Committee Reports > List of Committees > Dáil > 1989 > Committee of Public Accounts > Final Report - Appropriation Accounts 1985 - 1986

PART II

APPROPRIATION ACCOUNTS 1985 & 1986

LOCAL GOVERNMENT AUDIT SERVICE

2. Arrears of audit in bodies audited by the Local Government Audit Service

The bodies which are audited by the Local Government Audit Service - a division of the Department of the Environment-are mainline local authorities such as city, county and urban district councils and other authorities such as Health Boards, Vocational Educational Committees, harbour authorities, County Committees of Agriculture and other miscellaneous bodies. In the course of examination of the Accounting Officers for Environment, Health and Education, the serious position in the arrears of audit of these bodies’ accounts was again discussed. A statement submitted subsequently by the Department of Finance in February 1988 showed that only 18.58% of the bodies concerned had their accounts audited for the year to 31 December 1986 and over 50% had, at best, accounts audited to 31 December 1984 only. Two Vocational Educational Committees namely, City of Dublin and County Monaghan had their accounts audited to 1981 only. This clearly is an unsatisfactory situation. The Accounting Officer, Department of Health, in a note submitted subsequent to his appearance before the Committee, stated that the target is to have health board accounts available for audit within six months of the relevant financial year and to have certified audited accounts available for presentation to the Oireachtas within a further six months. The Committee agrees that this is a desirable target. It also agrees that the practice of carrying out multiple audits i.e. two to three years’ audit at the one time, is unsatisfactory but recognises that it is one way of coping with the build up of the arrears consequent on the reductions in staff numbers in the Local Government Audit Service as a result of the embargo on staff recruitment in the Public Sector generally. However, it is not a solution which is acceptable in the long-term and the whole problem has to be tackled without further delay.

The Committee in its review of the role of the Comptroller and Auditor General and the Committee of Public Accounts on which it reported in May 1988 also discussed the position of the Local Government audits in detail and made certain recommendations in the Report. The Committee is also aware of the work of the Interdepartmental Committee which is examining the operation of the Local Government Audit Service. The Committee discussed the first Interim Report of that Committee with the Secretary, Department of the Environment who confirmed that the Government has agreed to the redeployment on a temporary basis to the Local Government Audit Service of five additional suitably qualified staff in order to eliminate audit arrears within three years. The Committee welcomes this move although it has reservations about the temporary nature of the redeployment and it emphasises that it is but one of the steps which need to be taken to improve the position. It will continue to monitor the progress being made in clearing the arrears.

The Secretary, Department of the Environment confirmed that the practice of 100% transaction checks by some auditors still prevailed but the Committee repeat that this is not in keeping with modern audit practice and is inconceivable if arrears are to be eliminated and future audit work completed on a timely basis.

It awaits with interest the final Report of the Interdepartmental Committee and its recommendations on the wider issues which need to be tackled.

SOCIAL WELFARE

3. Overpayments of Invalidity Pensions

The Comptroller and Auditor General drew attention in his 1985 Report to overpayments of Invalidity Pensions totalling £33,648 which had been discovered up to the date of his report. The overpayments arose because books of warrants had been issued for the payment of pensions at higher rates than the claimants were entitled to. This error should not have arisen if the departmental procedures governing the issue of pension renewal books had been adhered to viz. that a comprehensive review of Invalidity Pension files be undertaken prior to the issue of the books in order to ensure that they are issued only to those entitled to receive them and that payment is being made at the appropriate rate.

The Accounting Officer told the Committee that substantial checks carried out after the date of the Comptroller and Auditor General’s Report revealed practically no further overpayments so that the total overpayments was £34,000 approximately involving 200 pensions out of a total of some 200,000 pensions. The errors arose at a time when the system was being computerised and were mostly due to a misfiling of stencils which were used to impress the claimants’ names and addresses on the claimants’ pension books with the rate of payment in each case being determined by the location of the stencil in the filing system. The staff, some of whom were inexperienced due to a high turnover at clerical level, were under a lot of pressure due to the computerisation and there had also been a delay in getting new pension books from the printers.

