Financial risks and apparent conflicts of interest related to NHS Employers’ failed membership scheme were missed due to the perception it had an “unstoppable momentum”, a report leaked to HSJ reveals.

The confidential review of Employers’ ambitious scheme to run HR services on behalf of trusts says trustees at the NHS Confederation, Employers’ umbrella organisation, were presented with “misleading” information about the project.

The enthusiasm of the team was perceived to have given the project an unstoppable momentum

The scheme collapsed in March with £3.4m losses, following in-depth discussions with the Department of Health regarding the NHS Jobs website.

The report says the threat that the DH might want to tender NHS Jobs - which Employers wanted to include as a key part of its membership scheme - was raised by confederation chief executive Steve Barnett on 7 April 2009.

The confederation’s board was told two months later the DH had said it would not be tendering the service. This message was repeated to trustees in July.

However, two weeks later, on 24 July, a letter from DH director of workforce capacity Flora Goldhill to then NHS Employers director Sian Thomas confirmed “we intend to tender the NHS Jobs service competitively”.

Ms Goldhill said: “I would like to re-emphasise my previous advice to you that you should not enter firm contractual arrangements with a partner to deliver NHS Jobs in advance of the tendering process.

“While we welcome NHS Employers tendering for the NHS Jobs service, the DH would not support plans for establishing a service in competition with the tendered service.”

Auditors at PKF, which wrote the report, found no evidence that the contents of Ms Gold-hill’s letter were reported to the board or trustees at the time or at later opportunities in September and October.

By the time the letter was received by Ms Thomas, trustees had already agreed to proceed with the development of an HR software tool to support the proposed membership service, and lawyers had been paid £45,000.

In addition, a total of £200,000 had been invoiced to the company developing the software, half of which was split into smaller payments of as little as £12,500.

The report adds: “Procurement procedures require that the payments should have been treated as one item and approval for the spend authorised in advance for the full £200,000. That was not done.”

The report says the request to split the invoice came from Ms Thomas and although concern about this was escalated to the head of governance and the interim finance director, “it appears to no action was taken”.

The report says Ms Thomas signed off agreements with the software firm after she had received Ms Goldhill’s letter.

NHS Employers asked two consultants to help negotiate the contract with the company, by now known as eArcu. But while the negotiations were taking place, the consultants were also appointed as eArcu directors, along with Ms Thomas, and paid a “finders’ fee” in shares, equal to a combined 15 per cent stake in the firm.

There is no record of trustees or the board being told about the shares, which appear to have been “inappropriate” and to present a “conflict of interest”, the report notes.

The agreement the consultants reached with eArcu, granting Employers a non-exclusive license, was “not in the interests of [NHS Employers]”, the report says.

Together, the consultants working on the membership model possessed a “knowledge bank” which “could cause issues for NHSE now that they have departed”.

Some of the consultants now work on Ms Thomas’ new social enterprise venture, Synuron, which is based on the Employers’ model. Half of her eight- strong team previously worked on the Employers membership scheme, according to the Synuron website.

NHS Employers is contracted by the DH to undertake its pay negotiations. Ms Goldhill’s letter made clear the DH did not want any of the surplus generated as part of that contract to be spent on the membership project.

This “should have flagged that the only alternative source of funding was the charity’s reserves”, according to the report.

It says costings received “limited scrutiny by the interim finance director” who, it appears, “received limited and misleading information from NHS Employers when querying matters”.

Trustees were also unaware that “in substance NHS Employers was entering into a loan arrangement” with strategic partner Capita.

Project costs were presented as one line in management accounts, making it more difficult for trustees to challenge individual budgets, such as legal costs of over £200,000.

While the need to borrow from confederation reserves was flagged at management meetings in September and some network directors expressed concern, the “scale of this was not recognised” and trustees were not told.

The report states: “The enthusiasm of the project team, and their belief in the fail safe nature of the project, was perceived by a number of managers and trustees interviewed to have given the project an unstoppable momentum.”

Managers raised concerns with Mr Barnett but these were counterbalanced by the “vigour of the assurances by the NHS Employers director and the project team”.

No formal consideration appears to have been given to Charity Commission requirements for trustees to put the interests of the charity first, the report says.

In practice, it appears trustees “did not recognise nor had it brought to their attention that confederation funds were being utilised by NHSE”.

It only emerged last December the project would require using the confederation’s entire £4m reserves to support the scheme.

The report states that while Ms Thomas was interviewed initially by PKF, “it has not been possible to confirm our understanding of some of the matters” with her. Ms Thomas declined to comment to HSJ.

Mr Barnett said: “We have accepted from the start that there were serious shortcomings in the way the NHS Employers membership model project was developed, managed and scrutinised. 

“This has been a chastening episode, but the NHS confederation has responded by acting quickly to commission this independent report from PKF so we can learn from what has happened.”