Exclusive: Health charity faces £3.5m loss as trusts snub business venture

The NHS Confederation, which is the national voice for around 500 NHS trusts and private firms providing health services, has called in auditors as it faces losses of nearly 3.5m on the prestige enterprise.

Only 14 organisations expressed an interest in buying "pay-as-you-go" human resources services and an electronic service checking criminal records run by its business arm NHS Employers, which has 120 staff based mainly in Leeds.

Its director Sian Thomas has gone on sick leave and a major shake-up of the confederation has been ordered.

Most NHS trusts use public money in paying to be members of the NHS Confederation which lobbies on their behalf and aims to "promote excellence" in health service management.

NHS Employers was set up five years ago to represent trusts on pay and workforce issues and carries out negotiations with trade unions including doctors' leaders over pay.

It controversially branched out to offer NHS trusts, which were willing to pay extra from April, additional services that it was claimed would bring them efficiency savings and "add value to the NHS", while it was also hoped it would deliver extra revenue.

But amid warnings that the NHS needs to make as much as 20bn in savings in coming years owing to the crisis in public finances, only 14 trusts signed up or expressed an interest despite 18 months of efforts to set up the service.

The Yorkshire Post understands health service executives are furious at the failures, which they fear will damage the reputation of the confederation and reflect badly on NHS management at a crucial time as it deals with a new Government.

They are also critical of the way it was developed with vast expenditure before significant custom was secured and angry about the waste of money.

An investigation by auditors is understood to have found serious failures in the running of the organisation over the venture.

Confederation chief executive Steve Barnett confirmed 2.2m had been invested from reserves on the project in 2009-10 and an extra 600,000 is committed in each of the following two years.

He said auditors had been called in to carry out inquiries into the venture and the way it was run and the Charity Commission had been informed.

He said work was under way to strengthen the way the organisation operated and a new board had been appointed.

Mr Barnett said: "The trustees of the NHS Confederation have decided not to progress at this time the membership model which NHS Employers had been developing.

"The auditors' report will make a number of recommendations on how we can improve our governance, financial and project management in future. We will review the report's recommendations and implement an action plan making clear how we will put learning from the audit into practice."

The confederation was still forecasting healthy reserves for the coming year but was taking action to mitigate the losses on the venture.

He added: "The member model was a development project that did not form part of the core business of NHS Employers. The decision to stop this project has not affected the day-to-day business of the organisation or its employees."

The Charity Commission confirmed it had been informed an internal investigation was under way and had asked for details.