The Committee feels that in the changeover to the new system, as well as the usual procedural checks being necessary in the issuing of new pension books, extra precautions should have been taken to ensure the correct transfer of data from the manual to the computerised system as the possibility of error was high when consideration is taken of the number of pensioners involved. While it has sympathy with the Department because of the high turnover of staff, it feels that the extra precautions were not taken. The Accounting Officer told the Comptroller and Auditor General that the overpayments were being deducted from on-going weekly pensions but if there is any overall loss involved the Committee would like to be informed.

4. Use of computerised facilities for cross-checking purposes

In paragraph 52 of his 1985 Report, the Comptroller and Auditor General was concerned that a computerised facility which had been made available at certain local employment exchanges was not being used to cross-check and verify certain information regarding child dependents supplied by claimants seeking unemployment benefit and unemployment assistance with information held on the Department’s computer at headquarters. The Accounting Officer had explained to the Comptroller and Auditor General that there were some technical difficulties which prevented the extensive use of the computerised facilities to verify details in this way. Besides, he told the Committee that the terminals were essentially intended for use by information officers only who would be in a position to answer inquiries from claimants who called in with particular queries. The terminals were not intended initially for cross-checking purposes as envisaged by the Comptroller and Auditor General although they would have been available for this if it was felt that there were suspicions concerning information supplied by a claimant and it could be done without interfering with the primary purpose for which they were intended.

The Accounting Officer stated in his response to the Comptroller and Auditor General and in evidence before the Committee that his Department considered that the only effective approach to verifying information supplied by claimants in these circumstances was to develop a system which would provide automatic computerised cross-checking of such information and this had to await full computerisation of the employment exchanges. The manual cross-check facility was now available in most Dublin offices but the Accounting Officer felt that the total answer was the automatic facility.

The Committee recognises the extent of the computerisation programme in the Department of Social Welfare and the magnitude of the task facing the Department. It recognises that the extent of the progress made towards full computerisation can be achieved only as the available resources permit and that this can also be disrupted through loss and shortage of experienced and skilled staff. Despite these handicaps, optimum use should be made of the facilities which are in place. Computerisation should be a help rather than a hindrance in the administration of the Department and, while the Committee appreciates the advantages of automatic computerised cross-checking, in the absence of this, the need to cross-check details submitted by claimants which might arouse suspicion should not be lost sight of because of the absence of an automatic system.

5. Irregularities in Employment Exchanges

Serious irregularities involving very large cash defalcations at three employment exchanges were reported on by the Committee in its Report on the Appropriation Accounts for 1982 and 1983. The 1985 Report of the Comptroller and Auditor General drew attention to further defalcations which the Accounting Officer told the Committee occurred in three employment exchanges - Cork, Limerick and North Cumberland Street, Dublin - and totalled £75,000. The Comptroller and Auditor General reported that the defalcations took place on a regular basis over a considerable length of time and involved the creation of fictitious UB or UA claims by employment exchange staff and the falsification of weekly lists sent from the employment exchanges to the Department and resulted in the payment of cash at the exchanges. Ten officers were involved of whom eight were in North Cumberland Street employment exchange. The irregularity in North Cumberland Street was discovered by investigative staff of the Department carrying out their normal investigations. When the first case was discovered, a thorough examination was carried out on all aspects of the work resulting in the discovery of the other cases. In Cork, the case was discovered by normal internal checking and in Limerick the one case came to light through the checks of the internal administration section from headquarters. The internal administration section carry out general inspections as a regular matter in all 47 employment exchanges about once every two years but, on top of that, spot checks would be carried out in any case where there was reason to have suspicions of any sort.

The Accounting Officer told the Comptroller and Auditor General that managers of local offices were reminded of the importance of anti-fraud measures and had been directed to carry out certain procedures including weekly random checks of UB and UA claims. He admitted that local offices were under pressure because staff increases had not matched increases in the live register in recent years but that the number of staff responsible for carrying out inspections had been increased since the detection of these irregularities.

