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Statement by Dominic Sharp St Georges Financial Contoller Submitted To The Croydon Employment Tribunal

WITNESS STATEMENT OF DOMINIC SHARP

I am a Chartered Accountant and have worked in the Finance department at St George’s Healthcare NHS Trust for over 10 years. Since October 1996 I have been the Financial Controller with responsibility for Financial Accounts, Accounts Payable, Cashiering and Capital functions totalling 24 staff.

Management of the Finance department

As Finance Director Ian Perkin adopted an open and collegiate approach to the management of the Finance department. The Senior Management Team (which comprised Ian, the Deputy Finance Director, Financial Controller, Chief Management Accountant, Income Controller and Chief Internal Auditor) met on a regular basis to discuss and agree policy on wide-ranging issues in an open and informal manner. We reached decisions collectively and each member was free to discuss any issue that concerned them.

Ian maintained a consistently honest and open style of management. He was always approachable and supportive. He made clear to all members of the department irrespective of seniority that he would make time to discuss with them on an individual basis if necessary any concerns they may have. His approach to all the issues the department dealt with was clear and straightforward and consequently I was never unsure about how to approach my work or about the priorities of the department.

Relationship with other senior managers

I understand some senior managers of the Trust have expressed criticism of the Finance department and Ian’s leadership of the department. I can confirm that no senior managers expressed any such criticism in my presence. In my experience the relationship between the senior management of the Trust and the Finance department was in general satisfactory.

Approach to the management of Trust finances

Ian provided clear and positive leadership of the Finance department This was demonstrated by his determination to obtain value for money for the Trust in a number of key areas.

(i) Private Finance Initiative scheme

I worked closely with Ian on the economic appraisal for the PFI project. He insisted the Trust finance department had the technical ability to perform the financial evaluations for the business case and therefore the Trust did not need to procure comprehensive external financial advice. I witnessed at first hand his commitment to the project which was evidenced by his willingness to work long hours for a prolonged period. The senior team within the Finance department produced many iterations of the affordability study and economic appraisal as the terms of the agreement were continually revised during negotiations with the consortium. Consequently the Trust was able to restrict expenditure on external financial advisers to a total of only £181,000 over the entire four year period prior to financial close in March 2000. This amount compares extremely favourably with other similar sized PFI schemes. I understand this is recorded in Hansard in a government response to a parliamentary question.

(ii) Dispute with agency nurse contractor

In 1997 I established that an agency nurse contractor had been overcharging the Trust in respect of NI employer’s contributions. Initially our solicitors advised that we would be able to recover the overpayment in full however after a rebuttal letter from the agency they indicated that the Trust’s position was actually weaker than they had previously advised. Ian instructed me to seek to recover monies by direct negotiation without using our solicitors on the basis that we had sufficient information to convince the agency that they must agree a settlement. After an exchange of several letters and a ‘without prejudice’ meeting, we secured a significant refund from the agency without incurring any further legal expense. I cannot disclose the name of the other party or the terms of the settlement as the agreement is subject to a confidentiality clause.

(iii) Dispute with another agency nurse contractor

Similarly Ian advocated a rigorous policy towards another nursing agency concerning the claim by the Trust for very significant damages. He believed this second agency underestimated the Finance department’s ability and determination to deploy the right arguments and accurate financial data necessary to recover the losses incurred as a result of the agency’s alleged breach of contract. Following the meeting at which the board approved Ian’s recommendation to issue a writ, Ian informed me that the Chairman of the Trust had relayed to the board the views of David Knowles on his recommendation. Mr Knowles had apparently complimented Ian remarking that it compared favourably with the reluctance he had encountered previously of other public bodies to adopt a pro-active approach in dealing with breaches of contract. Following the initiation of legal proceedings the dispute was resolved with a very satisfactory outcome for the Trust. I cannot disclose the name of the other party or the terms of the settlement as the agreement is subject to a confidentiality clause.

(iv) Introduction of the Nurse Bank

Upon the termination of the above agency nurse contract, the Finance department conducted a financial evaluation of the alternatives available to replace the service and recommended that the Trust set up its own Nurse Bank. Bank nurses have a strong preference for their earnings to be paid on a weekly basis. Ian secured additional resources for the Finance department in order that the Trust could implement a new weekly payroll service so as to attract as many nurses as possible onto the Nurse Bank. The Nurse Bank has been a highly successful project providing around 70% of the Trust’s demand for additional nursing hours and in doing so has reduced markedly the Trust’s reliance on more expensive agency nurses. This ‘market share’ compares favourably with the performance of other Nurse Banks in the NHS.

Statements made by Pricewaterhouse Coopers

(i) Management style

I understand Pricewaterhouse Coopers have expressed the opinion that Ian’s style may harm the Trust’s relations with external organisations. I have attended all the exit meetings held with the external auditors over the last six years. The external audit exit meeting is the key forum for the auditors to feed back on their audit findings, to highlight any accounting issues of concern and to discuss the Trust’s financial position in the coming financial year and beyond. I can confirm that neither the partner Simon Sharp, nor any other representatives from Pricewaterhouse Coopers have ever expressed this opinion of Ian’s style at any of these meetings.

