TEMPLE Street Children's Hospital is paying salary top-ups to managers despite depending on a bank overdraft to maintain services.
Funding supplied by the HSE to treat sick children is being used to pay allowances to a number of bosses.
The revelation comes after it emerged salary top-ups and pensions in the Central Remedial Clinic (CRC) are being funded from charity donations
Education Minister Ruairi Quinn has called for the directors of the CRC to resign.
And Finance Minister Michael Noonan warned that that the public pay policy "is quite clear – no more top ups".
"There are pay limits across the public service and they must apply to voluntary organisations, which even though they are voluntary are funded by the State," Mr Noonan said.
Temple St recently admitted to the HSE that while it regarded itself as being in compliance with public pay policy, there were some "exceptions".
The hospital has repeatedly highlighted the impact of funding cuts, including a €9m cut to its allocation this year, are having on its services.
A spokeswoman for the hospital said "a small number" of managers were getting the salary allowances, but declined to say how many or how much they are worth. "No monies raised through fundraising are used to pay salaries or the small number of allowances that exist for senior managers within the hospital," she added.
The hospital had to get a multi-million euro Bank of Ireland overdraft in June. It amounts to €5.8m or 7pc of its HSE allocation for the year.
The chief executive of Our Lady's Hospital for Sick Children is getting a top-up allowance of €30,000 from the proceeds of commercial activities on the grounds of the hospital, including its shop.
The ongoing stream of revelations, following a HSE audit of voluntary hospitals and organisations that are publicly funded, is threatening to create a crisis in charity donations.
Fundraising Ireland, an umbrella organisation for professional fundraisers, said they were already getting reports of people cancelling donations.
Parents whose children attend the clinic and fundraisers were upset and distressed at the manner in which money they believed was supporting services was actually being used.
The CRC refused to answer any further questions about its fundraising arm, Friends and Supporters of the Central Remedial Clinic, which previously gave a €136,000 salary top-up to its former chief executive Paul Kiely and is paying allowances for five staff.
St Michael's House in Dublin, another major disability provider that has cut services, also refused to say how it is funding salary top-ups, even though it claimed they were not coming from charity donations.
Despite the controversy, the National Rehabilitation Hospital in Dun Laoghaire, which confirmed it is in breach of pay policy and is listed in the HSE audit as paying a medical board chair an allowance of €44,327, refused to say how it was being financed, although it does not come from donations.
Beaumont Hospital in Dublin confirmed that it has an on-call payment system in place for senior management. It was put in place 20 years ago to cover the availability of senior bosses out of hours.
Chairman of the Dail Committee on Public Accounts, Deputy John McGuinness said he expected a report from the HSE within a week on its final audit of voluntary hospitals and agencies.
The HSE is now verifying recent correspondence in which 30 of the 42 agencies claimed that they were in compliance with pay policy.