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

REPORT

PART I — GENERAL OBSERVATIONS

1. As in the case of its previous report this Committee report does not include comments on follow up to earlier reports. The 1982 and 1983 report was only recently published so that observations by the Minister for Finance for the years 1980 to 1983 inclusive and Committee comments thereon will be deferred to a later report.

The minute of the Minister for Finance on the Report dated 29 January 1988 of the Committee is at Appendix 23.

PART II — 1984 ACCOUNTS

PUBLIC WORKS AND BUILDINGS

Extension to Valentia Island Radio Station

2. The Committee was informed that in August 1979 the Department of Finance, at the request of the Department of Tourism and Transport, sanctioned expenditure estimated at £80,000 inclusive of £5,000 in fees, on an extension to Valentia Island Radio Station and in November 1981 a contract for this work in the sum of £89,958 was placed with a local contractor. Subsequent to the placing of the contract additional works were ordered as extras. These included improvements to the existing building at Valentia and the construction on outlying sites, at an estimated cost of £85,000, of buildings to house two VHF Stations and a communicating link station in connection with the pilot scheme for a national network of VHF Stations being undertaken by the Department of Communications (see Paragraph 12 of this Report). By June 1985 payments under the contract amounted to £857,612, fees paid amounted to £21,393 and the final cost was estimated at £961,986 comprising £225,256 for the extension, £272,219 for the improvement works and £464,511, recoverable from the Vote for Communications, for the two VHF Stations and the communicating link station.

The Comptroller and Auditor General inquired why tenders had not been invited for the additional works and he also queried the reasons for the increased costs under each heading of the contract. In response the Accounting Officer had explained that, when certain additional works were urgently required and it had been decided that work on the existing building should be brought forward, there had been no practical alternative to having the works added to the original contract. As a result it had been decided to award the additional contract to the contractor who was already on the site. As to increased costs, the Comptroller and Auditor General was informed that this was due mainly to (a) extra works requested by the Department of Communications (b) additional works found to be necessary as the contract proceeded and (c) the impact of price variations and provisional sums.

The Accounting Officer in evidence stated that the first part of the works undertaken at Valentia, the extension to the radio station, was put out to tender. The Committee heard details of the various steps that lead to changes in the original plans and the resultant increases in expenditure. The Department of Communications had originally requested these structures, two of which were on a site owned by the Department and another outside of that. When the Department failed to acquire the site for the latter the Office of Public Works was asked to build two larger huts at two other sites. Subsequently the Department asked the Office of Public Works to carry out additional work at the two sites.

The Committee expressed its grave concern at the fact that, while the original works estimated at approximately £90,000 went out to tender, the additional works which cost an extra £872,000 was undertaken outside of laid down tendering procedures. It was noted that Department of Finance sanction had been sought after firm commitments had been made for expenditure on the additional works. Of further concern to the Committee was the fact that a similar type works were undertaken in County Donegal at a considerably lower cost. In view of the fact that the Department was the client and ultimately responsible for the overall payment the Committee also heard evidence from the Accounting Officer of the Department of Communications. It is clear to the Committee that a major part of the problem, which led to the cost overrun, was a serious breakdown in liaison between the Office of Public Works and the Department of Communications and it wishes to be assured that such breakdowns will be guarded against in future.

ROINN NA GAELTACHTA

Scéimeanna Feabhsúcháin sa Ghaeltacht

3. Special interest-free loans were paid to Gaeltacht co-operatives to enable them to continue in operation. The total loans issued between 1 January 1977 and 31 December 1984 amounted to £454,500. The Comptroller and Auditor General noted that, with the sanction of the Department of Finance, loans of £45,000 and £30,000 made to two of the co-operatives between 1979 and 1982 were written off as irrecoverable in 1984.

The Comptroller and Auditor General inquired regarding the conditions under which loans were issued and the security provided by the borrowers. He also sought information regarding the repayment condititions attaching to the loans and inquired as to the circumstances in which the two loans were written off.

The Accounting Officer informed the Comptroller and Auditor General that it was decided to issue loans instead of grants in an effort to encourage the co-operatives to organise their activities more efficiently and in the hope that they would be able to repay the loans or part thereof and that, had the aid been in the form of grants, there would have been no question of repayment. He also stated that the manager and each committee member of the co-operatives had guaranteed the repayment of the loans as required by the Department following consultation with the co-operatives. In relation to the write off of the loans of £45,000 and £30,000 the Accounting Officer stated that an interdepartmental committee which had examined the problems of the co-operatives in detail in 1983 had recommended the writing off of the loans as part of a rescue package. The Department was satisfied that the two co-operatives would not be in a position to repay them and accordingly had written them off with the sanction of the Department of Finance. The Accounting Officer explained that the Department was not hopeful that the remainder of the loans would be repaid and had therefore asked the Department of Finance in April 1985 for sanction to convert all the loans to grants.

The Committee was informed that the Department of Finance had sought a report on the viability of the co-operatives and if there were indications that individual co-operatives were financially viable it might be possible to recover some or all-of the outstanding loans. The Committee wishes to be kept informed of developments in that regard.

INDUSTRY, TRADE, COMMERCE AND TOURISM

Shipbuilding Subsidy

4. The Comptroller and Auditor General drew attention to a contract for the construction of the Irish Spruce which was placed with Verolme Cork Dockyard Ltd. in 1980 by Government decision. In accordance with the same decision an order was placed with the company for the construction of an offshore patrol vessel for the Department of Defence. When it appeared that the company might have a difficulty in delivering the vessels the Government decided in May 1983 that, as stated in paragraph 77 of the Comptroller and Auditor General’s report for 1983, the company should be provided with such monies as were shown to the Departments of Industry, Trade, Commerce and Tourism and Finance to be necessary to secure their delivery.

Arising out of this decision it was agreed that the company should be given delivery incentives to enable it to pay agreed compensation to all employees who would become redundant following the delivery of the vessels. The Irish Spruce was delivered in August 1983 but it became clear during 1984 that, because of its inability to secure new shipbuilding orders, the company would not be able to continue in operation after the completion of the offshore patrol vessel. Accordingly, it sought an undertaking from the Department that the delivery incentives in respect of this vessel would include not only the funds required to pay the agreed compensation to the workers but also the amount required to meet the shortfall between the company’s current assets and current liabilities on the day a liquidator would be appointed. The Department in consultation with the Departments of Finance and Defence and Fóir Teoranta, which had a 47.5 per cent holding in the company, agreed to this proposal. It was also agreed that on closure of the company a receiver would be appointed by Fóir Teoranta which was also a substantial creditor of the company. In accordance with these arrangments a total of £9,035,786, of which £1,625,000 was paid in respect of the Irish spruce in 1983 and £7,410,786 was paid in respect of the offshore patrol vessel in 1984. has been provided to the company to meet the agreed redundancy compensation payments. In addition, a sum of £532,000 was paid to meet the estimated shortfall of current assets over current liabilities. Furthermore, it was decided not to seek recovery of a sum of £700,000 advanced to the company in 1980 from the Vote for Fisheries in connection with the construction of a fisheries research vessel for which no contract was placed and which was not proceeded with.

The Comptroller and Auditor General informed the Committee that the company’s liability on PAYE and PRSI at 30 August 1986 was in the region of £1 million and that Fóir Teoranta had invested approximately £2.5 million. The Committee also learned that a sum in excess of £70 million had been paid from Exchequer sources to Verolme Cork Dockyard Ltd. over four years for two ships.

In view of the Committee’s concern about the level of State involvement in the dockyard it was agreed that the liquidator should be called at a later date to give evidence before the Committee.

OFFICE OF THE ATTORNEY GENERAL

Irregularity in the Office of the Chief State Solicitor

5. Paragraph 24 of the report of the Comptroller and Auditor General indicated that amounts paid to a staff member in the Office of the Chief State Solicitor in respect of the stamping of court documents and other expenses had been claimed fraudulently over a number of years.

The Accounting Officer informed the Comptroller and Auditor General that the irregularities occurred where the officer concerned presented petty cash vouchers for bogus expenses, and that it was the practice at that time to accept the officer’s signature as authenticating such vouchers. Revised procedures provided for authentication by a senior official and the Accounting Officer was satisfied that this would prevent further irregularities.

The Accounting Officer in evidence stated that the exact amount involved in the fraud was unknown but it was thought to be something in excess of £1,100. The officer involved had been dismissed and the internal control systems had been tightened up considerably in the meantime.

The Committee trusts that the more stringent controls introduced will prevent a recurrence.

FOREIGN AFFAIRS

Outstanding Balances

6. The Comptroller and Auditor General had referred in paragraph 50 of the 1980 Report to the accumulation of a large balance, including £1 million of unidentified items, on the suspense account to which the Department of Foreign Affairs charges expenditure which it has incurred on the construction, furnishing and maintenance of Irish embassies and official residences abroad and which is recoverable from the Office of Public Works (OPW)

In 1984 it was noted that the balance on the account included expenditure of £520,000 incurred prior to 1983 which OPW has not accepted as properly chargeable to its Vote. As this amount had, therefore, not been charged to any Appropriation Account, the Comptroller and Auditor General inquired what action was being taken to investigate the nature of the expenditure and to determine how it should be treated. He also inquired whether all the items of expenditure constituting the £520,000 were properly authorised in the first instance and why it had not been accepted by OPW as a charge to its Vote.

The Accounting Officer informed the Comptroller and Auditor General that £300,000 related to the period May 1978 to September 1982 and fell into four categories:

In the case of rents and associated charges the Accounting Officer saw the problem as stemming from OPW’s insistence that the expenditure be analysed in detail and this was a time consuming task. He explained that because obligations in relation to such charges were defined in lease agreements, and such agreements were never entered into without the approval of OPW, his Department’s view was that such amounts should be refunded without the need for excessively detailed breakdowns.

In the case of the next two categories some £113,000 of the £151,000 was in respect of fitting-out costs and purchase of furniture for embassy premises in Jeddah and Beirut for which the prior approval of OPW was not obtained. However, OPW had since accepted the expenditure in question as necessary but the Department of Finance had not yet sanctioned it.

The remaining £55,000 in respect of the period May 1978 to September 1982 was made up of a large number of small items and some more substantial ones, including some for which approval had been sought from, but not yet given by, OPW. These would arise wherever it proved impossible to await formal prior approval by OPW but the Department’s standing instructions to its missions abroad emphasise the importance, except in emergency situations, of awaiting such approval of all proposals involving expenditure which is proper to the Vote for Public Works and Buildings.

In regard to the expenditure of £220,000 relating to the period prior to May 1978, the Accounting Officer informed the Comptroller and Auditor General that the Department had yet to be advised by OPW as to what this represented and of the reasons for withholding refunds.

In evidence the Accounting Officer indicated to the Committee that the uncleared balances were approximately £281,000 as opposed to £520,000 at the date of the Comptroller and Auditor General’s report. Of this amount a sum of £220,000 related to rents on buildings abroad which had been paid for by the Department from a suspense account but which had not been accepted by OPW as a proper charge on its Vote pending its own examination of the amounts involved. The Committee also heard that within the Department of Finance there were two separate sections involved, one dealing with the Department of Foreign Affairs and another with the Office of Public Works.

Having heard the evidence the Committee expressed its concern that the clearing of payments had been delayed in some cases for up to eight years. In general it finds the situation unacceptable and urges that discussions be held between the relevant authorities, with a view to improving procedures for examination of accounts and for payment of amounts validly due with the least possible delay. The administrative and other delays revealed in the report can only result in waste of public expenditure both in terms of staff and other resources generally. The Committee wishes to be informed of developments in this area in the context of future Appropriation Accounts.

Cost of Embassy in Saudi Arabia

7. The Committee having considered the cost of the Irish Embassy in Saudi Arabia in its 1982/83 report asked the Accounting Officer for details on the up-to-date position.

The Accounting Officer explained that expenditure incurred on the Embassy building in Jeddah was a charge on the Office of Public Works Vote and that the work involved were undertaken by that Office acting as agents for the Department of Foreign Affairs. He added that his Department identify their accommodation requirements and facilitate OPW by paying bills locally through the Department’s bank account and subsequently OPW refunds those amounts which have been paid. The cost of the adaptation, fitting out and furnishing the Embassy at Jeddah was £233,000 of which £146,000 was originally approved — the other £87,000 being for additional works which were considered necessary by the Department.

