Committee Reports > List of Committees > Dáil > 1988 > Committee of Public Accounts > Report - Appropriation Accounts 1984

AN COISTE UM CHUNTAIS POIBLÍ

(Committee of public Accounts)

Dé Céadaoin, 9 Meán Fómhair, 1987.

Wednesday, 9 September, 1987.

The Committee met at 11 a.m.

Members Present:

DEPUTY G. MITCHELL in the chair

Mr. P. L. McDonnell (An t-Árd-Reachtaire Cuntas agus Ciste) called and examined.

1138. Chairman.—Before we start, in view of occurrences in recent days at the DPP’s office I think it would be a useful exercise if the Committee of Public Accounts were to request that security at the office of the Comptroller and Auditor General be examined and that the committee be assured that there is adequate security at that office where important audit files are located from time to time. Perhaps we could get some comment on that at the next meeting of the committee. Is that agreed?

Agreed.

VOTE 2—HOUSES OF THE OIREACHTAS AND THE EUROPEAN ASSEMBLY.

Mr. E. Rayel called and examined.

1139. Chairman.—Have we a paragraph on this Vote?

Mr. McDonnell.—There is no paragraph on this Vote.

1140. Are there any comments on the Houses of the Oireachtas and the European Assembly? Mr. Rayel, could you tell the committee how many staff are employed in the Oireachtas?

Mr. Rayel.—I have not brought along the current Directory of State Services so I could not tell you the exact total number. I have particulars of the posts that have been embargoed. I will certainly send the committee a copy of the existing position on staffing.

1141. Chairman.—Could you give an idea of the approximate number?

Mr. Rayel.—Slightly over 200.

1142. Chairman.—Given the particularly special role of staff in the Houses of the Oireachtas, is there ongoing training for standards within Parliament that is imparted to the staff at regular intervals? Is there any form of in-house training or how are standards maintained?

Mr. Rayel.—There is no form of in-house training but we do encourage the younger members in particular to attend courses in the Institute of Public Administration and anyone who desires to go to the university on a nighttime basis is encouraged to do so.

1143. Chairman.—Under subhead H there is an expense of £300,000 for the Dáil restaurant. What does that cover?

Mr. Rayel.—This grant-in-aid subsidises the costs of running the restaurant which has been operating at a loss for many years.

1144. Chairman.—To whom is it paid?

Mr. Rayel.—It is paid to the Joint Services Committee.

1145. Chairman.—Why does the restaurant make a loss? It charges much more than any of the other restaurants who operate similar menus within the immediate vicinity of Leinster House. Why does it make such a loss?

Mr. Rayel.—That is a problem for me because what we pay the restaurant is a grant-in-aid. It is not like a lot of the other subheads where I have detailed responsibility for expenditure. Take for example subhead E which covers salaries and wages, I have a detailed responsibility there but in so far as grants-in-aid are concerned a Finance circular sets out the responsibilities of the Accounting Officer. It makes clear he is not expected to answer in detail for the account. For instance, it says expenditure of sums issued from it — that is from a grant-in-aid — need not be accounted for in detail by the Accounting Officer. There are certain responsibilities on the Accounting Officer which I have always fulfilled. For instance, he must satisfy himself that the accounting system and organisational arrangements of the grantee are adequate to ensure the proper administration of the money. There is a clerk to the Joint Services Committee and he is a responsible officer. The accounts, certified by Coopers and Lybrand are available to the Comptroller and Auditor General if he wishes.

1146. Chairman.—It seems extraordinary, given the prices that are charged in the Members’ restaurant, that it is not able to make a profit and that we constantly have to be subsidising it or reducing the standards. It seems more Members dine in the Art Gallery next door then in the Members’ restaurant, I just wonder how this £300,000 subsidy is used.

Mr. Rayel.—The direction and control of the restaurant is vested in the Joint Services Committee and they operate it. The Ceann Comhairle has no function in relation to its operation.

1147. Deputy Colley.—My attention was drawn some time ago to the fact that the post office services within the Dáil were to be removed. I realise we are talking about 1984 now but perhaps you could bring us up-to-date on the position.

Mr. Rayel.—The Committee on Procedure and Privileges came to the conclusion that the post office should be closed, that is the Dáil committee, but the Seanad committee disagreed and that is the situation at the moment.

1148. Deputy Colley.—The overall responsibility for it rests with the Committee on Procedure and Privileges?

Mr. Rayel.—It is an all-party committee and if they recommend in the interests of economy that the post office should be closed it seems to me we should go along with that recommendation but because of the attitude of the Seanad committee the problem has not yet been resolved. I should add that Members had a right for many years to send 20 overnight telegrams per month. The telegrams had to be sent via the Leinster House Post Office but that facility has now been withdrawn by An Post.

1149. Chairman.—Is there still such a thing as a telegram?

Mr. Rayel.—There is a form of telegram but it is not these overnight telegrams. There are telemessages available. There was a sanction given a number of years ago for 20 overnight telegrams which could be sent through the Leinster House Post Office but Telecom Éireann have discontinued the service.

1150. Deputy Colley.—Could the Accounting Officer explain why there was an excess of expenditure of approximately £48,000 more than the amount granted in 1984?

Mr. Rayel.—Is that under a particular subhead?

Deputy Colley.—It is under post office services.

Mr. Rayel.—With effect from 1 June 1984 all official post has to be prepaid on posting and charges paid over monthly to the board, An Post. The allocation is still 1,250 prepaid envelopes per month. Prior to the new system being introduced in 1984 Members were entitled to post 300 envelopes per week, 100 of which were prepaid and a Deputy could use them either that week or some time subsequently. The remaining 200 had to be handed in to a Leinster House official for franking. If a Deputy did not avail of the full 200 in a particular week he could not use the remaining ones on a subsequent occasion. At present a Deputy gets 1,250 prepaid envelopes per month and there is no question of putting them through the franking machine. The tendency is for Deputies to collect their full entitlement because they can be used at any time in the future.

1151. Deputy Colley.—Is there any suggestion that this might be reviewed? I can see that it is certainly open to abuse.

Mr. Rayel.—One problem that arises at present is that An Post will not accept these prepaid envelopes for postage abroad. There are discussions going on between An Post and the Department of Finance, and our people are involved also to some extent, to see could the system be modified to enable a Deputy to use his free postage to send an envelope to the European Parliament, the House of Commons etc. A civil servant here can use the franking machine to send a letter to the House of Commons, the Commission in Brussels or anywhere else.

1152. Deputy Colley.—But a Deputy cannot?

Mr. Rayel.—A Deputy cannot.

Deputy Crotty.—Is the £48,000 accounted for by the fact that there was this changeover?

Mr. Rayel.—Yes, that is our belief.

1153. Deputy Crotty.—Are these prepaid envelopes?

Mr. Rayel.—Yes, are prepaid.

1154. Deputy Crotty.—Are these paid for before they are handed out?

Mr. Rayel.—Yes.

1155. Deputy Crotty.—Is the Accounting Officer satisfied that all of these envelopes are used?

Mr. Rayel.—It is my responsibility to issue 1,250 envelopes in a particular month to any Deputy who applies for them. There is an usher in charge of the envelopes. Each Deputy, or his secretary, who collects an allocation of 1,250 must sign for them. There is no way I could go around to Deputies and ask if they used all of their envelopes.

1156. Deputy Crotty.—Are these envelopes restricted to Members of the Oireachtas only?

Mr. Rayel.—Yes. The Act says free postage facilities for Members.

1157. Deputy Crotty.—Is this checked on a regular basis?

Mr. Rayel.—Occasionally we get a complaint but there are no penalties outlined in the regulations in respect of abuses. I do know there have been abuses on occasions.

1158. Deputy Crotty.—Should these abuses not be checked?

Mr. Rayel.—We have written to a number of people in the past but even if I write to a person or get the Superintendent to do so he could simply ignore us. There are no penalties for abuses.

1159. Deputy Crotty.—This committee has a responsibility in examining expenditure. I am not satisfied that all of the envelopes checked out should be prepaid. This amounts to a very large expense for the Exchequer for envelopes that may not be used. These are prepaid by the Exchequer and they may end up lying there, not used at all. They are an expense which this Vote should not have to bear.

1160. Chairman.—What happens if a Deputy does not collect his or her envelopes in a particular month? Are they returned to a particular place or would they get credit for them?

Mr. Rayel.—They are held in Leinster House but the Deputy cannot collect them in a later month.

1161. Chairman.—Once the month is up, they cannot collect them?

Mr. Rayel.—That is correct.

1162. Chairman.—Therefore, are the envelopes returned to someone or do you get credit for them?

Mr. Rayel.—No, we hold on to them. We order envelopes regularly, in accordance with need. The next order would be 1,250 less. It would be open to the Minister to make regulations in relation to the point Deputy Crotty has in mind. The committee would be perfectly entitled to make a recommendation to the Minister.

1163. Deputy Crotty.—I suggest that we do make a recommendation to the Minister in relation to the number of prepaid envelopes. I think the facility of free postage up to a certain amount to a Member of the Oireachtas should be retained as heretofore, if required by him, but it would seem very foolish to distribute prepaid envelopes which may not be used or which may be abused. I do not think this committee should be party to that and it is our duty to have it examined.

1164. Chairman.—If the committee agrees with the Deputy’s suggestion we will bring it to the attention of the Minister and ask for his observations. Is that agreed?

1165. Deputy Dempsey.—The abuse of the envelopes is a matter of concern to everybody but I am not sure whether reverting back to the previous system would be a good move. I suggest that we contact the Committee on Procedure and Privileges and ask them to draw up a list of guidelines and regulations in relation to the use of the envelopes, following which we could make a recommendation to the Minister. I am sure there are quite a few Deputies who use these envelopes and there are probably quite a few who do not. The problem lies in the fact that there are no penalties for abuses and not with the number of envelopes being issued. I respectfully suggest that we do that initially and take it from there.

1166. Deputy Crotty.—I agree with that. It is a good suggestion. I would have expected that this committee would have drawn up the guidelines but I would be quite happy in referring the matter to the Committee on Procedure and Privileges.

Chairman.—That is the procedure we will follow. Thank you for that suggestion. Are there any other questions on this particular Vote? Incidentally, Mr. Rayel, if you know of anybody who is not using their envelopes would you circulate their names to the committee?

1167. Deputy Colley.—Under Subhead J — Ciste Pinsean Thithe an Oireachtais — could the Accounting Officer give a figure for those pensions that are being paid to serving Members of the Oireachtas, the Judiciary or the European Parliament?

Mr. Rayel.—We have no function in relation to the payment of pensions, for instance, to members of the Judiciary or to Ministers. Again, I come back to the point in regard to the grant-in-aid. This is a grant-in-aid to a pension fund. The trustees of the pension fund are the Ceann Comhairle, the Cathaoirleach and the Minister for Finance. They decide on whether X is entitled to a pension having regard to the regulations as they stand. One of the civil servants here acts as a clerk to them and he does the spade work for them. As regards giving information as to who has or had not got pensions under the scheme, I will certainly bring this matter to the attention of the clerk to the trustees and he can take it from here.

1168. Deputy Colley.—Thank you. If it is possible, I would like to know the amount of money that is involved.

Mr. Rayel.—The amount of money that is involved for those in receipt of other pensions?

1169. Deputy Colley.—No. for those who are in receipt of salaries from the State already, that is former Members of the Oireachtas who are still in receipt of salaries which would include the payment of Ministerial pension to those who are still Members.

Mr. Rayel.—My point is you cannot qualify for a pension under this scheme if you are a Member at present.

Deputy Colley.—I understand. This is not the same scheme.

1170. Chairman.—Are you telling the committee that it does not come under your Vote?

Mr. Rayel.—Ministerial pensions do not come out of our Vote.

