Select committee inquiry
DHSC Annual Report and Accounts 2021-22
Closed
What the inquiry looked at
“The Committee will question senior officials at the Department for Health and Social Care about its overall spending and priorities in 2021 to 2022, the second year of the pandemic in the UK. The Committee has previously looked at issues including: - the Government response to the pandemic, particularly the issues in procurement of test and trace services and personal protective equipment that continue to emerge; and - the ongoing post-pandemic crisis in the NHS with lengthy wait times for elective, cancer and emergency care and strikes across the sector. If you have evidence on these or other issues related to the Department’s Annual Report and Accounts for 2021-22 please submit it here by 6pm Monday 6 March. Related to the Department’s Annual Report and Accounts for 2021-22. Please have a look at the requirements for written evidence submissions and note the Committee cannot accept material as evidence that has been published elsewhere.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Sixty-Second Report - Department of Health and Social Care 2021–22 Annual Report and Accounts ↗
Three years after the start of the COVID-19 pandemic, the Department of Health and Social Care (the Department) has spent £14.9 billion of public money overpaying and over ordering significant volumes of Personal Protective Equipment (PPE), COVID-19 medicines and vaccines. The Department will never use a significant proportion of the PPE purchased, which will end up being burnt at a significant cost to the taxpayer. The PPE storage costs remain high and were nearly £200 million in the first 9 months of 2022–23 and the Department estimates that its future storage and disposal costs for unusable PPE will be approximately £319 million.
The UK Health Security Agency (UKHSA) became fully operational on 1 October 2021, in the midst of the pandemic. There were significant issues in setting up this new organisation and the Department failed to appropriately support UKHSA during this process. This led to a fundamental absence of governance arrangements and controls.
Non-executive directors were not appointed until April 2022 and UKHSA’s financial controls and processes were so poor that the organisation could not prepare auditable accounts for the 2021–22 financial year. This resulted in the Comptroller and Auditor General (C&AG) disclaiming his audit opinions. UKHSA faces a significant challenge implementing strong financial controls and processes and the Department must provide sufficient support and oversight to achieve this.
Over the last few years, there have been repeated governance and financial control failings across the Departmental group leading to a number of qualified accounts. This has undermined Parliamentary accountability and resulted in the Departmental group incurring expenditure without Parliamentary approval. The Department has also been unable to lay its accounts before the summer recess, only just managed to do so before the final statutory deadline. It has not yet got a credible plan to return to laying its accounts before the summer recess. The Department must strengthen its governance and financial controls and set out a clear plan to restore timely accountability across the Departmental group. To do this, the Department must work with NHS England and local auditors to restore timely financial reporting across the NHS.
What the government said
The government responded on 24 September 2023. The deadline was 5 September 2023.
Summary written by Accountability Index from the government's response.
The government states that it agrees with each of the Committee's recommendations in this response, with target implementation dates given for some and others marked as implemented.
- On PPE and stockpiling, the government says its recommendations are implemented, citing quarterly PPE updates to the Committee and a strategy under which Supply Chain Coordination Limited (SCCL) manages the PPE supply chain and "maintaining adequate inventory controls".
- On UKHSA's financial controls, the government agrees, with a target implementation date of Autumn 2023. It says UKHSA aims to achieve an unqualified audit opinion "at the earliest feasible opportunity", which it gives as the 2024-25 accounts.
- On the Departmental Group accounts, the government agrees (target date July 2026) and says the department currently aims to lay its 2022-23 accounts in November 2023 and return to a pre-summer recess timetable for the 2025-26 financial year.
- On oversight across the Group, the government agrees (target date December 2023). It states that its controls "cannot guarantee full compliance from all bodies", and that local audit delays are "not wholly within the control of the department".