The Committee is perturbed to note the level of spending on the Embassy building in Jeddah in view of the fact that the Department subsequently had to transfer its Embassy to Riyadh, Saudi Arabia. It was noted, however, that stringent guidelines on capital projects had since been laid down by the Department of Finance and trusts that similar instances such as outlined above will not occur in future.

SOCIAL WELFARE

Disability Benefit

8. The Committee noted from the report of the Comptroller and Auditor General that under the computerised system for the payment of disability benefit automatic listing is carried out of cases to be referred to medical referees and that of 81,000 such cases referred in the year to 30 June 1984, 13,683 were found capable of work and disqualified from benefit while 26,660 failed to attend and, in the main, were similarly disqualified. However, the Comptroller and Auditor General noted that in a number of other cases claimants whose circumstances met the prescribed criteria for referral for medical examination and who should threfore have been referred, were not.

The Accounting Officer informed the Comptroller and Auditor General that some 100,000 cases are processed yearly for potential medical referee examination and that more than 80,000 of those are summoned for examination. He added that significant improvements had been made to the system in recent years but it had not been practicable due to staffing constraints and the level of development to ensure that all cases requiring re-examination by medical referees were referred when requested. The Department’s plan to implement a totally new computerised system would be specifically designed to meet the requirements of the medical referral system.

The Accounting Officer in evidence stated that he did not accept the conclusion that 50% of claims to disability benefit were invalid because of the numbers who were found capable of work by the medical referees or did not turn up for examination. He stated that no-one was receiving benefit unless they had submitted a doctor’s certificate. Also many would have been going back to work anyway even if they had never been called before a medical referee.

He also stated that the Department’s computer now includes a coding system designed to check, inter alia, the demands for disability benefit so as to ensure that people are referred speedily to medical referees to establish whether they are genuinely entitled to make such claims. There had also been an increase in the number of medical referees to deal with the Department’s investigation of claims.

Full schedules were maintained all the time for medical referees. The coding system was one element in the selection of cases. At any particular time priority was given to the most urgent cases. Such cases cropped up without notice and had to be fitted in. Examples were appeals or cases to which special attention had to be given. Other cases then had to drop out. All cases were however covered in one way or another at some stage but not necessarily at the particular time. The Department targeted on suspicious cases and the results of the medical referee examinations were an indication of that fact.

The Committee notes with concern the large number of claimants who failed to attend for medical examinations when called by the Department. This, along with the number who were actually found capable of work when they did attend, while still claiming disability benefit, indicated a strong possibility of a significant level of improper medical certificates or fraudulent demands under the scheme at considerable cost to the Exchequer.

The Committee is also perturbed at the number of cases where claimants did not appear to have been referred for re-examination although the medical referee’s original report indicated that this should have been done. The Committee notes that the Department had taken steps to remedy this deficiency in its internal control procedures by increasing the number of medical referees from 20 in 1984 and by more effective computer surveillance of all claims.

The Committee remains to be satisifed that an adequate level of staff and other resources is available to deal with what may be widespread attempts to claim benefits fraudulently to which they may not be entitled. In the circumstances the Committee requests that urgent measures be taken to devote adequate resources to ensuring that payment of benefit is restricted to those who genuinely meet the full legal requirements. This is an area to which the Committee will direct its attention in future reports so that Dáil Éireann will be kept informed of developments in this regard.

Children’s Allowances

9. Reference had been made in paragraph 60 of the Comptroller and Auditor General’s 1976 Report to the level of control over the preparation, custody and issue of children’s allowance books and the disposal of unused books returned to the Department. The Committee in its report dated 26 April 1979 welcomed the assurance of the Department of Social Welfare that a number of important security improvements relating to the handling of children’s allowance books had been introduced. The Committee nevertheless requested at that time that controls over the printing, delivery, storage, issue, return, encashment and accounting for allowance orders should be such as are exercised over the handling of cash. The Department of Social Welfare examined the implications of this request and concluded that a cash-type security system over orders would not be practicable but that some measures which were being implemented on a gradual basis would improve security. Furthermore, it was felt that full scale computerisation would afford greatly enhanced security potential. With a view to computerisation of the children’s allowance payments system, a feasibility study was undertaken by the Department and an outline design for the system was completed by November 1982, at which stage the existing manual records had been converted to computer file. Due to the lack of resources required to implement this system, an alternative one was developed which omitted some of the control features of the system as originally designed. This system became operational in January 1984 and the computer master file had meantime been updated to incorporate changes to claim details which had taken place since November 1982. The file was to be used as the basis for the annual issue of allowances books, but initially, in the July 1984 issue, was used only in 25 per cent of cases.

In the course of review by the Comptroller and Auditor General it was noted that the system as designed did not alter the situation which existed under the manual system in that it did not provide for the reconciliation of cashed allowances orders with authorised issues. In these circumstances, where the Department had apparently decided that it would be impracticable to provide for such a reconciliation, full reliance had to be placed on control procedures implemented prior to the issue of allowances books. However, the Comptroller and Auditor General’s review indicated a number of deficiences in such controls. The newly computerised file of children’s allowance payees was used as a basis for the issue of approximately 25 per cent of the 1984/85 renewal allowance books in July 1984 and was intended as a trial run for its general use in 1985/86. The Department’s checking of the accuracy of the data conversion from manual to computer form had commenced in September 1983 and was confined initially to those cases intended to be used in the trial run in July 1984. Between July 1984 and December 1984, 391 renewal books issued in the course of the trial run were returned to the Department because in each case an allowance book had been issued to both a post office and a bank in respect of the same claim. A further 580 books were returned in cases where entitlement had terminated prior to the issue of the renewal books.

The Report of the Comptroller and Auditor General also referred to the fraudulent claiming of children’s allowances. When a claim which purports to be a first claim is made for children’s allowances there is no procedure of ensuring that an allowance is not already being paid for the same child. However, it was recognised that on the computerisation of children’s allowance files, the Department would have the opportunity to identify possible cases of duplication by reference to a child’s name and/or date of birth. In March 1983 a computer programme designed to detect duplicate claims listed a total of 1,256 apparently duplicated records. However, subsequent investigation disclosed that 382 of these were not duplicates but, coincidentally, showed the same name and date of birth. A redesigned version of the programme run in February 1985 was capable only of identifying causes of duplication within the same claim number i.e. the same child being paid for twice on the same claim. It disclosed 87 such cases. In order to detect all duplication the redesigned programme had to be further revised in May 1985. This brought to light some 3,000 apparently duplicated claim records.

The Comptroller and Auditor General requested information on the deficiencies in the Department’s system relating to children’s allowances. In reply the Accounting Officer outlined some improvements which had been implemented in the period since the report. He recognised that further improvements were necessary in some areas and the Department was putting emphasis on the control of the issue of children’s allowance books.

In evidence before the committee, the Accounting Officer stated that most of the problems identified in the report of the Comptroller and Auditor General had occurred at a time when the Department of Social Welfare was changing over from a manual to a computerised system and that most of the controls referred to in the report had been implemented in the meantime.

The Committee expressed its concern at the lapses in the system which led to the duplication of records as outlined above and it trusts that the Department now has comprehensive and adequate controls in place to ensure that this problem has been overcome.

Miscellaneous Grants

10. The Comptroller and Auditor General in paragraph 62 of his report referred to the Supplementary Welfare Allowance Scheme which was introduced in July 1977 under the provisions of the Social Welfare (Supplementary Welfare Allowances) Act, 1975 (later reenacted as Chapter 6 Part III of the Social Welfare (Consolidation) Act, 1981).

The scheme, which is administered by the Health Boards and financed partly by grants paid by the Department of Social Welfare and partly by funds provided by the Local Authorities, provides that subject to certain exclusions provided for in Chapter 6 of the Act, every person in the State whose means are insufficient to meet his/her needs and those of his/her dependants is entitled to supplementary welfare allowance. Determination of entitlement to the allowance is a matter for the Health Boards. Payments to Health Boards by the Department of Social Welfare are based on the Boards’ estimated expenditure, taking account of the Local Authorities’ contributions, and are subject to final adjustment on the basis of the Boards audited accounts. The total charged to the subhead in 1984 in respect of these allowances amounted to £24,133,198.

While audited accounts of Health Boards were available for some of the years subsequent to 1977 the Department of Social Welfare had not been provided with the accounts and consequently has not carried out any adjustments of grants on the basis of such accounts.

The Accounting Officer explained that the difficulty referred to by the Comptroller and Auditor General related to the furnishing of accounts by the local government auditors. The Department depended on the local government auditors providing such accounts and for various reasons these had not been provided despite requests from the Department.

The Committee could not feel that delays of several years in the furnishing of final audited accounts by Health Boards is acceptable and urges that the relevant Ministers should take suitable action in relation to the provision of accounts as required in future years.

Overpayments of Social Insurance and Social Assistance

11. The Committee noted in the report of the Comptroller and Auditor General that a net sum of £7.34 million in overpayments under the Social Insurance Scheme and £3.63 million overpayments under the Social Assistance Schemes were outstanding at end December 1984. Of these amounts the Department attributed £2.4 million to fraud or suspected fraud by claimants.

The Accounting Officer stated that while every effort was made to recover overpayments it was often difficult for the Department to do so because of the financial circumstances of the claimants involved.

The Committee wishes to ensure that the Department monitors the system closely and that every effort is made to reduce significantly the level of overpayments under the Social Welfare Schemes.

COMMUNICATIONS

Electronic Equipment

12. The Comptroller and Auditor General referred in his report to the fact that in February 1980 and June 1981 the Department of Finance sanctioned expenditure totalling £240,000 on the provision of four coastal VHF remote controlled stations as a pilot scheme for a national network. The cost of each station was estimated at £50,000 plus VAT and included the provision of radio equipment, permanent buildings and access roads, etc.

In 1981 the Department entered into contracts for the provision of a building at one location and for the supply, installation, testing and commissioning of radio and control equipment for all four stations. Between May 1982 and September 1983 the Department requested the Office of Public Works (OPW) to provide buildings at two locations together with a building for a communicating link station which had meantime been decided on as an additional requirement of the network (see paragraph 2 of this Report).

The total expenditure on buildings and equipment to March 1985 was £680,792. The cost of the building erected under contract was £37,083 and the cost of the three buildings provided by OPW was £464,511.

The Comptroller and Auditor General had inquired about the substantial increase in total cost and whether the increased expenditure had been sanctioned by the Department of Finance; also whether OPW had been furnished with precise requirements including cost limits when the Department requested the provision of buildings. Information had also been sought regarding the wide variation in the unit cost of the buildings. He had been informed by the Accounting Officer that the estimated cost of the four VHF stations originally proposed was calculated on the assumption that two of them would be located at existing developed sites. In fact the increase and the vartiation in costs over the amount sanctioned in 1981 was due to the fact that alternative sites, which had been chosen for technical reasons, were remote and difficult of access. The provision of the radio link station required the acquisition and development of an additional site and building.

On the question of responsibility for funding the cost of the VHF stations the Comptroller and Auditor General was informed that there had been a misunderstanding between OPW and the Department.

In evidence the Accounting Officer explained that there had been a very strong demand for a national VHF network arising from a variety of circumstances. The Department had been reluctant to undertake the overall project without proceeding initially on a trial basis. The Department acquired equipment for four stations and three were operational at end 1986 and the fourth one near Ballybunion was expected to be operational by early 1987. The Accounting Officer agreed that the final cost of the stations was greater than anticipated and a cause of concern. However the Department had to rely to a considerable extent on the assessment of the Office of Public Works and the costs incurred were inevitable in relation to the sites. The Accounting Officer added that there were procedural and administrative difficulties in the manner in which the project was handled.

The Committee was informed that there had been a serious misunderstanding between the Department and the Office of Public Works. It appeared that technical officers in the Department of Communications who were dealing with the project were under the impression that the cost of the works involved would be a charge on the Vote for the Office of Public Works when the monies were in fact payable from the Department’s Vote. The Accounting Officer stated that this was an erroneous impression which should not have arisen. The result was that the officers in the Department of Communications who were concerned did not see it as their primary responsibility to engage in cost monitoring of the project as would have been the case in relation to other projects which were the responsibility of the Department. Having considered the overall evidence the Committee expressed its deep concern at the misunderstanding between OPW and the Department; at the lack of monitoring and control of the project and the fact that normal tendering procedures were not adhered to in relation to the extension to the station in the southwest. It trusts that controls are now in place which will prevent a repeat of the type of serious cost overrun that occurred in the case as reported by the Comptroller and Auditor General.

