UK Health Security Agency set up with no formal governance and weak financial controls

- £3.3bn NHS Test and Trace inventory transferred to UKHSA cannot be properly accounted for

- No clear plan exists for a national emergency stockpile for any future pandemic, while DHSC has inadequate controls over existing PPE stock 

The UK Health Security Agency (UKHSA) was set up with financial controls so poor that it cannot be established whether its transactions were applied to the purposes laid out for it by Parliament.

In a report published today on the Department of Health and Social Care’s 2021-22 Annual Report and Accounts, the Public Accounts Committee notes that the UKHSA’s weak financial controls meant that, highly unusually, it could not be established whether its accounts were true and fair. For example, UKHSA’s consumption of £3.3 billion worth of inventory transferred from NHS Test and Trace could not be verified by proper financial records. The UKHSA did not even perform bank reconciliations, one of the most basic financial controls for an organisation.

In light of this, UKHSA should urgently put in place robust financial controls and processes, and a clear plan to deliver unqualified accounts. A lack of governance arrangements, including a Chief Executive appointed with no previous experience and UKHSA operating without a budget from DHSC, resulted in inadequate scrutiny and assurance of UKHSA’s operations. These arrangements should also be assessed and rectified as a matter of urgency.

The report also warns there is no clear plan in place for a national emergency stockpile of PPE, vaccines and medicines for any future pandemic. DHSC should implement a clear, cost-effective plan for the level and composition of such a stockpile.

DHSC still does not have adequate controls over its PPE, with vast quantities of unusable and unneeded PPE in storage waiting for disposal by recycling or burning. At March 2023, DHSC was unable to perform proper stocktakes of its PPE, estimating that doing so would involve moving and opening inaccessible piles of storage containers and cost £70 million.  Ongoing storage and disposal costs for unusable items continue to be high. In the past two years, the Department has written off £14.9 billion of inventory, which included PPE (£9.9 billion), COVID-19 medicines (£2.6 billion) and COVID-19 vaccines (£1.9 billion).

Dame Meg Hillier MP, Chair of the Committee, said: “The UK Health Security Agency was set up with great fanfare in 2021, and rightly so given the significance of its role in leading protection against threats to our nation’s health. It is completely staggering, then, that an organisation envisaged as a foundation stone of our collective security was established with a leadership hamstrung by a lack of formal governance, and financial controls so poor that billions of pounds in NHS Test & Trace inventory can no longer be properly accounted for.

“The chaos at the heart of the UKHSA must be addressed. It is also greatly alarming that there is no clear plan from the Government for an emergency stockpile of vaccines, medicines and PPE. Three years after the start of the pandemic, the Government still has no proper controls over the PPE stocks it already has. This could leave front-line workers exposed in the future to shortages similar to those faced in 2020. For the Government not to make serious preparations for any future pandemic would be utterly inexcusable.”

PAC report conclusions and recommendations 

Three years after the start of the pandemic, the Department still does not have adequate controls over its PPE and there continue to be high ongoing storage and disposal costs for unusable items. In the past two years, the Department has written off £14.9 billion of inventory, which included PPE (£9.9 billion), COVID-19 medicines (£2.6 billion) and COVID-19 vaccines (£1.9 billion). This write off was due to the Department overpaying for items at the height of the pandemic and over ordering of significant quantities of PPE that cannot or will not be used. The Department also purchased excess levels of COVID-19 medicines and vaccines which in hindsight are unlikely to be used. The Department has vast quantities of unusable and unneeded PPE in storage waiting for disposal by recycling or burning for energy. It continues to have very high storage and disposal costs for PPE, which it estimates will cost £319 million over the next few years. It is three years since the start of the pandemic and the Department still does not have controls over its PPE. It is still unable to perform proper stocktakes to confirm what items of PPE it is holding and the condition of these items at 31 March 2023. Large quantities of PPE remain in inaccessible piles of storage containers which the Department estimates would cost £70 million to move and open to perform the necessary stock counts. The Department continues to review its PPE contracts to identify if money can be recovered for the taxpayer, with at least a quarter of PPE contracts entered into being investigated by the Department. 

Recommendation 1: The Department should set out in its Treasury Minute response how it will ensure that:

• it puts in place adequate inventory controls over its PPE;
• its disposal plan for unusable inventory is carried out in the most appropriate and cost-effective way; and
• it recovers maximum value from suppliers which failed to deliver against their contractual terms.

We expect the Department to be able to report its progress on these matters to the Committee at a future evidence session.

The Department does not yet have a clear plan in place for a national emergency stockpile for any future pandemic. The stockpile held by the Department was invaluable for the first few months of the COVID-19 pandemic but it does not currently have a plan for the level or composition of the desired stockpile for any future pandemics. The Department was limited in its response to COVID-19 by the lack of domestic production of PPE and it has advised that it is working on strengthening domestic PPE supply chains. As well as the significant volumes of PPE it purchased, and is now disposing of, the Department has entered into contracts for both COVID-19 vaccines and COVID-19 medicines which commit it to procure future stock. It recognised impairments in 2021-22 of £1.7 billion for COVID-19 vaccines and £1.8 billion for COVID-19 medicines with a limited shelf life which it now does not expect to use.

