NHS Tayside’s financial position is worsening and needs urgent action to address it amid continuing changes to its leadership team, according to Scotland’s public spending watchdog.

In her fourth report on the troubled health board, auditor general, Caroline Gardner, said it faced “significant challenges” in meeting its financial and performance targets.

It achieved just seven out of 20 national standards in March this year, down from nine in 2017.

Audit Scotland said the board was also facing a potential budget deficit of £18.7 million for 2018-19, despite receiving £50.2m of Scottish Government brokerage loans in the last six years – £45.9m of which has not been repaid.

The watchdog also identified mistakes in a £90,000 settlement package for former chief executive Lesley McLay, who left in July. It included more than £64,000, equating to six months’ notice, but the report noted that McLay’s contract only had a three-month notice period. There was also more than £19,000 in pension contributions that “should not have been made”, the report added.

Audit Scotland concluded: “The decision to reach a negotiated settlement with the former chief executive was reasonable, but there were several weaknesses in the settlement process and a lack of good governance.”

Gardner commented: “NHS Tayside’s financial position has been unsustainable since 2013 and urgent action is needed to turn around the organisation.”

Audit Scotland found: “The board’s worsening financial position has been compounded by the mismanagement of eHealth funding and endowment fund monies in earlier years.”

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The Scottish Government was forced to intervene in the management of NHS Tayside earlier this year when it emerged that cash from public donations had been used to fund new technology.

A separate review found the board “misrepresented” its financial performance by “holding” £5.3m of government funding for eHealth initiatives.

An announcement by Health Secretary, Jeane Freeman, that outstanding loans to NHS boards will be written off at the end of the year “reduces the pressure” on NHS Tayside but “does not address the underlying financial problems”, said Gardner.

Audit Scotland found the board “continued to experience significant cost pressures in 2017-18”, with spending rising to more than £900m and overspends being recorded for staffing costs, prescribing and eHealth.

With a new chief executive appointed last week – the third this year – the watchdog stressed: “It is important that the board puts in place a realistic action plan, accompanied by the capacity and resources required to deliver it, to address the issues it faces.”

Gardner said: “Changing the ways services are delivered will be critical in reducing NHS Tayside’s operating model and comparatively high staff costs. However, to date there is limited evidence of this happening, increasing the need for effective leadership to drive home the board’s plans for change.”

John Brown, NHS Tayside chairman, said the board was “very disappointed that the report fails to recognise the progress which has been achieved since April 2018”. He stated: “Compared to last year, improvements are evident in financial management, leadership, governance and planning and, crucially, partnership working with our colleagues and partners in integration joint boards, local authorities, Scottish Government, universities and all our stakeholders.

“We are entering a critical period for NHS Tayside at the beginning of next year; a three-year transformation plan, developed by our clinicians, and a three-year financial plan for 2019-22 will be presented to the board for approval in February 2019.”

Freeman added: “The Scottish Government is continuing to provide specific support to NHS Tayside to help it recover its financial position.”