EDUCATION

Transport Services

13. The Comptroller and Auditor General referred to the school transport service which from its inception in 1967 has been managed by Córas Iompair Éireann (CIE) under a formal agreement, acting as agent for the Minister for Education in providing the service at both primary and post-primary level. On 1 January 1975 a revised agreement was concluded governing the basis on which payment would be made for providing, supervising and administering the service. This agreement provides, inter alia, for the submission to the Department of an audited annual account showing the cost of the service and for the payment to CIE of overhead costs calculated at 13 per cent of expenditure on specific direct costs. Any change in the agreed arrrangements requires twelve months notice by either party. The 1983 account disclosed that CIE’s direct expenditure on the service was £24.4 million and overheads were accordingly calculated at £3.2 million. The direct expenditure included £6.9 million running costs of the bus fleet and £12.1 million paid to private bus operators.

The Comptroller and Auditor General was informed by the Accounting Officer that, under the agreement with CIE, the Department of Education was committed to increasing automatically the amount paid for overheads when direct costs increased.

However, one of the main direct expenditure items which increased disproportionately in price was fuel and that increase was not considered to cause a corresponding increase in school transport overheads. The Committee heard that fuel costs increased by about 392 per cent between 1975 and 1984 while the consumer price index rose by 248 per cent in the same period. Under the agreement the amount paid to CIE represented an increase of 333 per cent in the same period. The result was that the original formuala for payment was considered by the Comptroller and Auditor General to have become distorted over the years to the advantage of CIE.

In evidence the Accounting Officer stated that the Comptroller and Auditor General’s queries had been investigated by the Department but that it was considered that there was nothing worth while that would generate any significant savings on the overall cost to the Exchequer of the school transport service and a review had indicated that CIE might in fact be entitled to a greater refund than that actually claimed from the Department.

The Committee noted that the overall question was to be considered further by the Comptroller and Auditor General in consultation with the Department of Education. In the circumstances it awaits clarification of the final consideration of the issues involved.

PRIMARY EDUCATION

Building, Equipment and Furnishing of National Schools

14. The Comptroller and Auditor General referred to serious strucural defects in a large national school. Grants for building, equipment and furnishing of national schools are paid to the Boards of Management of National Schools, the grant normally being twothirds of the cost of approved works, but greater if the circumstances of the school locality are such that one-third of the cost cannot be met by local contributions. The Office of Public Works (OPW) acts as the Department’s agent in all technical matters relating to the construction and improvement of national schools. Schools of eight classrooms or more are usually designed by architects commissioned by the Boards of Management, subject to the plans being approved by OPW and the Department of Education. The placing of contracts is authorised by the Department of Education and arranged by OPW following its examination of tenders. The grants are paid to the Boards of Management in the first instance by OPW on the basic of architects’ certificates and are subsequently recovered from the Department of Education.

In late 1982 and early 1983 serious structural defects were discovered in a twenty-four classroom national school built in stages in the period 1970 to 1974. Consultants engaged by the Board of Management estimated the cost of the remedial works at £718,160. Following consultation between the Department, the Board of Management, its advisors and OPW, a revised cost plan amounting to £375,000 inclusive of professional fees was approved and a grant of nine-tenths of the approved cost was agreed by the Department. A contract for the remedial works was placed in June 1984 in the sum of £309,650, but had not been completed at the date of the Comptroller and Auditor General’s report.

The Comptroller and Auditor General inquired (a) why extensive remedial works became necessary within such a relatively short time of the school having been built (b) as to the actual cost of the remedial works and whether any action for recovery was proposed since the need for the remedial works had apparently arisen from serious structural defects in the original construction. In reply the Accounting Officer said the Department was satisfied that the problems which developed were not caused by neglect to maintain the premises and that the particular feature which gave rise to fears concerning the safety of the building was an accepted form of construction and the roof in question was found to have adequate structural strength. The Department had been advised that it would not be open to the school to recover costs from the design architects or the contractor.

The Accounting Officer indicated to the Committee that the full account had since been finalised. He accepted that there had been delays but that the problem had been resolved.

The Committee expressed some surprise at the serious defects that had occurred in the school in question within a relatively short period of its construction. It wishes to be assured that the Department’s building unit ensures that suitable materials and construction techniques are used so that similar type remedial works will not be required on other new schools built in future.

POST-PRIMARY EDUCATION

Superannuation of Secondary Teachers

15. Paragraph 34 of the Comptroller and Auditor General’s report referred to the superannuation schemes of both national and secondary teachers which are provided for under the Teachers Superannuation Act, 1928 and statutory orders made under the provisions of that Act by the Minister for Education with the consent of the Minister for the Public Service.

It was noted that a number of revised provisions regarding the superannuation of national and secondary teachers were implemented by the Department of Education with effect from 1968 without the necessary statutory orders having been made. These include the introduction of a Spouses’ and Childrens’ Scheme, relaxation of certain conditions of the schemes with consequential improvements in benefits, admission of Community School teachers to the Secondary Teachers Scheme, charging of secondary teachers’ superannuation payments to the Vote for Post-Primary Education rather than the Secondary Teachers Pension Fund with effect from January 1984 and the winding up of that fund.

The Comptroller and Auditor General had asked the Department of Education on a number of occasions over six years to take steps to comply with the legislative requirements regarding the amendment of the superannuation schemes and because of the continuing failure to do so the matter was drawn to the attention of the Committee. The Accounting Officer had informed him that the position was being reviewed in the Department but that, due to pressure of work on the staff in the relevant section, the amending legislation had not been prepared.

In response to questioning by the committee the Accounting Officer reiterated that the six year delay in complying with the legislative requirements regarding the amendment of the schemes was due largely to severe staffing difficulties in the Department and to giving priority to other areas of immediate concern in meeting the Department’s objectives. Nevertheless, urgent steps had since been taken to rectify the matter.

The Committee expressed its unease about the fact that revised superannuation provisions had been made without the prior sanction of the Oireachtas and requested that this omission should be corrected without further delay. It was also recommended by the Committee that the necessary instruments should be laid before the House, possibly without the need for the individual orders to be voted on as required heretofore.

Community Schools — Building Grants and Capital Costs

16. It was noted from the Comptroller and Auditor General’s report that in November 1978 a contract for the construction of a community college in the sum of £848,555 was entered into by a Vocational Education Committee. The consultants engaged to design and supervise the project were appointed by the committee. In order to ensure that the final account, excluding price variation clause increases, would not exceed the Department’s cost limit the committee was required to comply with cost control procedures specified by the Department’s Building Unit. These procedures provide for adherence to the Building Unit’s standard cost-control plan which requires, inter alia, that the Department be immediately notified of significant variations together with proposals as to how any additional expenditure could be met from savings elsewhere in the contract. The Department must also be given a detailed explanation of any other claims which might have a bearing on the final account. In January 1984, when the final account amounting to £1,259,809 was submitted, the Department expressed its concern to the committee at the serious lack of regard on its part and on the part of its consultants for cost control procedures in that a twenty-one week extension of time granted to the contractor led to extra costs of £40,000 under the price variation clause, an amount of £61,200 claimed by the contractor for extension of preliminaries was allowed by the consultants, unapproved extras of £70,000 were incurred and excess costs of loose furniture, equipment and fitted furniture which amounted to £74,267 had not been sanctioned by the Department. The Department considered that if there had been adequate pre-planning and effective post-contract cost control in accordance with established procedures substantial savings could have been achieved on this project but it was left in the position where it had no option but to accept the final account as submitted.

The Comptroller and Auditor General inquired as to the circumstances in which the cost increases totalling £245,467 arose and what action the Department had taken which would ensure that cost control procedures were adhered to in the future. In reply to the inquiries the Accounting Officer said that there had been a delay in delivering fitted furniture and there had also been extras, most of which were essential to the project, but occurred because of incomplete pre planning by the design team. In addition, the Comptroller and Auditor General was informed that certain explanations relating to the control and monitoring of the expenditure involved had not been satisfactory and were being followed up by the CEO. Arising from the case in question the Department had since introduced revised procedures which would improve the planning and control of such projects at all stages.

In evidence, the Accounting Officer agreed that the position revealed in the Comptroller and Auditor General’s report was unsatisfactory and that a full explanation had been sought from the Chief Executive Officer of the school involved.

The Committee was concerned at the serious lack of control on the project in question and seeks an assurance that the Department will adhere to the latest monitoring and control procedures laid down by the Department of Finance in future.

Defects in Community School Halls

17. The Committee also noted in the Comptroller and Auditor General’s report that up to 1976 all community schools built by the Department of Education were provided with physical education halls. In 1979 it was decided that thirteen schools contracted for since 1976 without such facilities should be provided with them. A team of consultants was engaged to make recommendations regarding the placing of the contracts for such halls at four schools in the Dublin area and to supervise construction work. The halls were designed by the architectural staff of the Department’s Building Unit. All four contracts were placed in 1981 with one contractor in sums of £198,171, £189,717, £207,516 and £189,863, respectively, these being the lowest tenders received. When entering into the contracts the contractor indicated that provision by him of a performance bond would prove a lengthy process and he proposed, as an alternative, that, when making progress payments for work carried out, the Department should retain eleven per cent of the value of architects certificates instead of the normal five per cent. On the basis of an informal guideline given by the Department of Finance in 1980 that performance bonds were unnecessary for contracts in the region of £200,000 the Department of Education accepted the contractor’s proposal. By March 1983 sums amounting to £260,237, £255,217, £281,656 and £231,255 had been paid in respect of the four contracts. In April 1983, when the buildings were virtually completed, the contractor was put into receivership. In December 1983 the roofs of two of the halls suffered severe storm damage, due apparently to faulty construction, and emergency repairs were carried out by the Department. On inspection, the roofs of the other two halls were found to have similar defects. The receiver was requested to have remedial works carried out on all four and to complete all other outstanding work but, as he failed to do so and as the contractor went into liquidation in May 1984, other contractors were engaged by the Department to carry out this work at a cost of approximately £119,000. Consultants’ fees have been paid in respect of the original contract and have been claimed in respect of the remedial works.

The Comptroller and Auditor General inquired why the Department of Finance guideline regarding the provision of bonds for contracts up to £200,000 was applied to four separate contracts totalling £785,000 awarded simultaneously to one contractor. He also sought information on the final cost of the halls and what recourse was available to the Department to recover the cost of the remedial works and any additional costs incurred on the completion of the original contracts.

In reply the Accounting Officer indicated that each of the four contracts had to be dealt with separately as regards bonds. As the combined totals were less than the next lowest tender the former was accepted. As regards the recovery of the cost of the remedial works amounting to about £121,000 it was proposed to recover about £50,000 of that from retentions held by the Department and to seek the balance from the liquidator. The Accounting Officer also indicated that the Department was satisfied that the consultants had carried out their brief satisfactorily and in a manner which properly safeguarded the State’s interests.

The Committee was concerned to note that the original contracts amounted to £785,000 and that there had been a cost overrun of about £220,000 with an additional £119,000 paid for the necessary remedial work. Furthermore, the Committee was perturbed to find that, while consultants were employed to draw up the contract and supervise the construction of the four recreation halls, some 12 months later major defects were found in the structure of the buildings and the same consultants were paid fees in respect of those remedial works. The Committee regrets that such an arrangement could have been agreed by the Department.

The Accounting Officer was recalled a second time to clarify certain issues which remained unresolved during the first hearing.

The Accounting Officer stated that on further investigation within his Department it emerged that the remedial works referred to above cost £91,000 rather than the amount of £119,000 originally indicated. He also confirmed that the same firms of consultants were retained for the remedial works and that the Department was satisfied that this was in order. It appeared that, under agreements with the consultants, they were responsible for intermittent, sporadic supervision of the works involved and not for detailed day-to-day supervision. The fees involved were in excess of £70,000. The Department had withheld a sum of £53,000 so the net cost to the Department for remedial work was £37,000. The Committee, having heard the additional evidence and carefully considered all the facts presented, is still of the view that the control of the project left a lot to be desired, both in relation to the overall cost of the projects, the quality of the work involved and also the fact that bonding had not been sought as required under the strict interpretation of regulations on public capital projects.

