can be an issue but it is not a major issue. It does not happen all the time but we do sometimes face it. When we need to take a national approach to driving value, our observation to a tenderer is that if it has a price that is lower in one hospital and we run a tender, it should bid that price and give it to us nationally, and then we have good value nationally. If it comes around the back of the scrum after we have done a tender saying there was low price, we will not tolerate that. We want national value up front. Individual hospitals may experience loss - this came up in some of our dialogue with some larger voluntary hospitals - and we did undertake that, subject to review, we would balance our cost-cutting targets to reflect that. If one hospital was truly suffering a loss this year, we would consider rebalancing slightly, and the adjustments would be very small to ensure that, while we are getting something that is for the common good of the whole system, nobody loses as a result of an independent or single competition. We have the other experience of tenderers seeking to come back in having lost a contract and offering a lower price, and that is not something we tolerate.

Robert Troy (Longford-Westmeath, Fianna Fail)
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If larger hospitals end up paying more than they originally paid because of a national contract, if the companies concerned could afford to do it for those hospitals at a price of X euro initially, why would it be increased to match?

Mr. Liam Woods:

Without going into individual tenders, it is not necessarily the case. We are considering a general reduction in the total cost to the health environment. We are also conscious that sometimes costs in hospitals may drive costs in the community, so we are very alert to the fact that something that may be very inexpensive in the hospital could, as a result of that contract, be relatively expensive when it finds its way into the community, so the tendering environment is a complex one. We are alert to what I think of as the true underlying value for the public system. If we enter into an arrangement and there is a loss, we will seek to compensate if we think it is a valid loss.

If the individual company does not tender the same price within the process, it is in some sense an indication from them as to the sustainability of the pricing level they had set. We work a closed book tender environment under public rules. We do our evaluation and then open the tender prices through proper process. That is what we follow.

There was a question on policy regarding the declaration of interests. Compliance with the Ethics in Public Office Act is a requirement for all staff in the HSE from grade 8 up - that is, all senior staff. There is a requirement under that to make declarations. For specific tenders, under our procurement regulations, people with vested interests are required to declare them or not engage in the process.

Jerry Buttimer (Cork South Central, Fine Gael)
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I asked Mr. Cullen earlier about the procurement, contracting and awarding of services, procurement of goods and so on. Does Mr. Swords believe there is a culture of enticement or inducement operating within the public sector in terms of suppliers or manufacturers selling goods or services? Are they offering inducements or trying to act in an untoward manner?

Mr. John Swords:

I do not think so. When we have taken out nearly €0.25 billion we are unlikely to have a lot of friends. From that point of view, we have reduced costs considerably. We actually got quite a lot of complaints about how "vicious" we had been towards suppliers. I do not think we have that culture.

Jerry Buttimer (Cork South Central, Fine Gael)
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For argument's sake, within Mr. Lynch's hospital group, for example, if I am supplying a product or goods and I go in to a member of staff with a gift or whatever, what is the policy of the hospital group on staff accepting gifts or tokens of appreciation?

Mr. Thomas Lynch:

It is not a practice that would be tolerated or permitted. We would expect any staff offered hospitality, for example, to report it to their superiors and ask whether it would be acceptable. In general terms, the ethics in public office provisions apply across the statutory and voluntary hospitals. While one could never say it does not happen, it is very clear that the control environment in the hospitals would be such that employees would be aware that if they did anything inappropriate, it would be a disciplinary matter.

Mr. Liam Woods:

There is a continuously strong culture of compliance. We understand it as a continuous endeavour. In some ways, as I said earlier, the increased demand for procurement service is an indication to us of that. It is an area in which we need to be constantly vigilant.

In response to Deputy Ó Caoláin's comments about timescales and the nature of the investigation, we have been in dialogue with the Garda Síochána and will be again. We have offered to make ourselves available for that purpose. We would be keen that the investigations are concluded. On the observations the Deputy made, this is a matter for the Garda and I am not in a position to comment on its operations. He referred to the lack of awareness of the allegation at St. Vincent's Private Hospital. It came as a surprise to me that it was not aware of the nature of the allegation through the investigation.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I am shocked that everybody - the Minister, the Department, the HSE and the Garda Síochána - was aware of serious allegations about conduct in procurement at a major hospital site, in this instance a hospital group, yet nobody had contacted the group in all of that time. I find that incredible.