1171. Deputy Crotty.—What does appropriations-in-aid cover?

Mr. Rayel.—There is a 6 per cent deduction, under subhead M, from the allowances paid to Irish members of the European Assembly in respect of a pension scheme for such Members. The Department of Finance decided that those deductions should be treated as an appropriation-in-aid of the Vote.

1172. Deputy Colley.—Under subhead L — Services for Oireachtas Committee — I notice that there was a figure of £18,887 left in the kitty at the end of 1984. Seeing as this committee had such difficulty in obtaining proper services can you explain why this money was not used up?

Mr. Rayel.—I have a note here, which states the following:

the extent to which it was envisaged that consultants would be engaged by those committees so empowered under their orders of reference was not as great as anticipated. Accordingly, when a Supplementary Estimate for the Houses was being prepared, the allocation was reduced by £100,000 to take account of the likely outturn for the year. In the event, there was an additional saving of £19,000 approximately because of delays in employing certain specialist consultants for the Joint Committee on Commercial State-Sponsored Bodies.

1173. Deputy Crotty.—Therefore, this deals particularly with consultants who might be brought in to work with Oireachtas committees?

Mr. Rayel.—Yes, it is essentially to pay for consultants. This committee has its own consultant in the person of the Comptroller and Auditor General.

1174. Chairman.—No, we do not. The Comptroller and Auditor General is a witness of the committee and is provided for in the Constitution. Are you aware that the reports of this committee have not been published since 1979?

Mr. Rayel.—As you mentioned this on the last occasion I was before the committee, I prepared a note in regard to staffing which states the following:

prior to 1979, the duties of clerk to this committee were discharged by the principal clerk in the General Office. Because of a substantial increase in the volume of work in that office, it became impossible for him to continue as clerk to the committee and a full time clerk was appointed in February, 1979.

Because of the operation of the embargo on the filling of posts, it was no longer possible to assign a clerk full time to the committee from early 1983 following the retirement of the then clerk. In 1984, 1985 and up to October 1986, the PAC had only the part time services of a clerk. With a view to clearing the arrears of the committee the present clerk, an Assistant Principal on loan from the Department of Finance, was assigned full time to the committee from October, 1986. Furthermore, at the end of June, 1987, the former clerk to the Committee on Public Expenditure was also assigned to the committee as an additional measure to assist with the arrears.

1175. Chairman.—Do you think it is satisfactory that people on loan from another Department should service a committee which is auditing that Department?

Mr. Rayel.—We can only do the best we can——

1176. Chairman.—Why are there not staff on permanent assignments to the Houses of the Oireachtas to service the committees adequately?

Mr. Rayel.—The embargo applies and the Ceann Comhairle can only do his best with the number of staff he has. In so far as he is concerned, his priority is the Bills Office, the General Office, the Journal Office and the sections that service the House.

1177. Chairman.—But are you not aware that there is a surplus of staff now in the office of the Department of Finance and Public Service on the merger of those Departments? People being on loan to this committee is not satisfactory. This committee has an Opposition Deputy as Chairman by tradition to ensure its independence. The Comptroller and Auditor General is enshrined in the Constitution to ensure his independence and then we come along and find that we have reports not published since 1979 and that when we go to transcribe those there are blanks in the tapes. We do not know how they occurred or why they occurred. It is far too tatty. It is unacceptable.

Mr. Rayel.—There are two officers from the Department of Finance to help out the committee.

Chairman.—On loan to the committee.

Mr. Rayel.—On loan to the committee but if the committee wishes to make a recommendation to the Minister that one or both of them come here permanently for the committee, the Minister might favourably consider it.

1178. Chairman.—What I am saying to you is that with the workload the committee has both persons concerned are required but they should be working for the committee, not on loan from any other Department. They should be assigned to the Houses of the Oireachtas and to the Public Accounts Committee specifically. There is an enormous workload and arrears also.

Mr. Rayel.—Certainly if the committee makes a recommendation to the Minister, I am sure he would favourably consider it.

1179. Deputy Colley.—It seems to me that this is the only committee that is actually enshrined in the Standing Orders of the Houses of the Oireachtas. It seems quite logical from that that one should have permanent staff assigned to it because it is a permanent committee, whatever about all the others.

1180. Chairman.—We can communicate that recommendation, Mr. Rayel. I hope you are in no doubt that it is most unsatisfactory from the committee’s point of view that reports of the committee have not been published since 1979 because, as the outline of the book and the outline of financial procedures indicate, the report of this committee is meant to go to the Department of Finance which Department is then supposed to prepare a minute on what action has been taken. That practice has not taken place since 1979, since the report of 1979.

Mr. Rayel.—There was a fairly important factor apart from the staffing of the committee. As we all know, there were three General Elections in 18 months, one in 1981 and then two in 1982. They resulted in delays in establishing committees. The position is that from May 1981 until November 1983 this committee did not meet. For two and a half years there was no committee meeting.

Chairman.—That is not true.

Mr. Rayel.—Well, this is the note I have.

Chairman.—That is not correct.

Mr. Rayel.—The Dáil was dissolved in May 1981.

Chairman.—From May 1981 to when?

Mr. Rayel.—The next committee was appointed in July 1983 but did not meet until November 1983. That is the note and it was checked with the acting clerk.

Chairman.—From 1981 to 1983?

Mr. Rayel.—Two and a half years.

Chairman.—We will make the recommendation that you suggest because I think we have to make it very clear that we cannot continue as we have been going. Thank you, Mr. Rayel.

The witness withdrew.

1181. Chairman.—Before we examine the Accounting Officer and the valuation officer, I just want to put on the record for the minutes that there was a Public Accounts Committee in 1982 and two of the chairmen of that committee are present. I would ask the clerk of the committee to get a note from the previous Accounting Officer on that matter for circulation to members. Now we have here with us Mr. James Arthur who is the Secretary of the Valuation Office, who has been appointed ad interim Accounting Officer because of the absence of Mr. Pat Duffin on the grounds of ill health for some time.

VOTE 16—VALUATION AND ORDNANCE SURVEY.

Mr. J. Arthur called and examined.

Chairman.—Good morning, Mr. Arthur. You are welcome.

1182. Deputy Foley.—Could I ask the Accounting Officer, in regard to salaries, wages and allowances how many staff are involved?

Mr. Arthur.—In relation to 1984, there would be roughly about 198 Valuation Office staff and 404 Ordnance Survey staff.

1183. Deputy Foley.—How many staff would be involved in travelling?

Mr. Arthur.—On the Valuation Office side there would be approximately 75 field staff — valuers and district valuers in the main — and in the Ordance Survey you would have about 150 field staff.

Deputy Foley.—That is 255.

Mr. Arthur.—That is so, yes.

1184. Deputy Foley.—Would you consider travelling and incidental expenses at £1.2 million to be very high? Almost 25 per cent of the total salaries has been paid out in expenses, making a total of over £6.5 million.

Mr. Arthur.—The rates are specified in relation to travel and subsistence allowances. The work is fieldwork which involves long absences from headquarters. Both offices, as you will be aware are headquartered in Dublin. I do not think they are unreasonable.

1185. Deputy Foley.—The point I am making is that the total salary bill is roughly £5.5 million. On top of that you have another 25 per cent paid out in travelling and incidental expenses between 225 staff.

Mr. Arthur.—That is so. If you have regard to the amounts, individual payments average out in relation to professional staff in the Valuation Office at approximately £4,000 and in the case of technical people in the Ordnance Survey, at something around £3,500.

1186. Deputy Foley.—What would be the highest figure paid to any individual?

Mr. Arthur.—It could be as high as £7,000 in an individual case, but you would find that there were special circumstances which would give rise to that.

1187. Deputy Crotty.—May I ask the Accounting Officer how many people are employed outside Dublin from this office?

Mr. Arthur.—Taking the valuer and district valuer staff in the Valuation Office, the overall term of absence in a year would be approximately five to six months.

1188. Deputy Crotty.—I think you got my question wrong. How many staff are employed outside Dublin from this office?

Mr. Arthur.—There is nobody located outside Dublin. All work centres in Dublin.

1189. Deputy Crotty.—Taking into consideration the very heavy travelling expenses, would it not be considered locating people in their regions, say, a couple in the South, a couple in the West, who would be nearer their work and more familiar with the situation in these areas? Has any consideration been given to that or would it be a help to the office?

Mr. Arthur.—It is something that has been considered but I am not in a position to say. Some experiments have been carried out but there are the other aspects of co-ordination and this sort of thing which would have to be looked at very closely. I imagine that with the development of computerisation and other office aids there is a new situation which would possibly warrant regional offices.

1190. Deputy Crotty.—Is the setting up of regional offices under consideration at the present time?

Mr. Arthur.—No, not really. There had been some preliminary discussions with the professional and technical grades involved but I would not be justified in saying that it is at a tangible stage.

1191. Deputy Crotty.—There is a problem with getting people to locate from the regions, is that what you are saying?

Mr. Arthur.—I do not think so but I think the management and control issues have not been clearly enough defined to consider it being at that kind of stage.

1192. Deputy Crotty.—In view of the very heavy expenses required when people travel from Dublin right across the country I think it would be appropriate that this committee might suggest to the valuation and ordnance survey groups that they would urgently consider setting up regional offices.

1193. Chairman.—Mr. Arthur, maybe you would have a look at that and let the committee have a note in the future on your observations and on the suggestions which the Deputy has made.

Mr. Arthur.—Yes.

Chairman.—Are there any other comments?

1194. Deputy Crotty.—There is fairly heavy extra remuneration. Some officers received over £4,000. What would that entail?

Mr. Arthur.—That relates mainly to the Ordnance Survey Office. The office takes on a good deal of contract work which has to be dealt with within a specific time because of the terms of contract. Provision is made when costing to allow for recovery of the expenditure. It relates primarily to what we call the greater expertise of some of the officers, particularly in the air survey area, where specification requirements have to be met. It has to be ensured that the work is done to the highest standards. I think it is expedient that the service provided is satisfactory.

1195. Deputy Crotty.—What does Appropriation-in-Aid cover?

Mr. Arthur.—It covers mainly map sales and contract work carried out by the Ordnance Survey for local authorities and for other interests.

1196. Deputy Colley.—There have obviously been a number of Departments who require maps in the course of their work and I note, for instance, Agriculture received maps from the Ordnance Survey Officer to the value of £93,500. I see also that there was no payment made by the Department to the Office for these maps and the various other Departments. Would it not be more appropriate if this money appeared in the Vote for the particular Department which requires the maps? A figure of £93,500 for maps that does not appear in the Department of Agriculture Vote seems to distort the figures.

Mr. Arthur.—This has been the traditional way of acknowledging the face value of the maps provided to all Government Departments. I do not think it would be for me to decide if it should be a direct payment, as you suggest, and that it would appear under the ordinary Appropriations.

1197. Chairman.—May I suggest, Deputy Colley, since we will be examining the Secretary of the Department of Finance next on the format of the Estimates, it might be something you might raise with him then which is very relevant to that particular point.

Deputy Colley.—Thank you, Chairman.

1198. Chairman.—I have a fair idea what the Ordnance Survey office does but for the record what does the valuation end of your Department do nationally?

Mr. Arthur.—Its primary function is to update the valuation list annually. The valuation lists are used for providing the local authorities with a base on which to determine their rate receipts.

1199. Chairman.—That is all carried out centrally by your office?

Mr. Arthur.—It is carried out centrally.

1200. Chairman.—I do not want to be putting difficult questions to you, Mr. Arthur, because I know it is your first time here but are you aware that a company called Donal Ó Buachalla & Company Ltd, who are expert valuers in the rating and property area have made a submission to the Committee on Public Expenditure, which is no longer in existence, in the recent past saying that successive Commissioners of Valuation are taking what they called mindless pursuit in the courts at all levels based on principles which you have already abandoned. In other words, you are taking people to court based on valuation principles which you have already abandoned and they say in consequence of this that there is a senseless squandering of substantial public funds. At one stage they suggested that it could run to maybe £1 million. What comment would you have to make on that?

