SCOTLAND'S charity regulator said NHS Tayside did not break the rules when it spent £3.6 million of donations on IT equipment.

The watchdog said the cash was used to fund projects which "were advancing the health of the people of Tayside".

But it criticised the "rushed" process which saw trustees come under pressure to approve the transaction without independent legal advice and amid fears that a failure to do so would "result in harmful cuts to health services".

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The report by the Office of the Scottish Charity Regulator (OSCR) added that the case has exposed the risk of a conflict of interest when the same people who oversee the running of a health board are also in charge of its charitable endowment fund, especially "where there is significant financial pressure on the health board".

NHS Tayside's failure to properly deal with this conflict of interest "amounted to mismanagement of the charity", said the watchdog.

OSCR launched its investigation in April 2018 after the Herald revealed that millions of pounds had been transferred out of NHS Tayside's endowment fund in 2014 after the health board ran out of money.

The cash was used to retrospectively bankroll a number of IT and e-health initiatives which NHS Tayside had previously agreed to fund from its own budget.

Although accounts from the time state that the sum spent was £2.7m, it subsequently emerged that the final amount taken was £3.6m.

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The revelations sparked an outcry which saw NHS Tayside's chief executive Lesley McLay ousted from her post.

However, OSCR has today ruled out any formal sanctions against anyone involved in the management of Tayside's endowment fund.

It states: "We are satisfied that charitable assets were only used for charitable purposes and the projects to which grants were awarded were advancing the health of the people of Tayside and therefore in pursuit of the charity’s purposes."

The decision to fund projects retrospectively using money from the charity pot was considered particularly controversial at the time by some members of the board because the retrospective aspect was in breach of the funds own rules, and meant temporarily suspending the constitution to allow the transaction to go ahead.

However, OSCR concluded that NHS Tayside "had the power to make a temporary variation to the charity's Policy and Procedures to allow consideration of retrospective funding applications".

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Nonetheless, the regulator said that the decision-making process around the use of charity funds was "rushed and reflects poor practice".

NHS bosses, non-executive directors of the health board, committee chair and the lead officer for endowment funds were given just 48 hours notice of an extraordinary meeting where the would be asked to approve the use of charity funds for NHS spending.

Legal advice came from in-house solicitors when it "would have been good practice to have obtained independent legal advice", said OSCR.

It added: "Taking all of the factors into consideration, we found that the decision making process was rushed and reflects poor practice.

"The charity trustee [NHS Tayside] made a major variation to the charity's Policy and Procedures at very short notice in the knowledge that the reason for doing so was to assist Tayside health board's financial position."

OSCR has now written to the Scottish Government warning that the current governance structure, whereby the management of NHS health boards and endowment funds overlap, "constitutes a risk to the ability of the charity trustee to act in the charity’s interests".

It has recommended that "at least a majority of those in management and control of the endowment funds are independent of the relevant health board, thereby resolving our concerns about governance".

Health Secretary Jeane Freeman said: “While OSCR has set out that they are satisfied the charitable assets referred to were only used for charitable purposes it is clear that the misconduct in the administration of the charity is deeply concerning and that lessons must be learnt.

“OSCR has already completed a risk assessment which confirmed there were no other issues in other NHS Endowment Funds that merited the opening of a similar inquiry.

“We will take forward OSCR’s recommendations on governance of these endowment funds, as we look to ensure that the issues this case has highlighted are not repeated."