Filenews 9 June 2022
The operation to date of the State Health Services Organization is characterized by serious gaps and weaknesses in terms of financial management and corporate governance and the appropriate measures have not been taken for its independence from state support and the smooth transition to conditions of full competition on 1.6.2024, the Audit Office states in a Special Report on "Management control and Compliance Control of the State Health Services Organization".
In particular, EY notes that patients in the Organization's hospitals have been drastically reduced, resulting in a decrease in revenues, while on the contrary, expenses show a significant increase, mainly due to a continuous increase in payroll costs.
Also, weaknesses and omissions were identified regarding the implementation of the legislation on public procurement, mainly during the period of the pandemic, "on the basis of which we found irregularities by the Organization in the conduct of tenders, to cover its urgent needs and in some cases any procedures were not followed, while the provisions of the terms of a specific tender were arbitrarily and abusively interpreted".
At the same time, and according to the report, "the CySEC has launched tenders with the time-consuming and costly procedure of the method of integrated study and open tender for the selection of a Contractor, for the development projects of Hospitals and Health Centres of the CySEC, a large part of which have strict timetables, since they are funded by the EU Recovery and Resilience Plan, a process that would not bring about the required result and with which our Service disagreed." The CySEC, despite the fact that valuable time was lost, finally proceeded to the cancellation of this tender and as we have been informed, the method of Design-Construction-Maintenance will be adopted, through which the timely and successful implementation of the Projects will be ensured in the most effective and economical way, the EY adds.
The Audit Office also identified a strange filibuster by the CySEC, in the promotion of the new Integrated Health Information System (new OPSY), whose Contracting Authority is the Ministry of Health, "spending significant time and effort in promoting a different solution (interim solution) by directly concluding a contract with the existing Contractor, which our Service considered illegal and without bringing any real benefit to the state".
The main findings, as recorded in the EY report, are the following:
- The financial statements and Financial Reports for the years 2018-2020 were submitted late, while to date no Annual Report of the Organization for the said years has been submitted, as specified by law.
We have recommended that the above statements/Reports be prepared within the deadlines set by the Law.
- We found vulnerabilities and weaknesses in the appointment of the former Chairman of the Board of Directors, i.e. a conflict of interest due to his relationship with UK companies with related activities. We also found weaknesses in the recruitment process of the former Director-General, who, according to the report of the advisory house that evaluated the applicants for the post of General Manager, did not meet the criterion of fifteen years of experience in the management of a large organisation.
We have recommended that the selection of persons, for recruitment to the Agency, be made on the basis of internationally accepted governance codes.
- We found that the necessary measures have not been taken and no progress has been made with regard to the autonomy of the Agency, which, according to the legislation, must be completed by 1.6.2024. From the Agency's Budgets for the years 2019-2021, it appears that there are serious negative deviations in real revenues, compared to the budgeted revenues, resulting in the accumulation of large deficits. Also, the forecasts for the years 2022-2024 are not auspicious, due to the continuous decrease of patients visiting state hospitals.
We have recommended that a Strategic Plan be prepared for the Agency's medium-term objectives in the form of operational plans linked to the Budget.
- We found that general and horizontal increases were given to nursing staff, as well as large increases in the form of various general and special allowances to medical staff, with no link with productivity and revenues.
We have recommended the revision and rationalisation of allowances.
- We found that internal control in the Agency is degraded and understaffed.
We recommended the upgrading and appropriate staffing of the Internal Audit Unit.
- During the evaluation of the tender for the award/award of the project for the completion of three (3) Nursing Units at the Famagusta General Hospital, the principles that must govern the conduct of public contracts were not followed by the CySEC, such as the equal and non-discriminatory treatment of economic operators, proportionality, transparency, as well as the reliability of the procedure followed for the evaluation and award of the tender.
We have recommended that the evaluation of tenders should always respect the principles governing the conduct of public procurement. Also, the terms of the tender documents should be correctly interpreted and not arbitrarily and abusively.
- The Organization approved the replacement of the subcontractor of the mechanical facilities of the project for the completion of three Nursing Units at Famagusta General Hospital, worth €403,200+VAT in a total of €1,667,000+VAT, which was the amount of the Contractor's offer, without following the legal procedures. As a result, a relevant complaint was submitted to both the CySEC and our Service by the subcontractor, who had been illegally replaced and who was vindicated by the facts, as they emerged from the ex-post investigation of our Service and not in time by the CySEC, as it should have been as the Contracting Authority of the tender.
We have recommended that the procedures and legislation on public procurement be strictly followed, on the one hand, to safeguard the interests of the Agency and, on the other hand, to respect the principles of transparency and equal treatment of economic operators who take part in the tenders it calls for.
- The CySEC has not followed any tendering procedure, in accordance with the relevant provisions of the public procurement legislation, for the award of the preparation of the study and supervision of the works, as well as the construction of the New Intensive Care Unit (ICU) at Nicosia General Hospital. Also, no possible alternative methods for how to implement the project were considered by the CSO. The matter is being investigated by the Police, as to the possibility of committing criminal offences.
We have recommended that the principles governing public procurement be applied faithfully, in all cases and for all needs.
- In February 2022, the CySEC proceeded to the announcement of a tender, through an open procedure, for the provision of design and supervision services of Consulting Engineers for the development projects of Hospitals and Health Centres of the CySEC (Estimated Value of €3,867,567+VAT), using the method of integrated study and open tender notice for the selection of a Contractor. Our Service had pointed out in time, both before the announcement of the tender, and afterwards, the disadvantages of the method chosen by the CySEC, compared to the many advantages of the method "Study / Construction / Maintenance". In May 2022, the Organization, taking into account the recommendations and suggestions of our Service, cancelled the tender and decided to proceed with the application of the method "Design / Construction / Maintenance", as our recommendation.