Jerry Buttimer (Cork South Central, Fine Gael)
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Deputy Ó Caoláin's point about communications is well made. It is extraordinary that the hospital would not have known.

Mr. Liam Woods:

I was surprised myself that it was not something that was known to the hospital, although the public hospital was not named in the allegation. It was the private entity.

Jerry Buttimer (Cork South Central, Fine Gael)
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On the allegations from the "Prime Time" programme - I accept that there is an investigation - the HSE has a procurement framework in place with Eurosurgical. To how many hospitals does it apply? Can Mr. Woods clarify the status of tendering for surgical consumables, given the issues raised in the programme? According to the HSE statement following the programme, there are no issues with €1.8 million worth of contracts. In the context of those contracts, what was the basis for the judgment? What did the review involve? Does the HSE plan to review past contracts with the company involved? What has been the nature of the HSE's involvement or engagement with the company?

Mr. Liam Woods:

The number of hospitals involved is 42, out of a total of 48, which acquired products at some time from that group.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is Mr. Woods referring to the €6 million expenditure - €4 million for the HSE and €2 million for the HSE-funded voluntary sector?

Mr. Liam Woods:

The expenditure was €6 million in the most recent 12-month period. There are 42 hospitals involved, some of which are very small scale. The largest individual hospital would have acquired about €900,000 of products. The next largest group of four or five would have acquired about €300,000 of products, and then we are into small amounts. There would also be some capital transactions.

On tendering for consumables, the approach is that we would look at categories of product and determine market approaches for those categories. Medical surgical devices is one of those categories.

Mr. John Swords:

We are currently out on tender for approximately €7 million worth of medical surgical products. A lot of those items would be included with a company that is currently providing neurosurgical products. It is out at the moment. That is not to say that there is not a gap. Part of our investigation is to see where the gap is within that area so we will tender those out also.

Mr. Liam Woods:

The final question the Chairman asked was the basis of the review. We intend to review all our transactions with the company, going back over a number of years. We have started by looking at the last 12 months in both capital and revenue. We have also engaged our bioengineering capacity, which is capable of looking at the equipment in terms of the validity of any repair work done, a matter that has arisen in members' comments today.

In respect of the degree of assurance we take from the review, we can review internally and, as Mr. Cullen said about the Beacon Hospital, investigate whether these goods were needed in the context of services provided and acquired appropriately. Our records may well show that they were. However, we are also conscious that if there was collusion, other information may need to be brought to bear before we can be fully assured. At the moment, that resides within the context of the Garda investigation. We have a duty to ensure that our ongoing arrangements are secure and our services to patients are not affected in any way.

Jerry Buttimer (Cork South Central, Fine Gael)
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May I ask one general question in the context of the procurement policy? Given that the HSE has saved €28 million in 2015, which by Mr. Woods's own analysis is short of the €95 million the executive might try to save in the 2015 service plan, and given that the HSE has spent €1.6 billion, or 13% of its budget, is the target too ambitious? Am I missing something in saying it is a long way short of the target in terms of procurement savings?

Mr. Liam Woods:

Over the years 2009 to 2012, there were relatively high savings figures as we drove at price as the core component of how we would secure public value. Our capacity to get ongoing price reductions is now limited in the face of the price freeze, the reductions we have imposed and currency movements that have been under way for some time, given the reference pricing to dollars on some occasions. However, reductions are still possible. We have a target in the 2015 service plan of €30 million for procurement savings and it looks as though we will hit that target. We are also looking to make savings in the area of logistics, in terms of how we manage the delivery and storage of supplies and, more fundamentally, in terms of appropriate usage of supplies. That is more about dealing with the efficiency of usage of products and services and involves clinical engagement. For example, in our renal programme, we have streamlined the products in use, with the support of our clinicians, gone to tender and contracted nationally. We are driving value in terms of price while also ensuring effective usage. Often our savings in usage can be as great as, or greater than, our price savings. We are delivering based on that, and we are €2 million short of the target set this year. Our targets in previous years have been a lot higher.

Jerry Buttimer (Cork South Central, Fine Gael)
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I thank the witnesses for their engagement. A number of issues have been raised and the witnesses might liaise with the clerk about providing responses. I thank the members.