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 18 January 2023 to its close on 24 September 2023. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 20 Mar 2023
- Report 5 Jul 2023
- Government response 24 Sep 2023
- Correspondence 2 letters
What it recommended 3 recommendations · 30 conclusions
2Develop and implement a clear, cost-effective plan for national emergency pandemic stockpile
Concluded (the committee's words)
The Department does not yet have a clear plan in place for a national emergency stockpile for any future pandemic. The stockpile held by the Department was invaluable for the first few months of the COVID-19 pandemic but it does not currently have a plan for the level or composition of the desired stockpile for any future pandemics. The Department was limited in its response to COVID-19 by the lack of domestic production of PPE and it has advised that it is working on strengthening domestic PPE supply chains. As well as the significant volumes of PPE it purchased, and is now disposing of, the Department has entered into contracts for both COVID-19 vaccines and COVID-19 medicines which commit it to procure future stock. It recognised impairments in 2021–22 of £1.7 billion for COVID-19 vaccines and £1.8 billion for COVID-19 medicines with a limited shelf life which it now does not expect to use. 6 Department of Health and Social Care 2021–22 Annual Report and Accounts Recommendation 2: The Department should develop and implement a clear, cost-effective plan for a national emergency stockpile to respond to any future pandemic.
3Assess, rectify, and urgently resolve governance arrangement vacancies within UK Health Security Agency
Concluded (the committee's words)
There was a fundamental absence of formal governance arrangements at UKHSA and the Department failed to respond to the heightened risks of setting up a new and complex organisation at pace. UKHSA was created on 1 April 2021 with unsatisfactory governance arrangements. Although the Non-executive Chair and Chief Executive were in post from 1 April 2021, no more non-executive directors were appointed until April 2022, one month after its first year-end. The lack of governance resulted in inadequate scrutiny and assurance of UKHSA’s operations. The Chief Executive was appointed into a role, as Accounting Officer and Chief Executive, of which she had no previous experience and relied heavily on the Non- executive Chair for support stepping into this position. The Non-executive Chair’s role therefore shifted from one which should have been scrutinising management to one of an executive member of the organisation. The Department failed to support UKHSA, taking a light touch approach to the governance arrangements in place, identifying risks but failing to make any arrangements to mitigate these issues. In addition, the Department did not provide UKHSA with a budget until after the year end. UKHSA’s Non-executive Chair told us that this meant that the function of the new organisation remained uncertain and that the mandate of any non-executives would not have been sufficiently clear. Recommendation 3: The Department must work with UKHSA to ensure that the governance arrangements at UKHSA are assessed, rectified and that the remaining vacancies within its governance structure are resolved as a matter of urgency.
4Urgently implement robust financial controls and processes to deliver unqualified accounts for UKHSA
Concluded (the committee's words)
UKHSA had a fundamental weakness in financial controls and processes which resulted in it being unable to prepare auditable accounts. On 1 October 2021, the day that it became operational, UKHSA implemented a new IT accounting system and transferred the operations of its three predecessors onto this new system. At the same time, it was responding to the COVID-19 pandemic and managing rapid large-scale changes in spending and headcount. Implementing a new IT system is always a challenge, but these circumstances brought significant additional risks and shortcomings in the quality and timeliness of financial management of the organisation. UKHSA did not have effective control over its cash management process and did not even perform bank reconciliations, one of the most basic financial controls for an organisation. It also made an operational decision to not perform stocktakes on the emergency stockpile items transferred to it; even though weaknesses in controls resulted in no effective stock counts having being undertaken on the Test and Trace inventory transferred to UKHSA or at the year end. These were just three of the many issues which meant there was a fundamental absence of financial control within the organisation, which resulted in the C&AG taking the very unusual step of disclaiming his opinion on the financial statements. Recommendation 4: UKHSA should urgently ensure robust financial controls and processes are put in place and that there is a clear plan in place to deliver unqualified accounts. Department of Health and Social Care 2021–22 Annual Report and Accounts 7
5Develop and implement plan to remove qualifications from Departmental Group accounts and restore timely NHS reporting
Concluded (the committee's words)
The Department has not yet developed a clear plan to remove the audit qualifications and deliver its accounts to a pre-summer recess timetable. The Department has prepared its accounts in exceptional circumstances for the past two years. It laid its 2021–22 Annual Report and Accounts on 26 January 2022, five days ahead of the statutory deadline, and as in 2020–21, they were heavily qualified by the C&AG. For 2022–23, it plans to bring forward its laying of its Annual Report and Accounts in Parliament before the 2023 Christmas recess but there are a number of challenges in doing this. It is imperative that the Departments accounts delivery gets back on track to enable it to lay its Annual Report and Accounts ahead of the summer recess. Disappointingly, it does not yet have a credible plan to do this. The Department faces challenges from gaps in its finance function and significant problems in timely delivery in the local audit market which are required for its group accounts, which will impact on its ability to prepare more timely accounts. We have reported separately on the challenges of timeliness of local auditor reporting, which includes the audit of local NHS bodies that form part of the Departmental group. Recommendation 5: The Department must develop and implement a plan to remove the qualifications from the Departmental Group accounts and work with NHS England to restore timely financial reporting and local audit across the NHS, to support laying of the Departmental Group accounts to a pre-summer recess timetable.
