The Comptroller and Auditor General's report says there is a significant level of non-compliance with procurement rules in the HSE, with more than one third of purchases examined in an audit found to be non-compliant.
It also found under-reporting by value of 83% of non-competitively tendered contracts.
The buying of goods and services by the HSE is governed by national and European Union rules, as well as internal HSE policy.
To test compliance, the C&AG tested a sample of 100 payments to suppliers in six locations - three hospitals and three local health offices.
The total value of the payments examined was €2.21m.
36% of the transactions audited were found to be non-compliant with procurement rules. The value of the payments in these non compliant cases was €1.03m - or 47% of the value of the total transactions.
In the non-compliant cases, it was found that most of the arrangements had been in place for a considerable period of time, with one procurement relationship dating back to 1991.
The C&AG's report says that while some of the initial contracts may have been awarded after a procurement process, the subsequent contracts had long since expired and the arrangements were simply rolled over from one year to another.
Since 2009, the HSE is required to issue an annual report - known as a circular 40/2002 report - on all contracts above €25,000 that have not been subject to competitive tendering.
The C&AG found that of the 36 cases of non-competitive procurement identified in its audit, 31 should have been included in the HSE's circular 40/2002 report. But it found that of these 31 cases, only three were actually included in the report.
It says that in the locations surveyed, there was underreporting - by value - of 83%.
The HSE requires its managers to attest to compliance with procurement procedures by way of a signed compliance statement.
The HSE said that for 2013, 92% of managers completed a controls assurance statement. But the C&AG report says that in "light of the findings of 47% (by value) non-compliance with procurement procedures in the locations visited, the HSE's control assurance statement process does not appear to be highlighting the underlying level of non compliant procurement occurring in the HSE.”
The report notes that the HSE does not have an automated system to maintain a register of all contracts awarded without a competitive process. Rather it relies on individual areas to identify and report such non-compliance.
The C&AG found the HSE is increasingly using framework agreements to procure goods and services, with mini competitions used to award contracts as requirements arise.
However, in the six locations subject to audit the C&AG found that only 6% of examined contracts had used the framework agreements. It said there was an apparent general lack of awareness of the existence of framework agreements.
IBTS owes State €8.7m from pension levy
The Irish Blood Transfusion Service owes €8.7m to the State for pension levy deductions from staff which has not been passed on the Department of Health, according to the C&AG report.
The pension levy was introduced under the FEMPI legislation in March 2009. Public sector employers were obliged to pay the deductions to the Exchequer in accordance with the directions of the Minister for Public Expenditure and Reform.
In practice, this meant that the amounts were either remitted to the Department of Health, or the body could retain the deductions and accept a corresponding reduction in its grant allocation from the State.
The IBTS started deducting the pension levy from employees on 1 March 2009, but the C&AG says that "notwithstanding the Department's instruction, no amounts have yet been paid over to the Department."
The Auditor notes that unlike other health bodies that receive the majority of their funding in the form of a grant from either the Department of Health or the HSE, the IBTS is funded mainly from the sale of blood products.
The Department therefore does not have the option to collect the pension-related deduction by way of a reduction in the annual grant allocation.
He says that negotiations on this issue have continued since 2009, during which period the IBTS has deducted a total of €8.7m in pension levy contributions.
He says the IBTS contends that it wants to comply with the legislative arrangements but also has obligations to honour contractual arrangements with staff to fund the provision for superannuation benefits to staff on retirement.
In 2010, the Department of Health requested that no decisions regarding the use of surplus funds or the payment of monies to the existing pension fund be taken until matters had been discussed further at official level.
However, in April 2011, the IBTS board sanctioned the payment of €4.5m by IBTS to cover the accrued pension fund shortfall for 2009-2011. The additional contribution represented 5.5% of pensionable salary costs.
Further additional contributions amounting to approximately €4.8m were paid by IBTS into the pension scheme between 2012 - 2014.
In 2011 the Department of Public Expenditure and Reform undertook to provide funding of €1 for every €1 provided by scheme members and trustees to help resolve the IBTS pension fund solvency issues.
The Department's contribution was to be funded from pension levy receipts and/or an IBTS surplus.
The Department stated that the employee contribution could be made by an increase in the employee contribution, a reduction in benefits payable or a combination of both.
The IBTS was requested to submit a detailed proposal aimed at ensuring that the scheme remained solvent in the long term.
It was envisaged that this would involve a review and/or renegotiations of the terms of the scheme by the trustee.
However, the C&AG states that a number of matters remain in dispute between the Department and the IBTS and that "it is not evident that the processes employed by the agencies concerned will result in a resolution of the issues in dispute in the short term.”