EXCLUSIVE DoH becomes involved in dispute over funds handed to Shrewsbury trust

Published: 03/11/2005 Volume 115 No. 5980 Page 6

Debt-ridden Shrewsbury and Telford Hospital trust was handed£1m by the NHS Leadership Centre as the trust desperately tried to balance its books, HSJ can reveal.

The Department of Health is investigating the transaction after an independent inquiry into the financial management of the trust questioned the propriety of the deal.

Further letters sent to the DoH and seen by HSJ suggest the£1m was used as brokerage - and that invoices from the trust were used to 'disguise' the arrangement 'as bona fide'.

The letters also record the Leadership Centre's insistence that it intended the funds to be distributed by the trust to strategic health authorities on its behalf, as part of its National Management Development Initiative (NMDI).

The independent inquiry, published last Thursday (see page 5), claims the trust 'appeared to be acting as an unofficial banker for a repayable£1m received from the former NHS Leadership Centre' under a deal 'apparently agreed between [then trust chief executive Neil Taylor] and the former NHS Leadership Centre'.

It calls for an investigation into the transaction because of 'possible inappropriate practice'.

In June, Martin Gore, then finance director of the Modernisation Agency - the umbrella organisation that included the Leadership Centre - wrote a three-page letter to DoH finance director Richard Douglas raising his concerns about the£1m 'brokerage' deal.

The letter, seen by HSJ, says it took place just weeks before the close of the 2003-04 financial year when the centre paid out£1m, in 10£100,000 instalments, to the trust.

Mr Gore detailed a series of transactions, with invoices and credit notes being exchanged between the trust and the Leadership Centre, with the centre demanding the money in July 2004 and cancelling the debt a month later. E-mails submitted to the SHA's inquiry show the centre demanding payment again in February 2005.

This week, the trust told HSJ the money was finally repaid on 30 June this year after the trust's chief executive, finance director and chair had resigned.

Mr Taylor resigned from the trust after admitting lying on his CV to land the£115,000 job. In September he was sentenced to 12 months' imprisonment (suspended for two years) and fined£5,000. He denies any involvement in the financial side of the deal.

Last week's inquiry said the e-mails, considered as evidence, demonstrated the 'increasingly unusual' practices employed by trust finance director Martin Herd to reduce the projected deficit and noted Mr Herd's 'injudicious language in respect of cash manoeuvres with the NHS Modernisation Agency'.

In an e-mail dated 12 February 2004, Mr Herd said: 'We might also have the opportunity for a further£500k from the Modernisation Agency to 'launder'.' In reply, a colleague warned him of a number of 'issues of concern should we take the cash but not count it towards our [income and expenditure] outturn'. The agency would need to show 'a corresponding debtor' to the trust's creditor, he suggests, and 'cash brokerage' would count towards the trust's problem hitting its external financing limits.

In February this year, Leadership Centre NMDI project director Karen Lynas contacted Mr Herd to check he was expecting an invoice to repay the£1m.

A month later, when her colleague followed up to check payment for£1m, represented by two invoices, was being processed, Mr Herd forwarded her note to colleagues, warning: 'We may have problems 'hiding' these'. When he was told the£1m had been handed over to the trust 'in cash' he responded:

'Oh bollocks'. A colleague wrote the appearance of£1m worth of invoices would 'blow a massive hole in the [end of year] projections'.

The deal was also questioned in the correspondence between the Modernisation Agency and DoH seen by HSJ.

Neil Blakeman, the agency's acting finance director until April 2004, claimed in a statement to the DoH in June that the payment of the£1m in£100,000 instalments meant the deal escaped the agency's detection for half a year.

'The amounts of£100k appeared to be deliberately chosen to fit with the MA's delegated authority limits.

Any invoice over£100k would have to be approved by the director of the Modernisation Agency, ' he wrote.

A letter from Mr Blakeman's successor, Martin Gore, to DoH finance director Richard Douglas said:

'There is no documentation backing up the reason for the invoices or the subsequent payment.' Mr Gore stated: 'It is Neil [Blakeman]'s contention that the funds were brokerage and the original invoices from the trust were used to disguise this as bona fide.' Mr Gore said there was a 'dispute' between this version of events, and that given by Leadership Centre director Penny Humphris and Ms Lynas, who argued the trust was given the funds to distribute to SHAs, on the centre's behalf.

They said the payments were part of the NMDI, and were agreed because of the agency's 'good relationship' with then trust chief executive Neil Taylor, who had done a 'considerable amount of work' on the agency's behalf.

Mr Gore's letter also highlighted his concern over the 'integrity' of a number of accounting issues arising at the centre during the closure of accounts in 2003-04, along with 'concerns over professional standards, and 'confusion' surrounding its financial position.

The Leadership Centre's account

Leadership Centre National Management Development Initiative project director Karen Lynas said the trust was given the money to distribute because its chief executive, Neil Taylor, was on NMDI's steering group.

She said the Leadership Centre asked for the money to be returned when there was no take-up of the scheme in its first 12 months.

She said she had no involvement in the finances of the centre until she asked for the money back in an e-mail to Martin Herd in February this year.

Ms Lynas said she was not aware that invoices had been sent to the trust for the return of the money in July 2004 - just four months after it had been handed over. She was also not aware that credit notes had been issued by the centre to the trust in August 2004, cancelling the original debt.

'It is really difficult to comment on that. I can tell you what the initial decision was and why it was made at the time - it was perfectly legitimate.' She also insisted: 'There is back-up documentation [about the deal between Shrewsbury and the centre]. There was a written agreement about what we expected of them.' Ms Lynas said she did not have a copy of the documentation.

Ms Lynas said she continued to manage the programme until the Modernisation Agency closed down, but 'was not concerned with any of the decisions between Shrewsbury and the Modernisation Agency'.

She said the funds were paid in instalments of£100,000 because that was the level of payment granted to each SHA under the scheme.

Neil Taylor, former trust chief executive

'It would not be inappropriate practice by me. My job is to get income into the trust, obviously legitimately. In terms of the mechanics of the finances - That is not my job is it? These sorts of things do go on around the end of the financial year. I do not know that they go on for such large sums of money but they do go on.

These are things finance directors deal with.'

Tom Taylor, the new chief executive Shrewsbury and Telford Hospital trust's new chief executive

Tom Taylor said the money was paid back in June, as soon as he found out about the deal.

He told HSJ there was 'clearly some loose wording used by individuals at the time' but 'what their intentions were I could not say'.