Based on the experience to date in public projects, we have recommended, as in this case the method "Design / Construction / Maintenance" is followed, which has both economic and qualitative advantages in the implementation of construction projects, in relation to the method of preparation of an integrated study and a call for tenders, a recommendation which was finally adopted by the Organization.
- In 2015, it was decided to install a new Integrated Health Information System in public hospitals and in the same year specifications and open tender documents were prepared by experts secured by the World Health Organization. Almost seven years later and after various amendments were made to the tender documents, the estimated cost and the timetable for its implementation, the tender for the project has not yet even been awarded. Despite the fact that the CSO, according to its General Executive Director (GED), recognized the urgent need to upgrade and expand the existing systems, since it was preparing an interim solution in order not to be exposed, however, we found from his actions that he had not shown the same zeal in launching the implementation of the new OPSY, contributing positively to the award of the relevant tender.
We have set up a team to monitor /control the progress of the works of the project, for the course until the award of the open tender, as well as the execution works, in order to minimize the risk of delay in the implementation of the project, the challenge of any additional requirements by the Contractor of the contract and the promotion of any unnecessary interim solution.
- The Organization requested and received approval for the conclusion of a contract for the insurance coverage of its doctors, through the process of negotiating with the Contractor the previous contract, which had expired eight months earlier, requesting retroactive coverage for the time during which there was no contract in force. The bidder did not accept the retroactive effect of the insurance, resulting in the cancellation of the tender and in order to safeguard its interests, the Organization requested, on the basis of a relevant provision of the General Health System (Insurance Coverage against Negligence) Decision of P.I.P. 496/2020, a guarantee from the Republic of Cyprus for insurance coverage against medical professional negligence. As far as the new contract for the purchase of the services in question is concerned, it had not been completed until the preparation of this Report, despite the seriousness of the matter.
We have recommended that the Agency act in a timely manner for the award or renewal of contracts, in particular when it is known in advance when the previous one expires, under the relevant legislation.
- The Organization, in April 2022, awarded, through the negotiation process, a new contract for the management of medical waste to the previous Contractor, for 3+1+1 years, amounting to €2,583,493+VAT per year, an amount 28% higher than the previous contract. The reason for resorting to the above procedure was that the economic operator in question was the only one licensed for the provision of the services in question, as well as because the Agency had not taken timely measures for an open tender notice, as it intends, according to information we have from the Agency itself, to do in the near future, to ensure the development of healthy competition and the wide range of participation for the benefit of the public sector.
We have recommended that, when tendering and, especially in the case of high-value contracts concluded under a monopoly, the Agency should act and take measures in a timely manner, so as to avoid the repeated renewal of existing contracts with all the attendant consequences.
- The Tenders Council of the Ministry of Health cancelled an open tender for the supply of consumables for a hospital of the CySO, after the intervention of the HIO, since the consumables will be compensated through a list of the HIO, based on its current procedures. For the legality of the whole process, the Competent Authority for Public Procurement, to which we asked a relevant question, informed us that it considers the procedure followed by both the HIO and the HIO to be legal. Our agency will study this response, on which we express our reservations in principle, and we will take a position, if necessary after receiving guidance from the European Commission.
We have recommended that the legality and financiality of the Decisions of the Organization regarding the purchases of medical consumables, which constitute an important part of its Budget, are checked and documented before any decision is taken.
- The Agency's Tenders Board cancelled, in October 2021, a tender for the supply of 20 ambulances of an estimated value of €4,320.00+VAT, because only one bid was submitted, which exceeded by 35% the estimate of expenditure and was considered too high, in relation to the estimate. During the preparation of the tenders, the Agency rejected a request by an economic operator to amend the technical specification of the ambulances, which might allow the submission of several tenders, which it nevertheless accepted and amended the technical specification when a new invitation to tender was launched, resulting in a delay in the purchase of new ambulances needed to meet the urgent needs of its Ambulance Service.
We have recommended that a thorough market research be carried out, for the best possible preparation of the technical specifications and the estimation of the cost of tenders, before their announcement, especially when it comes to items/supplies that are important for its operation, in order to avoid the cancellation of tenders, either due to limited participation, or due to incorrect estimation of expenditure.
- In March 2021, a request was submitted for the procurement of a mobile crisis management unit, estimated at €200,000, through the negotiation process with an economic operator, citing urgency, which was finally rejected by the Agency's Tenders Council two months later, if it was not considered to be sufficiently documented. Two open tenders for the supply of this plant have followed since then, but no tenders have been submitted and cancelled.
We have recommended that the procedures laid down in the public procurement legislation be followed and that its tender documents be adapted in the light of market conditions and the Agency's requirements, so as to ensure the wideness of participation and not to cause delay in the implementation of projects.
- The Organization procured an oxygen production system worth €580,000+VAT, through the negotiation process with an economic operator, with the invocation of emergency coverage and a delivery time of six weeks, which however was delivered and put into operation with an 11-week delay, which was due to the Organization.
We recommended that, before taking a decision to cover needs through the negotiation process, due to an urgent need, which does not ensure the development of healthy competition and, by extension, the wide participation for the benefit of the state, it takes all the necessary actions to implement in time the contracts that arise within the timetables of each contract, so that its decisions comply with the basic principles of transparency and equal treatment of economic operators, which must govern public contracts and which it must comply with.