6Establish capability for effective oversight across Departmental Group to avoid future financial and governance failings
Concluded (the committee's words)
There have been repeated and unacceptable governance and accounting failures within the Departmental Group which has led to poor financial control, undermined Parliamentary accountability, and money being spent without Parliamentary approval. The Department has failed to implement adequate financial control across the Group which has resulted in numerous qualifications of both ‘true and fair’ and ‘regularity’ opinions. The Department’s own Core and/ or Group accounts have had multiple qualifications over the last three years. The UKHSA accounts were disclaimed in 2021–22, the year it was established. NHS Property Services accounts were qualified in 2021–22, NHS England had regularity qualifications in 2020–21 and in 2021–22, and issues within University Hospitals of Leicester NHS Trust resulted in a disclaimer in 2019–20 and a delayed adverse opinion in 2020–21. Recommendation 6: The Department must set out how it will establish sufficient capability to deliver effective oversight across its Group to manage emerging and developing issues and ensure it avoids future financial and governance failings. 8 Department of Health and Social Care 2021–22 Annual Report and Accounts 1 Inventory procurement in response to COVID-19
1Committee takes evidence on Department of Health's 2021-22 Annual Report and Accounts
Concluded (the committee's words)
On the basis of a report by the Comptroller and Auditor General (C&AG), we took evidence from the Department of Health and Social Care (the Department) and the UK Health Security Agency (UKHSA) on the Department’s Annual Report and Accounts for 2021–22.1
7Numerous PPE contracts faced dissatisfaction and breaches, leading to substantial cancellations and variations.
Concluded (the committee's words)
The Department continues to review the PPE contracts it entered into to identify suppliers that did not deliver against their contractual terms. By February 2022, the Department had negotiated the cancellation or variation of contracts to reduce the original supply of PPE by 1.21 billion items with an associated reduction in value of £572 million.15 There have been 60 contracts identified by the Department where there was dissatisfaction due to required standards, quality control or due to contractual breach. The value of these contracts is £1.77 billion. In addition, there were twelve contracts held by the Department’s subsidiary Supply Chain Coordination Ltd which were in dispute as at 31 December 2022, where suppliers were under investigation as they were in breach of their obligations.16 The Department confirmed that on resolution of the disputes the appropriate information will be released to the public.17 Stockpiling for a future emergency
8Department incurred £3.5 billion in impairments for unused COVID-19 vaccines and medicines.