As a further measure to incorporate stricter controls, the Accounting Officer told the Committee that the number of employment exchanges particularly in the Dublin area was being increased because many of the present exchanges had become hard to manage with the huge increase in the live register. The policy was to reduce and make more manageable the amount of business for which managers were responsible. Local offices in Dublin increased from 4 in the early years to 13 at present and there were plans to increase this by building 3 more in the short term.

Total internal fraud in the Department in the years 1980 to 1987 including the above cases amounted to something in the region of £250,000. In the light of the number of staff employed, the number of transactions carried out each week and the amount of cash which flows through the system, the incidence of fraud is small but the Committee, nevertheless, must express concern that it happened. Constant vigilance is required to detect any possible future attempts at fraud and the continual carrying out of the prescribed checking procedures is an essential part of this vigilance.

6. Arrears of Social Insurance Contributions

The Department of Social Welfare is responsible for the recovery of arrears of contributions from employers who failed to comply with the provisions of the Social Welfare Acts prior to the introduction of the PRSI system in 1979. When all other avenues have failed, the recovery of outstanding monies is pursued through civil actions in the court. The Accounting Officer told the Committee that there were still over 300 cases outstanding and admitted that, because these were the more difficult cases, the process of recovery was taking a long time. The Accounting Officer agreed that the issuing by the courts of decrees in favour of the Minister for Social Welfare does not necessarily mean that the outstanding sums are collected.

The Committee wishes to impress upon the Department the importance of getting these cases cleared as the longer the cases drag on the more it reduces the chances of actual recovery.

7. Overpayments of Social Insurance and Social Assistance

The Committee noted that the net amount outstanding as at 31 December 1986 resulting from overpayments including fraud under the Social Insurance Scheme was £11.2 million and under the Social Assistance Scheme was £7.4 million. These figures represent a total net increase in overpayments under the two Schemes of £7.6 million since the Committee reported on the 1984 Accounts. Of actual overpayments recorded in both 1985 and 1986 which totalled £11.3 million, the Department attributed over £8 million to fraud or suspected fraud by claimants. The Accounting Officer said that these figures should be looked at in the context of the amount paid out by his Department each year, currently in the region of £2.7 billion involving 1.3 million claims. The Committee agree that total fraud detected as a percentage of total expenditure is small - only a fraction of one per cent - but when looked at on its own it is a large amount and the Committee would like to see it further reduced. Moreover, it is concerned that there is a significant degree of public disquiet that there is extensive abuse of the Social Welfare system and that the amount which the Department manages to detect does not by any means represent the full extent of the problem. It therefore urges the Department to make strenuous efforts to weed out abuse of the system by every means open to it.

With regard to the figures quoted at the outset, the Accounting Officer told the Committee that these figures represented an accumulation of overpayments since 1953 and that, whilst it was not possible at this stage to recover in many cases, there was no provision for the writing-off of these amounts.

The Committee agrees that there is no point in carrying forward ad infinitum amounts of money which have no hope of recovery and it recommends the introduction of some procedure which would allow for the writing-off of the non-recoverable amounts under these schemes.

8. Weaknesses in internal controls of a computerised system for the payment of unemployment assistance

The Committee notes the Comptroller and Auditor General’s concern at what he saw as certain weaknesses in the internal controls of a newly developed computerised system for the payment of unemployment assistance in the 13 Dublin employment exchanges, the possibility of fictitious claims being introduced into the system as a result of these weaknesses and the Accounting Officer’s response as reported by the Comptroller and Auditor General.

In evidence before the Committee, the Accounting Officer stated that this concern about adequate procedures and controls arose at a time when the Department was just starting to computerise the employment exchanges and the reference by the Comptroller and Auditor General to comprehensive instructions being drawn up without being issued to exchanges suggested that this was the cause of his concern on the matter. Computerisation of the work of the exchanges was a totally new experience for the staff of the offices and was dealt with by way of intensive training courses. These were a basic feature before the work of computerising any office started. At each training course staff were given training manuals which incorporated instructions for dealing with the new system. A liaison officer was appointed in each employment exchange to monitor the operation of the system as it started. When work started on computerisation in an employment exchange, staff from headquarters who were expert in the computerised system spent a lot of time there to ensure that exchange staff were familiar with instructions and so on.