Mr. Arthur.—I should say at the outset, Mr. Chairman, that I am not a professional officer so I am not quite sure what Messrs. Ó Buachalla & Company have in mind. The Act sets out the basis for valuation. I think it is incumbent on the commissioner in the interest both of the local authorities and the ratepayers that valuations remain relevant and that in the overall sense there is not inequality as between the valuations of hereditaments. I think that the present and previous Commissioners have attempted to keep that balance.

1201. Chairman.—May I interrupt you for one moment? This company say they still have 257 appeals, representing 124 hereditaments outstanding and awaiting Circuit Court hearings and they estimate that their 257 outstanding appeals alone will cost the State £1 million aside from other costs associated with appeals. They say that this is being done purely to go through an empty formula based on principles which you have already abandoned. Is that true or not, or are you in a position to comment?

Mr. Arthur.—It is true to say that there is a number of appeals which are in suspense as it were, in the sense that the appeal to the Circuit Court gave results which commissioners, not just the present commissioner but previous commissioners as well, felt were not in accordance with the basic principles which were envisaged in the Valuation Acts.

1202. Chairman.—Let me just quote to you from this. It says here:

pro rata. . . . we would now estimate that the costs for which the State will be liable in respect of our 257 outstanding appeals confined entirely to matters of principle on which as already stressed, the Supreme, High and Circuit Courts have already consistently ruled against the commissioners, must assuredly exceed £1,000,000.

In other words, where there are consistent rulings against the Valuation Commissioners on principle, you are continuing to appeal these to the courts at an enormous cost. What is the reason for doing that. I just do not understand.

Mr. Arthur.—The point I make is that there is also the right of appeal to the High Court on matters of law. There is a number of leading cases which have been and are pending in the High Court and these will then determine the policy or the decisions which will follow in several other cases.

1203. Chairman.—Since this is your first time here this morning, I will arrange for the clerk of the committee to send you that report and perhaps you would then let the committee have your note on it. We will be examining you again in the not too distant future when we get on to the 1985 and 1986 accounts.

1204. Deputy Dempsey.—How up-to-date is the Valuation Office in relation to properties around the country?

Mr. Arthur.—It is difficult to answer that question because the initiative in relation to valuing property for rating purposes is determined by the local authority’s interest in having property revised. As the commissioner has no initiating powers we depend entirely on the local authority to exercise their initiative and, of course, on the ratepayers and other interests to send forward in the lists each year requests in relation to all properties that they wish to have revised or reviewed.

Finance comes in.

1205. Deputy Dempsey.—Are the new properties of new houses still being valued?

Mr. Arthur.—They are being valued. Up to this they have been valued.

1206. Deputy Dempsey.—Are they currently being valued?

Mr. Arthur.—In so far as the resources available to the commissioner will allow, they continue to be valued.

1207. Deputy Dempsey.—The point I am trying to make is that the Government’s grants to local authorities are based on valuations of properties within each country. I just wanted to try to find out how much local authorities were losing as a result of a possible backlog of valuations within the counties?

Mr. Arthur.—I do not think it is significant. My recollection is that in 1983 there was some local government legislation which more or less decided that there is not full recovery in the rates subsidy for domestic property any longer.

1208. Deputy Dempsey.—I am aware of the legislation but I just wanted to know if the valuations were being continued.

Mr. Arthur.—In relation to new houses they are.

1209. Deputy Foley.—Are all local authorities consistent in sending in their revision lists after 15 December?

Mr. Arthur.—I believe they are. I have no reason to think otherwise, Deputy Foley.

The witness withdrew.

Chairman.—As agreed, we are dealing with the Format of the Estimates first, the letter received from the Department of Finance, when the Secretary of the Department of Finance comes in.

FORMAT OF ESTIMATES.

Mr. S. Cromien called and examined.

1210. Chairman.—Good morning, Mr. Cromien, This is your first time here — it seems to be a morning for new Accounting Officers. You are very welcome. We decided, as you have been informed in advance, to consider your Department’s letter to the committee regarding the proposed changes in the Format of the Estimates. I ask perhaps if you might say a few words on your reasoning behind this before we open it up to examination by the committee.

Mr. Cromien.—Thank you very much, Chairman, for your welcome. The point at issue in this case is that we are keen that the education expenditure should be set out in a logical and rational way. The proposed format we are recommending sets out, we think, the education expenditure more clearly. We thought that in this way it would be useful to Dáil Deputies and to any other people looking at the Estimates to find out where exactly the main thrust of the expenditure lies. If you look through the Estimates, there are five Dáil Votes at the moment on Education. If you want to find something you have to look through the five Votes because they are not set out in a logical way. One obvious case in point is higher education. If you are a Dáil Deputy, a journalist, or an economic commentator and you want to find out about higher education you look at the Vote so described to see if there is a total amount of money set out in it. That is not however the total amount for higher education because amounts in two other Votes in the education group have to be combined with that figure. Similarly the information in relation to clerical assistants for national and secondary schools is in a different Vote from the one it should logically be in. We have attempted in the information set out here to show a more logical sequence on the basis of programmes.

1211. Chairman.—Why are the Department of Education different from the Department of Justice or any other Department where there are a number of different Votes? Is there a particular reason for picking out the Department of Education?

Mr. Cromien.—There is a number of very large Votes which cover all items of expenditure, for example, the Health Vote, the Social Welfare Vote and the Marine Vote. The Department of Education area is one where there is an affinity between the various items of expenditure.

1212. Chairman.—Why is it coming at this time? Have your Department considered it before?

Mr. Cromien.—We have looked at the Estimates volume and have attempted to recognise it in a way which is helpful to the committee, the Dáil and to the general public. We are moving towards a document on comprehensive public expenditure programmes so that the old fashioned presentation in the Estimates volume which in many ways was not very logical will be changed to a newer form which will have a logic about it and an ease of access for the committee and for other people.

1213. Chairman.—If this committee gave their agreement to this going ahead, would it be taken as a precedent for any other amalgams? Why not give us one heading for the Department of Education and leave it at that? We want to ensure that we are not creating a precedent which will loosen or lessen the accountability.

Mr. Cromien.—Certainly I would be very satisfied if the committee were agreeable to going ahead with this proposal. There are 75 subheads in the education group. That is a very big amount of information and most of it will be kept in the new larger Vote. It will be an improvement without creating a precedent.

1214. Chairman.—With regard to your letter of 1 September I do not see anything wrong with any of the paragraphs on the second page or the first paragraph on the first page but what worries me about the five Votes in the Education group is the question of virement. Could you explain to the committee what virement means and what the consequences of agreeing this would mean?

Mr. Cromien.—The system of virement is that within a Vote the Department of Finance have the approval of the Dáil to allow expenditure to be larger or smaller than in the subhead. You could not have a system of administration without virement. If on every subhead where there was an excess you had to go back to the Dáil, Dáil business would be completely clogged and this would not be acceptable either to you or to us. That is the principle of virement. Where do you apply the limit to virement? At present it is applied within a Vote and that arrangement is suitable. We are suggesting that by reducing the number of Votes there would be just one Vote and this element of virement would increase.

1215. Chairman.—It would mean, for instance, that you would not have to go back to the Dáil for a Supplementary Estimate in circumstances where you could vire between what are now five separate Votes. It would lessen the control of the Dáil because there would not have to be a Supplementary Estimate, a debate or parliamentary control. Why should we as a committee of Parliament agree to that?

Mr. Cromien.—It is a question of the balance of advantage. Do you want to keep that element of control and sacrifice the benefit which would be there in having all of this information in one Vote? It is a matter for the committee to determine whether this very small element of losing control in that area would be compensated for by the benefit you would get by having the whole Vote set out in a logical way. There are other very large Votes where this is done within the one Vote and where virement is in operation. If, for example, the Department of Finance recommended that education and environment expenditure were to be combined in the one Vote, that would be totally unacceptable to you.

1216. Chairman.—If you are suggesting that we might give a block Vote for the Department of Education that could be unacceptable because we could not examine the detailed breakdown of the Vote. Can you assure the committee that if we were to agree to this format for the 1988 Estimates we would be able to compare the 1988 figures precisely with the 1987 turnout and the 1987 Estimates.

Mr. Cromien.—Yes, I can assure you that we will be able to set out post facto for earlier years the figures in the new format.

1217. Chairman.—Is this recommendation coming purely for better financial and accounting purposes?

Mr. Cromien.—Yes.

1218. Chairman.—Is there any other policy consideration?

Mr. Cromien.—No.

1219. Deputy Foley.—The Chairman has made all the relevant points but one thing which has come through very forcibly is that there are 75 subheads within the Department of Education that will not be affected and will stand.

Mr. Cromien.—They will be reduced to 65. Ten of them are vanishing but, of those, four will be appropriations-in-aid subheads which will be grouped together in the one subhead so you are not losing any information on that. Two subheads are related to Irish language support and they are being put into the one subhead.

1220. Deputy Foley.—You said that a single Vote for the Department of Education would not reduce available information but would facilitate greater monitoring and control of expenditure. Is that right?

Mr. Cromien.—That is right. Broadly there is a very small loss of information, but it is insignificant.

1221. Deputy Foley.—Would there be greater accountability as a result of the one Vote?

Mr. Cromien.—Yes. It would group expenditure together in a way that will help the understanding of Dáil Deputies and others.

1222. Deputy Foley.—Would it mean greater accountability for the funding within the Department of Education.

Mr. Cromien.—It will be the same accountability but your ability to question the Department and for outsiders to understand the information in the Vote will be improved.

1223. Chairman.—How long have your Department been considering this proposal on the layout?

Mr. Cromien.—I cannot recollect exactly.

Chairman.—Is it weeks, months or years?

Mr. Cromien.—It is years. The comprehensive public expenditure programmes were published a few years ago.

1224. Chairman.—If this approval was given would it mean that you could spend primary school money on vocational schools, or vocational school money on secondary, or secondary school money on third level schools? Is it possible in this layout with the new powers of virement that that could happen?

Mr. Cromien.—It would be within the power of the Minister to move funds around.

Chairman.—Without the approval of the Dáil?

Mr. Cromien.—That exercise would be subject to your scrutiny.

Chairman.—Post facto?

Mr. Cromien.—Post facto, yes.

1225. Chairman.—Suppose the Dáil vote money for primary or third level education, the Minister of the day could, if he chose, end up spending that money on vocational education if this approval was given?

Mr. Cromien.—It would be subject to the approval of the Minister for Finance.

Chairman.—But it would not require a Supplementary Estimate, a debate or the sanction of the Dáil?

Mr. Cromien.—No. This is the drawback of somewhat lesser accountability to the Dáil but the benefits are as I mentioned earlier.

1226. Deputy Crotty.—I do not understand how this will assist Deputies or other people examining the Estimates, how it will open it up to them and make it easier for them. The Accounting Officer might explain that to the committee. Certainly I do not understand how the new system will work.

Mr. Cromien.—Basically it is a question of setting out the information in a clearer way. If a Deputy wants to know where the expenditure on higher education is, at the moment unless he goes through the five Votes he will have difficulty in finding that information.

1227. Deputy Crotty.—Why is it not set out properly at present? Why is it that all the expenditure under higher education or primary education is not where it should be in the Vote? Why should you have to root around to find it? Why have you to change the whole system just to tidy up a few little items like that?

Mr. Cromien.—That is a question that can be asked about the Estimates generally. We have been trying to improve the Estimates over a period of years along the lines of the comprehensive public expenditure programmes. The present system goes back over the past one hundred years, and is an out of date way of looking at expenditure. We are trying to improve it but it has to be done piecemeal.

1228. Deputy Crotty.—Could we do it piecemeal, get the Estimates tidied up and get all the expenditures in their proper order and place so that you do not have to root around to try to put the scene together and progress from that next year?