Recommended (the committee's words)
As well as the significant volumes of PPE it purchased, and is now disposing of, the Department entered into contracts for both COVID-19 vaccines and COVID-19 medicines which commit it to procure future stock. It recognised impairments on these contracts in 2021–22 of £1.7 billion for COVID-19 vaccines and £1.8 billion for COVID-19 8 Letter from DHSC to PAC, dated 16 March 2023 9 Q 84 10 Letter from DHSC to PAC, dated 16 March 2023 11 Qq 96, 100 12 Qq 98, 99 13 C&AG’s Report, para 5 14 Q 90 15 DHSC 2021–22 ARA, page 57 16 Letter from DHSC to PAC, dated 16 March 2023 17 Q 107 10 Department of Health and Social Care 2021–22 Annual Report and Accounts medicines with a limited shelf life which it now does not expect to use.18 We questioned the Department on why the impairments of COVID-19 vaccines and medicines were required and it confirmed that medicines were purchased as an ‘insurance policy’ at the beginning of the Omicron wave as there were concerns that it would be a vaccine-escaping variant and this would be protection for the most vulnerable. The Department however continued to explain that it would not expect to have such impairments in the future as there is no expectation that it would have to sign ‘onerous’ contracts again.19
9Future pandemic stockpiling plans remain undecided despite past domestic PPE supply chain limitations.
Recommended (the committee's words)
In our June 2022 report on the Department’s 2020–21 Annual Report and Accounts we noted the lack of planning for how big a PPE stockpile needed to be, and also the need to build greater resilience into the supply chain.20 We asked the Department again about the need and its future plans for stockpiling items that may be required in the event of a future pandemic. The Department stated there are a number of decisions yet to be made regarding what is included in a stockpile for future pandemics.21 It said that the stockpile held was invaluable for the first few months of the COVID-19 pandemic.22 However, one of its big limitations was the ability to create domestic supply and it advised us that it is working on strengthening domestic PPE supply chains.23 The Department confirmed that, at the time we took evidence in March, it had at least four months’ worth of PPE, particularly inventory, in its stockpiles.24 18 DHSC 2021–22 ARA, page 364 19 Q 82 20 Committee of Public Accounts, Department of Health and Social Care 2020–21 Annual Report and Accounts, Sixth Report of Session 2022–23, HC 253, 10 June 2022 21 Q 101 22 Q 117 23 Q 117 24 Q 80 Department of Health and Social Care 2021–22 Annual Report and Accounts 11 2 UKHSA
10UK Health Security Agency established in 2021, consolidating key public health protection functions.
Concluded (the committee's words)
On 18 August 2020, the Department announced a reorganisation of public health in England. The UK Health Security Agency (UKHSA) was subsequently established as an Executive Agency of the Department on 1 April 2021 with its Chair and Chief Executive appointed on the same day. It became fully operational on 1 October 2021, when it became responsible for the health protection functions of the former Public Health England (‘PHE’) and became responsible for NHS Test and Trace and the Joint Biosecurity Centre, both of which had previously been divisions of the Department.25 Establishment of UKHSA
11Establishment of UKHSA was a complex and urgent task driven by pandemic imperatives.
Concluded (the committee's words)
The Department told us that there was an operational imperative to establish UKHSA before the winter of 2021–22, which was driven by the state of the pandemic and the need to create a single source of advice for Ministers and a single operational response.26 The establishment of UKHSA was a complex task. The Chair of UKHSA compared it to creating a FTSE 50 sized company through a merger of three entities, with different systems and cultures, in six months.27
12UKHSA's complexity compounded by changing remit and significant workforce reduction post-pandemic strategy.
Concluded (the committee's words)
The complexity was compounded by the changing remit for UKHSA and by policy decisions which had significant implications for UKHSA’s size and structure. For example, in March 2022 with the implementation of the ‘living with covid’ strategy, UKHSA began a restructure which resulted in it decreasing its workforce from 18,000 to 6,700 full-time equivalents.
13UKHSA Chair adopted an executive role due to CEO's limited experience in key functions.
Concluded (the committee's words)
On 1 October 2021, UKHSA had a Chief Executive and a non-executive Chair, both of whom had been appointed on 1 April 2021. UKHSA told us that the Chief Executive, despite her expertise in the science of public health, did not have experience in the other elements of running a complex organisation. The Chair of UKHSA therefore saw his role during the first 12 months as providing the Chief Executive with support in some of the functions where she had less experience, such as technology operations and procurement. This resulted in his role departing from the traditional Chair’s role of challenging and scrutinising management to taking more of an executive role.28
14UKHSA's corporate governance arrangements deemed unsatisfactory due to absence of non-executive directors.