It is also concerned at what it sees as a lack of clarity in regard to the responsibilities of the consultants for ensuring conformity with the terms of the specifications and adherence by the contractor to acceptable standards of workmanship. It sees the terms of their engagement, which apparently only required them to supervise the work as they saw necessary, as being sufficiently imprecise to allow them to set their own standards of supervision, which the client must apparently leave them to exercise in accordance with their own judgement of what is an acceptable level of supervision in each case. Consequently, it seems to the Committee that it is easy to evade responsibility in the event of failure by them to detect shortcomings by the contractor through lack of adequate supervision as appears to have happened in this case. The Committee requests that the Department of Finance, in consultation with all Departments involved in building projects, examine the terms under which consultants are employed for such projects so as to ensure that the interests of the State are fully protected and that redress is available to the State in the event of an unsatisfactory service being provided.

COMPTROLLER AND AUDITOR GENERAL

Staffing

18. As in previous reports the Committee wishes to draw attention to the unsatisfactory situation regarding the level of staffing in the Office of the Comptroller and Auditor General. It has been clearly demonstrated on numerous occasions that the Office is under strength and has insufficient resources to undertake the timely auditing of accounts on certain State-Sponsored Bodies and Government Departments. As a result of the embargo, there has been a curtailment in the level of audits — this at a time when there has been an increase in the scope of Departments’ work and their related activities. The Comptroller and Auditor General again expresssed his concern at enforced reduction in the detailed auditing which is required to be done by statute.

The Committee wishes to reiterate its dissatisfaction with the inadequate level of staffing resources available to the Comptroller and Auditor General and urges that this question be considered urgently by the Minister for Finance with a view to an early resolution of the matter. Furthermore it is the Committee’s considered view that the resources available to the Office of the Comptroller and Auditor General have a direct bearing on the effectiveness of public expenditure and that real net savings would emerge from the provision of additional audit staff to that Office.

OFFICE OF THE REVENUE COMMISSIONERS

Revenue Account

19. The Committee expressed concern about the effectiveness of the administration of tax collection under the Office of the Revenue Commissioners (See paragraph 26 below).

Another area of concern to the Committee related to the serious level of smuggling and the resultant loss of revenue to the State. The Committee wishes to emphasise the need for a higher degree of publicity in this area.

Assessment and Collection of Taxes Etc.

20. The Committee noted that schedule 1 of paragraph 18 of the report of the Comptroller and Auditor General indicated that the estimate of income tax balance (excluding PAYE) likely to be collected represented about eleven and a half per cent of the amounts shown as owed to the Office of the Revenue Commissioners.

In evidence the Accounting Officer explained that the first payment which must be made by the taxpayers is on 1 October. Revenue rely on the taxpayers estimating and paying 90 per cent of their liability. Taxpayers usually appeal the tax and the balance of the tax does not become payable until the appeal has been determined. For example, of a balance of £695 million in 1984/85, a total of £516 million was under appeal. The schedule indicated that Revenue estimated that they would collect £90 million of the outstanding balance for that year.

The Committee was of the view that the presentation of Revenue data on income tax balance due was potentially misleading and that an alternative and more comprehensible system should be devised. In addition the Committee has reservations about the accuracy of tax assessments issued to some individuals and firms by the Revenue Commissioners — it appeared that inflated estimates of tax liability were sent in cases where tax returns were not available. The Accounting Officer accepted that this was a problem area and that his Office has made a concerted attempt to reduce the estimation of income tax excluding PAYE and in the corporation tax area. As a result there has been a degree of success in that estimation had been reduced by about £200 million in each area. He also emphasised that Revenue issued demands only in circumstances where persons ignored the tax process and did not comply with basic requests for information regarding income.

On the question of enforcement the Accounting Officer informed the Committee that, while additional sheriffs had been appointed with a view to accelerating the rate of enforcement, it would be sometime before there would be any significant improvement in the level of return to the Revenue Commissioners. He added that County Registrars and Sheriffs were officers of the court and therefore under the jurisdiction of the Department of Justice rather than Revenue. The Committee regards this arrangement as an impediment to the optimum effectiveness of the Revenue Commissioners.

Non-Payment of PAYE and PRSI

21. As in previous reports the Committee referred to a continuing serious problem whereby in certain instances, employers, finding themselves in financial difficulties, retain monies deducted from their employees in respect of PAYE and PRSI as well as VAT collected on behalf of Revenue.

The Accounting Officer agreed that it was a continuing problem and a cause of disquiet to Revenue and the public generally. The fact was that about 50 per cent of the total tax revenue is committed into the hands of traders and employers to collect for the Exchequer and to remit to the Revenue Commissioners. The main problem related to very large organisations which previously had a good history of remitting taxes but which now divert such monies into working capital. He added that part of the problem in pursuing such losses was that the enforcement of civil debt generally is in a state of ineffectiveness. For example, there were 79,000 unexecuted warrants with sheriffs and county registrars at the end of 1984. There were delays in the courts, incidence of defaults and outdated legislation regarding sheriffs powers and responsibilities, while on the other hand, leasing, hire purchases and retention of ownership created conditions for the protection of goods from seizure by the sheriffs. The question of self assessment was under consideration by Revenue in that context.

The Committee wishes to be reassured that the Office of the Revenue Commissioners will devote adequate resources to ensuring that the above type of non-payment of taxes is dealt with as speedily and effectively as possible.

Farmers Taxation

22. The Comptroller and Auditor General noted in paragraph 20 of his Report that under section 11 of the Finance Act, 1983 all full time farmers are liable to Income Tax with effect from 6 April 1983 on the basis of their computed profits. Prior to that date only farmers with holdings in excess of £40 rateable valuation were liable. The procedures devised by the Revenue Commissioners to assess farmers becoming liable under the new statutory provisions were—

(a)the issue of a farm profile form to those farmers with holdings in the £30 to £39 rateable valuation range to get an idea of the scale of the farming enterprise.

(b)the review by the Inspectors of Taxes of the returned forms, with assessments to be made in the normal manner where, after review, liability to tax seemed likely. If the review suggested that liability was unlikely the case was to be noted accordingly and reviewed in future years.

(c)an estimated assessment to tax to be made if the form was not returned within thirty days.

During a local audit carried out by staff from the Office of the Comptroller and Auditor General in March 1985 at one Income Tax District Office it was noted that farm profile forms were issued in July/August 1983 to some 2,700 farmers with holdings in the £30 to £39 rateable valuation range. Of these, 500 were later identified as being existing PAYE etc. taxpayers. Out of 1,500 cases in which forms were returned, approximately 800 were, following review by the inspectors, considered to be liable for tax, but assessments in these cases did not commence to issue until December 1984. In the 700 cases, in which forms were not returned, reminders had not been issued nor had estimated assessments been made by March 1985. It was also noted that steps had not been taken to identify possible tax liability of farmers with holdings having a rateable valuation of less than £30.

The Comptroller and Auditor General inquired as to what steps had been taken to ensure that farmers who did not return the farm profile form were assessed for tax and why estimated assessments had not been made in those cases; why there was a delay in issuing assessments; why no action was taken in regard to farmers with holdings of less than £30 rateable valuation, and whether other District Tax Offices had taken steps to ensure that farmers with holdings having a rateable valuation less than £40 were assessed for Income Tax by 31 December 1984.

In reply the Accounting Officer indicated that the problem of assessing farmers below the £40 threshold was due to lack of adequate staff resources. The task of dealing with the farm profile forms was formidable and the process was costly, time consuming and involved diverting staff from other areas of Revenue. The prospects of achieving good results were also limited due to the uncertainty at the time about proposed income tax exemption associated with the introduction of the new farm tax.

The Accounting Officer in evidence before the Committee reiterated that the main difficulty in assessing farmers for taxation, whether over or under £30 rateable valuation, was one of scarce staff and other resources in the Office of the Revenue Commissioners. It was largely a matter of directing resources to those areas which would be most cost effective and beneficial from an Exchequer viewpoint. The Committee was also informed of the measures taken within Revenue to monitor staff performance and to deal with management accountability generally.

The Committee expressed its surprise and concern at the fact that the Revenue Commissioners had not pursued all those farmers who had not returned farm profile forms issued to them for tax assessment purposes. It was stated in evidence that, out of a total of 21,842 forms issued, 7,313 forms were not returned to the Revenue Commissioners. Of this number proceedings were initiated against 31 farmers. At the time of the hearing 21 of those were being processed by the Revenue Solicitor’s Office and proceedings were going ahead. In general the Committee was of the opinion that the Revenue Commissioners should be seen by the tax paying public to be pursuing tax collection in an equitable manner across the different sectors of the community.

The Accounting Officer in reply stated that it was important to keep the issue raised by the Comptroller and Auditor General in perspective. The Revenue Commissioners were obliged to reduce staff in line with the Government embargo on staff numbers in the public service. Revenue had to deploy its resources to the best possible advantage and the net result was that decisions had to be made on the level of attention to staffing to be devoted to the follow up on a section of the farming community. The Department of the Public Service representative in evidence said that, in relation to tax collection generally, it had not been demonstrated that the additional yield to Revenue would meet the cost of any extra staff which might be sanctioned. The overall savings to the Exchequer arising from what was termed a staff embargo across the public service was of the order of £30 million to £35 million a year and that in itself had been a very effective policy. He added that policy now provided for the setting of specific targets for individual Departments and Offices which took acount of the volume, quality and nature of the functions they perform. This allowed for a more flexible system of allocation of staff within the public service. Any question of additional staff for the Office of the Revenue Commissioners would have to be decided by the Government.

In view of the special position of the Revenue Commissioners i.e. the source of the bulk of Exchequer resources, the Committee was strongly of the view that the staffing needs of Revenue required urgent attention. It has been demonstrated elsewhere that tax yields in certain areas increased significantly when resources to pursue them were provided and the Committee cannot accept without some concrete evidence being provided, the assertion by the Department of the Public Service that the additional yield to Revenue would not meet the cost of additional staff assigned to the pursuit of outstanding tax. It wishes to know what precise exercise was undertaken to support that assertion. The Committee was satisfied that the Office of the Revenue Commissioners could become more effective if an in depth review of the Office, including its productivity, was undertaken. It was agreed that this question would be dealt with separately by the Committee.

Alleged Cheque Fraud

23. The Committee heard evidence from the Accounting Officer about an alleged fraud during 1986 involving about 115 cases of cheques sent to the Office of the Revenue Commissioners. The Accounting Officer indicated that five people had been formally charged with offences, none of whom was a Revenue official. It appeared that cheque payments to the Revenue Commissioners or the Collector General had been intercepted and fraudulently converted. When the matter came to notice the Revenue Commissioners immediately alerted the Garda authorities. In the meantime internal Revenue procedures had been tightened up considerably.

As the cases in question were sub judice the Committee agreed to defer further examination to a date subsequent to the court hearings.

Collection of Health Contributions, Youth Employment Levy and Income Levy

24. Paragraph 21 of the Comptroller and Auditor General’s Report referred to the Youth Employment Levy and Income Levy which became payable from 6 April 1982 and 6 April 1983 respectively. The Collector General is now responsible for collecting these levies together with health contributions from all liable categories of income earners; prior to 6 April 1984 the Health Boards were responsible for their collection from farmers and arrears of approximately £20 million due to the Boards were still outstanding at 31 December 1984. In the case of PAYE taxpayers they are collected as part of their PRSI contribution and in the case of the self-employed, including farmers, and those with investment income only, they are due and payable on or before 1 October each year. The amount of levies and health contribution due from each taxpayer is based on the information regarding income held on the income tax computer record, but the Collector General can make an estimate of such income where adequate information is not available in these records.

The Comptroller and Auditor General noted that a total of £73 million demanded by the Collector General for the years 1979/80 to 1984/85 from the self-employed and those with investment income only and for 1984/85 from farmers with rateable valuation in excess of £40 was still outstanding at 31 December 1984. This, in addition to the £20 million referred to above, amounted to £93 million.

The Comptroller and Auditor General was informed by the Accounting Officer that, out of 157,000 demands issued for the year 1984-1985 at the end of October 1984, the Collector General received 29,000 payments and 19,000 inquiries. The Revenue Commissioners regarded it as impracticable to issue further demands or reminders for 1984-1985 while staff were dealing with the inquiries. However, repeat demands totalling 185,000 cases covering 1984-1985 and earlier years were issued between April and June 1985. This number included 36,000 demands issued to farmers. With staff reductions in the Collector General’s Office it had not been feasible to enforce collection of health contributions and levies.

The Accounting Officer in evidence stated that the £93 million referred to by the Comptroller and Auditor General was an estimate and most of that would not be collectable. The amount collected would have been about £33 million with a balance of approximately £6 million to be paid.