1229. Chairman.—I am going to ask the Comptroller and Auditor General for his observations on this. He has had an opportunity to study it since we received the letters. We will call him in at this stage.

Mr. McDonnell.—Deputy Crotty has made some of the comments I should make. I agree with the Accounting Officer that there is a certain untidiness at the moment in regard to particular items, let us say, as he said, higher education where you have to look at a number of Votes to see where higher education is. For instance, under the Office of the Minister for Education, which is a separate Vote, you had the higher education grants. You do not find them in the Higher Education Vote. Under the new proposal in the section of the total Estimate dealing with higher education they would appear, rightly, under Higher Education. There are two issues. In the tidying up, as Deputy Crotty says, I would wonder whether you would be “throwing out the baby with the bath water,” so to speak. While the tidying up is necessary and I would have no problem with that — Deputy Crotty has indicated the same thing — I wonder about the other aspect that the chairman was concerned with, the overall power to exercise virement between all of the services covered by the Department of Education. I would have a certain sympathy with the view expressed by Deputy Crotty that while the tidying up is certainly essential, perhaps amalgamating everything within the one Vote would be giving away the authority of the Dáil to decide whether or not funds saved on primary education should be used for vocational education.

That is something the committee have to decide and that is the issue. As somebody said, there is the right of the committee to question how this would be exercised but, as the chairman said, that comes afterwards and that is the issue. The tidying up is necessary and I certainly would not disagree with that at all. The issue is: do the committee want it — the Accounting Officer talked about the balance of advantage — does the Department of Education have to come back to them if they need more money for e.g. primary education or do they want to leave that to the Minister for Finance? That is the situation.

Mr. Cromien.—Would it be helpful to the committee if, say, some of our officials and those in the Department of Education discussed the matter with the Comptroller and Auditor General and the Committee, or yourself, Chairman, to see exactly what is involved and what would be an acceptable arrangement?

1230. Chairman.—That is a very good idea and then we could come back to the Committee. We do not want to tie your hands but we do not want to weaken parliamentary control. Perhaps we could follow that suggestion as soon as possible.

Mr. Cromien.—Any time you wish to make the arrangements.

Chairman.—Thank you.

1231. Deputy Naughten.—That would be of vital importance. Certainly, I could not or would not go along with reducing, as I would see it, the powers of the Dáil because, as has been pointed out, it would be open to any Minister to transfer money from one section of a Vote to another without going to the Dáil as it would be all under one Vote. A meeting should be set up between the officials involved so that some clarity can be got and some tidying up done without interfering with the shape of the Estimates as we have dealt with them prior to this.

1232. Chairman.—Mr. Cromien, if you could contact the Clerk of the Committee to set up a meeting between myself, the Comptroller and Auditor General, yourself and somebody from the Department of Education, then we can come back to the Committee and try to have a meeting of minds on this.

Mr. Cromien.—Certainly, Chairman.

1233. Deputy Foley.—Are you taking Vote 17 — Rates on Government Property?

Chairman.—We have dealt with that through the last Accounting Officer.

1234. Chairman.—Paragraph 2 to 7 of the Report of the Comptroller and Auditor General read:

Outturn of the Year

The audited accounts are summarised on pages lxii and lxiii. The amount to be surrendered as shown in the summary is £158,384,655 arrived at as follows:—

This represents 2.8 per cent of the supply grants as compared with 2 per cent in 1983.

In no case has the provision made by Dáil Éireann been exceeded and no excess vote is, therefore, necessary.

Exchequer Extra Receipts

Extra receipts payable to the Exchequer, as recorded in the Appropriation Accounts, amounted to £23,167,141.

Surrender of Balances on 1983 Votes

The balances due to be surrendered out of votes for the public services for the year ended 31 December 1983 amounted to £115,053,700. I hereby certify that these balances have been duly surrendered.

Stock and Store Accounts

The stock and store accounts of the Departments have been examined and matters arising in the course of these examinations are referred to in paragraphs 55 and 56.

Statement of Receipts into the Central Fund in the Year ended 31 December, 1984.

Statement of issues from the Central Fund in the Year ended 31 December, 1984.

Have you anything to add, Mr. McDonnell?

Mr. McDonnell.—I suggest that I should comment on paragraphs 2 to 7 first because they are really standard paragraphs for the information of the committee dealing with the outturn of the year, the surrender of balances for the previous year, my examination of stock and store accounts. There were two particular matters on the Defence Vote which the committee dealt with already under that heading. Then there is a general summary of all of the receipts into and the issues from the Central Fund in the year. That section of the report is standard and is purely for the information of the committee.

1235. Chairman.—Mr. Cromien, on paragraph 2 to 7 I want to ask a question about the State’s indebtedness and the rate of interest that we are paying. I note that there is a mix of foreign indebtedness of something of the order of £10 billion at varying rates of interest in various currencies. Can you tell us what the current situation is and if the State puts to best use its ability to reduce the rates of interest it is paying on foreign borrowing?

Mr. Cromien.—Basically when you are borrowing abroad the rates that you are going to get are those determined by the market but within those rates there are margins that can be gained by experience and by knowing the market well. There is generally an acceptance that borrowing by the Department has been on very keen terms. This year, for instance, we have been borrowing from the Japanese market. We have raised term (12 year) funds at an interest rate of 4.9 per cent. We have borrowed over 15 years Swiss francs at an interest rate of 5 per cent. These are very keen rates. Later experience has shown us that we got good bargains on those. We would be generally satisfied that our rates for foreign borrowing are good.

1236. Chairman.—At the end of 1986 the amount outstanding in foreign loans was £9.75 billion. That is the figure I was looking for earlier. We did a calculation and I got out this note yesterday on the national debt for the currency composition. Of that 4.8 per cent is in sterling, 29.2 per cent is in US Dollars, 28.5 per cent in Deutschemarks, 14.6 per cent in Swiss francs, 5.9 per cent in Dutch guilders and 11.3 per cent in Japanese yen. I think only 4.6 per cent is in ECUs. Is that the ideal mix? Has that changed? Is it constantly reviewed? Do we get the best value for the currency and interest rates?

Mr. Cromien.—We review it constantly and we review our approach to borrowing constantly. We are considering other options including certain borrowings on the domestic market in ECUs. We are very concerned to ensure that we get what we think is the best value.

1237. Chairman.—Could you tell us a little more about the borrowings on the domestic market in ECUs?

Mr. Cromien.—This is just an idea we are examining at the moment. It is one of a number to reduce the borrowing cost to the Exchequer. Basically what will be involved will be a domestic loan on which the interest and the principal would be paid to people in Irish currency but both interest and principal would be linked to the European currency unit.

1238. Chairman.—Can you tell the committee what it costs in total to service foreign debt as distinct from the national debt? The most recent year for which you have figures is perhaps 1986?

Mr. Cromien.—Our foreign interest payments in 1986 were £716 million.

Chairman.—And the total interest payments?

Mr. Cromien.—£1,818 million.

Chairman.—Which would roughly equate to what we collected in income tax.

Mr. Cromien.—That is right; £716 million of that is foreign.

Chairman.—It is going out of the country.

1239. Deputy Crotty.—In relation to borrowing generally and particularly foreign borrowing, do the Department of Finance get outside consultants or financial experts, or do they manage this from their own resources within their own Department?

Mr. Cromien.—It is basically the Department who carry out the arrangements. Of course, they use outside experts to give advice in assessing the possibilities of particular markets.

1240. Deputy Crotty.—How are these experts retained? Are they the same experts all the time or are they on a consultancy basis? How are they approached?

Mr. Cromien.—It is a question of our borrowing people having contacts in different areas. They keep up to date on the possibilities. If a loan is being raised in a particular market, there are expenses which are borne on the Vote managing Government stocks.

1241. Deputy Naughten.—The Accounting Officer has informed us of the cost of moneys which were borrowed in Swiss francs and yen. Could he tell us the cost of domestic borrowing at present?

Mr. Cromien.—The actual interest rate?

Deputy Naughten.—Yes.

Mr. Cromien.—Long term domestic rates would be between 11 and 11¼ per cent on the gilt market.

1242. Deputy Desmond.—Would you agree that officers of your Department who are engaged in the market require particular training and expertise over a substantial period in order to discharge their functions effectively on behalf of the Department?

Mr. Cromien.—I would consider that the best training is learning on the job. The people in the Department who are engaged in this work have developed enormous expertise. A number of them have gone to the private sector; they have been poached for their expertise.

1243. Deputy Desmond.—Are you satisfied that changes in recent years at that level within the Department were done with the best operational expertise?

Mr. Cromien.—I do not understand the question.

1244. Deputy Desmond.—A number of officers have held that senior position in recent years. There have been a number of changes. Are you satisfied that the changes brought about were beneficial in a real sense to the operations of the market by the Department?

Mr. Cromien.—I am just trying to think what the changes could be. There were some retirements but otherwise I think the team that is there at the moment is the team that was there a number of years ago.

1245. Deputy Desmond.—There has been a particular change and a particular officer brought back, so to speak, and given exceptional responsibility now for that area. You would agree with me that that happened recently?

Mr. Cromien.—Yes, but that officer was there earlier. It is not a great change compared with a number of years ago.

Deputy Desmond.—The officer did leave?

Mr. Cromien.—He was promoted through the Top Level Appointments Committee to a post outside the Department and has returned to the Department to make his expertise available to the Department and is very welcome.

Deputy Desmond.—Is it unreasonable on my part to assume that within that period when he went and when he came back, which was a substantial period, something of a vacuum developed; that that might have been the market perception?

Mr. Cromien.—I would reject that completely, Deputy.

Deputy Desmond.—It has been said——

1246. Chairman.—Will both the Deputy and the Accounting Officer conduct their conversation through the chair?

1247. Deputy Desmond.—My final question is: is the Accounting Officer quite satisfied now that the situation as it exists with direct responsibility is the best possible situation?

Mr. Cromien.—I am certainly satisfied that the arrangements in relation to the staff engaged in borrowing are and have been satisfactory.

1248. Deputy Foley.—Paragraph 5 of the Comptroller and Auditor General’s report states that the stock and store accounts of the Departments have been examined and matters arising in the course of these examinations are referred to in paragraphs 55 and 56. Am I in order to refer to paragraphs 55 and 56?

Chairman.—A brief referral would be no harm.

1249. Deputy Foley.—There was a question of £3.7 million approximately of stocks which were supplied to the Department of Defence in July 1985 but the items had not been identified or verified or the stock counted or taken in charge by the Department of Defence. Has that position been rectified? It involves £3.7 million up to 1986.

Mr. Cromien.—I am sorry, Chairman, but I am not sure what——

1250. Chairman.—We are talking about stock and stores account, paragraph 5, and the Deputy has referred to paragraphs 55 and 56 of the Department of Defence. Since it is mentioned in this paragraph I have allowed a question on it.

1251. Deputy Foley.—Over £3 million of stocks were supplied to the Department of Defence in July 1985.

Chairman.—Are you in a position to comment, Mr. Cromien?

Mr. Cromien.—I am not really because I understood this was the concern of the Accounting Officer of the Department of Defence.

1252. Chairman.—Perhaps you will raise the matter again when we get to the Defence Vote. Are items 2 to 7 noted? Fine. Paragraph 8 of the Report of the Comptroller and Auditor General reads:

Central Fund Services

Issues under the Finance (No. 2) Act, 1981

Section 18 of the Finance (No. 2) Act, 1981 provides that expenses incurred in the investigation of proposals for agreements for the purpose of raising money for the Exchequer, whether the agreements are entered into or not, shall be charged on the Central Fund.

The charge shown in respect of Public Debt Services in the Statement of Issues from the Central Fund includes expenditure of £566,921 incurred on legal and other costs relating to a proposed agreement for the financing from non-Exchequer sources of a building project at Beggar’s Bush, Dublin being undertaken by the Office of Public Works (OPW). Negotiations in connection with the proposed agreement commenced in 1981 when expenditure of some £1 million had already been incurred and charged to the Vote for Public Works and Buildings. The proposal involved the setting up of two private companies abroad, through which the full development costs, including expenditure already incurred, would be provided under a sale and leaseback arrangement but in March 1984 it was decided not to proceed with the proposed financing arrangement.