Concluded (the committee's words)
No additional non-executive directors were appointed until after the 2021–22 financial year. As a result, UKHSA did not comply with the principles of HM Treasury and the Cabinet Office’s Corporate governance in central government departments: code of good practice and UKHSA’s Head of Internal Audit concluded that, in their opinion, UKHSA’s corporate governance arrangements were unsatisfactory.29 The Department acknowledged that this was not normal and that in more ordinary circumstances it would have tried to establish a new entity at the beginning of the financial year with all necessary governance arrangements in place. In the Department’s view, the circumstances of mid- 2021 meant this was not possible.30 25 Report by the Comptroller and Auditor General, UK Health Security Agency Annual Report and Accounts 2021/22, HC 1086, 26 January 2023, p. 91. 26 Qq 14, 27 27 Q 17 28 Q 50 29 C&AG’s Report on UKHSA, p. 92. 30 Q 14 12 Department of Health and Social Care 2021–22 Annual Report and Accounts
15Department prioritised rapid UKHSA establishment over implementing a robust, appropriate governance framework.
Concluded (the committee's words)
We asked the Department whether, given the risks associated with the establishment of UKHSA, it had considered an alternative timing for establishing the new organisation to ensure that an appropriate governance framework could have been put in place. The Department said that its priority was ensuring that it had the most effective system in place for managing the pandemic during the winter of 2021–22.31
16Absence of UKHSA governance led to inadequate scrutiny and minimal departmental support and oversight.
Concluded (the committee's words)
The absence of governance arrangements at UKHSA, during a time of significant change and operational challenge, meant that there was inadequate scrutiny and oversight over UKHSA. We asked the Department what it had done to support UKHSA to help mitigate the risks associated with the absence of governance arrangements. The Department said that it has done this in a very light-tough way.32 When we asked for detail on this light touch involvement, the Department said that its own Audit and Risk Committee had discussions on two occasions about the risks facing UKHSA in its establishment.33 Financial management and control
17C&AG disclaimed opinion on UKHSA's inaugural accounts, unable to confirm 'true and fair' status.
Concluded (the committee's words)
The C&AG’s audit of UKHSA’s first set of accounts resulted in him disclaiming his opinions.34 This means that he was unable to give an opinion on whether the accounts were ‘true and fair’ or on whether the transactions recorded in the accounts were applied to the purposes intended by Parliament (‘regularity’).
18UKHSA accounts disclaimed due to uncounted inventory, unsupported expenditure, and insufficient evidence for accruals.
Concluded (the committee's words)
The UKHSA accounts were ‘disclaimed’ as: the inventory transferred from Public Health England (£254 million) and the Department (£794 million) to UKHSA on 1 October 2021 was not subject to stock counts, £3.3 billion of consumption of Test and Trace inventory was not supported by records and the inventory held as at 31 March 2022 was not subject to stock counts until several months after the year end; UKHSA was unable to provide sufficient evidence to support the £1.9 billion accruals balance as at 31 March 2022 and £3.0 billion expenditure on the purchase of goods and services during 2021–22; and UKHSA was unable to provide sufficient evidence to support journal adjustments made to the accounts.35
19C&AG disclaiming an opinion is rare; UKHSA expects unqualified accounts by 2023–24.
Concluded (the committee's words)
It is very unusual for an auditor to disclaim their opinion. No C&AG has disclaimed an audit opinion since January 2006, concerning the Home Office resource accounts 2004–05.36 UKHSA confirmed that they do not anticipate being able to produce accounts which will be unqualified until 2023–24 at the earliest.37
20Multiple root causes, including the new accounting system, led to UKHSA's unauditable accounts.
Concluded (the committee's words)
There were multiple root causes of UKHSA’s inability to produce auditable accounts. One of the key causes was the accounting system that UKHSA implemented on 1 October
21UKHSA inherited new accounting system decision, regretting not running existing systems simultaneously.