Recommendation 2: The Department should develop and implement a clear, cost-effective plan for a national emergency stockpile to respond to any future pandemic.  

There was a fundamental absence of formal governance arrangements at UKHSA and the Department failed to respond to the heightened risks of setting up a new and complex organisation at pace. UKHSA was created on 1 April 2021 with unsatisfactory governance arrangements. Although the Non-executive Chair and Chief Executive were in post from 1 April 2021, no more non-executive directors were appointed until April 2022, one month after its first year-end. The lack of governance resulted in inadequate scrutiny and assurance of UKHSA’s operations. The Chief Executive was appointed into a role, as Accounting Officer and Chief Executive, of which she had no previous experience and relied heavily on the Non-executive Chair for support stepping into this position. The Non-executive Chair’s role therefore shifted from one which should have been scrutinising management to one of an executive member of the organisation. The Department failed to support UKHSA, taking a light touch approach to the governance arrangements in place, identifying risks but failing to make any arrangements to mitigate these issues. In addition, the Department did not provide UKHSA with a budget until after the year end. UKHSA’s Non-executive Chair told us that this meant that the function of the new organisation remained uncertain and that the mandate of any non-executives would not have been sufficiently clear.

Recommendation 3: The Department must work with UKHSA to ensure that the governance arrangements at UKHSA are assessed, rectified and that the remaining vacancies within its governance structure are resolved as a matter of urgency.

UKHSA had a fundamental weakness in financial controls and processes which resulted in it being unable to prepare auditable accounts. On 1 October 2021, the day that it became operational, UKHSA implemented a new IT accounting system and transferred the operations of its three predecessors onto this new system. At the same time, it was responding to the COVID-19 pandemic and managing rapid large-scale changes in spending and headcount. Implementing a new IT system is always a challenge, but these circumstances brought significant additional risks and shortcomings in the quality and timeliness of financial management of the organisation. UKHSA did not have effective control over its cash management process and did not even perform bank reconciliations, one of the most basic financial controls for an organisation. It also made an operational decision to not perform stocktakes on the emergency stockpile items transferred to it; even though weaknesses in controls resulted in no effective stock counts having being undertaken on the Test and Trace inventory transferred to UKHSA or at the year end. These were just three of the many issues which meant there was a fundamental absence of financial control within the organisation, which resulted in the C&AG taking the very unusual step of disclaiming his opinion on the financial statements. 

Recommendation 4: UKHSA should urgently ensure robust financial controls and processes are put in place and that there is a clear plan in place to deliver unqualified accounts.

The Department has not yet developed a clear plan to remove the audit qualifications and deliver its accounts to a pre-summer recess timetable. The Department has prepared its accounts in exceptional circumstances for the past two years. It laid its 2021-22 Annual Report and Accounts on 26 January 2022, five days ahead of the statutory deadline, and as in 2020-21, they were heavily qualified by the C&AG. For 2022-23, it plans to bring forward its laying of its Annual Report and Accounts in Parliament before the 2023 Christmas recess but there are a number of challenges in doing this. It is imperative that the Departments accounts delivery gets back on track to enable it to lay its Annual Report and Accounts ahead of the summer recess. Disappointingly, it does not yet have a credible plan to do this. The Department faces challenges from gaps in its finance function and significant problems in timely delivery in the local audit market which are required for its group accounts, which will impact on its ability to prepare more timely accounts. We have reported separately on the challenges of timeliness of local auditor reporting, which includes the audit of local NHS bodies that form part of the Departmental group.

Recommendation 5: The Department must develop and implement a plan to remove the qualifications from the Departmental Group accounts and work with NHS England to restore timely financial reporting and local audit across the NHS, to support laying of the Departmental Group accounts to a pre-summer recess timetable.

There have been repeated and unacceptable governance and accounting failures within the Departmental Group which has led to poor financial control, undermined Parliamentary accountability, and money being spent without Parliamentary approval. The Department has failed to implement adequate financial control across the Group which has resulted in numerous qualifications of both ‘true and fair’ and ‘regularity’ opinions. The Department’s own Core and/or Group accounts have had multiple qualifications over the last three years. The UKHSA accounts were disclaimed in 2021-22, the year it was established. NHS Property Services accounts were qualified in 2021-22, NHS England had regularity qualifications in 2020-21 and in 2021-22, and issues within University Hospitals of Leicester NHS Trust resulted in a disclaimer in 2019-20 and a delayed adverse opinion in 2020-21.

Recommendation 6: The Department must set out how it will establish sufficient capability to deliver effective oversight across its Group to manage emerging and developing issues and ensure it avoids future financial and governance failings./ENDS 

Full inquiry info including evidence received can be found here - DHSC Annual Report and Accounts 2021-22 - Committees - UK Parliament