In reply to my inquiries the Accounting Officer informed me that the proposal took the form of a temporary transfer of a leasehold on the Beggar’s Bush building whereby the financial institutions involved were to create two special purpose private companies to be the conduits for this sale and leaseback transaction. The first company was to be assigned a leasehold interest in the property and meet the full development costs of the project (£12 million sterling). It was then to assign its leasehold interest to the second company which would in turn lease the property to OPW over a forty year period, with ownership of the property reverting to OPW at the end of the lease period. Under the proposals any expenditure on the project which had been incurred or would have been incurred by OPW would be paid by the first company thereby reducing the net amount of the charge to the Vote for Public Works and Buildings and the Exchequer borrowing requirement. The proposals were an intrinsic part of the then Government’s policy to induce private sector participation in the financing of public sector projects. The objective was to fund the project without recourse to either direct Exchequer borrowings or State Guarantees. The Minister for Finance had, however, decided not to pursue the proposal when it became clear that the main advantages which would have been derived from the original proposal were for the most part no longer available. The financial proposal had been so structured as to be less expensive than comparable conventional borrowings by the Exchequer and a significant feature was the then availability of foreign tax allowances. These had, however, been withdrawn by subsequent legislative changes abroad.

Mr. McDonnell.—Paragraph 8 draws attention to an item of expenditure of £567,000 which was incurred in investigating proposals at the time for direct involvement of private sector financing in the area of the public sector capital building programme. To test these proposals a pilot project in the Office of Public Works was chosen. The cost involved arose out of the complicated legal questions which the proposals raised. My reason for drawing it to the committee’s attention is that at the end of the day those proposals did not come to fruition and in that sense the expenditure was nugatory and, therefore, I felt it necessary to draw it to the attention of the committee.

1253. Chairman.—In essence, what was proposed here was the the Beggars’ Bush office would be sold and leased back. The State expended £566,921 on that from the Central Fund and then decided not to go ahead with it. What was the reason for that?

Mr. Cromien.—The reason the State decided not to go ahead with the project was that the conditions on which the borrowing was to be made were no longer as satisfactory as they seemed earlier. In this case a British company would have taken over this building.

1254. Chairman.—What is exactly at Beggars’ Bush?

Mr. Cromien.—It was an office complex.

Chairman.—Owned by the Office of Public Works?

Mr. Cromien.—It was being built by the Office of Public Works. The complex would have been handed over to two financing companies.

Chairman.—So this is a proposal for a new building there?

Mr. Cromien.—A new building was being constructed.

Chairman.—Has it since been constructed?

Mr. Cromien.—It has, yes.

1255. Chairman.—What did your Department spend the £566,921 on?

Mr. Cromien.—On legal and financial fees exploring this novel way of financing. What was intended here was that the State would try to involve financial companies directly in investment to ease the burden on the Exchequer. This was to be done by a leasing arrangement which would have allowed the project to be financed at a better rate than the rate that was conventionally available.

1256. Chairman.—Are you happy that the expenditure of this amount of money was justified?

Mr. Cromien.—Yes. The reason the project did not go ahead was that it was based on tax concessions which were available to the British company under the British tax régime for a project of this nature. This allowed them to quote a keen price to us. During the course of the negotiations, which were complicated by the fact that the arrangement was so novel, the British tax concessions were eroded and removed so that at the end it was not worth while to go ahead with the project. We were talking earlier about Government borrowing. You look around to see are there better ways, novel ways, of borrowing. You look at various options, some of which will be successful and some not but you do not know which until you actually investigate them. Because they require detailed, sophisticated legal and financial knowledge they are costly to undertake. This was to be the first of a number of projects and if it had been successful a number of others would have developed in the same way. The cost, although large, would have been spread over quite a number of projects. As it is, it is frontloaded onto the first one.

1257. Chairman.—What caused this to fall was the question of foreign legislative changes. Was any of the £566,000 which was paid in financial and legal fees paid to foreign lawyers and foreign financial consultants or was it all spent within the State?

Mr. Cromien.—It would have been necessary to get foreign expertise on this. What we were doing was borrowing from a very specialised British market — the sterling long term fixed rate market.

1258. Deputy Crotty.—I was wondering what the novel content of this was but it has been explained to me. Would it not be appropriate that this expertise would be available to the Department from within their own resources? This is a very important part of financing. The leasing of office blocks is a very big item in Government expenditure. Should we not have expertise within the Department of Finance to deal with this situation so that the benefits of this type of operation, of leasing and so on, might be available?

Mr. Cromien.—Basically there were two elements in this. One was the leasing question and the other was persuading investors in this very specialised market to lend money to a particular vehicle which was to be created. You had to be sure that the issue was going to be a success. You had to obtain very specialised knowledge which would ensure that those who put money into the project from the British market would do so in spite of the fact that there was to be no State guarantee. This was an important element in the arrangements. That took a lot of time and expertise. It would not strike me as the sort of expertise it would be necessary to have in the Department. One would buy that expertise in the normal way and have it available for other operations. That is only one aspect. There are many other markets in London and there would not be expertise in the Department in all of them. What you must have in the Department of Finance is the ability to understand the advice of the technical people concerned and we had that.

1259. Chairman.—Would this sort of expenditure for advice be extraordinary? You would not normally spend almost £600,000 on legal and financial advice.

Mr. Cromien.—No. There were a number of novel elements in it. In the normal way if you are having a loan floated in Japan or the Swiss market it would be straightforward.

1260. Chairman.—Have you now bought in expertise as a result of this enterprise?

Mr. Cromien.—The knowledge from this operation is available to us for any future exercise of this nature.

Chairman.—It is an asset which you have acquired.

1261. Deputy Colley.—Let me refer to a remark made by Mr. Cromien about the reason the project was abandoned. It seems that during the investigations the tax relief which was available to a company in Britain, who presumably were going to advance the money, was eroded or disappeared. It is strange that that could have happened without foresight, without those who were involved realising that this was at least a possibility. Perhaps Mr. Cromien might like to comment?

Mr. Cromien.—You could not guess what a British Chancellor would do in relation to his tax arrangements.

Chairman.—You could not even guess what an Irish Minister would do.

1262. Deputy Colley.—It was obviously a very novel project and if it had come off it would have been obviously to the benefit of the State but it was also obviously a risky one. It was depending very much on the climate in Britain. I wonder how much attention was paid to that? On the basis of the money being paid for consultancy and preparatory work only it is a very large sum.

Mr. Cromien.—You have to assess the possibilities and make your decision at the time. If the Chancellor had postponed his moves until later it would have been successful. It is impossible to predict the changes in taxation arrangements. These arrangements had been there for quite a period. The Chancellor, presumably for budgetary reasons, decided to change the structure of tax and that could not have been easily foreseen.

1263. Chairman.—Would the Deputy like to suggest that we call the Chancellor for the Exchequer? In the circumstances we will note this paragraph, although obviously there will be concern in the committee with that level of expenditure. Paragraph 9 of the report of the Comptroller and Auditor General reads:

Post Office Savings Bank

The charge of £14,013,296 in respect of Annuities, Pensions, Salaries, Allowances, Returning Officers’ expenses and Miscellaneous includes a sum of £1.8 million issued from the Exchequer under the Finance Act, 1983 to meet a deficiency which had arisen on the operation of the Post Office Savings Bank (POSB) up to 31 December 1983.

Section 13 of the Post Office Savings Bank Act, 1861, as amended, requires that the annual accounts of the Bank be submitted to me for audit. The transactions of the POSB are accounted for within the framework of the accounting system for Post Offices. When the Department of Posts and Telegraphs was responsible for the Postal Service my audit of the POSB was carried out in conjunction with the audit of the accounts of that Department.

Under the legislation setting up An Post and Bord Telecom Éireann on 1 January 1984 An Post became responsible for the management of the POSB. This legislation provides for the appointment of auditors by the companies to audit their Accounts but did not amend the 1861 Act regarding the audit of the Accounts of the POSB.

In this changed situation special arrangements will have to be made, with the agreement of all parties concerned, to enable me to continue to exercise my statutory function to audit these Accounts and in this context the feasibility of my continuing to carry out the audit of the POSB may indeed become a relevant issue.

Accounts for 1984 have not, as far as I am aware, been prepared as yet.

Have you anything to add, Mr. McDonnell?

Mr. McDonnell.—There is a paragraph in my report each year on the Post Office Saving Bank but this one is slightly different. The first section reports on the issue of £1.8 million from the Exchequer to meet a deficiency which had arisen on the operation of the savings bank up to December 1983. I think I am right in saying that this is the first time that such an issue was called for and enabling legislation was required to put it into effect. In my previous report in 1983 I had analysed the make-up of this deficiency. It arose because after allowing for net capital gains or losses on the sale of securities, effectively the interest earned on investments was not sufficient to cover the interest paid and credited to depositors and to cover management expenses. There were some deficiencies in later years but the situation has now been reversed and the fund is showing a surplus on its operations.

In the second section of the paragraph, I referred to the necessity to make revised arrangements to enable me to exercise my statutory function to audit the Post Office Saving Bank’s accounts because An Post itself is not audited by me. My difficulty here is that the transactions of the Post Office Savings Bank must be inextricably linked into the other cash transactions of An Post and this creates practical difficulties for me. It also causes some difficulties for An Post’s own auditors who are auditors in the private sector because they have to be satisfied about the overall cash transactions, including those of the savings bank. As I say, that was a practical difficulty on my own side. Since the date of my report I have received the accounts for 1984 and 1985. As an interim measure I made informal arrangements to carry out the audit for 1984 and 1985 by relying heavily on the work of the internal auditor which had been carried out to the satisfaction of the company’s auditors. I am continuing to have discussions with the auditors of An Post as to how best to integrate my audit of the Savings Bank with the audit of An Post as a whole. It is a practical audit difficulty, as I am sure the Chairman will well appreciate.

1264. Chairman.—Have you any comment to make, Mr. Cromien?

Mr. Cromien.—I have no comment to make on the difficulties the Comptroller and Auditor General may have. That is a matter between him and An Post but if there is anything the Department of Finance can do to help, we will do so.

Chairman.—Is the Comptroller and Auditor General happy with that?

Mr. McDonnell.—When An Post were set up, auditors were appointed for An Post. Under the 1861 Act, I am still obliged to audit the accounts of the Post Office Savings Bank.

1266. Chairman.—Are you able to carry out the audit?

Mr. McDonnell.—I will have to work out the most practical way of doing it. As I said, the auditors of the company were uneasy about their own position in not auditing the totality of the cash transactions of the Post Office. If you look, for instance, at the return a local post office makes, it has very detailed itemised headings for all of its cash transactions and included in it are the Post Office Savings Bank moneys. They are not separated by a local post office. It accounts for cash on a total basis and that creates a practical difficulty. In 1984 and 1985 I carried out a limited test check of transactions. As I have already said, I made an informal arrangement with the company’s auditors and we looked at the result of the work of the internal auditor. My taking cognisance of the audit work of the company’s auditors does not relieve me of responsibility. I cannot say, for argument’s sake, if something untoward were to happen that I took the report of the company’s auditors and that relieves me of responsibility. Any auditor does so at his own peril. He takes the report, the certificate or the results of the work of another auditor. In a practical sense there seems to be overlapping to some extent in that I have to examine the cash transactions of a post office to extract the Post Office Savings Bank side of things while, at the same time, the company’s auditors have to examine the cash transactions of a post office because they are concerned with the totality of An Post’s operations.