Concluded (the committee's words)
We asked UKHSA whether it would have been better to use one of the systems used by its predecessor entities rather than implementing the new system on the day it became operational. UKHSA said that it had inherited the decision to implement the new system from Public Health England and acknowledged that, in hindsight, it may have been preferable to run existing systems side by side.40
22Staffing difficulties and transitory workforce compromised UKHSA's ability to provide audit evidence and explanations.
Concluded (the committee's words)
UKHSA also experienced significant difficulties with staffing which compromised its ability to provide evidence and explanations to support the figures reflected in the accounts. The C&AG reported that one barrier to his ability to obtain evidence to allow him to give an audit opinion was the transitory nature of UKHSA’s workforce. This meant that officials who had prepared figures for the financial statements had left the organisation by the time of the audit and were not able to provide explanations and evidence to support those figures.41 During our evidence session, UKHSA echoed this, noting that from April to August 2022 it reduced its headcount by almost two thirds resulting in a loss of continuity of knowledge to help address the NAO’s audit queries.42 UKHSA also stated that two of the predecessor entities to UKHSA, NHS Test and Trace and the Joint Biosecurity Centre, did not have a history of budget and accounting discipline which further contributed to the difficulties in providing evidence and explanations.43
23Operational decisions, like uncounted transferred inventory, made accounts qualification inevitable for UKHSA.
Concluded (the committee's words)
There were also operational decisions which UKHSA and the Department took which meant that some form of accounts qualification was always likely. The Department decided not to count the stockpile of emergency goods transferred from Public Health England to the UK Health Security Agency on 1 October 2022. The Department’s view was that counting these stocks on the date of transfer would have compromised the autumn 2021 vaccine roll-out because it would have required the closure of warehouses.44 However, there were other inventories transferred to UKHSA, for example the NHS Test and Trace inventories transferred from the Department, where no stock counts were performed because the Department’s inventory management systems were not adequate.45 38 C&AG’s Report on UKHSA, p. 94. 39 C&AG’s Report on UKHSA, p. 94. 40 Q 21 41 C&AG’s Report on UKHSA, p. 93. 42 Q 22 43 Q 17 44 Qq 38, 51 45 C&AG’s Report on UKHSA, p. 94. 14 Department of Health and Social Care 2021–22 Annual Report and Accounts 3 Departmental group oversight Timely publication of the Annual Report and Accounts
24Department consistently missed Treasury's administrative deadline for publishing annual reports and accounts.
Concluded (the committee's words)
To ensure timely accountability for the spending of public funds, Treasury set an administrative deadline of 30 June after the end of the financial year for Departments to publish their Annual Report and Accounts, and no later than parliamentary summer recess in July. The Department has a statutory deadline of 31 January to publish its annual report and accounts.46 The Department laid its 2020–21 Annual Report and Accounts on the statutory deadline of 31 January 2022, and it acknowledged that this was a “incredibly challenging year to produce the Annual Report and Accounts”47. The Department told us in a previous session held on 07 March 2022 that it was working hard to bring the publication of its 2021–22 Annual Report and Accounts forward, with an aim to publish these in November 2022.48 The 2021–22 Annual Report and Accounts were however laid on 26 January 2023, only five days earlier than the prior year.
25Department aims to gradually improve annual accounts timeliness, targeting pre-Christmas 2023 and future pre-recess dates.
Concluded (the committee's words)
We asked the Department about the timing of the 2022–23 annual report and accounts, the Department confirmed that it was aiming to lay its Accounts before the 2023 Christmas recess and then to gradually improve the timeliness in future years.49 The Department is currently working on a multi-year plan to enable the Annual Report and Accounts to be laid pre summer recess in line with Treasurys expectation, with its aim being to bring forward the laying date by a couple of months each year.50
26Department faces significant challenges in finance capability and audit timetable delivery.