With regard to fictitious claims, the Accounting Officer said that there was the possibility of setting up on the computer a fictitious claim and then destroying documents but they had now dealt with that. He said it should be appreciated that this was an ongoing process where a totally new operation was being set up that had never been tackled before. Revised manuals which incorporate up-to-date instructions were brought out and included among them was a provision whereby the liaison officer in each employment exchange would maintain a logbook which would show the logging-in of documents and logging-out of documents, so that a claim could not be generated and evidence destroyed - it would immediately come to light.

With regard to the comprehensive instructions, it had been hoped to have them issued by the end of 1987 but they were now completed and it was hoped they would be issued within a couple of weeks from the time of his examination. Suggestions made by the consultants who were carrying out the review of the Department’s payments system would be taken on board.

POST-PRIMARY EDUCATION

9. Accounts of County Kilkenny VEC

The Committee referred in the first paragraph of this Report to the arrears position in the Local Government audits. The unsatisfactory position referred to by the Comptroller and Auditor General in his 1985 Report regarding shortcomings in budgetary and financial control procedures at County Kilkenny VEC could, to some degree, be attributable to the arrears in the audit of the VEC’s accounts. For instance, in his 1985 Report, the Comptroller and Auditor General referred to the Report of the Local Government Auditor for 1980 and 1981 - a gap in reporting of four years - and during the examination of the Accounting Officer it was learned that the Local Government Auditor had only a short time before that issued his Report covering a period of four years, the earliest being for 1982 - a gap of almost five years. This is a very unsatisfactory situation and the Committee is in no doubt but that the shortcomings in controls highlighted by the Local Government Auditor could have been rectified much earlier if the audit reports were up to date.

The Comptroller and Auditor General told the Committee that his main concern in drawing attention in his Report to the shortcomings in budgetary and financial control procedures was that the Department of Education, whilst seemingly being made aware that County Kilkenny VEC were continually engaging in unauthorised practices which involved additional expenditure, was repeatedly giving retrospective sanction to the VEC to borrow money from the bank to finance this excess expenditure. The Comptroller and Auditor General continued that the Accounting Officer had told him that his Department was presented with fait accompli situations where the expenditure had already been incurred, the bank overdrafts had arisen and had to be met. More recently, the Department sanctioned overdraft facilities and in 1986 it was held at the minimum level necessary to avoid any difficulties in relation to salary payments for staff pending discussion with the VEC regarding the over-expenditure. This over-expenditure included payment to four teachers since September 1983, sanction for the appointment of which the Department had withheld because they were in excess of the teacher quotas, payment for minor capital works undertaken from time to time without proper authority and the employment of a second treasurer. In addition, a second bank account was opened, also without proper authority.

The Committee feels that the Department of Education and County Kilkenny VEC share equal blame in this situation. It is obvious that the Department’s own controls were sadly lacking and that returns were not being monitored very carefully. It does also seem that the Department was relying on the Local Government Auditor to give a judgement on the matters rather than trying to solve the situation themselves as the Accounting Officer stated that it was a function of the audit operation to decide what payments were to be allowed or disallowed. The Committee cannot agree with this implied suggestion of onus being put on the Local Government Auditor. The Committee insists that the Department had a very obvious obligation in this matter and, if its own rules were broken, it would expect that the Department would take appropriate prompt action. This it would not appear to have done.

With regard to County Kilkenny VEC the Committee is disappointed that it should have got itself into a position where it ended up breaking the rules. If one VEC breaks the rules and gets away with it, other VEC’s will be tempted to do likewise with a total breakdown in control ensuing. The Department of Education must be seen to be enforcing the rules laid down.

