FINANCE: A major hospital trust ignored its own legal advice by handing extra payments to its chair and non-executive directors, according to the findings of an independent review.

Royal Liverpool and Broadgreen University Hospitals Trust made three sets of additional payments to non-executives between April 2009 and August last year, none of which were approved by the health secretary.

There are restrictions on NHS trusts regarding non-executive pay, which mean they need the health secretary’s permission to exceed agreed levels.

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The extra payments prompted the TDA to ask all trusts to review their non-executive pay arrangements

The trust’s payments included an extra £20,000 in June 2012 to former chair Judith Greensmith. Non-executive directors received an extra £5,000 each to reflect work they did in relation to a foundation trust bid and major redevelopment of Royal Liverpool University Hospital.

The case has prompted the NHS Trust Development Authority to ask all trusts to review their arrangements for non-executive pay, a TDA spokesman said.

The TDA became aware of the payments last year following a series of freedom of information requests by an individual. Royal Liverpool, which has a budget of more than £400m, was told to commission an independent review, which was conducted by KPMG.

The review was published on the “transparency section” of the trust’s website on 27 March, but has not been reported on until now.

In relation to the 2012 payments, the review said the trust had obtained legal advice from law firm Hill Dickinson, which “explicitly” said the payments would exceed the levels permitted by the NHS Act 2006.

However, former chief executive Tony Bell, who left the trust in August 2012 to become chief executive of Chelsea and Westminster Hospital Foundation Trust, thought this advice was “conservative”, KPMG was told.

He believed he had authority to make such payments, as the act also says: “An NHS trust may do anything which appears to it to be necessary or expedient for the purposes of or in connection with its functions.”

Mr Bell, who now works as a consultant, told HSJ he accepted the review’s findings, but added: “These payments were made in good faith because of the tremendous amount of work these non-executives were doing. They were one-off payments and were not salary adjustments, and they were published in our accounts.”

KPMG, which was paid £21,000 for the review, also raised concerns that non-executive pay was discussed at a remuneration committee meeting in December 2011, presenting a “conflict of interest” as it was members’ potential pay being discussed.

It said members agreed actions for the director of finance to develop proposals for pay increases when FT status was achieved, as well as “short term flexibilities” during the assessment process.

The review said the conflict was not declared in the minutes and it was “inappropriate for the executive directors to review the remuneration of the non-executives as the non-executives set the executive’s remuneration”.

Trust associate director of corporate affairs Madelaine Warburton had raised concerns about the additional payments in 2012. She sought further advice from Hill Dickinson when more payments were proposed in December 2013, which reiterated the previous advice.

New chief executive Aidan Kehoe then halted the further payments and the trust obtained further legal advice from DAC Beachcroft, which “sets out unequivocally that payments to non-executive directors other than those authorised by the health secretary are not permitted”.

The trust sought permission from the health secretary to increase the chair’s pay to £40,000, and one non-executive’s to £12,000. The amounts authorised by the health secretary were £23,600 and £6,157, and the requests were rejected. The non-executive director resigned with immediate effect, and Ms Greensmith’s term of office ended in November when she did not seek reappointment.

The trust again breached the rules between April and August last year, when a non-executive director was paid an extra £3,078 for additional work as the interim chair of a board subcommittee.

Despite a warning from Ms Warburton that permission would be needed, Mr Kehoe believed the previous legal advice was not relevant in this case as the payment represented a non-executive covering a vacant post in addition to his normal duties.

The trust should also have sought permission for an extra £2,000 payment to a non-executive in April 2009 for his attendance at 19 extra meetings, the review found.

Regarding all the payments, the review said while it could be argued there had been a legitimate business case for making them, “the objective does not justify non-compliance with legislation”.

A trust spokesman said: “The trust has accepted that it did not have the authority to make additional payments.

“The non-executive directors who received additional payments no longer work at the trust. The trust has recovered the majority of the additional payments and is taking steps to recover the rest.

“The review identifies what actions we should take in order to prevent this issue from reoccurring and makes recommendations, which will strengthen our governance processes.

“We have completed the majority of the review’s recommendations and are in the process of implementing the rest.”

The trust would not say whether disciplinary action had been taken against any members of staff, but added: “Due process has been followed regarding those involved.”

Ms Greensmith could not be reached for comment.