Concluded (the committee's words)
The Department faces two main challenges to bring the audit timetable forward, issues within the Department’s control and issues within the local audit market. The Department acknowledges that it is always looking to build its finance capability and identified three areas where more expertise is needed: financial, commercial and digital. The Department however confirmed it had enough people within the finance team but that its focus was on the financial expertise of non-finance staff.51 There are expected issues in 2022–23 with the introduction of a new accounting standard, IFRS 16, which fundamentally changes the way entities account for leases.52 The written evidence submitted by the Institute of Chartered Accountants in England and Wales (ICAEW) also raises concern with regards to the staffing levels within the finance function.53
27Group bodies face significant accounts preparation and audit issues for 2022-23.
Concluded (the committee's words)
We questioned the Department on the capacity of other bodies in its Group to prepare their Accounts to the required timescales, as we were aware that a number of bodies did not yet have auditors appointed for 2022–23, and this could have a significant impact on the Department being able to bring the laying date of the Group Annual Report and Accounts forward. The Department confirmed that there will be significantly more accounts preparation and audit issues in 2022–23 as Integrated Care Boards (ICBs) were formed mid-year meaning there are audits to be undertaken of both ICBs and also the 46 HM Treasury ‘Dear Accounting Officer Letter’, DAO 08/21, 16 December 2021 47 Department of Health and Social Care Annual Report and Accounts 2020–21,HC 1053, 31 January 2022, page 2 48 Committee of Public Accounts, Department of Health and Social Care 2020–21 Annual Report and Accounts, Sixth Report of Session 2022–23, HC 253, 10 June 2022, para 31 49 Q 3 50 Q 4 51 Qq 140–142 52 Q 6 53 Q 138 Department of Health and Social Care 2021–22 Annual Report and Accounts 15 former Clinical Commissioning Groups that ICBs replaced. The Department said it was working with the Department for Levelling Up Homes and Communities (DLUHC) to remove barriers to entry for more audit firms to enter the local audit market.54 Financial control across the departmental group
28Departmental and Group accounts repeatedly qualified due to inventory valuation failures.
Concluded (the committee's words)
The Department and bodies within its Group have had a number of financial governance and accounting failures in recent years. The Department Core and Group accounts have been qualified by the C&AG for the past two years. In both 2020–21 and 2021–22 there was a ‘true and fair’ qualification arising in respect of inventory, this arose as the Department was unable to perform stock takes to evidence the existence, completeness and valuation of inventory.55 The Department acknowledged that the inventory qualification will remain until the Department has disposed of all of the excess and unusable PPE it has.56
29C&AG qualified Group accruals and Core Department financial assets due to valuation issues.
Concluded (the committee's words)
The C&AG also qualified the Groups ‘other accruals’ in 2020–21 as there was insufficient assurance in respect of existence and valuation of £17.3 billion, the Department accrues expenditure it has incurred but has not yet been invoiced for and therefore a liability which will need to be paid in future. In 2019–20 the C&AG qualified his ‘true and fair’ opinion on the Core Departments ‘other financial assets’ due to a disagreement in the application of financial reporting standard IFRS 9. The Department did not impair the value of the loans to NHS Trusts and Foundation Trusts, resulting in assets being overstated by an estimated £2.2 billion.57
30DHSC Group accounts received regularity qualification for exceeding budget and unapproved expenditure.
Concluded (the committee's words)
Furthermore, the C&AG has qualified his ‘regularity’ opinion on the DHSC Group accounts for the past two years: the Department exceeded its budgetary limit for Resource Non-Budget Expenditure as authorised by Parliament in 2021–22 as a budget of £nil was authorised and the Department incurred an outturn of £2.457 billion; and in 2020–21, the Department spent £1.3 billion on projects they were required to but did not have the appropriate approval from Treasury for, and therefore was irregular, and also in 2020– 21 there was insufficient evidence to demonstrate that the expenditure incurred by the Department, particularly on COVID-19 was regular, with the assessment of potential fraud losses being inadequate.58
31UKHSA audit failures led to further qualifications on Departmental Group accounts.
