EXCLUSIVE Finance director and chair at cash-strapped trust broke professional codes

Published: 03/11/2005 Volume 115 No. 5980 Page 5

Inept managers at a beleaguered Midlands acute trust created a 'financial fantasy', predicting it would break even when it was plummeting£10m into debt, an independent inquiry has found.

A catalogue of 'opaque', 'skimpy' and 'amateurish' reports with 'vague proposals' for cost savings were put together by Martin Herd, former finance director at Shrewsbury and Telford Hospital trust.

The inquiry, commissioned by Shropshire and Staffordshire strategic health authority, said the reports were 'weakly' scrutinised by the trust board, who believed Mr Herd's 'specious explanations and assurances' and failed to pick up on 'obvious clues that reported financial trends had little correlation with reality'.

It adds: 'The reports were full of assumptions and proposals without back-up facts, or a reality check about viability.' Directors failed on at least five occasions to recognise 'clear indicators' of the deficit between 2004 and 2005, and it was 'inexplicable' that they accepted Mr Herd's claims, the inquiry found.

He was also criticised for the 'serious error' of excluding financial risk from the corporate risk register.

Mr Herd was suspended from the trust in May and resigned in July before a disciplinary hearing could begin. The report concludes that he breached the code of conduct for NHS managers.

Former trust chair Phil Homer is also severely criticised in the report, which says he breached the code of accountability for NHS boards. He also resigned in July.

The report says Mr Homer 'wanted to avoid adverse publicity at all costs' and that he discouraged detailed discussion about finances at the board meetings until the last quarter of the year.

He became 'overly involved with operational issues' and 'promoted the view that the trust was extremely efficient and its funding problems would be addressed following the introduction of payment by results'.

The true extent of the debt was 'masked' by a culture in which bad news had to be 'ameliorated or the responsibility passed to other organisations'.

Non-executive directors were 'embarrassed' to raise concerns because they were told they were fortunate to have such high-calibre people at the helm.

'Stilted debate, stage-managed meetings and defensiveness characterised meetings of the trust board, ' the report says. 'Regrettably, the culture of constructive challenge being discouraged merely resulted in the acceptance of financial fantasy.' Throughout 2004-05, the trust repeatedly claimed it would break even until after the year end, when a£3m deficit was forecast. Following an investigation by the external auditors, a£10.1m deficit was uncovered.

The leadership of former chief executive Neil Taylor is cited as a concern in the report. He resigned from the trust which he led to threestar status after admitting lying on his CV to land the£115,000 job. He was sentenced to 12 months' imprisonment (suspended for two years) and fined£5,000 in September.

Mr Homer, a local councillor, said: 'Whilst I was chair we expanded services at both the Shrewsbury and Telford sites and we met all government waiting times and waiting-list targets. I believe the hospital was underfunded for that work.' He refused to comment on why he resigned.

The trust's new chief executive, Tom Taylor, said he had already acted on the report's recommendation that an apology should be made to staff and the public.

'I have apologised at the staff briefing, at the September annual general meeting and during a phone-in on Radio Shropshire, ' he said. 'The report gives us an opportunity to put the history behind us and move forward - that is what this organisation has got to do.' HSJ was unable to contact Mr Herd.

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