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Department of Health and Social Care annual report and accounts 2021-22 Press release

Gareth Davies, the Comptroller and Auditor General (C&AG) and head of the National Audit Office (NAO), yesterday issued a qualified audit opinion on the 2021-22 accounts of the Department of Health and Social Care (DHSC). A lack of sufficient, appropriate audit evidence and significant shortcomings in financial control and governance meant he was unable to provide an audit opinion on the accounts of the UK Health Security Agency (UKHSA).

DHSC has overall accountability to Parliament for the wider health group. Its accounts cover the Department, and over 500 other health bodies, including its Executive Agency, UKHSA. This is the first set of accounts from UKHSA, which was established in April 2021 and became fully operational from October 2021.1 From its inception UKHSA faced a challenging operating environment responding to the ongoing COVID-19 pandemic. It was heavily reliant on temporary staff, including in key senior roles, and experienced high levels of staff turnover.

The C&AG could not sign off on transactions related to UKHSA in DHSC’s accounts. He has issued a “disclaimer of opinion” on UKHSA’s own accounts, meaning he was unable to obtain sufficient, appropriate evidence upon which to form an audit opinion.2

The NAO found that there was a lack of adequate governance, oversight and control at UKHSA. Throughout 2021-22, there was no Board or Audit and Risk Assurance Committee in place, meaning that UKHSA did not comply with HM Treasury and Cabinet Office guidance on governance arrangements.3 Non-executive directors were not appointed until 28 April 2022, 7 months after UKHSA became operational, and the Advisory Board and Audit and Risk Committee did not meet formally until June and July 2022 respectively. This lack of formal governance arrangements exposed UKHSA to a high level of risk, with no clear oversight structure in place for its first six months of operation.

DHSC did not sufficiently support or oversee UKHSA to resolve issues it inherited from its predecessors and establish its administrative functions. UKHSA was unable to provide the NAO with sufficient evidence to support balances relating to £794m of stock, and £1.5bn of accruals from NHS Test and Trace, which were transferred from DHSC, or to support £254m of stockpiled goods transferred from its predecessor organisation, Public Health England (PHE). DHSC had not resolved issues with its management systems, financial controls and records, which the C&AG reflected in his report on DHSC’s 2020-21 accounts.

Critical elements of internal control were not in place during UKHSA’s first six months, for example, UKHSA did not carry out effective bank reconciliations. Shortcomings in the introduction of a new accounting system, combined with a reliance on temporary staff, meant that UKHSA was not able to provide the NAO with evidence to support key balances and transactions in the accounts.

For the Department of Health and Social Care’s group accounts, the C&AG was unable to obtain the evidence needed to support £1.36bn of stock, due to issues related to inventory management. DHSC did not complete an effective programme of year-end stock counts to verify the quantity and quality of items including PPE and lateral flow tests, as it was unable to access 5 billion items (which cost £2.9bn) that were stored in containers, and did not have adequate processes in place for accessible stock held in warehouses. 

DHSC estimates that there has been a £6bn reduction in the value of items procured in response to the pandemic. This comprises:

  • £2.5bn write-down on items costing £11.2bn4 that DHSC has already purchased, but no longer expects to use, or for which the market price is now lower than the price paid.
  • £3.5bn write-down on PPE, vaccines and medication which DHSC has committed to purchase, but no longer expects to use.

Taken together with the £8.9bn written-down in its 2020-21 accounts, over the last two financial years, DHSC has now reported £14.9bn of write-down costs related to PPE and other items. DHSC estimates that ongoing storage and disposal costs for its excess and unusable PPE will be £319m. At the end of March 2022, the estimated monthly spending on storing PPE was £24m.

The NAO recommends that DHSC and UKHSA should work with HM Treasury to agree and implement an action plan to get UKHSA on track to deliver auditable financial statements for 2022-23. DHSC should also put in place adequate controls over its remaining COVID-19 inventory. This should include processes to physically verify the amount and condition of the items held in containers and warehouses.

“Even taking into account the challenging context, it is unacceptable that UKHSA has not been able to produce auditable accounts and provide the transparency and assurance that Parliament needs. When setting up new bodies, it is essential that basic governance arrangements are put in place. DHSC and UKHSA must work with HM Treasury to get on track to produce auditable accounts”

Gareth Davies, the head of the NAO

Full report

Department of Health and Social Care Annual report and accounts 2021-22

Notes for editors

  1. UKHSA was established on 1st April 2021, as part of a reorganisation of public health in England. It became fully operational on 1st October 2021, with the transfer of health protection functions from Public Health England (PHE), and NHS Test and Trace responsibilities from DHSC.
  2. The Comptroller and Auditor General provides an opinion on whether the financial statements give a “true and fair” view of the body’s finances for the year, and on whether the transactions recorded in the financial statements have been applied to the purposes intended by Parliament (“regularity”).
  3. HM Treasury and Cabinet Office’s “Corporate Governance in central government departments: code of good practice”, April 2017
  4. This comprised £1.5bn of Personal Protective Equipment (PPE), £5.8bn of Test and Trace consumables (which includes lateral flow testing kits (LFTs) and PCR tests), £2.7bn of COVID-19 vaccines, and £1.2bn of COVID medicines.
  5. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
Channel website: https://www.nao.org.uk/

Original article link: https://www.nao.org.uk/press-releases/dhsc-annual-report-and-accounts-2021-22/

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