A leading NHS trust has been plunged into financial crisis after managers failed to enter at least £6m in unpaid bills on to the books, according to a report due to be published by the Audit Commission today.
The discovery of a stockpile of unaccounted invoices was made after a senior manager went on maternity leave and her replacement began sifting through the files at Kensington and Chelsea primary care trust, the trust's former chairman said last night.
The auditors PricewaterhouseCoopers will say in a public interest report on the trust's financial standing that it experienced "a major failure in corporate, particularly financial, governance". They conclude that the trust is unlikely to meet its statutory duty to break even.
The government provided the trust with a budget of £270m to run health services in the Kensington and Chelsea area of London for the year ending March 2005. In December 2004 it forecast that it would break even.
But over the next few months the accounts began to unravel. A late draft of today's auditors' report, seen by the Guardian, says: "The director of finance, who was on maternity leave from April 2005, has since left the PCT."
Her replacement found "invoices related to 2003-04 that were not recorded, as they should have been." Debts totalling £7.1m had to be written off in the following year's accounts.
The auditors say: "Failure to identify and account for these transactions at the proper time has meant that the board of the PCT did not understand the full extent of their serious financial problem until May 2005. Had the 2003-04 accounts and the financial reports to the board included all the appropriate invoices and liabilities ... the board could have taken remedial action a year earlier."
Instead it set inappropriate budgets and monitored them badly. Most of the overspend went into paying for extra healthcare. The trust also had too much property and under-utilised infrastructure.
It now has to pay back a cumulative deficit worth £21m that it made over the two years to March 2005. A further deficit was made in 2005-06, but the auditors did not say how much. "Once a PCT has posted a significant deficit, it is very difficult to recover the cumulative position without financial support."
The trust's saving plans were "ambitious", it says. The cash-flow position for NHS organisations in north-west London was "a major concern".
The report adds: "Achieving financial balance will take a number of years and the PCT faces significant risks." But on the positive side, its newly appointed chair and chief executive were seeking to address "the behavioural aspects of the PCT at all levels".
Terry Bamford, the former chairman of the trust, said the existence of unpaid invoices had not been discovered by PricewaterhouseCoopers during their regular auditing of the trust's accounts. He asked why the same firm of auditors had been chosen to investigate the problem.
"The report is partial and selective, leaving key questions unanswered. Where were the unpaid invoices? Why were creditors not chasing the payments? Why did the auditors not alert the board when they knew of two thirds of the unpaid invoices? The public interest would be served by answers to these questions but they are not to be found in the report," said Mr Bamford, a former director of the borough's social services.
A spokeswoman for PricewaterhouseCoopers said any questions had to be answered by the Audit Commission.
The commision said: "We carried out an independent quality review of the work done by PricewaterhouseCoopers in its 2003-04 audit of Kensington and Chelsea PCT. Aside from some minor criticisms we found no fundamental weakness in its audit and no reason to suggest a change of auditor was required. If the commission had felt otherwise, it could have appointed another auditor."
Andrew Kenworthy, the trust's chief executive, said: "We welcome the auditor's report and I'm pleased to say that many of the recommendations to improve our financial position are already in progress."