On the contrary they have recorded in writing on more than one occasion their favourable view of the Finance department’s performance. In their 2000/01 audit letter Pricewaterhouse Coopers noted “Once again we have been impressed by the organisation and effectiveness of the final accounts process at the Trust”.

Furthermore they stated “We have commented in the past on the strength of the finance function at the Trust and consider that with its skills it may be well placed to contribute significantly to the Shared Services Initiative”.

Therefore I am surprised that they have now expressed the opinion that Ian’s style may harm the Trust’s relations with external organisations. This issue was not raised by them at the exit meeting for the 2001/02 annual accounts held in July 2002.

(ii) Trust financial performance 2001/02

At the external audit exit meeting held in July 2002 Simon Sharp opened a lengthy discussion on the Trust’s financial position and the NHS Trust financial regime in general. He expressed his concern that the Trust achieved financial balance on its income and expenditure account in 2001/02 only by making substantial capital to revenue transfers. He stated that the capital to revenue transfers effectively hid the Trust’s recurring income and expenditure deficit from users of the accounts. Against the backdrop of the Enron and Worldcom accounting scandals he thought it was timely to highlight the reality of the Trust’s financial performance in 2001/02. Ian agreed with his analysis and emphasised that the Trust was in essence living off its asset base in order to achieve financial balance on income and expenditure and emphasised that as a consequence the Trust was not replacing its assets – most importantly medical equipment - at the rate they were wearing out. He had made this point previously to the Capital Strategy Group, which is chaired by the Chief Executive. Accordingly Simon Sharp requested in the interests of transparency that the Trust include on the face of the income and expenditure account in the published annual accounts a note recording the total value of capital to revenue transfers effected in 2001/02. This note states:

(iii) Trust financial position 2002/03

The discussion then moved on to the Trust’s financial outlook for the coming year.

Ian expressed his view that the NHS cost reduction regime - whereby the Trust had to achieve year on year savings of 3% pa to part fund the growth of clinical services - was unrealistic. He was certain that the Trust would not be able to secure the level of savings to achieve the target for 2002/03 and furthermore to fund the loss of non-recurring income received in 2001/02. Therefore he predicted that unless additional funding was forthcoming the Trust would not be able to achieve its statutory duty to break-even on income and expenditure. Simon Sharp concurred with this analysis.

Response to statements made by Melvyn Esterman

(i) Clinical negligence provision

Melvyn Esterman has repeated his criticism of the timeliness and accuracy of the Trust’s clinical negligence provision. However this criticism – which was relayed to Ian in the form of a letter from John Bacon (Director of Finance & Performance Management, London Regional Office) dated 22/6/00 – was refuted at the time. When I was in Ian’s office Ian explained to Melvyn over the phone that the provision was inherently volatile because it was based on our solicitors’ estimates of the total costs the Trust would incur in each case. The solicitors update these estimates regularly to take account of various factors such as for example new evidence and revised assessments of life expectancy. Therefore the Trust’s provision can and did change significantly at short notice. If, as I understand Mr Esterman has suggested, the Finance department had set aside the claim forecasts provided by our solicitors and used instead artificially lower figures there is a high probability that the external auditors would have qualified their opinion on the published accounts on the basis that the clinical negligence provision was imprudent and calculated without reference to the expert information available.

In addition I assisted Ian in drafting the written response to John Bacon’s letter. This response demonstrated that the Trust had calculated the provision in accordance with the accounting guidelines and in good time. Ian enclosed a letter from Julia Todd (Deputy Finance Director at Merton Sutton and Wandsworth HA) dated 6/4/00 which confirmed that the provision forecast had been received within the deadline set by the Health Authority. John Bacon did not respond to Ian’s letter however Ian informed me subsequently that when he asked a member of John Bacon’s team at the NHS Executive whether he would receive a reply the individual stated it was ‘a closed issue’.

(ii) Financial monitoring returns

I understand that Melvyn Esterman has criticised the Trust’s production of financial monitoring returns stating ‘that they did not balance’ and were submitted after the deadlines.

I am responsible for completing the financial returns which are sent to the NHS Executive. The statement made by Mr Esterman that the returns ‘did not balance’ presumably refers to the forecast deficits which the Trust projected in some returns. All forecast outturn figures were agreed by Ian with the Chief Executive before they were submitted. I can confirm that most monitoring returns were submitted within the timetable set by the NHS Executive. The few returns which were late were submitted no more than 2/3 days after the deadline. As far as I am aware the Finance department has never received any criticism from either the NHS Executive or Merton Sutton & Wandsworth HA for submitting monitoring returns late.

Overspend against 2001/02 Capital Resource Limit

Ian Perkin has asked me to confirm the discussion held at the Capital Strategy Group at its meeting on 24 April 2002 regarding the Trust’s overspend against the Capital Resource Limit for 2001/02. At this meeting I presented a capital finance report which estimated that the Trust had exceeded its Capital Resource Limit (CRL) for 2001/02 by approximately £655,000. It is a Trust financial duty to contain capital expenditure within the CRL. The main cause of the overspend was the marked acceleration in expenditure by the Estates department in the last two months of the financial year. I can confirm that Marie Grant proposed a vote of thanks to Douglas Ward on the performance of the Estates department and that Dr Paul Jones supported this proposal.

Dominic Sharp

Financial Controller