The Committee, noting that there were major issues regarding the overall effectiveness of the Office of the Revenue Commissioners involved, decided to defer making any final comment or decision pending the completion of an in-depth review of the Office by the Committee at an early date.

Residential Property Tax

25. The Comptroller and Auditor General had referred in paragraph 20 of his 1983 report to the introduction from April 1983 of a Residential Property Tax. The tax is self assessed and by 31 December 1984, £2.1 million had been received by the Collector General (£1.1 million in 1984). The tax is payable by any person owning and occupying residential property having a market value exceeding £65,000 on 5 April 1983 (£65,622 on 5 April 1984). Exemption from the tax may be claimed in any case where the gross annual income of the household does not exceed £20,000 (£22,030 for 1984/85). The tax is payable at a rate of 1.5 per cent of the amount by which the market value of the property exceeds the prescribed limit.

The Comptroller and Auditor General noted that the initial arrangements made for the assessment and collection of the tax provided that returns showing all residential property and gross household income be sought by the Revenue Commissioners from liable persons and that such returns were to be made by 1 October together with remittances for the declared amount of tax. From an examination of the procedures in operation to verify the information provided by the returns it appeared that it was not possible to establish whether all residential property, wherever situated, had been declared by the owners and that, where exemption from tax was claimed on income grounds, limited checks only were made on some of the returns to verify that all household earners had been declared.

The Comptroller and Auditor General sought the observations of the Accounting Officer as to the adequacy of procedures for ensuring that all assessable persons and taxable property were identified and that the self-assessment returns were correct. In reply the Accounting Officer pointed out that part of the difficulty in dealing adequately with property tax was, as in other areas of Revenue, the lack of adequate staff to examine each case yearly. An investigation unit had been set up with a view to ensuring that persons liable to the tax were identified and made returns.

The Committee was informed that, of 56,000 returns received for 1983, a total of 6,000 showed liability for tax and 50,000 claimed exemption. For 1984, a total of 23,700 responded of whom 5,000 were liable for property tax. The decrease reflected a reduction in house values and an increase in the numbers eligible under the income exemption limit.

The Committee concluded that the decreasing return from the Residential Property Tax did not appear to justify the resources allocated by the Revenue Commissioners to that area, assuming there is no change in the criteria for eligibility which would increase that return.

Review of the effectiveness of the Office of the Revenue Commissioners

26. The Committee agreed to the following motion:

“To consider the effectiveness with which the Revenue Commissioners utilise their staff and other resources in customs control; in identifying taxpayers; in identifying their income sources and level of income and in the assessment to tax of all such income and the collection of all tax finally assessed, including the enforcement of collection in cases of default and the adequacy of control in view of recent developments”.

The Accounting Officer welcomed the Committee’s interest and stated that the Revenue Commissioners would co-operate fully in any area which would be mutually beneficial and which would result in a more cost effective organisation. It was agreed that the above mentioned review would be undertaken quickly and would be subject of a special Committee report to be laid before Dáil Éireann.

DEFENCE

Mechanical Transport

27. The Comptroller and Auditor General referred in his Report to the lack of Stocktaking in the Transport Stores and Base Workshop of the Defence Forces at Clancy Barracks and to arrears in the recording of issues from store with the result that it was not possible to check that physical stocks agreed with the store records. Since the date of his report, the Accounting Officer had informed the Comptroller and Auditor General that stocktaking at the main technical stores in Clancy Barracks, Dublin, had not been completed every two years in compliance with the prescribed regulations. There were also delays in the recording of issues from stores. Steps had been taken to update records and inspections following the introduction of a computerised stores system in the Department. It was hoped that the new system would resolve most of the difficulties which had been experienced in the stores area over the years.

The Accounting Officer in evidence stated that the stores in question were located in buildings at Clancy Barracks, Dublin which were neither built for nor suitable for the purpose of storing materials. A purpose built stores was under construction and this, along with computerisation of records would ameliorate the situation. In relation to the control of stores the Accounting Officer added that the opportunity for completion of stocktaking was constrained by reductions in staff numbers arising from the Government embargo. The 26,000 stores classifications accounting for about half a million individual parts and the physical checking of the stores created a considerable manpower problem.

The Committee found it disturbing that in a stores with such a large throughput carrying stocks of such value and comprising such attractive items, many of which are individually high cost vehicle components, regular stocktaking, which is essential to the control and protection of stocks, had not taken place in compliance with prescribed regulations and that routine updating of stores records had gone into arrears. It urges that this situation be rectified at the earliest possible opportunity and it wishes to be kept informed of progress being achieved.

Central Purchasing

28. The former Department of Posts and Telegraphs provided a central purchasing service for other Government Departments up to the end of 1983 when the main functions of that Department were taken over by the two new State-Sponsored Companies, An Post and Bord Telecom Éireann (BTE). As an interim arrangement, pending a review by the Department of the Public Service of the organisational arrangements for purchasing the requirements of Government Departments, the Government decided in September 1983 that the central purchasing functions in relation to vehicles and transport equipment, communications equipment and clothing should be transferred to the Department of Defence from 1 January 1984.

The Government also directed that there should be no loss to the Government sector in terms of staffing, stocks or warehouse accommodation as a result of the transfer of central purchasing functions. This meant that the stocks on hands, other than those acquired for the former Department of Posts and Telegraphs, were to be transferred to the Department of Defence on 31 December 1983 together with appropriate warehouse accommodation to enable that Department to assume the central purchasing function.

A full listing of these stocks amounting in value to £3,123,022 (subsequently adjusted to £3.7 million) was supplied to the Department of Defence by BTE in July 1985 but, at the date of the Comptroller and Auditor General’s report, the items had not been identified, verified by stock count, or taken on charge by the Department of Defence. Warehouse accommodation had not been transferred. Neither had arrangements been made for that Department to take sole custody of and control over the stocks to be transferred nor over items purchased since the transfer of functions which were being stored in the warehouse accommodation still in the possession of BTÉ.

The Comptroller and Auditor General informed the Committee that his main concern was that he should have been a speedy implementation of the Government direction which was designed to ensure that the Department of Defence would acquire accommodation for and custody and control over stocks which were not being handed over to the two new state companies. Delays in implementation of the decision would almost certainly have caused problems in stock control procedures. The Comptroller and Auditor General summarised the attempts that had been made by the Office of Public Works acting on behalf of the Department of Defence to reach an agreement with Telecom Éireann in relation to accommodation for the stores.

The Accounting Officer stated that his Department was acting in accordance with the Government directive as regards the central purchases of stores but due to the dispute between OPW and BTÉ the Department did not have physical possession of the building involved.

The Committee expressed its dissatisfaction at the fact that a Government directive relating to the above mentioned arrangements in 1983 had not been implemented at the end of 1986. It found it unacceptable that it took so long to effect the smooth transfer of warehouse property between An Bord Telecom and the Department of Defence and it requests that a report be furnished by the Office of Public Works on the final outcome of the negotiations.

LABOUR

Training and Employment of Young Persons

29. Paragraph 49 of the Comptroller and Auditor General’s Report referred to the amount provided for training and employment of young persons paid into a Grant-in-Aid Fund to meet expenditure incurred on a number of employment schemes administered by the Department of Labour and other Department and also to provide a grant to the Youth Employment Agency. The Youth Employment Agency reallocates a portion of its grant towards the cost of some of the departmental schemes. An account of the Grant-in-Aid Fund is appended to the Appropriation Account. One of the schemes administered by the Department of Labour, the Grant Scheme for Youth Employment (known as TEAMWORK) was introduced in May 1977; up to 1983 this scheme was administered by the Department of Education. Under the scheme grants are payable to organisers of projects involving desirable community works which have a high labour content and result in the direct employment of young persons. The Scheme provides that, prior to the commencement of each project, officers of the Department examine the proposals and agree with the organisers on the duration of the project and on the number of employees and supervisors to be recruited, following which departmental sanction for the project is given and a total grant approved. During the course of the project payments on account of the approved grant are made. The scheme also provides that weekly returns must be submitted by the organisers showing the number of employees recruited and the gross wages paid to each of them. Inspections by local officers of the National Manpower Service during the course of a project may also be carried out and, on completion of the project, grants must be accounted for by submission of an audited statement of expenditure.

Expenditure on the scheme in 1984 amounted to £6,041,516 in respect of 370 projects involving 4,300 employees and comprised £5,541,516 met directly from the Grant-in-Aid Fund and £500,000 by the Youth Employment Agency.

The Comptroller and Auditor General noted from a limited test examination of projects grant-aided under the scheme that weekly returns for some projects disclosed that the grants paid for labour exceeded gross wages. In some cases the number of workers for which grants were paid was greater than the number employed and in other cases the maximum weekly labour grant of £60 per worker was paid to the organisers even though the wages paid to individual workers were less than this. In one instance the grant paid for labour was £28,080, but the maximum total grant payable on the basis of the number of workers employed according to the weekly returns appeared to be £22,140. It appeared that no action had been taken by the Department to establish in the case of all projects the correct level of grants, to adjust the grant instalments on the basis of the weekly returns or seek refunds of any amounts overpaid. Furthermore, organisers did not in many cases furnish the required audited statements following the completion of projects and in some cases where statements were furnished they were not reconciled with the total payments made during the course of the project.

The Comptroller and Auditor General stated that he had been advised by the Accounting Officer that, although the grants for labour should not normally exceed the gross wages throughout the duration of a project, this could sometimes occur for various reasons.

In evidence before the Committee the Accounting Officer stated that, under the scheme there had been a considerable throughput of participants — about 30,000 in 1986 — and these had to be dealt with by a diminishing level of staff resources. As regards questions raised by the Committee arising from the Comptroller and Auditor General’s report, he agreed that a degree of flexibility was shown in relation to the payments under the TEAMWORK scheme. He accepted that there had been a fault in the Department’s system which resulted in the grants for labour under the scheme exceeding the amount of wages paid. The amounts of overpayment had since been recovered or were being pursued by the Department.

The Committee noted the position as outlined by the Accounting Officer and trusts that controls will be exercised and correct procedures followed in future by the Department in relation to its schemes.

Enterprise Allowance Scheme

30. The Comptroller and Auditor General informed the Committee that the Enterprise Allowance Scheme was introduced in December 1983 with the object of encouraging unemployed persons receiving unemployment benefit or assistance to establish a business and to provide them with a weekly income during its first year of operation. Weekly allowances at the rate of £50 for married persons and £30 for single persons are payable to participants for up to a maximum of 52 weeks. Under the conditions of the scheme participants may be paid a lump sum in lieu of weekly payments or a combination of lump sum and weekly payments up to a limit of £2,600 for married persons and £1,560 for single persons. Persons who are entitled to pay-related benefit under the Social Welfare Acts may also receive by way of lump sum any balance of pay-related benefit to which they would have been entitled for the period of participation in the scheme.

Total payments under the scheme in 1984 amounted to £5,862,389 of which £4,856,349 was met from subhead V in the Department’s Vote in respect of participants over 25 years of age, £391,040 was met from the Grant-in-Aid Fund for Training and Employment of Young Persons in respect of participants under 25 and £615,000 was paid by the Youth Employment Agency also in respect of participants under 25. Payment of weekly allowance is made by means of an automated system. A test examination of this system revealed that the departmental procedures for making payments did not include adequate controls to prevent fictitious records being set up, to prevent errors and irregularities or to detect any that might occur. It appeared that such errors had occurred. The Comptroller and Auditor General sought the observations of the Accounting Officer on the inadequacy of control in the operation of the scheme and had asked why corrective action was delayed until March 1985; why, when taken, it was limited to control over the payment of lump sums and what measures were proposed to prevent errors or irregularities in the payment of weekly allowances and to detect any that might occur. Information was also sought as to the extent of departmental inspections carried out in the Dublin region during 1984.

In reply the Accounting Officer had indicated that a rapid growth in the scheme along with staffing constraints had resulted in the problems outlined. Steps had since been taken to eliminate deficiencies in the system and that priority had been given to the introduction of a fully computerised programme.

Questioned as to the deficiencies of the scheme revealed in the Comptroller and Auditor General’s report the Accounting Officer explained that the capitalisation scheme had been extremely difficult to monitor, within the staffing constraints of the Department of Labour. Controls had been tightened on the disbursement of Capital sums and most of the authority for the scheme was delegated to the Local Manpower Offices from January 1987.

The Committee, while noting that losses to the State under the scheme were relatively low, nevertheless feels that tighter control should have been exercised so that the overpayments revealed could have been largely avoided. It trusts that the Department now has comprehensive monitoring and control procedures in place to avoid similar cases in future.