During the course of the evidence, the Comptroller and Auditor General told the Committee that the Accounting Officer had told him that full consideration would be given to whatever recommendations may be made by a consultative council which was set up in 1985 to examine the procedures for the allocation of funds to, and control of expenditure of, VEC’s. As it was obvious from what the Committee heard that proper procedures in this area were sadly lacking and urgently needed, the Committee would welcome hearing whether the consultative council had reported as this did not become clear during the examination of the Accounting Officer in December 1987. If it has reported - and it would be disappointed if after this length of time it has not - it would also welcome hearing the response made to any recommendations it made.

With regard to County Kilkenny VEC, it wishes to be kept informed of progress made in the areas reported on.

10. Expenditure incurred prior to a decision not to proceed with the building of a proposed second level school

The Comptroller and Auditor General drew attention in his 1985 Report to expenditure incurred on the purchase of a site for a proposed second level school at Kilnamanagh, County Dublin and he informed the Committee that the Accounting Officer had recently told him that, following a review of post-primary accommodation in the greater Tallaght area, it was decided that this school would not now be needed and it was intended to dispose of the site. Total expenditure on the proposed project amounted to £248,639 including site costs and design fees and this would now have to be written off. In relation to two other sites purchased by the Department of Education which were also mentioned by the Comptroller and Auditor General, it was learned that a decision was taken to proceed with a school at Kingswood Heights, Tallaght and that this would cater for the pupils originally earmarked for the proposed school at Kilnamanagh. A decision was still pending on the site at Huntstown, Blanchardstown, County Dublin.

The Committee understands that a procedure exists whereby Dublin County Council designates sites for possible future post primary schools in areas which it proposes to develop. The Council then seek the views of the Department of Education on the matter of site suitability, number of sites to be developed, etc. In 1975, it was agreed between the Department and the Council that a site already identified by the Council should be reserved in Kilnamanagh for a second level school. From 1976 onwards, questions relating to the size, timing and need for a school on the site were periodically reviewed. By 1977, it was considered by the Department of Education that the school would be required for 1983. The site was purchased in 1979. In that year also, the Department of Education changed its view on when the school would be required - a later opening than 1983 was then considered more appropriate.

By 1980, doubts first emerged about the need for a school at all on the site. A major review carried out in the period 1981/82 gave cause for concern in that it showed that there was a large increase in surplus pupil capacity in the Greenhills/Walkinstown/Crumlin/Drimnagh areas. In spite of this, two successive Ministers for Education decided in 1982 that planning of the Kilnamanagh school should proceed. Following another review in 1983, this decision was reversed and the project deferred indefinitely on the grounds that there was adequate school accommodation available in adjacent areas and that the financial climate made a decision to proceed untenable. Following a period in which there was intense pressure for the provision of a school in the Kilnamanagh/Kingswood Heights area, a new school on the site at Kingswood Heights was approved in June 1987 and the proposed school for Kilnamanagh was to be cancelled altogether. It is the Department’s contention that it was only then that it had ministerial approval to dispose of the Kilnamanagh site.

The Committee appreciates the difficulties associated with demographic forecasting particularly in the long term. It also appreciates that the final decision as to whether a school project goes ahead or not rests with the Minister of the day. However, it is not convinced that adequate demographic research was completed in the early days of the Kilnamanagh project especially when the Accounting Officer admitted in evidence that doubts first arose about the need for this development as early as 1980, only 1 year after the site was purchased. It will always be difficult to predict with complete accuracy the movements of families from one area to another particularly in a densely populated city like Dublin but the Committee, nevertheless, feels that, if adequate research had been undertaken, a trend in population movements might have shown up which would have obviated the need to proceed with the purchase of the site in the first place.

Another aspect of this case which struck the Committee was the apparent indecisiveness with which the future of the site/school was regarded. At the time of its examination of the Accounting Officer, the site was almost nine years in the hands of the Department before the decision to sell it was taken. As regards the sale of the site, the Committee will watch with interest to see if the Department recoups its total outlay on the now aborted project from the proceeds of the sale.

