Managers’ compliance obligations

Where the HSE seeks compliance statements from Section 38 health agencies it’s not just comply or explain, it’s comply and cure, writes Niamh Callaghan.

Niamh Callaghan
Niamh Callaghan
What is the Compliance Statement?

The Compliance Statement is to be an annual statement addressed to the HSE, made by two Section 38 Agency board members – the chairperson and one other board member – on behalf of their board, testifying as to the agency’s compliance with standards identified by the HSE in eight areas. Those eight areas are governance, internal controls, risk management, remuneration, finance, preservation of capital assets, taxation and procurement.

What is its objective?

Its objective is twofold. Its primary aim is to encourage Section 38 Agencies to enhance their overall governance framework. By requiring boards to confirm compliance and identify non-compliance, it will operate to bring about compliance. A secondary aim is to identify areas of non-compliance with the standards specified by the HSE.

What right has the HSE to require delivery of a Compliance Statement?

Section 38(7) of the Health Act 2004 states: “The [HSE] may request from a service provider any information that it considers material to the provision of a health or personal social service by the service provider.”

Are there other examples of compliance statements?

Regulated financial service providers must deliver a form of compliance statement. Companies with turnover of more than €25 million will be required under the new Companies Act to deliver a compliance statement as to the existence of structures designed to secure compliance with company and tax law.

What challenges does the Compliance Statement bring?
  • Each year the board of each Section 38 Agency will be required to confirm to the HSE whether it is or is not in compliance with the standards specified by the Compliance Statement. Where the Agency is not in compliance it must identify the actions it will take to achieve compliance and the timeframe. It’s not just comply or explain, it’s comply and cure.
  • The confirmation sought from the signatories has been drafted as a representation or warranty by the Agency board as to compliance instead of the more normal model of the simple narrative of a collective conclusion of the board.
  • The standards specified by the Compliance Statement include the adoption of a code of internal governance based on the Code of Practice for the Governance of State Bodies. No two Section 38 Agencies are the same in terms of their size, funding and needs. The code adopted by each Section 38 Agency will need to be tailored proportionate to the size of the Agency, its funding and needs. The Code of Practice assists where it states… “some … bodies may consider that certain requirements of the Code of Practice would have a disproportionate effect on them because of the nature and scale of their activities, the resources available to them, and their governing statutes…… In such cases, the relevant body should reach agreement with the relevant Government Department (i.e. the HSE) on the extent to which the requirement might be suitably adapted in their case.”
  • The constitutional arrangements of particular Section 38 Agencies may not permit compliance with the Compliance Statement. For example, the Compliance Statement calls for maximum board terms of nine years and for chairpersons, six years. For agencies established by statute or trust, this poses an issue as their governing documents are not easily amended. Even for companies that can amend their governing documents with relative ease, asking longstanding board members to resign poses political issues and brings with it the practical issue of losing board members who are essentially the “corporate memory” of the Agency. A non-director role for such persons may be considered appropriate given their experience and value to the Section 38 Agency.
  • The Compliance Statement seeks confirmation that the State’s interest in capital assets funded by the HSE has been protected by the Agency. The form of this protection is usually sought through grant agreements provided by the HSE. Considerations such as the extent of this security and whether a Section 38 Agency has the power to give security need to be taken into account when this compliance is being looked at.
  • The Compliance Statement seeks confirmation that all remuneration of Section 38 Agency personnel is in accordance with Department of Health Consolidated Pay Scales and that no alternative sources of funding are being used to supplement that remuneration. As a matter of objective fact, this will not be the case in many instances. Whilst there may be nothing illegal in certain such arrangements, it does present agencies with the choice of honouring contractual obligations or potentially losing HSE funding.
  • The on-going monitoring of compliance will require the full-time attention of a compliance person and an increased internal audit function. There will be resulting costs which will need to be funded.
  • The new service arrangements (SAs) between the HSE and the Section 38 agencies have not been issued yet. Those SAs may themselves import further requirements.
Is it a good thing?

Despite the challenges, the Compliance Statement is an opportunity for Section 38 Agencies to showcase themselves in a good light. Most Section 38 Agencies strive for and already comply with the governance requirements set out in the Compliance Statement. However, actually auditing compliance is a considerable task, and one which requires dedication, time and cost.

Niamh Callaghan is a Partner and Head of the Health Reform Team in Mason Hayes & Curran Solicitors. She advises her healthcare clients on a broad range of issues, including the implementation of a corporate governance code, the implications of the Compliance Statement, the establishment of Hospital Groups and trusts, mergers of hospitals and general corporate governance, structuring and compliance issues. She can be contacted on 01-614 5048 or at ncallahgan@mhc.ie.