HEALTH

North Western Health Board

31. The accounts of the health boards are audited by Local Government Auditors whose reports are made available to the Comptroller and Auditor General.

In his report dated 15 September 1983 on the account of the North Western Health Board for the year ended 31 December 1981 the Local Government Auditor drew attention to a number of accounting malpractices and deficiencies in the control of the Board’s fixed assets.

He stated that a concerted attempt had been made to charge expenditure incurred in 1982 (amounting to £280,000) to the 1981 accounts and that the measures employed to achieve this included, inter alia, the alteration of the dates on suppliers’ invoices and an arrangement with a consultant architect to back-date his certificates of amounts due to building contractors so as to give the impression that building work had been completed in 1981 even though the relevant contract had not been signed until 1982. As a result the Local Government Auditor disallowed expenditure amounting to £194,574 charged in the 1981 accounts but was of the opinion that this did not represent the full extent of the malpractice complained of as many of the alterations made had been so skilfully done as to render detection difficult. In relation to the control of assets the Local Government Auditor stated that even the most basic control on the movement of fixed assets was non-existent as the register of real property had not been written up-to-date and no inventory had been made of plant and equipment. As a result it had been impossible to determine whether the Board still retained control of various assets taken over from local authorities in 1971 and of other assets acquired in the meantime.

The Comptroller and Auditor General inquired from the Accounting Officer as to what action had been taken by the Department to rectify the weaknesses referred to and to eliminate the malpractices noted by the Local Government Auditor which could lead to excessive grants being paid to the Health Board by the Department.

In his reply the Accounting Officer stated that in relation to the alteration of dates on invoices the total amount involved was £280,000 and that this represented funds allocated in 1981 for which commitments were entered into in 1981 but for which delivery of the goods or the execution of the works concerned did not take place until 1982.

Similarly, the altered architect’s certificates referred to by the Auditor arose in relation to a hospital contract for which funds were allocated in 1981 but on which work had not commenced until 1982. The architect’s certificate had been improperly back-dated solely to charge the expenditure to 1981 rather than 1982. The Accounting Officer had assured the Comptroller and Auditor General that the need to ensure that strict accounting practices were constantly observed had been emphasised to the Board’s Chief Executive Officer by the former Accounting Officer who was satisfied that the Chief Executive Officer had since taken the necessary steps to ensure that there would be no recurrence of such breaches of accounting practices. In regard to the control of assets, the Accounting Officer stated that the abstract of accounts which Health Boards are required to prepare do not require a full balance sheet as is normally prepared for commercial organisations, but that the issue was under consideration in the context of the new computerised accounting systems now being considered for installation in all Health Boards. In the interim a system was being installed by the North Western Health Board which would give a continuous up-dated fixed asset register and which would be integrated with the Board’s financial and management information systems.

Questioned on the malpractices revealed in the audited accounts of the Board the Accounting Officer stressed that there was no question of fraud, or misappropriation, or diversion of public funds. He agreed that an unsatisfactory accounting situation had occurred in the Health Board in 1981 and 1982 but that urgent steps had been taken via the C.E.O. to ensure that correct procedures were followed subsequently and there had been an immediate improvement in the following year. The malpractices referred to were said to be due to misguided enthusiasm on the part of staff responsible for the budget of the Health Board in question.

The Committee expressed its deep concern:

(a)at the continuing long delay in the submission of Health Board Accounts for audit and

(b)at the manner in which the North Western Health Board allowed the serious accounting malpractice and deficiencies in the control of the board’s fixed assets to occur.

The Committee could not condone a situation whereby documents were altered in co-operation with the Health Board staff and consultants employed by the Board. It is further of the view that such practices should not be tolerated in future and that appropriate sanctions should be taken should there be a recurrence in any Health Board. In addition the Committee requests the Department of Finance to review the case in question and issue such guidelines as may be necessary to ensure that correct accounting procedures are followed in future.

Southern Health Board

32. The Comptroller and Auditor General referred also to a report dated 15 November 1983 on the audit of the accounts of the Southern Health Board for the two years to 31 December 1981 wherein the Local Government Auditor drew attention to a number of accounting and control deficiencies. These related mainly to stock records, staff complements, farm accounts, analysis fees and medical cards.

The Board’s expenditure in those two years totalled approximately £202 million which was substantially financed by grants totalling approximately £185.5 million from the Vote for Health and the Comptroller and Auditor General had asked the Accounting Officer what action was being taken by the Department to rectify the accounting and control deficiencies revealed in regard to the Board’s operations.

On the general question of the issues drawn to the attention of the Committee by the Comptroller and Auditor General the Accounting Officer stated that the accounting and control deficiencies had been addressed and corrective action had since been taken. He added that the essential element of criticism in relation to inadequate stock records for drugs and medicines valued at £3.8 million was valid.

The Committee found it disturbing that serious accounting and control deficiencies in the Southern Health Board had been revealed and it takes the view that the Department of Health should ensure that the Health Boards under its control operate within the laid down procedures at all times.

Beaumont Hospital

33. In Paragraph 68 of his report the Comptroller and Auditor General referred to procedures to be observed by the Department of Health when incurring capital expenditure on health facilities which were laid down by the Department of Finance in February 1982. These procedures require, inter alia that where a planned project does not proceed and constructive losses of over £100,000 are incurred on professional fees, such losses should be noted in the Appropriation Account.

It was noted that a proposal for the construction of a staff residence at the new Beaumont Hospital site for which plans were drawn up in 1979 was abandoned at tender stage in 1981. Revised plans were drawn up in 1982 and approved by the Department in 1983. Planning work had reached an advanced stage by December 1984 when it was decided that the project should not be proceeded with.

The Comptroller and Auditor General informed the Committee that estimated professional fees paid in January 1986 in relation to the Beaumont Hospital project included a sum of £394,000, inclusive of VAT, in respect of planning for the staff residence, which was subsequently abandoned.

The Accounting Officer stated in evidence that research was still continuing on whether a staff residence was justified but that it would have to await receipt of the final accounts for the entire project before a decision was taken on whether the amount involved would be noted as a constructive loss.

The Committee is concerned at the above development and wishes to be kept informed in regard to the final outcome of the Beaumont Hospital project, particularly in relation to the staff residence.

Auditing of Health Board Accounts

34. The Committee heard evidence about the unsatisfactory position regarding the audit of health board accounts.

The Department of the Public Service representative stated that the Government introduced restrictions on the filling of vacancies throughout the civil service in 1981 and there had been requests for the filling of vacant posts for the local authority audit service. Certain audit posts were filled by promotion and redeployment. In addition an interdepartmental review committee has been established to look at the future of the audit service and to consider various questions which were raised previously by the Committee. First, the question of whether it would be more economical to engage private sector auditors. Second, since a large proportion of the expenditure of the bodies audited by the local authority audit service comes from central funds, whether it might be more logical to consider setting up a comprehensive State audit commission and integrate the operations of the local authority audit service into that commission.

The Committee, while welcoming the establishment of an interdepartmental committee on the issue of local government audit, finds it difficult to accept the level of serious delay that had occurred in the area of Health Board audit in previous years and urges that steps be taken to improve the timelines of audits. It will pay particular attention to this issue in future Committee reports and in the meantime requests that the Department of Health should monitor closely the accounting procedures and practices within the Health Boards under its control and report back to the Committee.

ENVIRONEMNT

Local Authority Audits

35. The Accounting Officer informed the Committee that in the case of the county councils, 22 out of 27 accounts were audited for 1983 by January 1987, 12 of the accounts for 1984; and only one of the accounts for 1985. The Committee again wishes to express its disatisfaction at the delays in the completion of audits and requires that priority be given to updating the audit position at the earliest possible opportunity. As stated above this issue will be considered further in future Committee reports.

AGRICULTURE

Bovine Tuberculosis Eradication

36. The Comptroller and Auditor General’s report gave details of expenditure and receipts under the Bovine Tuberculosis Eradication and Brucellosis Schemes in the year and the cumulative gross and nett costs to the year end.

The Accounting Officer informed the Committee that the receipts from farmer contributions, under the two schemes amounted to £5.8 million for 1984. The total number of Department staff involved was of the order of 900 with about 650 of those dealing with Bovine TB.

It was noted that within the EEC, Spain, Greece, Italy and Portugal were the only countries that had a worse incidence of Bovine TB than Ireland. The Committee was perturbed to find that this was the case given the very considerable State investment in the disease eradication programme since 1957 and the fact that very little major progress had been made since 1965.

The Committee considered the Bovine TB Eradication Scheme in detail and heard evidence from the Accounting Officer and also representatives of the Irish Farmers Association and the Irish Creamery Milk Suppliers Association.

An IFA policy document on disease eradication was discussed during the evidence given before the Committee by the Association. In essence the main conclusion in the document was that the Government should establish an executive office with responsibility for Bovine TB eradication, with a board of management representative of farmers, veterinary surgeons and the Department of Agriculture. The financing of the Office and the scheme itself would be through a payment by individual herd owners for an annual test on each animal, irrespective of the health status of the herd. The proposed new system would require any reactor animal to be isolated immediately and slaughtered. Discussions on the issues involved had taken place between the Minister for Agriculture, the IFA and the ICMSA and it was hoped that an improved scheme would be agreed.

The ICMSA in evidence supported the proposal for a national executive office to deal with Bovine TB eradication. The Association placed particular emphasis on the need for a full round of testing and stressed that the illegal movement of cattle was a primary cause of the high incidence of the disease at present.

The Committee, noting the above mentioned proposals, trusts that there will be a marked improvement along with the more cost effective use of State expenditure on the scheme in future years. In the meantime the Department of Agriculture was requested to provide an updated report on the scheme.

37. The report of the Comptroller and Auditor General indicated that when a contract to the value of £786,000 plus VAT at 23 per cent was placed in November 1983 for the supply of 120,000 blood sampling kits for use in the Brucellosis Eradication Scheme, a total of approximately 140,000 kits, which represented one year’s supply at the 1983 level of issues, was already in stock. It was also noted that at 31 December 1984, the number of kits remaining in stock had risen to 235,000 representing several years’ supply at the reduced level of issues from 1 January 1984. Also an investigation carried out by the Department into the level of wastage of sampling tubes in the period May 1981 to 31 December 1983 showed that there was a shortfall of approximately 39 per cent between the number issued to veterinary practitioners and the number returned by them.

The Comptroller and Auditor General sought information from the Accounting Officer as to why a contract was placed in November 1983 when there was at last one year’s supply on hands. He also inquired about the very high level of wastage and the steps taken to reduce it. The Accounting Officer explained that it was considered prudent to have a year’s supply on hand at all times to ensure that the scheme would not be interrupted by supply difficulties. He added that wastage of sampling equipment had been a matter of concern to the Department and had been taken up with the Irish Veterinary Union. New arrangements had been made with a view to reducing wastage.

The Accounting Officer in evidence stated that it was necessary to keep adequate stocks of the blood sampling kits particularly as it took a considerable amount of time to secure new stocks when ordered. He added that the level of wastage had since been reduced to 25 per cent and the issues of sampling kits are monitored to ensure that a reduction in wastage is achieved.

The Committee wishes to express strongest concern (a) at the overall cost of the Bovine TB scheme to date and the continuing high level of the disease (b) the high level of wastage on blood sampling kits and (c) the number of staff allocated to the brucellosis scheme given the low level of incidence of the disease. The Committee also has reservations about the type of tuberculin used by the Department of Agriculture in view of the fact that disease levels in some counties were still as high as 10 per cent. It therefore urges that the utmost priority be given to concerted action on the eradication of Bovine TB, including any necessary research so that the very significant State investment can be reduced progressively over the coming years. The Committee will be particularly interested in monitoring progress in this area in its future reports.

Scheme of Assistance for the Expansion of the Cattle Breeding Herd

38. In paragraph 41 of his report the Comptroller and Auditor General referred to this scheme which was introduced in 1982 with the objective of expanding the cattle breeding herd by providing grants for additional calved heifers kept by herdowners above their normal cow herd replacements. A grant of £70 is paid for each additional first calved heifer (subject to a maximum of forty grants per herdowner) verified on inspection as being present in the herd and additional to the applicant’s basic herd number at 30 June of the year prior to the year for which a claim was made. The total paid from the Vote in respect of the scheme up to 31 December 1984 was £17,881,430 representing gants for over 255,000 animals.

