The HSE's continuing budget difficulties are a consequence of systemic failings in financial management in the organisation over a number of years, according to an unpublished report.

The report, written more than a year before the 'top-up' pay scandal came to light, slammed the HSE's lack of effective financial and governance control over voluntary hospitals and other agencies and recommended widespread changes in how the HSE manages its funds.

The review, prepared by PA consulting, was completed in September 2012 but has so far not been officially published. The areas it highlighted, including HSE budget overruns, patient safety issues with poorly-planned cutbacks and lack of financial control over voluntary agencies, are still major issues at the end of 2013.

The HSE says it will be publishing the report shortly with an update on what action it is taking on its recommendations.

The document wasscathing of the way in which the HSE manages its finances, stating that the foundations required to manage the health system effectively from a financial perspective are not in place.

The report said the approach by the HSE to budgeting and service planning, cost-containment and performance management is ineffective.

It said there was no system-wide view of service provision within the HSE that aligns capacity with current activity and future demand, essential to ensure that service plans can be delivered within decreasing financial resources.

Among the main findings of the report were:

* There is limited evidence to substantiate that the HSE has effective control of either the income or costs of the health service and can credibly predict an accurate year-end out-turn position.

* Budgeting and service planning processes are flawed and fail to reflect activity levels and costs at a local level, resulting in unrealistic and undeliverable targets and cost-containment measures.

* This perpetuates 'year-on-year inefficiency' and drives a lack of ownership for financial performance at operational level.

* There is no clear link between the implementation of cost-containment measures, service quality, waiting times and cash saved.

* In a particularly relevant finding comment in light of the current 'top-up pay' scandal, the PA report says the current governance and controls framework is not properly embedded 'and 'does not enable effective control to be exercised over voluntary (service) providers'.

* The current HSE financial model remains tied to the previous health board structure which was subsumed into the HSE in 2005.

* Limited financial management capability exists among the staff in the HSE system. Where this does exist it is under significant pressure.

* Cost containment measures are often non-targeted and are applied consistently across the HSE regardless of the impact on service delivery or patient safety.

*Actions taken by the HSE in recent years have delivered little to address weaknesses.

* Funding has not been provided to implement the necessary improved financial systems.

*Progress to address financial management weaknesses have been limited due to lack of funding, capability and capacity within  the HSE.

The report pointed out that a lack of ability to analyse the balance sheets of individual hospitals 'may mask levels of reserves held by voluntary hospitals'.

The PA report recommended that the Department of Health and HSE must take immediate action to gain control of spending and 're-establish credibility in its financial and operational management practices'.

It said the HSE must establish a finance improvement programme infrastructure; devise a revised budget process for 2013 based on activity-based budgeting principles; developed a revised financial controls and governance framework and commence targeted intervention in poorly-performing hospitals to improve performance.

The review said delivering sustainable cost-reduction through service improvement and system-wide change requires a systematic approach to fundamentally challenge the way services are delivered at admin and frontline levels.

It said the establishment of a finance improvement programme will put the infrastructure in place to support successful project delivery and the management of risks.

The report was released to irishhealth.com under FOI .

The HSE said it intended to officially publish the PA report shortly, along with an update on the HSE's approach to addressing its findings and recommendations.

The PA report was drawn up in the context of serious overruns occurring in health spending in 2012, with targeted savings and income initiatives not delivered on. At the end of 2012, the HSE required a financial bail-out of €360 million.

Despite the PA recommendations made to the HSE and Department late last year, the overrun problem continued in 2013, with a number of targeted savings and income targets not met, resulting in another bail-out, this time of €199 million.

In addition, the top-up pay scandal, which emerged recently, highlighted the HSE's continuing lack of financial and governance control over voluntary agencies it funds, an issue that was stressed in the PA report.

In relation to patient safety, the CEOs of a number of major hospitals recently expressed concern about this in light of continuing cutbacks.

Referring to the PA findings in the Dail earlier this month, Health Minister James Reilly said the report recommended his Department should gain control of HSE spending and re-establish credibility in its financial and operational practices. "We have done that by putting in place six senior people with long experience in finance and accountancy."

The Minister said said they had begun targeting intervention in poorly-performing hospitals.

Dr Reilly said the implementation of recommendations for a revised financial control and governance framework, and a skills and capability analysis of existing finance staff was ongoing.

He said a inance improvement programme was being put in place.