The Department of Finance warned the Department of Health last summer that the practice by the Health Service Executive of using capital budgets for current spending purposes had to stop, it has emerged.
The news came as the HSE confirmed it may have to use money it underspent from its capital budget last year to make up for an estimated €53 million overspend on day-to-day funding in 2005.
The chief executive of the HSE, Prof Brendan Drumm, defended the practice yesterday. He said the HSE did not get its capital budget last year until July and hospital managers had to be allowed to use revenue funding to pay for minor capital works such as new windows or painting hospital wards until that funding arrived. When it arrived, the revenue side was paid back.
"If we can't give people the power to do that locally, how can we expect this health service to operate innovatively and with people getting initiative into it?" he asked.
He also denied his organisation had misspent €56.4 million allocated for capital projects last year. He insisted no money had been misappropriated.
His comments came a day after Minister for Finance Brian Cowen indicated in the Dáil the HSE had mistakenly believed at the beginning of this month it had €56.4 million left over from its capital budget for 2005 which it could carry over and spend this year on capital development. However, two weeks ago it indicated it might need the money to cover overspending on its revenue budget.
The HSE is still doing its accounts for last year. They must be completed by March 31st and yesterday it said the deficit on the revenue side may not be as large as the €53 million estimated. It said the movement of money meant for capital developments to cover day-to-day spending "would not be unusual in the context of public sector funding".
A spokesman for the Department of Finance said money voted for capital spending could be moved to cover revenue spending by the HSE with the approval of the Department of Finance, but the department's approval did not have to be sought in advance.
But in a letter to the Department of Health last June in the context of PPARS, David Ring, of the Department of Finance's Centre for Management, Organisation & Development, noted "current items were being treated as capital" and that "this must stop".
Fine Gael, which obtained the letter, said no action seemed to have been taken on foot of it.
Minister for Health Mary Harney told the Dáil she had total confidence in Prof Drumm and if necessary at the end of March, the HSE would seek the Department of Finance's approval to make up its revenue deficit from capital funding left over.
"It's not the case that they have gone off spending capital money. ... what we are talking about now is what may happen. The outturn will be at the 31st of March," she said. Prof Drumm told RTÉ's News at One that overall, when capital and non-capital funding was taken into account, the HSE had not overspent its €11 billion budget for last year.
"Its entire budget for the year is in balance and there is no question that money has been misappropriated," he said.
He said he was being "cautious and prudent" in warning there could be an overspend on the revenue side when all bills were accounted for at the end of March.The HSE, in a statement later, said there would be "no reduction to any of its services or capital developments" in 2006 as a result of the issues which had been raised.