A confidential briefing from the former chairman of Counties Manukau District Health Board has revealed the scale of concern about management practices that led to the board grappling with a "very weak" financial position and an acute cash flow problem.

"The cash flow problem is acute and it will be important that a mechanism for resolving it is developed and agreed with the Ministry of Health and the Government by the end of first quarter 2018," said the briefing from then-chairman Lester Levy to Health Minister David Clark, titled Financial Issues at Counties Manukau DHB and dated December 15, 2017.

The briefing about the board, which runs Middlemore Hospital, was tabled in Parliament yesterday by National MP Jami-Lee Ross and released to the media today.

Another document tabled by Ross has not been released at this stage.


Levy said in the briefing that the scale of the cash flow issue became clearly visible more recently only because of the way systems were previously set up and the way transactions and capital had been managed.

When a new board, including Levy, took office in December 2016, inquiries led it to initiate a number of audit reviews.

"The reasons these internal audit reviews were requested related to issues and concerns ... about the financial management and practices and management expenditure and the DHB prior to December 2016."

They included:

• Authorisation of salary increases , allowances and benefits

• Approval and authorisation processes for significant projects

• Substantial IT investment producing little value

• Presentation of inaccurate internal accounting records


In July 2017, the Ministry of Health commissioned an urgent independent review to investigate financial management practices and management culture at CMDHB prior to December 2016.

The ministry appointed forensic accounting firm Beattie Varley, Deloitte and Mike Heron QC to investigate expenditure, financial management and management culture at CMDHB for the financial years 2014/15, 2015/16 and 2016/17.

"The terms of reference also provide for a number of specific issues to be investigated which have come to the attention of the board and its audit, risk and finance committee."

Levy said the issues raised questions about the compliance with relevant requirements in specific instances and potentially consistency expected of state servants as stewards of public assets and resources.

"In my view, it is also important that Mike Heron QC, who has been appointed as one of the reviewers, should have the opportunity to review CMDHB's previous management culture, as this is potentially a pivotal issue," he said.

A number of historical issues had resulted in the current weak financial position of the DHB including an underlying deficit that was present but not recognised for a number of years, pressure from new initiatives that were not financially sustainable and deferred investment in hospital services and maintenance.

"Until recently, the operating deficit had not been visible because it had been disguised by a year-on-year mental health underspend as well as a number of one-offs accumulated, accumulated during the period 2008/09 through 2014-15."

Between 2013 and 2016, when CMDHB should have been taking a prudent approach to new initiatives and capital spending, it was in fact doing the opposite, Levy said.

"Not only does CMDHB have an operating deficit, it also has a cash deficit, which is of great concern due to its scale and urgency.

"The pressure on cash flow has resulted from too many capital initiatives ... questionable priorities and allocation of financial resources and lack of prudence in conserving cash."

Ross last week used parliamentary privilege to claim an audit uncovered "unauthorised and excessive" use of hundreds of thousands of dollars at the DHB.

Speaking under the legal protection afforded by parliamentary privilege, Ross said he had information about an internal audit of the DHB which showed "identified remuneration and benefits paid to a senior DHB executive which were either unauthorised, excessive or unjustified, and multiple areas where that executive exceeded their delegated financial authority".

He also questioned whether Acting Director-General of Health Stephen McKernan was involved in dealing with the issue, given he had been chief executive of the DHB until 2006 and was referenced in the audit.

Services State Services Commissioner Peter Hughes is urgently looking into the questions Ross raised in Parliament.

McKernan left the DHB in 2006 when he was appointed Director-General of Health under former health minister Tony Ryall. He ended his time in that role in 2010.

He was appointed as Acting Director-General of Health to replace Chai Chuah in December 2017 until Ashley Bloomfield took over in June this year.

Health Minister David Clark said it had been clear for some time that were a range of issues at the Counties Manukau DHB, largely driven by underfunding and neglect under the previous government.

"The financial issues raised in Dr Levy's memo are being addressed. The Ministry of Health commissioned an independent review and once that report is finalised it will be provided to the Director General of Health and the Counties Manukau DHB for appropriate action," he said in a statement.

The DHB's current chairman Vui Mark Gosche said the issues raised in Levy's memo were being addressed.

"The CMDHB board and management are working positively with the crown monitor and the Ministry of Health as we develop our annual plan for the current financial year. Th other matters raised in the parliament are being dealt with through the Ministry of Health commissioned independent review, which we await the outcome of," he said in a statement.