1267. Chairman.—When did you last audit the accounts of the Post Office Savings Bank?

Mr. McDonnell.—We carried out the audits for 1984 and 1985 on the basis of an informal arrangement with the company’s auditors and my utilising the results of their work at my own discretion. I am continuing to discuss with them how best we can come to some formalised arrangements about this. That discussion is still ongoing.

1268. Chairman.—Is the Comptroller and Auditor General satisfied that he will be able to find some formula through which he will be able to exercise his constitutional and legal duties in auditing this fund?

Mr. McDonnell.—I hope to but, as I say, there is this untidiness about the audit of An Post. I am not suggesting that I should not have the responsibility. On the other hand, the legislation setting up An Post provided for the audit of An Post, but it did not make any reference whatsoever to the Post Office Savings Bank. I think I am right in saying that it did not make any reference. Whether that was deliberate or not, I do not know.

1269. Deputy Naughten.—Surely, this is highly irregular and is obviously an error which was made in the drafting of the legislation for the setting up of An Post. We should ask the Comptroller and Auditor General together with the Accounting Officer for the Department of Finance, to try to work out some formula which will legalise the position as soon as possible.

1270. Chairman.—We have five levels of things we have been using in the past. We will mark this one for further information to be forwarded by the Comptroller and Auditor General when he has teased the matter out with the auditors of An Post when we will see if we can come to some reconciliation of the problem. It is a technical matter and it needs to be addressed.

1271. Deputy Foley.—Am I right in thinking that no audit has taken place of the Post Office Savings Bank?

Chairman.—No audit by the Comptroller and Auditor General in the normal way has taken place.

Mr. McDonnell.—I have audited both 1984 and 1985 and I take full responsibility for the manner in which I have exercised my audit. I have taken advantage of the work done by the auditors of An Post. We have got the accounts for 1986 for the Savings Bank. We have not yet completed the audit. We are still discussing with the auditors of the company how best to integrate our work.

Chairman.—We will mark that for further information to be forwarded.

1272. Deputy Dempsey.—In relation to the first paragraph regarding the £1.8 million deficit, could that deficit be explained a little bit further? It strikes me as being very strange that a savings bank would have a deficit of that nature?

Mr. Cromien.—Basically what is involved here is that the Post Office Savings Bank is the main vehicle for operating the gilt market. It is different to a normal commercial fund in that the rate of interest paid from the fund to depositors is not determined by the performance of the fund. That rate is fixed commercially and is backed by the Exchequer. The depositors’ money is taken into the fund. It is then available to operate the gilt market. When interest rates rise the price of Government securities falls. Therefore, when securities are sold as part of the fund’s operations capital losses may arise. When that process is reversed and interest rates come down, you get a capital gain. That has been the pattern during the last few years. I do not think it has any significance but to emphasise to depositors that their interest rate was guaranteed. There is an arrangement under statute that deficits arising on the fund can be met from the Exchequer.

1273. Deputy Dempsey.—What you are saying is the amount paid out to depositers is guaranteed but the income into that fund can fluctuate.

Mr. Cromien.—That is right, Deputy, on the basis of its operations as part of the gilt market.

1274. Chairman.—Would the Comptroller and Auditor General agree that he has not audited this fund in the way that he would audit a Departmental fund or has audited this fund in the past?

Mr. McDonnell.—When the Post Office Savings Bank was part of the Post Office and there was the Post Office Vote, my audit of the Savings Bank was part of my overall audit of the Post Office. We have changed our audit approach. That does not necessarily mean that it is any less effective.

1275. Chairman.—Is there any precedent for dovetailing with private auditors?

Mr. McDonnell.—Not on my part so far. But perhaps this is a useful exercise in that respect.

1276. Deputy Colley.—May I ask the Comptroller and Auditor General does he perceive a problem arising if, for instance, some fraud were to be perpetrated within the Post Office Savings Bank in a year in which he could only do a partial audit or a joint audit? Does he foresee difficulties arising for himself about the reporting on that? Perhaps legislation is needed?

1277. Mr. McDonnell.—I would not see any difficulty reporting an instance of fraud which might come to my notice, either directly in the course of my own test examinations or perhaps as a result of the examinations carried out by the company’s auditors. I am not saying that a fraud could not happen and might not be discovered either by me or by the other auditors.

1278. Deputy Colley.—Perhaps you misunderstand me. Would there be difficulty not in reporting it but in investigating it?

Mr. McDonnell.—I would not see any difficulty in investigating it either, if I were aware of a situation where there was a fraud. The difficulty is that, first of all, the auditors in the private sector who are auditing the company’s account are auditing the totality of the Post Office transactions. I have to come along then and try to extract transactions and do an audit on the Post Office Savings Bank and to me it is a practical difficulty and it seems to be perhaps unnecessarily overlapping. I visualise it, for instance, from the point of view of the client, that is to say, An Post. They have their own auditors and yet they have to account to me separately.

1279. Chairman.—We have covered that at great length and I think we have already marked it for further information to be forwarded. We will move on to paragraphs 10 to 13 which we will take together if the committee agrees. They read as follows:

Issues under the Irish Shipping Limited Acts, 1947 to 1982

Reference was made in paragraph 77 of my previous Report to the Government decision in June 1980 that Irish Shipping Limited (ISL) should place an order with Verolme Cork Dockyard Ltd. for the construction of a 71,000 tonne bulk carrier — the Irish Spruce — and to the later decision in December 1982 that the construction cost of this vessel would be financed by means of a leasing arrangement. Under this arrangement the vessel, when built, was to be acquired by a subsidiary of a Japanese finance company for £27.8 million (the estimated final cost) and leased back for use by ISL under a charterhire agreement providing for the payment over a period of 15 years of half-yearly instalments of yen 614 million, approximately to be shared between ISL and the State, and for ownership of the vessel to revert to a subsidiary of ISL at the end of the lease period. The charterhire agreement also provided that, in the event of default by ISL in meeting its liability for the charterhire payments, it would pay to the lessor the stipulated loss value of the contract (i.e. a specified amount related to the number of instalments unpaid). In addition the agreement provided that ISL would assume liability for and agree to indemnify the lessor against all costs, liabilities, losses, expenses, damages, claims, etc. arising in connection with the use of the vessel during the charterhire period.

The lessor required a State guarantee in respect of all sums due by ISL under the charterhire agreement. To meet this requirement the Irish Shipping Limited Act, 1982 was enacted and, on 11 January 1983, the Minister for Finance guaranteed under Section 2 of the Act all sums due in respect of the 15 year charterhire agreement entered into by ISL with Jura Shipping Limited (a wholly owned subsidiary of Orient Leasing Limited, Tokyo).

The liquidation of ISL in November 1984 constituted an act of default under the charterhire agreement. Prior to the liquidation, £4,409,540 had been paid to Jura Shipping Limited in respect of the State’s share of the first three half-yearly instalments (totalling £6,841,747) due under the charterhire agreement and £2,684,865, being the amount by which the final cost of the vessel exceeded the amount financed under the sale and leaseback arrangements, had been paid to Verolme Cork Dockyard Ltd. Delivery incentives totalling £1,625,000 were also paid to the Dockyard (see also paragraph 51). These amounts were charged to the Votes for Communications and Industry, Trade, Commerce and Tourism in 1983 and 1984. Following the liquidation, payments totalling £2,824,274 have been made from the Central Fund in respect of the Irish Spruce as follows:— £231,931 on 24 December 1984 and £144,700 on 22 January 1985 in respect of repair, crewing, supplies, port charges and other related costs arising subsequent to the liquidation and £2,447,643 on 10 January 1985 in respect of the full charterhire instalment which, but for the liquidation, would have become due on that date.

I was concerned that the terms of the guarantee of 11 January 1983 in respect of the Irish Spruce included some unquantifiable elements and that, because of this, the guarantee might not have been definitively limited to the £50 million prescribed in the Act and therefore might not have been validly given. I had also noted that after this guarantee had been given the 1982 Act had been availed of in May 1984 to provide two further guarantees (see following paragraph).

Furthermore, I was concerned that the payments made after the date of liquidation i.e. those made in December 1984 and January 1985, might not have been properly chargeable to the Central Fund under the authority of the 1982 Act. In these circumstances, I asked the Department of Finance to obtain clarification of the legal status on the Irish Spruce transactions.

This legal advice obtained on 26 February 1985 indicated that—

(a) notwithstanding the fact that a limit of £50 million was not stipulated in the guarantee of 11 January 1983 in respect of the Irish Spruce and that the guarantee provided for some unquantifiable elements, the Minister’s liability under that guarantee was limited to £50 million by virtue of the reference in the guarantee to Section 2 of the Irish Shipping Limited Act, 1982 and the guarantee therefore explicitly incorporated that limit and was valid for a maximum amount of £50 million,

(b) once ISL had gone into liquidation, there was no statutory basis for continuing to pay the charterhire instalments which would in normal circumstances have fallen due and the only circumstances in which the payment of £2,447,643 on 10 January 1985 could be paid from the Central Fund was if it could be correctly said to be a payment on account of the stipulated loss value recoverable under the guarantee, and

(c) the payments made in respect of repair, crewing, supplies, port charges and other related costs cannot be said to have been made by the Minister on foot of any liability and their payment from the Central Fund was not authorised by the 1982 Act.

With regard to the payment of £2,447,643 the Accounting Officer has since informed me that, following the liquidation of ISL in November 1984 and the unilateral termination of the bareboat charter of the Irish Spruce by the vessels owners Jura Shipping Limited, a demand was made on the Minister for Finance for the full stipulated loss value. No further lease payments could be made as quite clearly from that date no lease existed. The disengagement from the charter could not be effected in a short time and therefore the owners requested, for their own cash management reasons, a payment corresponding to the half-yearly charterhire payment. The Accounting Officer stated that the payment made on this basis, therefore, could only be regarded as a payment on account of the stipulated loss value and would be taken into the reckoning, as such, when a final settlement was being made under the guarantee.

I have asked whether the owners have formally agreed that the full amount will be treated as a part payment of the stipulated loss value at the date of liquidation which I understand was of the order of £39 million, excluding accrued interest.

The Accounting Officer also informed me that, following the liquidation and the disclaiming of obligations under the charterhire agreement by the liquidator, the Minister for Finance had to protect the State’s interests in the Irish Spruce by ensuring that urgent care and maintenance costs be met. These interests derive from the Minister’s rights of subrogation when the payments under the guarantee are met in full. Agreement was reached with Jura Shipping Limited that essential costs would be met by reimbursement from the Exchequer. The advice of the Attorney General was sought before any payments were made and on 24 December 1984 it was confirmed that the Minister for Finance had the power under the Irish Shipping Limited Act, 1982 to meet these expenses from the Central Fund. The Accounting Officer stated that the further legal advice of 26 February 1985 obtained at my request did not confirm this advice but had instead indicated that these costs were not liabilities under the guarantee and therefore not covered by the 1982 Act. All subsequent payments for essential maintenance costs had therefore been met from subhead V of the Vote for Communications and arrangements would be made to regularise the first two maintenance payments totalling £376,631 and to reimburse the Central Fund.

Up to the date of this Report a total of £1,132,725 has been paid from the Vote for Communications in respect of essential maintenance costs etc.

On 24 May 1984 the Minister for Finance guaranteed a total of 12.5 million dollars (approximately 25 per cent) of the liability of Irish Shipping Limited under its guarantee of the borrowing of two of its subsidiaries in connection with the purchase by them of the MV Slaney Venture and MV Celtic Venture. At the time these guarantees were given by the Minister, legal opinion available to the Department of Finance indicated that the statutory authority required for them was provided by Section 2 of the Irish Shipping Limited Act, 1982. This Act had, however, already provided the authority for the guarantees given in respect of the Irish Spruce in January 1983 (see previous paragraph). When giving the guarantees in May 1984 the Department of Finance confirmed to the lenders that the Minister had the power to do so under the 1982 Act and that the limit of his power was not being exceeded.

