NHS Supplies Authority: Audit Provisions (Hansard, 1 December 1993)

§ The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege)
My Lords, at its meeting on 16th November the National Health Service Supplies Authority agreed that its audit committee would consist of three of the authority's non-executive members. The members will be selected at its next meeting on 16th December, after which I shall write to the noble Lord giving him the membership.

§ Lord Dean of Beswick
My Lords, I am grateful for the detailed Answer that the Minister has given me. But in view of the unhappy financial outcome of some dealings within the National Health Service, does she consider that the three people she has mentioned should be members of the audit committee? I believe they are already employed in another capacity in the health service on a quango and now they will not only be twin-tracking but treble-tracking. For this matter to be run on a correct financial basis the people appointed to the committee ought to be totally removed from the health service. That stricture should apply not only to the three directors, who are nameless at this point in time, but also to the chief executive and the chairman. Does the Minister accept that for this matter to be seen to be financially correct none of those people should be involved with the audit committee because if they are involved they will literally be examining their own books?

§ Baroness Cumberlege
My Lords, I should like to draw a distinction between internal and external audit. In this case we are talking about internal audit. It is quite right that the non-executive members involved with the organisation should be involved in the internal audit.
539 We have received the Cadbury Report on the financial aspects of corporate governance. I understand that it is the first such report, and it has been very well received by a number of regulatory bodies. It is highly commended by both the private and the public sectors. We are in absolute accordance with the recommendations of the Cadbury Report. The non-executive members of this authority are composed of a company solicitor, the former chief executive of the John Lewis Partnership, a chartered engineer, a management consultant and a director of a freight company. They all have outside interests, which is important for non-executive members.

§ Lord Dean of Beswick
My Lords, I am sorry to return to the matter so quickly. I accept what the Minister said without reservation. However, am I correct in thinking that some of the people she mentioned are already employed in another capacity in other quangos in the National Health Service? I am not talking about the qualifications of those outside members. The Minister insists that it has to be an internal audit. The point that I made in my Question a few weeks ago is that, with a turnover of between £1.7 billion and £3 billion, there ought to be an element of outside investigation of the final end-of-year turnover to ensure that this is not another case where the National Health Service will lose millions of pounds because of a poor business approach.

§ Baroness Cumberlege
My Lords, we have absolute confidence in the supplies authority. The external audit for the supplies authority is carried out by the National Audit Office, the Audit. Commission, Parliament through the PAC and the review system. This is an internal audit and, as I said, it is important to draw that distinction. I have been given a guarantee by the chairman of the authority that he will not be part of this small membership, and neither will the chief executive or other executive members of the authority.

§ Lord Ennals
My Lords, I am grateful to the Minister for her explanation. Does it mean that none of those who will undertake this internal audit is in the payment of the National Health Service? That would he a proper move. Secondly, instead of using so many private audit companies, which come in and are paid by the National Health Service, would it not be more appropriate for the National Audit Office and the National Audit Commission to undertake these internal inquiries?

§ Baroness Cumberlege
My Lords, those bodies do that. It is essential that every organisation has both internal and external audits. The internal audit is carried out by people within the organisation. In line with the Cadbury Report, they are non-executive members of the organisation. They keep a watching brief on a day-to-day basis. That is very important and one would not expect external auditors to do that.
As regards those who are involved in the audit, they are involved in the National Health Service. This particular authority is a supplying authority to the National Health Service. It is important that we have 540 people on the authority who are not only beyond reproach but are also consumers of the service, in that it is a service industry supplying a service to them.

§ Lord Ennals
My Lords, my question was: are any of them paid by the National Health Service?

§ Baroness Cumberlege
Yes, my Lords. They are paid as non-executive directors in line with every authority and trust board within the NHS, and they also hold posts within the National Health Service as chairmen of health authorities or other positions. That is the consumer aspect of the NHS supplies authority.

§ Lord Carter
My Lords, can the Minister tell the House whether the findings of the proposed audit committee will be dealt with rather more openly than the original district auditor's report on the mismanagement, incompetence and possible fraud in the Wessex Health Authority? That report was delivered to the Secretary of State, Mrs. Virginia Bottomley, who took no action. The senior staff of the health authority were warned that approaching the press or the local MP would result in instant dismissal. The then chairman of the authority, Sir Robin Buchanan, having first disclaimed any responsibility, then had to admit that he had been involved in negotiations regarding the computer contract which was the subject of the district auditor's highly critical 77-page report. Can we expect rather more open government so far as concerns the proposed audit committee, and will the findings of that audit committee be available for debate in both Houses of Parliament?

§ Baroness Cumberlege
My Lords, district auditors' reports on all authorities and trusts are published. They are in the public domain. With regard to the Wessex situation, I should like to point out that many of the irregularities which occurred in relation to that scheme took place before Sir Robin Buchanan became chairman in 1987.

§ Lord Monkswell
My Lords, can the Minister confirm that the Cadbury Report recommended that the audit committees of public companies should be comprised of non-executive directors? My understanding of non-executive directors is that they have no other connection with the company concerned except as directors. It would appear, and can the Minister confirm, that the arrangements that are being set up for the National Health Service are not in line with the recommendations of the Cadbury Report in that the non-executive directors involved hold positions elsewhere within the organisation?

§ Baroness Cumberlege
My Lords, I should like to reassure your Lordships that the proposals that are being put forward by the supplies authority are in accordance with the Cadbury Committee recommendations. The Cadbury Committee stated that the board should establish an internal audit committee of at least three, non-executive directors with written terms of reference which deal clearly with its authority and duties. That is exactly what will happen.

§ Lord Dean of Beswick
My Lords, I am grateful for the very detailed way in which the Minister has answered the questions. However, is she aware that her reply that some of the people involved are already receiving two salaries or stipends within the National Health Service makes my case for me? They ought not to be given a third, on the grounds that they are already involved. They are the buyer and the seller and are now becoming their own auditor.

§ Baroness Cumberlege
My Lords, as consumers of the service and of the National Health Service Supplies Authority it is very much in the interests of health authority chairmen, trust chairmen and whoever else is involved to ensure that they receive value for money. I believe that they will be keener than anybody else to ensure that there are no irregularities and, what is more, that they are receiving value for money from the NHS Supplies Authority.