It would be unfair of the Committee if it were not to comment on the reduction in design fees and expenses negotiated by the Department on the abandonment of the project. The Department is to be commended in this regard.

11. Collection of examination fees

In drawing attention to the failure to collect from some post-primary schools the fees for examinations held by the Department of Education, the Comptroller and Auditor General was concerned more with the fact that schools may be retaining fees actually paid over to them by students rather than with the necessity for the draconian pursuit of students who were unable to pay the fees due to hardship. The Comptroller and Auditor General pointed out that he had no way of establishing whether examination fees actually paid in by students were being held back in the schools. The Accounting Officer agreed that this was so.

In a submission afterwards, the Accounting Officer gave a detailed summary of the procedures involved in the submission of entries for examinations and the collection of fees. The obligation for the collection of fees is placed on the authorities of post-primary schools. In order to reduce the hardship caused by fees in the case of necessitous pupils, the authorities can decide who should benefit from a fee alleviation scheme. This scheme, which is administered by the school authorities, provides for the allocation of funds to each school or VEC and is based on the amount granted to the school in respect of the scheme for free books for necessitous pupils. The Department says that this is the way it should be because the school authorities are in the best position to judge the extent of need.

The Accounting Officer admitted in his submission that his Department was satisfied that, where a shortfall in fees occurred, this arose because the schools were unable to collect the fees from particular candidates. The Committee is happy to know that the Department is continually examining the position in relation to fee collection so as to ensure that all fees due are received. It would not like schools to think, however, that the Department has no way of checking on whether fees actually received by them have, in fact, been paid over and, while the Committee has no desire to insist on checks which would add significantly to the work of the Examination Branch, it feels that occasional spot checks should be made particularly if a situation arises where the amount of claims for exemption under the fee alleviation scheme are well above the average.

12. Future of Scoil Ard Mhuire, Oberstown, Co. Dublin.

The adequate protection of the Department’s assets, in this case, a training school for boys in detention, Scoil Ard Mhuire in Co. Dublin - was the concern of the Comptroller and Auditor General when he drew the Committee’s attention to the closure of the school with effect from 1 September 1988. He reported that the building had cost over £0.5 million to build in 1970 and an additional £350,000 approximately had been spent on renovations between 1981 and 1985. Much of the equipment acquired for the school had been distributed to other areas of special education and what remained had cost £19,500 but had a present day value of only £2,400. The Accounting Officer told the Comptroller and Auditor General that his Department had no long term plans for the use of the school. The future re-opening of such detention centres, he told the Committee, did not find favour in his Department as there are better ways of dealing with the problem presented by the type of boys who had been at Scoil Ard Mhuire by organising on a local basis. The Accounting Officer denied that the school had fallen into disrepair and said that, while the question of vandalism had been raised, the damage done amounted to less than £100.

Efforts were being made to dispose of the school either by handing it over to another Department or by putting it on sale on the open market.

The Committee strongly urges that this building should not be allowed to become derelict and unsaleable and it would like to see every effort made to dispose of it and recoup the State’s high investment.

13. Aid from European Social Fund in respect of courses run by VEC’s.

Losses in aid from the European Social Fund (ESF) and other related issues in respect of training programmes run by the VEC’s were referred to by the Comptroller and Auditor General in both his 1985 and 1986 Reports.

(i) A loss of some £382,000 in aid from the ESF was reported on in 1985, sanction for the write off of which was accorded by the Department of Finance. This arose because claims submitted to the EEC in respect of CERT craft and management courses provided by 7 VEC’s in the years 1979/80 to 1982/83 inclusive were underestimated and less than the actual costs of the courses.

The Accounting Officer had informed the Comptroller and Auditor General that, as it was necessary in accordance with ESF regulations to submit aid applications by September of the year preceding the commencement of programmes, estimated costs had to be submitted and were based on historical data without access to the financial data of the year immediately preceding the programmes.

