The HSE has said it will impose financial penalties on five health agencies, including two major hospitals, which are still not compliant with public pay policy.

It says in some cases, following engagement with agencies, controversial top-up payments have now ceased.

The agencies facing financial penalties are St James's and St Vincent's Hospitals in Dublin, St John of God, Brothers of Charity East and Brothers of Charity South East.

In an update on its probe into top-up payments at Section 38 agencies, the HSE has told the Dail Public Accounts Committee (PAC), that these five agencies were deemed non-compliant as business cases had not yet been received for the continuation of extra payments to senior staff.

The HSE says it has written to those agencies advising them that, as a sanction, the HSE will, with effect from February 21 reduce their cash funding by 20% until such time that they provide confirmation that they are compliant with public health sector pay policy and they submit the necessary detailed business cases in respect of their organisation.

The HSE said this reduction in cash funding was not a budget cut and therefore should, 'under no circumstances, impact on the provision of services to patients or clients'.

In December the HSE began a 'comprehensive engagement process' with all full or part-funded Section 38 agencies in order to address compliance with public pay policy.

The HSE said in some cases allowances had now been ceased and in other cases the agencies had made a business case for the allowance to be retained.

It had asked each of the Section 38 agencies to submit business cases by last Monday.

Ten agencies have so far been deemed compliant, and a total of 88 business cases for the continuation of allowances have been received from 27 agencies. The Central Remedial Clinical is reported as being in a 'separate process' on compliance.

Among the agencies that have submitted a business case for the continuation of extra payments to senior staff are the National Maternity Hospital, Holles Street; the Rotunda Hospital; Crumlin Children's Hospital; Beaumont and the Mater Hospitals.

Holles Street, which was the subject of controversy late last year over the source of an allowance paid to the hospital Master, has submitted a case for the continuation of three allowances. A HSE audit last year showed that Holles Street had been paying top ups from non-HSE funds to four staff.

The Rotunda is looking for the continuation of eight extra payments, while Beaumont and the Mater have each made business cases in respect of four top-ups.

Tallaght Hospital has made a case for the continuation of nine non-compliant allowances, which are believed to be separate to other top-up payments which it said ceased in 2010.

In 2012, HIQA revealed that Tallaght had paid around €700,000 in unauthorised top-up pay from HSE funds to five senior staff between 2005 and 2010.

The St Vincent's Hospital Group, which has been at the centre of controversy over top-ups to its CEO and other senior staff, said today it was still engaged in a process with the HSE on the issue.

The HSE said where its review panel was satisfied that there were legitimate reasons for the continuation of an allowance, business cases will be submitted to the Department of Health which will liaise with the Department of Public Expenditure and Reform on the matter.