Concluded (the committee's words)
The C&AG being unable to provide an opinion on the UKHSA 2021–22 Annual Report and Accounts59 (see above) resulted in further ‘true and fair’ and ‘regularity’ qualifications on the Departmental Group accounts.60 . We questioned the Department on when it realised that the difficulties inherited by UKHSA would impact on the Group accounts. The Department said that ‘the precise issues’ and the amount of evidence not available to support the audit only became apparent to it in late 2022 and in January 2023, and that it was the NAO’s audit which had revealed these scale of these issues.61 54 Q 6 55 DHSC 2021–22 ARA, page 252 56 Qq 79, 90 57 DHSC 2021–22 ARA, page 253 58 DHSC 2020–21 ARA, p. 192 59 UKHSA ARA 2021–22 pages 86–87 60 DHSC 2021–22 ARA, pages 252–256 61 Q 36 16 Department of Health and Social Care 2021–22 Annual Report and Accounts
32Multiple Departmental Group entities received additional audit qualifications for various failures.
Concluded (the committee's words)
There have been other qualifications across the Departmental Group. The NHS Property Services (NHSPS) accounts were qualified in 2021–22 as NHSPS were unable to demonstrate compliance with the Financial Reporting Framework and account for the expenditure, assets and liabilities arising from certain contracts in accordance with IFRS16 Leases. There were 182 rental arrangements with approximate annual payments of £7.7 million, and NHSPS was unable to provide documentation to determine the substance of arrangements.62 The NHS England 2021–22 Annual Report and Accounts ‘regularity’ opinion was qualified by the C&AG as ineligible payments were made to suspended medical practitioners; two suspended medical practitioners received suspension payments, over a number of years, with a combined total of £1 million to which they were not entitled.63 In addition, the C&AG qualified his ‘regularity’ opinion on the NHS England 2020–21 Annual Report and Accounts, also as NHS England failed to comply with Managing Public Money and made payment without Treasury approval for a special severance payment.64
33University Hospitals of Leicester NHS Trust faces significant audit and control weaknesses.
Recommended (the committee's words)
At the time of our evidence session, University Hospitals of Leicester NHS Trust (UHL) had yet to publish its 2021–22 Annual Report and Accounts. UHL’s auditor was not able to obtain sufficient, appropriate evidence upon which to form an opinion for 2019–20, and issued an adverse audit opinion for 2020–21, due to system and control weaknesses resulting in material misstatements.65 We asked the Department what oversight it had of other hospitals which may be having similar issues to UHL. The Department advised us that the NHS has a financial oversight framework that looks at financial and performance measures. The Department also advised that it has regular meetings with the NHS, at which it had not been alerted to similar concerns about any other specific trusts.66 62 NHS Property Services Limited, NHS Property Services Limited Annual Report and Accounts 2021/22, 17 February 2023 63 NHS Commissioning Board, NHS Commissioning Board Annual Report and Accounts 2021–22, HC 1011, 30 January 2023 64 NHS Commissioning Board, NHS Commissioning Board Annual Report and Accounts 2020–21, HC 1027, 3 February 2022 65 C&AG‘s Report, para 17 66 Qq 136–137 Department of Health and Social Care 2021–22 Annual Report and Accounts 17
Evidence
Oral evidence sessions 1
- 20 Mar 2023DHSC Annual Report and Accounts 2021-225 witnesses, listed belowparliament.uk ↗
Who gave evidence 5 witnesses
- Andy BrittainDHSC Director General, Finance, Department of Health and Social Care (DHSC)
- Ian PetersChair, UK Health Security Agency
- Professor Dame Jenny HarriesChief Executive, UK Health Security Agency
- Shona DunnSecond Permanent Secretary, Home Office
- Sir Chris WormaldPermanent Secretary, Department of Health and Social Care
Correspondence 2 letters
- 28 Mar 2023Correspondence from Sir Chris Wormald, Permanent Secretary of the Department of Health and Social Care, re 6th report - DHSC Annual Reports and Accounts 20-21, dated 16 March 2023
- 7 Feb 2023Correspondence from Sir Chris Wormald, Permanent Secretary, Department of Health & Social Care, re Health England Annual Report and Accounts 2021-22, dated 30 January 2023