Following the liquidation of ISL in November 1984 payments totalling £12,510,008 were made from the Central Fund on 24 December 1984 on foot of the guarantees given in respect of the Slaney Venture and Celtic Venture.

The legal advice of 26 February 1985, referred to in the previous paragraph, stated that the Irish Spruce guarantee was valid up to the amount of the statutory limit. As this advice appeared to me to indicate that the Irish Spruce guarantee had already (in January 1983) exhausted the full amount available under the 1982 Act before the guarantees in respect of the Celtic Venture and Slaney Venture were given I asked whether, in the light of this later legal advice, proper statutory authority could be said to have existed for these two guarantees.

The Accounting Officer has informed me that the statutory authority for the guarantees given in May 1984 in respect of these two vessels was Section 2 of the Irish Shipping Limited Act, 1982 and that the use of this provision was in accordance with the advice of the Attorney General. I have, however, asked that this advice be re-considered in the light of the comprehensive legal opinion dated 26 February 1985, since this legal advice was being accepted in the case of the Irish Spruce as superseding the legal advice originally given in that case.

In addition to his authority under the Irish Shipping Limited Act, 1982, as referred to in the preceding two paragraphs, to guarantee certain contractual liabilities of ISL, the Minister for Finance is empowered under the Irish Shipping Limited Act, 1947, as amended, to guarantee the repayment of principal up to a limit of £45 million and interest thereon in respect of any moneys borrowed by ISL with his consent. Under this Act guarantees were given by the Minister for Finance in May and July 1984 in respect of a total of £14 million and U.S. $13 million borrowed by the company from two financial institutions to finance its working capital requirements. These comprised guarantees given in respect of additional borrowings by the company at that time and the renewal of earlier guarantees in respect of existing borrowings renegotiated.

Following the liquidation of ISL, payments totalling £4,457,713 have been made to date from the Central Fund on foot of these guarantees. Of this amount, £1,791,312 represents principal and £2,666,401, including £169,373 charged to the Central Fund in 1984, represents interest. Liabilities still outstanding under these guarantees at the date of this Report amount to £24.5 million approximately.

Sums advanced out of the Central Fund on foot of guarantees given under the Irish Shipping Act, 1947 and Irish Shipping Limited Act, 1982 are repayable by ISL within one year and two years, respectively, and, if not so repaid, must be voted by the Oireachtas as a repayment to the Central Fund but remain as a debt due to the Minister by the company. I understand that the question of making a claim on the liquidator in respect of the sums advanced is being considered.

Have you anything to add, Mr. McDonnell?

Mr. McDonnell.—As the Chairman says, they are all related to the same subject. It is quite a lengthy section of my report and they all deal with matters arising from the liquidation of Irish Shipping. The first two, Nos. 10 and 11, concern the Minister’s powers under the 1982 Act to give guarantees and to pay care and maintenance costs of the Irish Spruce out of the Central Fund following the liquidation. The third paragraph really is for information and sets out other liabilities of the Minister under the 1947 Act and the fourth paragraph, No. 13, indicates that there are some accounting arrangements to be taken care of and also refers to the possibility of the Minister making a claim on the liquidator. In regard to my first point, it seemed to me initially that the Minister had given an open ended guarantee in respect of the Irish Spruce in January 1983. I think dates are important in the context of what I am going to say, even though the 1982 Act had set a limit of £50 million on the amount he could guarantee. The reason I thought that the guarantee might be open-ended was that there was a charter hire agreement involving this vessel as between the Japanese owners and Irish Shipping and under Article 17 of the Charter Hire Agreement the Minister guaranteed, in addition to the amounts due in respect of the capital costs of the vessel, liabilities which might arise from every conceivable risk relating to the ownership and operation of the vessel. That seemed to me to be an unquantifiable amount. I was concerned, therefore, that the guarantee was open-ended while the limit was £50 million. However, Senior Counsel, whose advice was obtained at my request in February 1985 by the Department of Finance, assured me that because the guarantee agreement referred to the Act the guarantee would have to be interpreted as incorporating the limit of £50 million and that effectively then no matter what happened that was the upper limit which the principal creditors could recover. That seemed to be fine except that this legal advice, while solving my problem in regard to the open-endedness of the Irish Spruce guarantee, raised a further problem in regard to later guarantees — and I said dates were important — given in May 1984 for two other ships, the Slaney Venture and the Celtic Venture. It appeared to me then that the limit under the Act had been reached with the Irish Spruce guarantee and that, therefore, there was nothing left to cover the guarantees on the other two ships. I might say, in passing, that if you read the Dáil debates about the 1982 Act you will see that it was enacted for the purpose of the Irish Spruce only. As I said in my report, the Accounting Officer told me that when the Minister gave the guarantees for the later two ships, that was in May 1984, he had the Attorney-General’s opinion to support this. But it seemed to me that the comprehensive advice obtained at my request in February 1985 was central to the whole issue of the total being guaranteed so I asked him to clarify it further because it seemed to me there was a conflict. Since my report he has told me that when giving his advice in February 1985, that is the comprehensive advice, the Senior Counsel only concerned himself with the Irish Spruce and did not address the question of the two later guarantees. I am not sure if, in fact, he was briefed on their existence at all. Subsequently, he was asked about the later guarantees and he advised that, and I quote:

In order to comply with section 2 of the 1982 Act, the Minister is obliged to calculate, before giving any particular guarantee, how much of the statutory fund available in the section had already been used up in pre-existing guarantees.

I would not quarrel with that. He went on to say that this involves calculating the amount which at any one time he may be liable to pay on foot of pre-existing guarantees and that — and this is the crunch — as the definite and ascertained liability on the Irish Spruce in May 1984 when he was giving the later guarantees was only £30 million — and that is the amount due for the capital cost — the Minister could give the guarantees for the other two vessels, the Slaney Venture and Celtic Venture, because he had £20 million to play around with. The Accounting Officer said that this advice was supported by the Attorney-General. I have to say that I have difficulty with this because — and I said dates were important — it must be remembered that at the time he was giving the two guarantees for the Slaney Venture and the Celtic Venture in May 1984, Irish Shipping was a going concern. I agree entirely that the liability in respect of the capital costs of the Irish Spruce was about £30 million. The Minister’s guarantee of all the extra risks which were undefined, unquantified, seem to me to possibly exceed that amount and they could have conceivably arisen at any time. I have to say also that in reading the Counsel’s opinion I got somewhat confused because even in his latest opinion when he was saying that the Minister could guarantee the Slaney Venture and Celtic Venture borrowing, he also said that the Irish Spruce guarantees when given involved a potential liability for unascertained future sums which might well have exceeded £50 million. There is a serious point of principle involved as I see it. I had always understood the legal position to be that in determining whether further guarantees could be given in any case the relevant issue was the amount already guaranteed vis-à-vis the statutory limit, irrespective of whether those guarantees might be called in or not. I finally put this to the Department of Finance and they agreed with my view on that point of principle but they said that the question is now considered to be of little relevance to the Irish Spruce situation. Indeed, it was said in the course of some of the correspondence with the legal people that the question was academic in the case of the Irish Spruce because the whole affair had been overtaken by the liquidation. All I can say about that is that it may be academic now but it was not academic when the Slaney Venture and the Celtic Venture guarantees were given in May 1984 when Irish Shipping was a going concern. From my point of view it is certainly not academic for the future in regard to ensuring that guarantees given are kept within the statutory limits. My second point I referred to in the paragraph was about the charging of care and maintenance costs on the Irish Spruce to the Central Fund. You will note that the Department had charged about £376,000 of care and maintenance to the Central Fund. Subsequently legal advice said that that should not have been done and that was adjusted. I would like to add that the total amount eventually paid out in care and maintenance and legal and other costs associated with the eventual sale was just under £3 million, £2.89 million. Paragraph 12, which is for information, talks about the other borrowings of Irish Shipping under the 1947 Act the working capital borrowings. I think I am right in saying that about £25.75 million has been paid out from the Central Fund on foot of those guarantees and there are some liabilities still to be met. The final paragraph concerns the repayment to the Central Fund of sums advanced on foot of the various guarantees. Their repayment is legally a liability of Irish Shipping and if they are not met they must be voted by the Dáil. I understand the Minister has not made a claim on the liquidator because he is precluded from doing so under certain other agreements he entered into in regard to the Slaney Venture and Celtic Venture but neither has the money been voted so that is an accounting end which has to be tied up. It is a question of bringing the whole thing to the notice of the Dáil in regard to what has been advanced from the Central Fund. I apologise for going on so long. I saw no way out of that because it is quite complicated and I felt it was better to take the four paragraphs together.

1280. Chairman.—That is a rather long but very necessary introduction. Mr. Cromien, you may take it the committee feels with regard to ensuring that guarantees are kept within their statutory limits they would not like to see any repetition of that particular type of activity. It appears that you did exceed or at least leave yourself open to liabilities which exceeded the statutory limit of the guarantee. What have you to say about that?

Mr. Cromien.—I think in this we are in the hands of our legal advisers, who tell us that the Minister was entitled to give this particular guarantee in respect of the Venture loans. We have gone twice to our legal people following the Comptroller and Auditor General’s comments in the paragraphs. We consulted the Attorney General’s office and they obtained further advice from Senior Counsel in June 1986, which the Comptroller and Auditor General has mentioned, to the effect that the Minister was entitled to take the view that the aggregate amount of moneys which he may at any one time be liable to pay meant in the case of the Irish Spruce guarantee the definite and ascertained liability at that specific time.

1281. Chairman.—In May 1984 Irish Shipping Limited was still a going concern. Is that not the central point?

Mr. Cromien.—Yes, that is right. Basically, the liability as ascertained was £30 million and that was a reasonable judgment to make that, as Senior Counsel said, there was a pool of an additional £20 million available for further guarantees.

1282. Chairman.—You did not exceed the £50 million at any given time but you left yourself open to exceeding it.

Mr. Cromien.—It depends on how it could be exceeded. There is another interesting aspect of this. Senior Counsel advised that the guarantees continued to be valid even if the amounts which subsequently had to be paid exceeded the £50 million. There is a particular example of that in relation to loans made in foreign currency. The Irish Shipping statute, like those for other semi-State bodies where guarantees are given in respect of foreign borrowing, provides that you calculate the amount of the guarantee at the time in Irish currency even though there is always the possibility of Irish currency falling in value in relation to the foreign loan, in this case a yen issue. The Dáil in passing this Act would have accepted that the guarantee was the guarantee at that particular date in relation to the foreign exchange element. That would seem to me to throw a helpful light on this matter.

1283. Chairman.—Did you not leave yourself open to exceeding the authority of the Dáil. If the worst had come to the worst you could have exceeded guarantees of £50 million for which you had no authority from the Dáil. Is that not the central point?

Mr. Cromien.—Take the point of the exchange rate effect. In that case you have to exclude that particular element understandably because otherwise the Minister on day one could give a guarantee and then because of a fall in the value of the Irish pound vis-à-vis the foreign currency would be over the limit. This, in fact, happened. The value of the guarantees increased in terms of Irish currency because of the fall in the value of the Irish pound vis-à-vis the yen.

1284. Chairman.—We are advised by the Comptroller and Auditor General, certainly implicit in the advice, that the State could have been open to further guarantees which were in excess of the amount of guarantees given by the Dáil. If that were the case this committee would have to express serious concern. It certainly would not want to see a repetition. It seems clear, at least on one interpretation, that that was the case.

Mr. McDonnell.—In relation to the currency fluctuation which might take the actual amount in Irish currency over £50 million in any particular situation that contingent liability was covered in the Act in section 2(4). You understand my difficulty, Chairman, if I read something for you. When I asked initially was the guarantee on the Irish Spruce openended and could it have exceeded £50 million, Counsel said:

In my opinion the guarantee is perfectly valid and enforceable against the State. It is not an openended guarantee at all. It does not fail to stipulate any limit. Indeed, it most explicitly incorporates the limit which is designated in section 2 of the Act of 1982, £50 million, by referring to that provision in the opening words of clause 101 of the guarantee.