In the course of audit of the 1983 scheme a comparison of the details shown on thirty herd applications under this scheme with the details shown on the disease eradication test reports for the same herds revealed that grants were paid to five herdowners in respect of animals which, on the basis of their description in the test reports, should not have qualified for grants.

The Comptroller and Auditor General inquired about the cases in question and was informed by the Accounting Officer that departmental officers, experienced in determining the ages and status of cattle, carry out a physical inspection of every animal presented by applicants under this scheme and the introduction of a further comprehensive system of time-consuming comparisons with disease eradication test reports could not be justified. The test reports were examined only in exceptional cases, e.g. where suspicions were aroused. An initial examination of test reports in the cases noted did not suggest strong grounds for seeking refunds in these five cases but the matter was being further investigated.

The Comptroller and Auditor General also inquired into the extent to which the national breeding herd increased as a result of the payment of 255,000 grants under this scheme. The Accounting Officer in reply stated that, according to the Central Statistics Office, the national breeding herd increased by 88,000 cows (i.e. from 1.982 million to 2.070 million) between June 1981 and June 1984, the base period covered by the scheme. The Comptroller and Auditor General further inquired whether, at the outset of the scheme, the Department had made projections of the proportion of the total number of grants which would be reflected in the increase in the cattle breeding herd and, if so, whether the figure of 88,000 shown in the statistics is in line with those projections. The Accounting Officer subsequently informed the Comptroller and Auditor General that the number of grants finally paid was 325,000 and that the increase of 88,000 in the national herd was considered acceptable by the Department. The Comptroller and Auditor General’s overall concern had been in relation to the effectiveness of the scheme in achieving its objectives.

The Committee, having considered the evidence given by the Accounting Officer, expressed concern that the scheme had made little or no impact on breeding herd numbers. It agreed to seek a progress report on the scheme in relation to consideration of the 1985 Appropriation Accounts.

Market Intervention — Storage

39. The Committee noted in the report of the Comptroller and Auditor General that an amount of £1,386,510 was incurred in 1984 in respect of two ships chartered for a period of one year for the storage of intervention butter. The need to charter these vessels arose early in 1984 when all available storage space in Ireland had been taken up and the EEC Commission had fixed the amount of butter which could be stored abroad at 20,000 tonnes. The Accounting Officer had stated that the final accounts for the chartering of the vessels had been estimated at £2.077 million of which £0.727 million would be recovered from the European Communities. The net cost to the Exchequer was estimated at £1.35 million. The actual final figures were £2.035 million, £0.727 million and £1.31 million respectively.

In evidence the Accounting Officer stated that since 1984 the State succeeded in obtaining adequate intervention storage space on land. The Committee with regret noted, however, that the cost of storage in Ireland was £1.25 million more expensive than abroad, mainly due to the cost of electricity here and the strong negotiating position of Irish cold store owners up to recently. That position had since changed due to downward pressure on prices arising from more space becoming available in Ireland. In addition to that the EEC Commission had reduced rates available for storage etc. for the end of 1985. The Accounting Officer added that the cost of storage exceeded the realised cost of the product put into intervention.

The Committee, while noting the high cost of storing the intervention butter as outlined, accepts that no other option was open to the Department at the time but trusts that the most cost effective system of storage will be availed of in future years.

Market Intervention — Losses

40. The Committee noted from the Comptroller and Auditor General’s report that the price at which the Intervention Agency resells beef which it has purchased under EEC regulations is fixed by reference to whether the particular cuts are eligible or ineligible for export refunds, the price for ineligible cuts being lower by approximately the amount of the export refund. In 1980 and 1981 three Irish companies and four French companies purchased 1.004 tonnes of intervention beef cuts for export to countries outside the Community. The beef as packed at the time of purchase was ineligible for export refunds and the price paid was, therefore, lower. In such circumstances EEC regulations require that the beef be exported in the same state at that in which it was removed from intervention stock and, in order to guarantee compliance with the Regulations, purchasers must provide securities in the form of bank guarantees which must be forfeited to the Intervention Agency in the event of default. The guarantees provided in this case totalled £825,615. Prior to export, however, approximately 973 tonnes of this beef was broken down by the companies into individual pieces and separately rewrapped. Since wrapped boneless cuts are normally eligible for export refunds the exporters claimed from and were paid by the Intervention Agency such refunds thus reducing the net price of the beef to the exporters to £59 per tonne in some cases, ranging up to £264 per tonne in others. After making payment, the Intervention Agency consulted the Chief State Solicitor, but not the EEC authorities, and in January 1981, the Chief State Solicitor advised that the action of the companies did not constitute a change in the state of the beef purchased. On the basis of this advice, the securities were returned to the companies. When, however, the case was reported to the EEC Commission in April 1982 the Commission ruled that the securities relating to the 973 tonnes (£778,949) should have been forfeited. The Intervention Agency, having unsuccessfully attempted to recover the amount of the securities from the three Irish companies, offset these amounts against other EEC moneys due to them. No such action could be taken in the case of the French companies. The three Irish companies successfully contested the legality of this method of recovering the amounts in question as a result of which the Minister was obliged to refund to them out of the Vote a total of £620,000 including interest of £82,681. The amount of the securities released to the four French companies, £241,251 will be deducted by the EEC from moneys payable to the Irish Intervention Agency and will also have to be made good from voted moneys bringing the total cost to the Exchequer to £861,630. The Committee learned that there was little or no prospect of the State recovering any of that amount and the amount had been written off with the agreement of the Department of Finance.

The Accounting Officer informed the Comptroller and Auditor General that the court judgments against the Minister related solely to his offsetting the amounts against other EEC moneys in the particular circumstances and not to any right he may have to recover the amounts involved. Following those judgments the Department consulted the Attorney General’s Office as to how it should proceed. That Office had sought the advice of Senior Counsel in the matter. The Accounting Officer also stated that in May 1982 a specific instruction was issued to departmental officers at meat factories that they should not permit any rewrapping or repackaging of beef purchased out of intervention without clearance authorisation from the Department. Furthermore, in 1982 a special procedure was set up within the Department to ensure that any attempt by exporters to repeat the 1981 operation would be detected before the export refund had been paid or the security released. He assured the Comptroller and Auditor General that there had, in fact, been no repetition of the operation.

In subsequent correspondence with the Committee the Acccounting Officer reiterated that at the time the securities were released in January 1981 the auditing and clearance by the Commission of FEOGA expenditure by Member States was over six years in arrears. As there had been very little beef intervention before 1974, this meant that even at the beginning of 1981 Member States had only limited experience of Commission decisions and precedents in regard to the auditing of accounts relating to beef intervention. Furthermore, at that stage it was not the practice of Member States generally to obtain prior advice from the Commission on the interpretation of the complex body of EEC regulations in the agricultural sector.

During 1981 the Commission, following a meeting with representatives of Member States, introduced a formal procedure where a Member State could now seek guidance from the Commission on the interpretation of an EEC regulation and the Commission would then circulate to all Member States an information note conveying its opinion on the matter. Experience since then had been that payments by Member States based on such opinions are allowed by the Commission at subsequent audits.

The Accounting Officer added that, in the instance referred to in the report of the Comptroller and Auditor General, the release of the securities took place before the introduction of this new procedure. The matter was fully examined in the Department and the opinion of the Chief State Solicitor’s Office was obtained as to the interpretation of a reference to export “in the same state” in the relevant regulation. In these circumstances and against the background set out above it was considered that the securities could be released without consulting the Commission.

The Committee, having carefully considered the evidence, wishes to express its concern at the circumstances which led to the Exchequer having to meet the amount of £861,630 involved in this case.

Classification of agricultrual produce

41. In paragraph 47 of his report, the Comptroller and Auditor General referred to the classification of agricultural produce for the purpose of determining eligibility for export refunds which is carried out by the Revenue Commissioners supported, if necessary by scientific analysis of the content of the particular products carried out by the State Chemist.

Payment of £816,766 was made to the EEC in 1984 which, together with a sum of £146,504 refunded in 1983, represented export refunds paid to an Irish exporter of milk products in 1977, 1978 and 1979 but subsequently disallowed by the EEC Commission. The export refunds were paid on a product which, following analysis in 1977, was classified as milk powder and therefore eligible for export refunds under EEC regulations but in 1979 the product was reclassified as whey powder, a product which did not qualify for export refunds. The Accounting Officer informed the Comptroller and Auditor General in May 1977 that samples of a product manufactured by the company were submitted for analysis to the State Chemist who agreed with the company that the product should be classified as a type of milk powder. During the following two years samples of the product were analysed from time to time but there was no change in the classification. However, following a request by the German customs authorities in April 1979 regarding exports of milk powder to Spain by the company and subsequent imports into the Community of whey powder from Spain, the classification was re-examined. Samples taken from consignments exported in June, July and August 1979 were analysed by the State Chemist who stated that the product should in fact be classified as a whey product. The product was then reclassified by the Revenue Commissioners and the claim for export refunds on these consignments was rejected. The departmental file indicates that following this rejection the company ceased to export this product.

The Accounting Officer also indicated that in September 1980 the company instituted legal proceedings against the Minister for payment of the refunds withheld following reclassification, (£902,531) and that in January 1981 the Minister made a counter claim for recovery of the amount already paid (£963,270) in respect of the earlier consignments but that the case had not yet been heard.

In view of the fact that legal proceedings were in train the Committee agreed to defer consideration of the issues involved to a later hearing.

ENEREGY

State Support for Mining Operations

42. The Comptroller and Auditor General referred to payments totalling £665,217 up to 1983 made from the Vote to a number of banks in respect of interest due to them by Bula Limited. These payments were made under Government approved arrangements whereby the banks which had a mortgage on the Bula orebody and guarantees from the main private shareholders undertook not to proceed against the company or its guarantors for any further interest becoming due in the period up to 30 September 1983. These arrangements were made with a view to facilitating the continuance of discussions with third parties regarding the development of the orebody. In December 1984 a further sum of £234,318 was paid to meet interest due to one of the banks in the period 1 September 1984 to 30 November 1984.

The total amount issued from the Vote to 31 December 1984 viz. £899,535 has the status of a loan to the company by the private shareholders.

The Accounting Officer informed the Committee that the initial State investment in Bula was £9.54 million. With the above-mentioned interest payments of £665,000 and a further £280,000 arising out of subsequent decisions, the total amounted to £10.5 million.

In view of the fact that legal proceedings were in train in relation to Bula the Committee agreed to defer discussing the issues involved until the litigation was concluded.

Rural Electrification

43. The Committee queried an accounting practice whereby a sum of £2.45 million a year is repaid by the Department to the Central Fund. The Accounting Officer stated that the State had entered into a commitment to subsidise certain expenditures of the ESB under the Rural Electrification Scheme. The ESB estimated the amounts required each year and the subsidy being provided by the State was provided out of the Central Fund on condition that there would be repayments from voted moneys to the Fund. The amounts reflected annuities to reimburse expenditures by the ESB under the Rural Electrification Scheme. The present system enabled Dáil Éireann debate the amounts voted each year. The Committee requested the Department of Finance to clarify the position as to why it was necessary to continue with the existing accounting arrangements in relation to the Scheme.

Avoca Mines Ltd.

44. The Committee noted that £9.908 million advances were repayable by Avoca Mines Ltd. (in receivership) at end December 1984. The Accounting Officer stated that there was little likelihood of recovering any sums from the company since it went into receivership. The Receiver had been provided with a sum of £2.854 million to ensure that obligations of Avoca Mines Ltd. were properly discharged. The Receiver’s fees amounted to £228,975 and the Department was satisfied that he had operated in an efficient and cost-effective manner.

The Committee is concerned at the length of time being taken to wind up the affairs of Avoca Mines and seeks a progress report in relation to the final outcome on the receivership of Avoca Mines in due course.

VALUATION AND ORDNANCE SURVEY

Regional Offices

45. In view of the level of expenditure on travelling by staff of the Valuation and Ordnance Survey Office the Committee requested the Accounting Officer to consider the flexibility of establishing regional offices and to report back to the Committee on his findings.

The Committee also noted that maps and special work to the value of £436,106 were supplied free of charge to other Government Departments and Offices in 1984. It is of the opinion that the Minister for Finance should review this practice with a view to charging the relevant Votes for similar services provided in future.

Appeals

46. The Committee inquired about the cost to the State of court cases relating to appeals against Valuation Office decisions. It was agreed to defer consideration of this issue to a later Committee report and following receipt of detailed comments from the Accounting Officer.

