NHS Supply Chain receive qualified opinion from external auditor.

In their public accounts Supply Chain Coordination Limited (SCCL), the private limited company responsible for the NHS Supply Chain (created by the Department of Health and Social Care (DHSC) and owned by the Secretary of State for Health and Social Care until 1st October 2021) said: 

“the exceptional impact of the pandemic response has not only led to significant financial reporting challenges but also the reconciliation of inventory has been impacted by significant volumes, which put strain on the company’s control environment, resulting in a qualification of accounts”

The external auditor, Peter Morland, Senior Statutory Auditor of the Comptroller & Auditor General (C&AG) assigned to SCCL was unable to gain assurance from the SCCL year end stocktake.

The C&AG, Gareth Davies, leads the National Audit Office (NAO) (the UK’s independent public spending watchdog) and is an officer of the House of Commons.

The NAO certify the accounts of all government departments and many other public sector bodies.

At the 31st March 2021, the C&AG auditor reported that SCCL and DHSC inventory items were both held in a number of locations.
 
Inventory held on behalf of the DHSC was not segregated in the warehouse.
 
There was no adequate system records or physical demarcation to distinguish between items owned by SCCL and those owned by DHSC.
 
Consequently the C&AG auditor was unable to obtain sufficient appropriate audit evidence over the ownership or conditions of SCCL consumable inventory, valued at £159 million.
 
Gareth Davies recently delivered the DHSC accounts with a qualified approval also.
 
The DHSC also failed to maintain adequate records of the location or condition of £3.6bn worth of stock that was unaccounted for.
 
While officials believe the DHSC held 7.5 billion items in 16 ,000 containers at UK ports and a further 1.6 billion in storage in China, this was not confirmed.

Absence of inventory management
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The NAO investigation into the governments management of PPE contracts sited the absence of an adequate inventory management system as a contributing factor to the DHSC spending £737 million on storing PPE, that is now either not required, obsolete and/or unsuitable for frontline NHS services.

The NAO also reported that 394 PPE contracts, (worth £7.9 billion) including 115 PPE contracts to 51 VIP lane suppliers (suggested by government officials, ministers’ offices, members of Parliament, senior NHS staff and other health professionals) were awarded by the DHSC.
  
Fuelled by a global pandemic and a well publicised PPE shortage, SCCL was instructed by the DHSC to proceed to utilise existing supplier contracts for the purchase of PPE.

SCCL negotiated prices with suppliers for PPE products. All SCCL PPE purchases were approved by the DHSC, and costs reimbursed by DHSC.

SCCLs accounts confirm receipt of £2.7 billion in September 2021 from the DHSC, as payment of PPE SCCL procured on DHSC’s behalf.
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SCCL state all obligations and risks relating to PPE inventory sat with DHSC.

​The government department has borne the risks of non-delivery or damage to products ordered and all products have been delivered to DHSC rented storage facilities and distributed to the NHS based on direction from the DHSC PPE Cell.
 
Furthermore, the DHSC has borne the risks and costs associated with storage and warehouse facilities.

​It is unfortunate that basic stock control principles are overlooked at a time when all 4 UK health services are united in their commitment to net zero carbon emissions .
 
The net zero carbon commitments were made as part of the UK’s COP26 Presidency. This is in partnership with the World Health Organisation (WHO) who argues when it comes to responding quickly to a crisis, fortune favours the prepared. 
 
As part of the NHS’ net zero carbon initiatives, only suppliers who can demonstrate net zero carbon progress, (through published progress reports and continued carbon emissions reporting) will qualify for NHS contracts from 2030.
 
Small and Medium Enterprises (SMEs) and Voluntary, Community and Social Enterprises (VCSEs) have until April 2024 to publish a carbon reduction plan for their direct emissions.
 
This will include direct and indirect emissions from April 2027 and individual products from 2028.

​The DHSC admits that demand for PPE was lower than forecast but credits the success of their buying operation for the significant quantities of PPE (many with insufficient quality or safety standards, no product documentation and/or insufficient packaging and labelling) over and above what they ultimately needed.
 
DHSC public accounts report a £673 million reduction in the value for items which were assessed as not suitable for any use; and a further £2,581 million for inventory that the DHSC does not intend to use for its original intended purpose.
 
The DHSC is actively pursuing options to manage, redistribute or repurpose PPE and, as a last resort, dispose of any excess stock to secure best value from the PPE it purchased.
 
SCCL continues the process of PPE sales, donations and recycling to maximise the efficiency of their storage facilities.

Two lead waste providers will be contracted to recycle PPE to maximise the storage efficiency and reduce overall storage costs.
 
However, some PPE is not suitable for recycling due to the complex mix of materials in the manufacturing process.

​These items will need to be disposed of using a waste to energy facility as part of a zero-landfill policy for PPE.

Lessons learnt
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​SCCL admit that one of the key lessons learnt from Covid-19 was that NHS Trusts need a resilient supply chain to respond to periods of exceptional demand.

​The shareholding of SCCL was wholly transferred to the National Health Service (NHS) Commissioning Board, NHS England on the 1st October 2021.
 
NHS England now control the vaccine distribution, PPE, and NHS Supply Chain.
 
On the 1st of April 2022, the parallel supply chain (PPE Cell - created by the DHSC, to procure, manage and distribute PPE during the pandemic) will transfer from DHSC to NHS England.
 
As a result, the old PPE portal platform will close down on the 26th April 2022 with users redirected to the new PPE portal. 

About the author 
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Naomi Clews Consultancy is a procurement consulting business who specialise in public procurement and supply chain management. Find out more here.