The National Audit Office (NAO) Investigation into supply chain finance in the NHS examined the financing solutions provided by Greensill Capital to community pharmacies and NHS employees. 

Matthew Rees and Lilian Ndianefo, who led the Investigation, highlight the consequences of Greensill Capital’s collapse in March 2021 for the government, taxpayers and those NHS organisations to which it provided its services. 

Greensill Capital (UK) Limited was incorporated on 2 July 2012. In October 2019, it acquired FreeUp Finance Limited, a salary advance scheme provider. By February 2020, a major NHS trust had begun piloting Greensill Capital’s salary advance scheme. FreeUp Finance Limited changed its name in April 2020 to Earnd (UK) Limited. 

Between April 2020 and March 2021, a number of NHS trusts subscribed or piloted the Earnd (UK) Limited salary advance scheme (known as Earnd). Greensill Capital appointed administrators on 8 March 2021.

The issue of the introduction of salary advance schemes permeates many public sector (and some private sector) bodies, with the Financial Conduct Authority (FCA) recently reporting that these schemes were predominantly found in the hospitality, retail, and healthcare markets. Matthew and Lilian told ICAEW that the following three themes in the investigation are of particular relevance to NHS trusts:

Direct sales and marketing approaches to NHS trusts and the provision of ‘free’ services with subsequent repercussive costs

Greensill Capital actively marketed Earnd to NHS trusts. The NHS trusts told the NAO they contracted directly with Greensill Capital and there was no requirement to undertake a public tender because the service was being provided for free and so did not pass relevant tendering thresholds. Greensill Capital also distributed marketing materials and held discussions to solicit interest in other supply chain finance solutions relating to individual NHS trust’s procurement activities. 

When Greensill Capital failed in March 2021, some NHS trusts switched to a paid-for service with other salary advance scheme providers. These scheme providers charge a fee to both the employer and the employees, where previously these services were received for free.

Distribution of regulated and unregulated financial services provided as employee benefits

Salary advance schemes are digital services that link an employer payroll process to an employee smartphone app to offer payments of accrued earnings from a finance provider in advance of payday. 

FCA regulation does not apply to these schemes as they do not meet the definition of credit under legislation. In July 2020, the FCA published a statement setting out its views of the risks and benefits of salary advance schemes, and what employers and employees should consider when using them. Potential risks include: 

• Lack of visibility for credit reference agencies.
• These schemes can often be bundled with discounts and incentives for non-essential or impulse purchases.
• They encourage frequent use which may lead to dependency for some users.
• Lack of transparency about costs, which may be similar to high-cost credit. 

The FCA published the Woolard Review in February 2021, which recommended encouraging salary advance scheme providers and major employers to draw up a code of good practice. The FCA also told the NAO in July that it had no plans at present for interventions for the sector in response to the Woolard Review.

Oversight of NHS bodies 

The Department of Health & Social Care (DHSC) has oversight of national bodies responsible for regulating NHS trusts. In March 2021, the NHS in England employed more than 1.3 million people. In December 2020, guidance was issued by central government to Accounting Officers (AOs) of departments and their arm’s-length bodies (ALBs) indicating that AOs must sign off any new type of financing arrangement before approaching HM Treasury for final approval. Due to an oversight, DHSC did not share the advice with its ALBs until recently. In addition, it told us that NHS trusts were independent legal entities and not DHSC ALBs. Its view was that it would not be normal practice to disseminate advice aimed at government departments and ALBs to the NHS. 

The investigation identified inconsistencies in the implementation of the salary advance scheme by NHS trusts, with some using technology set up by their shared services company provider and others seeking to introduce their own technology platforms at a cost. There were also differences in thresholds applied to employee drawdowns – ranging from 20% to 40% of either net or gross pay. 

Final thought

Lilian Ndianefo commented: “local auditors may wish to reflect on the implications of these findings for their audited bodies and consider working with NHS trusts and NHS national bodies to ensure that any risks to employers and employees are understood and adequately mitigated.”

About the authors:

Matthew Rees, FCA. Matthew is the Director of the NAO’s Commercial Hub and a co-opted member of the ICAEW Council.

Lilian Ndianefo, FCCA. Lilian is the Manager of the NAO’s Commercial Hub and has supported the Comptroller & Auditor General’s responsibilities for setting the Code of Audit Practice and developing Auditor Guidance for local bodies. 

The National Audit Office audits central government, and the Comptroller & Auditor General is responsible for setting, publishing and maintaining the Code of Audit Practice for the audit of local bodies (including NHS trusts) performed by firms, which are subject to Audit Quality Inspections by the Financial Reporting Council.