FINANCE

Proposed change in format of the Estimates

47. The Committee considered a request from the Department of Finance to amend the format of the Estimates for the Education Group of Votes with effect from 1988.

The Accounting Officer explained that the proposed format would set out expenditure on education more clearly in the Estimates. At present, this expenditure is spread over five Votes and the existing format which evolved over the years, was not now regarded by the Department of Education or the Department of Finance as the most logical or beneficial in terms of conveying required information. The Accounting Officer added that the proposed changes in the Education Estimates was part of an ongoing process in reforming the Estimates generally.

The Committee expressed reservations about the proposal to amalgamate five Education Votes into one Vote on the basis that it could lead to a reduction of overall control by Dáil Éireann of the Estimates process. A single Vote such as that proposed could result in an easing of the control on virement in that savings on one or more subheads could be transferred to other areas without having to obtain approval from the Dáil for a Supplementary Estimate.

It was agreed that further discussions should take place between the Accounting Officers of the Department of Education, the Department of Finance, the Comptroller and Auditor General and the Chairman of the Committee with a view to clarifying the issues involved and that this should take place before the Committee gave a final decision on the issues involved.

At a subsequent meeting between the Chairman of the Committee, the Secretary of the Department of Finance, the Secretary of the Department of Education and the Comptroller and Auditor General it was agreed that there should be in the new format of the Estimates separate Votes for Office of the Minister for Education, First Level Education, Second Level and Further Education and Third Level and Further Education and that virement could not be exercised between those Votes. The Committee formally agreed with the proposed revised Estimates format which would ensure an adequate control by Dáil Éireann on expenditure on Education.

Financing of Beggars’ Bush building project

48. The Committee noted that charges shown in respect of Public Debt Services included expenditure of £567,000 incurred on legal and other costs relating to a proposed agreement for financing a building project at Beggars’ Bush, Dublin. 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.

The Accounting Officer in evidence stated that the £567,000 involved had been spent on legal and financial fees while exploring novel ways of financing the project. The reason the project had not gone ahead was that it was based on tax concessions which were available to a British company under the British tax regime for projects of that nature. During the negotiations the tax concessions were first eroded and then removed and it was then decided not to proceed with the financial arrangements being explored.

The Committee, while noting the reasons for the change in the financing of the Beggars’ Bush project expressed concern at the nugatory outlay of £567,000 on the project and trusts that the risks involved in such arrangements will be carefully calculated in any similar proposals in future.

Irish Shipping Limited

49. In paragraph 10 of his Report the Comptroller and Auditor General referred to the construction of the Irish Spruce at Verolme Cork Dockyard for Irish Shipping Limited, to the arrangements made for meeting the construction costs by a leasing arrangements, and to the necessity to enact the Irish Shipping Limited Act, 1982 to provide the lessors of the vessel with guarantees which would come into effect in the event of default in charterhire payments by Irish Shipping Limited. In fact the company went into liquidation in November 1984 and this constituted an act of default bringing the guarantee into effect.

The Comptroller and Auditor General was concerned that since the terms of the Irish Spruce guarantee given in January 1983 appeared to contain some unquantifiable elements the guarantee itself might exceed the limit of £50 million provided in the Act and that, in any event, as outlined in paragraph 11 of his Report, the Act had also been used in May 1984 to provide partial guarantees of borrowings in respect of two other vessels built for subsidiaries of Irish Shipping Limtied. The Comptroller and Auditor General was also concerned that certain post liquidation costs of repair, crewing, supplies etc. for the Irish Spruce paid from the Central Fund might not have been a valid charge under the guarantee. In these circumstances the Comptroller and Auditor General had asked the Department of Finance to obtain legal advice on the matter.

The legal advice obtained in February 1985 was to the effect that, notwithstanding the unquantifiable elements involved, the Irish Spruce guarantee was limited to the £50 million provided in the Act, but the repair, crewing etc. costs were not authorised by the Act (The Accounting Officer subsequently informed the Comptroller and Auditor General that these cost were being recouped to the Central Fund by means of a Vote charge).

In regard to the partial guarantees given in May 1984 of borrowing of Irish Shipping Limited’s subsidiaries in connection with the construction of the two other vessels, which resulted in a payment of some £12 million from the Central Fund, the Comptroller and Auditor General was concerned whether proper statutory authority could be said to have existed for such guarantees as the legal advice of February 1985 referred to above seemed to him to indicate that the Irish Spruce guarantee being valid up to £50 million and given in January 1983 had already exhausted the limit of guarantee under the 1982 Act. The Comptroller and Auditor General had been informed by the Accounting Officer that the Attorney General had advised when these guarantees were being given in May 1984 that the guarantees were covered by the Act, but he asked that this be reviewed in the light of the February 1985 advice.

The Comptroller and Auditor General informed the Committee that since the date of his Report the Accounting Officer had told him that counsel when giving his advice in February 1985 was concerned only with the Irish Spruce and did not address the question of the two other guarantees. Counsel had later advised, however, that, in complying with the 1982 Act the Minister in giving a guarantee would have had to calculate how much of the “statutory fund” had already been used up in pre-existing guarantees; when the two later guarantees were given in May 1984 the then ascertained liability on the Irish Spruce was only £30 million — the amount due in respect of the capital cost — and, therefore, the Minister would have been within the £50 million guarantee limit. The Comptroller and Auditor General remained concerned, however, that the potential liability in respect of the Irish Spruce taking all possible eventualities into account, was well above £30 million at the time the two later guarantees were given.

The Accounting Officer in evidence stated that his Department had sought advice on two occasions from the Attorney General’s Office on the above issues and legal opinion was to the effect that the Minister was entitled to take the view that the aggregate amount of moneys which he was at any time liable to payment, in the case of the Irish Spruce guarantee, the definite and ascertained liability at that specific time. The Accounting Officer added that the value of the guarantees had increased in terms of Irish currency because of the fall in the value of the Irish pound vis-a-vis the Japanese yen. In the case of the Irish Shipping Limited liquidation the Committee heard that total Exchequer payments were about £90 million of which £39 million arose from the Exchequer share of the Irish Spruce cost. In the event the ship was disposed of for £3.6 million.

The Committee was also informed by the Accounting Officer that the main reason Irish Shipping was liquidated was that projections available at the time indicated that the Exchequer was going to be faced with expenditure in the region of £220 million by 1989 in respect of the leasing agreements entered into by the company without the knowledge of the Department of Communications or the Department of Finance. He added that the monitoring and control of StateSponsored Bodies generally had been tightened up considerably in recent years.

The Committee is not convinced that the accepted principle governing the implementation of the guarantee provisions of legislation was observed in this matter. The Committee unequivocably holds the view that, in deciding whether there is scope for giving guarantees under legislation which limits the total amount which may be guaranteed, the extent of the guarantees already given — (Potential £50 million in the case of the Irish Spruce) — irrespective of what amount the Minister may be likely to be called upon to pay on foot of them (£30 million re Irish Spruce in May, 1984), is the sole determining factor. It would welcome confirmation by the Minister for Finance that he accepts this as a principle to be strictly observed in all such cases. Furthermore, it is clear to the Committee that the 1982 Act was enacted solely for the purpose of authorising the State’s involvement in the financial arrangements for the construction of the Irish Spruce and it is concerned that it should then apparently have been availed of to cater for a different matter. It shares the concern of the Comptroller and Auditor General that the State should not be exposed to the financial consequences of giving guarantees which may not have been contemplated when the relevant statute was being considered by the Dáil.

The Committee considers that where any doubt exists as to the extent of the authority provided by a statutory provision of this kind — and doubt clearly existed — the matter should be resolved by a reference back to the Dáil by an amending statute and trusts this will be the norm in future such cases. As the Committee is aware that the Comptroller and Auditor General has drawn attention in his 1986 Report to the final cost to the State of the Irish Spruce affair it may well be referring to the situation again when it comes to consider that Report.

JUSTICE

Prisons

50. The Comptroller and Auditor General drew attention to the purchase in 1982 at a cost of £395,000 of 132 electrically operated custom engineered steel doors for a proposed high security prison but which were still held at the Prisons Central Stores Depot in November 1984. He also noted that construction of the prison has been deferred indefinitely. The Accounting Officer informed the Comptroller and Auditor General that the contract for the cell doors was placed because it was necessary to have that done at the time if the building of the prison was to proceed in the time scale then planned in 1982. This was necessary because these were highly specialised doors, their manufacture would take some time and it was only by placing the order before commencement of the main building that the project could proceed as planned. The Accounting Officer also stated that substantial site works had already been done and that the only sense in which these doors would be unsuitable for a “conventional” prison was that they were of a design and standard not considered to be necessary for such a prison. However there was no change in the assessment that they would be needed in the proposed prison despite changes that have been contemplated in the design of that project and they were being retained on that basis.

The Committee is greatly concerned that there had been considerable expenditure involved and that there is no evidence that the proposed high security prison building project will in fact be undertaken in the foreseeable future.

Staff Housing in Portlaoise

51. The Comptroller and Auditor General reported that the Department of Finance sanctioned expenditure of £3.8 million, in June 1980, the then estimated cost including fees, on a proposed building project to provide 60 three bedroom houses for married prison officers and a building to provide accommodation for 60 single officers. In September 1980 a contract in the sum of £3,661,440 to be completed by February 1983, was placed by the Office of Public Works (OPW) for the project. The total final cost was estimated at £6.75 million, including £540,000 for professional fees. The final cost of each house was £78,000 which included £13,400 per house for the heating system.

Expenditure to 31 December 1984 amounted to £6,151,695 and the estimated total final cost is now £6.6 million including fees. The houses were taken over by the Department in November 1984 and the single quarters in February 1985. It was noted that a significant change had been made to the heating system specification after the contract had commenced resulting an extra cost of approximately £610,000. It was also noted that 11 of the houses and all the single quarters remained unoccupied by June 1985.

The weekly rent for the houses was set at £11.80 together with a weekly contribution of £5.40 towards the capital cost and maintenance of the heating system. The weekly rent allowance being paid to married prison officers was £25.93 i.e. there was a “rent allowance” of £8.73 allowable which was now in effect part of prison officers’ basic pay.

The Committee learned that, while the sanction of the Department of Finance was sought on 8 March 1984 for expenditure of £6,250,000 i.e. an increase of £89,000 over the £161,000 already sanctioned, this had not yet been received and it was understood that sanction would not be given until a request for discussions, made by the Department of Finance to OPW, had been met.

In evidence, the Accounting Officer stated that the original contract for £3.8 million included additional clauses which provided for an increase in prices and these added £1.6 million to the original amount. Of the balance of £1.3 million professional consultants fees amounted to £0.54 million. Variations and extra requirements accounted for £0.2 million and £0.6 million respectively. As with other contracts the Department was in the hands of the Office of Public Works for professional advice and overseeing the work on the site. The Accounting Officer added that the development of the site including drainage had proved to be much more difficult that originally anticipated.

The Committee, having visited the site in question, is convinced that there certainly was not value for money in relation to the houses for prison officers which had been built at a cost of £78,000 each, exclusive of site costs. The Committee, having considered all the evidence, concluded that the Department of Justice decided to build houses on a site which proved to be unsuitable and which required unforeseen additional surveys and preparatory work. Indeed the Committee questions the adequacy and standard of the original site survey. As a result of the various problems very expensive service ducts also had to be built into the scheme and a redesigned heating system installed. The Committee has serious doubts whether, even allowing for the difficulties encountered, such an elaborate, high cost heating installation was the only alternative in the circumstances. The problems encountered led to the price of 60 houses of modest design costing £78,000 each, plus site cost.

In view of the Committee’s deep dissatisfaction and concern about the above project it was agreed to refer the papers to the Department of Finance for an urgent report on all aspects of the project with particular reference to the considerable cost overrun of 78 per cent on the original contract. This report was subsequently received and will be subject of further Committee consideration.

Irregularities and delays in the Collection of Fines

52. The Committee’s last report referred to irregularities in the collection of fines through Garda Stations. It was noted that further irregularities were perpetrated by members of the Garda Síochána in the period 1982 to 1984 involving a total of about £19,700. These had been uncovered during inspections in 1984 which also revealed deficiencies in the system of internal control. This had since been rectified.

The Comptroller and Auditor General’s report also indicated that there were delays by Gardaí in the execution of warrants issued by the Courts. The number of warrants involved was 10,360 in mid-1985. The Committee is waiting details on follow up action taken to collect outstanding fines.

15th March, 1988.