The period in question was one of high inflation and escalating pay costs and it was difficult, therefore, to estimate the likely costs two years in advance. The Accounting Officer told the Committee that it was not something he was happy with but added that the money lost would have been claimed if the proper information had been available on which to present a case. He said that, if a claim was subsequently found to be understated, the EEC would not accept a revised claim. Every effort was being made, therefore, to ensure that there was no possibility of claiming less than was due.

The Comptroller and Auditor General was also concerned about the wide variation during the same period (1979/80 to 1982/83) in the per capita costs of these courses provided by the VEC’s. The greatest variation - £620 to £2,751-occurred in 1981/82 but it was extreme also in the other years. The Accounting Officer told the Comptroller and Auditor General that this may have been due to differing interpretations of procedures and/or different levels of fixed costs. His Department was concerned about such variations and had held discussions with the VEC’s. Acute staff shortages made it difficult to audit all VEC’s participating in ESF programmes but spot checks had been made.

In evidence before the Committee, he said that these variations could be explained by a number of factors - the difference in administrative costs depending on the size of the college, whether teachers were full-time or part-time, the size of the classes, the type of trainee. Despite all these factors, the Accounting Officer stated that he was still unhappy about the wide variation and, therefore, a cost accountant had been assigned to undertake investigation in the area. As the Committee itself was not satisfied with the explanations offered, it requested a detailed report on the results of this investigation.

In the report which was subsequently received from the Accounting Officer, it was pointed out that the per capita costs adverted to by the Comptroller and Auditor General were arrived at by dividing the number of participants in each centre into total apportioned expenditure on the programme. However, the report stated that the CERT craft programme was not a homogeneous programme but was made up of a number of diverse courses, 8 in all. Some of the courses required the full-time attendance of participants for the full academic year while other entailed attendance for one day per week only. The mix of courses varied from centre to centre and even from year to year in the same centre. Any comparison either of one centre with another in the same year or of one centre from one year to another, based on the per capita cost adverted to by the Comptroller and Auditor General, would be valid only where the range of courses offered was unchanged. Other factors which would have affected the per capita costs included the number of participants in each class group, the cost per teaching hour depending on the use of part-time or whole time teachers, different annual rates of pay, etc. Because of these circumstances, the report stated that these variations would not in themselves establish underclaiming or overclaiming for ESF aid. Similar variations had been adverted to in the past by the ESF authorities and they had accepted the explanations tendered.

The Committee is grateful to the Accounting Officer for this report which explains to its satisfaction the variations mentioned.

(ii) In his 1986 Report, the Comptroller and Auditor General was concerned with the failure by some VEC’s to furnish returns to the Department before the expiry of the time limit for the submission of a composite claim to the EEC, thus resulting in a possible loss of aid; the necessity for the Department to submit to the EEC estimated costs of programmes resulting in what appeared to be overclaiming; the erroneous inclusion in the cost of programming of some student tuition fees paid to the VEC’s by the Department and the apparent alteration of some claims for the purpose of irregularly maximising the claim for ESF assistance.

With regard to the returns by the VEC’s, the Accounting Officer told the Comptroller and Auditor General that these returns were required during a period of major expansion of ESF programmes and associated works for the VEC’s. The two VEC’s who failed to make timely returns indicated that this was due to staff shortages and, in the case of one of the VEC’s, where no return was made, the position was exacerbated by a strike during the period when the returns should have been prepared.

In the case of returns not submitted in time by VEC’s, estimated costs were included in the final claim to the EEC as failure to submit expenditure figures prior to ESF deadlines would result in the loss of the aid and claims for excess amounts would not be entertained after the expiry date. When the returns were received in the Department, they were not examined in the Department due to pressure of other work and staff shortages. Final costs exceeded estimates to the extent of £528,817 in the case of 5 VEC’s and were less than the estimates to the extent of £82,186 in the case of one VEC. Net understatement of cost was, therefore, £466,631. As the ESF grant is 55% of the estimated or actual cost of each programme, whichever is the lower, the loss of aid related to this expenditure was £245,647, but this was partly offset to the extent of £68,300 aid inadvertently claimed in respect of tuition fees paid by the Department for certain students. In the case of one VEC, the estimate was higher than actual cost resulting in an overclaim of aid amounting to £5,937 which was being refunded to the EEC.

