The NHS Confederation’s recently departed chair has told the Charity Commission the organisation’s financial reserves must not be used to bail out NHS Employers.

Former chair of the NHS Confederation Bryan Stoten has revealed he wrote to the Charity Commission telling them he had instructed the organisation not to put its financial reserves towards the £3.4m losses resulting from NHS Employers’ failed membership scheme. He sent the letter on 15 April, two weeks before Keith Pearson replaced him as confederation chair.

Mr Stoten has spoken to HSJ following the leak of an audit that revealed confederation trustees had signed off payments for the scheme after being presented with “misleading” information by NHS Employers, which is part of the confederation.

Mr Stoten told HSJ: “I’m shocked and dismayed by what appears to have been going on and deliberately withheld from the trustees and me as chairman.

“The chair of audit [Malcolm Hanney] and I, as soon as we discovered it, took steps to protect the charitable funds. I have written to the Charity Commission making it clear that we have issued the instruction that the charity’s reserves are not used in this way.”

The membership model would have offered trusts human resources services in return for an annual £35,000 fee. The service was also to have included the NHS Jobs website, provided free of charge.

It was abandoned in March after the Department of Health said NHS Jobs would be put out to tender and in the light of muted interest from the health service.

But NHS Employers had already invested £2.2m on the project and committed to spending a further £1.2m over the next two years.

According to the leaked audit report, the confederation’s reserves policy says that “the target level for free reserves should continue to cover six months of relevant payroll and fixed overhead costs”. This would amount to about £4.7m.

There were £4.68m of free reserves as of 31 March 2009, according to financial statements quoted in the audit report. The Charity Commission recommends reserves are held as a safety net against “future uncertainties”.

If it does not use the reserves, NHS Employers may need to persuade contractors to reduce its debts, or the DH could let NHS Employers keep the £1.8m it has underspent on the main contract it holds to negotiate employment contracts, which is meant to be paid back.

As revealed by HSJ, this possibility was raised by the DH in January.

But it is unclear whether this is still on the table. Last week the DH told HSJ it was seeking assurances that NHS Employers was still solvent before it would sign a new contract.

A Charity Commission spokeswoman confirmed it was investigating concerns raised with them relating to the NHS Confederation.

NHS Confederation chair Keith Pearson said: “Trustees have already commissioned an independent audit report on the member model, approved an action plan to address the report’s recommendations, which is being put into practice, and agreed I should carry out a due diligence assessment on the member model as incoming chair.

“Both the audit report and due diligence assessment will be shared with the Charity Commission to inform their investigation.

“We are determined that the charity and its interests should be protected at all times, and it is inappropriate for us to comment further while the Charity Commission’s investigation is ongoing.

“Their investigation will be a helpful way to make sure that we learn all the lessons needed from what has happened and move forward.”