This guarantee was valid at least for a maximum amount equivalent to the amount of the statutory limit.

That was the Irish Spruce guarantee. When he was asked specifically if the other two guarantees were valid bearing in mind that that was a £50 million guarantee in his interpretation, he went on at length and he finally said:

But if in those circumstances the Minister had in fact exceeded the statutory fund by issuing the two additional guarantees, then as an internal accounting matter the subsection would no longer have constituted authority for committing Departmental funds for the liability and a new authority would be required.

It is not an internal accounting matter. That is the point that is of concern to me. What he describes as an internal accounting matter I see as a question of the authority of the Dáil. I think he has used that expression because in earlier opinions he has talked about, and the thrust of some parts of his advice seems to be related, to whether the State could perhaps have got out from under the guarantees. He seemed to be concerned with the ability of the creditors actually to enforce the guarantees. I am not disputing that at all. I think that even if the Minister had inadvertently guaranteed more than £50 million the creditors would probably have been able to enforce it. What I am saying is, did the Minister have the authority to give the guarantees he gave, irrespective of what the rights of the creditors might be?

1285. Mr. Cromien.—I appreciate the concern of the Chairman and of the Comptroller and Auditor General in this matter and I note from what you said earlier that you are concerned that this should not recur. Basically, we have been advised by Senior Counsel, and the advice has been endorsed by the Attorney General, that the Minister was justified in his actions on that occasion.

1286. Chairman.—But the advice we are getting from the Comptroller and Auditor General, who is the constitutional officer of the House, is that this situation is not as rosy as the interpretation you are putting on it might have us believe. From an internal accounting point of view, in other words, from the control of the Dáil’s point of view which is our duty to concern ourselves with, it is something which is not just an academic matter which happened in the past. It is a serious matter of proper accounting and proper authority.

Mr. Cromien.—The reference to the matter being academic was a comment by other legal people; it was not my comment on it. The thought behind the Senior Counsel’s approach is that at the time the Minister was entitled to make a reasonable judgment of what his exposure was under the guarantee. That left aside any remote and unlikely events. I appreciate your point where you say that those remote and unlikely events could, in fact, have happened and, therefore, it could at some stage have gone over the limit for the Dáil but our advice is as it is from Senior Counsel.

1287. Deputy Desmond.—Does Mr. Cromien have available the total Exchequer disbursements up to the point of liquidation in November 1984? There are a series of payments stipulated in the report but is there a total figure available from the Department? Secondly, the total Exchequer disbursements from the date of liquidation of I.S.L. in November 1984 to date?

Mr. Cromien.—I do not think I have an answer to the Deputy’s first question but I could give him an estimate on the second.

1288. Deputy Desmond.—What are the liquidation costs roughly?

Mr. Cromien.—The total payments from the Exchequer were roughly £90 million but of that £39 million would have arisen anyway as a result of the Exchequer share of the Irish Spruce cost.

Deputy Desmond.—The construction cost?

Mr. Cromien.—The lease arrangement was that the Exchequer agreed to pay 75 per cent of the leasing costs of the ship but agreed to underwrite Irish Shipping’s 25 per cent. The 75 per cent would have been paid anyway.

1289. Chairman.—In which case we would have had an asset i.e., a ship or at least a share in the ship.

Mr. Cromien.—At the end of 15 years you would have a ship but it was sold for £3 million in 1986. In another 13 years the ship would have had very little value.

Deputy Desmond.—How old was the ship at that stage?

Mr. Cromien.—I think it was three or four years old.

1291. Deputy Desmond.—Is it not an extraordinary development in the history of State involvement in shipping that at so recent a time, 1982, an agreement would be entered into and at the end of 1985-86 effectively a total involvement of £90 million would have been disposed of for £3 million, of necessity? I am sure you would agree that there was no other option but to do that but do you not regard the saga as quite extraordinary?

Mr. Cromien.—The £90 million is not related to the £3 million. The figure for the cost of the ship was £32 million and it was sold for £3.6 million.

Deputy Desmond.—Would the witness not agree that the Irish Spruce was a substantial part of the liquidation of the company?

Mr. Cromien.—It was an element of the cost arising out of the liquidation.

1293. Deputy Desmond.—Would it be your view that the Minister for Finance, who was acting on the advice of the Minister for Communications and the Accounting Officer in that Department, that where the Minister for Finance is obliged to give such guarantees that he should have a very effective internal accounting monitoring departmental control over what was happening in such a company?

Mr. Cromien.—Yes.

1294. Deputy Desmond.—Is it not a matter of concern to you and to members of the Committee that, through no fault of the Department of Finance I would stress, the capacity of the Department to monitor such a major investment and guarantees on a day-to-day basis, particularly the disastrous charter arrangements the company entered into, without the knowledge of the Department of Finance, there was a great need and there still may be a great need in relation to other ventures that the Department should have either a very thorough involvement in the boards of those companies or a very exceptional competence within its Department to monitor that development? Are you gravely concerned about it?

Mr. Cromien.—I would agree with the Deputy that what happened in this case was regrettable in that these charters were entered into without the knowledge of the Department of Communications or the Department of Finance. More recently, the Department of Finance has tightened its control of expenditure in these areas and the Departments concerned have tightened their controls.

1295. Chairman.—Have you any idea of what the State’s exposure would have been if there was not the liquidation of Irish Shipping?

Mr. Cromien.—I think that raises the question why was Irish Shipping liquidated? The reason at that time was that reputable international shipping brokers advised the Government that on the likely trend of tramp rates the Exchequer was going to be faced by 1989 with a bill costing about £200 million. That would have been the exposure if the decision had not been taken to liquidate Irish Shipping. Since that date later figures suggest that that figure was under-estimated because tramp rates deteriorated further.

1296. Chairman.—It was £250 million?

Mr. Cromien.—No, about £220 million is the latest estimate I have.

1297. Deputy Naughten.—So, basically what you are telling the committee is that it would have cost £220 million to have kept the company going until——

Mr. Cromien.—1989.

Deputy Naughten.—Is this because of bad leasing agreements entered into by Irish Shipping?

Mr. Cromien.—Yes. They were committed to long-term agreements at a time when tramp rates had fallen extremely low.

Deputy Naughten.—So, another total mismanagement of the company.

Mr. Cromien.—I am not in a position to comment on that but it is a question of fact. What happened at the time was that charters were entered into and the result was this very severe bill that the Government would have been faced with.

1298. Deputy Naughten.—Are there other guarantees given by the Government to companies similar to Irish Shipping where the State could be left wide open to claims for vast sums of money as in the case of Irish Shipping?

Mr. Cromien.—I really could not answer that question offhand.

1299. Deputy Desmond.—Had the Minister for Finance no representative on the board of Irish Shipping?

Mr. Cromien.—No, nor did the Minister for Communications.

1300. Deputy Desmond.—Do you not regard that particular policy development — I know you are precluded from commenting on it — as quite extraordinary?

Mr. Cromien.—I am precluded from commenting on it if it is a policy matter.

1301. Deputy Desmond.—Would it be your wish as an Accounting Officer that at least you would have some prospect of a reporting operation, either from the Department of Communications or from your own Department?

Mr. Cromien.—Yes. It is important that the Department of Communications and or the Department of Finance should keep a very close watch on the operations of State bodies in this way.

1302. Chairman.—Is that the case with every other State body?

Mr. Cromien.—As I mentioned, in recent years controls on State bodies have been tightened. We now require detailed corporate plans from them and we work closely with the individual Departments to supervise them.

Chairman.—Does any other Deputy want to comment on this matter?

1303. Deputy Naughten.—It is absolutely frightening that the State should be left open to these types of huge claims by any semi-State company without having representatives of the Department of Finance on the board. It is one of the things that this committee must be concerned about. The Accounting Officer has told us he does not know if there are other companies in which the State is open to huge liabilities and this committee should be extremely concerned about this.

Mr. Cromien.—I just do not have that information with me because I did not anticipate that question. It is not that it is not known in the Department of Finance.

1304. Deputy Foley.—Prior to Irish Shipping going into liquidation, what was the position for the three accounting years previous to that?

Mr. Cromien.—I do not have that information to hand. This may raise certain issues of shipping policy which might be more appropriate to the Secretary of the Department of the Marine. I am afraid I am not briefed on that matter.

1305. Deputy Foley.—Were they in a lossmaking situation?

Mr. Cromien.—My recollection is — I would have to check this — that they began to lose money in the two or three years preceding their closure. Those losses continued to grow and it was discovered that this exposure was there which was unacceptable to the Government in relation to the continuation of Irish Shipping.

1306. Deputy Foley.—Was it not surprising at that stage that no effort was made to get a representative on the board of Irish Shipping?

Mr. Cromien.—This is in relation to policy and I am not able to comment on it.

1307. Chairman.—With regard to the second point made by the Comptroller and Auditor General that payments totalling £376,631 were charged originally to the Central Fund and later charged in the 1986 Vote for Communications, is this a device for getting around the authority of the Dáil or why was it done in this way?

Mr. Cromien.—We were advised by our legal representatives at the time that this could be done in this way. When the Comptroller and Auditor General inquired about it we checked again and it was discovered by our legal advisers that the authority did not cover this payment.

1308. Chairman.—Was the legal advice wrong?

Mr. Cromien.—Yes, the legal advice was changed the second time.

1309. Chairman.—Therefore, you picked it up later in the Communications Vote.

Mr. Cromien.—And we acted immediately to rectify the position.

Chairman.—Does any other Deputy want to comment on this matter before we conclude on it?

1310. Deputy Dempsey.—Was any action taken against any members of the board of Irish Shipping for entering into agreements without the authorisation of the Department of Finance?

Mr. Cromien.—Again, this is a matter of policy with which I am not familiar. It may also be a matter for the accounting officer in the Department of the Marine rather than the Department of Finance.

1311. Deputy Colley.—Mr. Cromien mentioned that the accounting procedures in the Department of Finance and other Departments have tightened up since this. I am still at a loss to understand how State guarantees could have been given by a company without the Department being involved. I may misunderstand the situation but it seems that the board were able to give guarantees and the Department did not know about it. Is that possibility now eliminated?

Mr. Cromien.—I am not in a position to comment on how exactly the operation was arranged. These were long-term shipping leases that the company became involved in. This was part of the difficulty that led to the eventual collapse of Irish Shipping. The guarantees were in relation to the “Irish Spruce” which is a different aspect. They were legitimate guarantees given at the time to underwrite the arrangements for the purchase of the ship over a 15-year period. The State paid 75 per cent of the cost and the other 25 per cent was to be paid by Irish Shipping but guaranteed by the State. That was a legitimate arrangement. The large cost I mentioned was a different aspect. It was not in relation to the guarantees but to commercial operations which were not justified in later events.

1312. Deputy Dempsey.—Are you aware of any members of the board and senior management of Irish Shipping, who have been appointed to the board of any State or semi-State organisations since the liquidation of Irish Shipping?

Mr. Cromien.—I would have no information on that.

1313. Chairman.—I do not think we can just note this and pass on. Unless any other member of the committee suggests otherwise I propose, on the level of different orders we make, that we express ourselves as strongly dissatisfied with the level of exposure which the State could have been left open to in this case. I am sure the committee would not like to see any repetition of the fears expressed by the Comptroller and Auditor General. Is that agreed?

Agreed.

Chairman.—We will have to recall you on the other remaining matters, Mr. Cromien, and we will take advantage of that recall to discuss further the format of the Estimates when the Department of Education, the Comptroller and Auditor General, you and I have met. We will leave it at that for now. In view of the fact that there is a special meeting of the Fine Gael Parliamentary Party this afternoon we agreed to finish at 1 p.m. today. We will adjourn the rest of the business to a later meeting. We have quite a lot of business to get through. Thank you.

The witness withdrew.

The Committee adjourned.