In the case of costs omitted altogether from claims, and which, as mentioned earlier, related to a VEC with staff shortages and where a strike had occurred, the Accounting Officer told the Comptroller and Auditor General that the potential aid lost as a result was £103,194.

With regard to the use by the Department of estimates rather than actual costs as stated by VECs, the Accounting Officer said that an estimated amount of £173,004 was included even though an actual costs figure of £100,722 had already been received from the VEC. The return, however, had been received late and pressure of work in finalising the claim prevented the return from being immediately examined. Subsequent examination of the return meant that the actual costs were adjusted to £126,880 resulting in an overstatment of expenditure of £46,124. Against this, the Department offset an understatement of expenditure of £35,888 on the same programme operated by another VEC leaving a net over-statement of £10,236. Aid of £5,630 (55%) was, therefore, being refunded to the EEC.

With regard to the alteration of claims by way of transferring costs between programmes, the Accounting Officer told the Comptroller and Auditor General that the major alteration involved the transfer of an amount of £612,259 between two programmes run by a VEC. He stated that the critical issue for the EEC in the acceptance of training expenditure for ESF aid was not the title of the programme but whether the training conformed to the terms of the approval and related guidelines under which the aid was being claimed. The programme titles were merely the Department’s means of labelling and grouping training courses as a convenient method of identification for the purpose of claiming ESF aid for the approved type of training. It was for this purpose alone that courses were designated by the Department as part of a programme. It was on this basis that the transfer was made. He added that this particular claim was the subject of an examination by EEC officials in April 1986 when they visited Dublin specifically for that purpose. The officials examined the back up documents in the Department on which the claim was based and also carried out an on the spot examination in the VEC concerned of supporting documentation for VEC costs included in the claim. Having satisfied themselves, they certified the claim for payment. In the case of another VEC, the Accounting Officer stated that alterations and errors by the Department and the VEC in the claims for aid for two courses would result in a further refund of aid of £4,905 to the EEC and a loss of £5,025 in potential aid. Department of Finance sanction was also being sought to write off this loss.

In evidence before the Committee, the Accounting Officer said that revised guidelines had been issued to the VECs and to schools about the completion of the forms on which they are required to furnish details of costs incurred on ESF programmes. Within the Department, some progress had been made by way of the use of computers to minimise margins of clerical error in examining claims. However, the section involved had suffered severely from staffing cutbacks and this would continue to cause problems, although the matter was being brought under control. In fact, all returns had been received on time in 1987 and pressure would continue to be exerted on VEC’s to do so in future. In cases where the need for estimates arises, the Accounting Officer said that he would strive to ensure that these are more accurate and that any loss of aid would be avoided.

The Department of Finance official told the Committee that the difficulties which had occurred in this area were less than desirable and the Department of Education had been asked to tighten up. However, he said that the points made by the Accounting Officer about staffing were well founded. In addition, the work involved in processing claims was extremely complex. On a perusal of copies of the documents that schools and VECs have to complete in relation to ESF aid which the Accounting Officer made available to the Committee, the Committee agrees that the work involved, is not simple. Nevertheless, the Committee is concerned that problems should still be arising in the processing and prompt submission of claims for EEC funds and particularly as deficiencies in this area have been reported on by the Comptroller and Auditor General on a number of occasions in the last ten years or so. It is obvious to the Committee that a degree of looseness still exists in this area. It is vital that this be tightened up if further aid under the ESF is not to be foregone because the loss of aid in such circumstances is unacceptable to the Committee. The position will be monitored by the Committee.

14. Mechanism used by Department of Education to overcome shortfall in receipts from European Social Fund.

The mechanism used by the Department of Education to overcome a shortfall in its receipts from the EEC Social Fund (ESF) which, in turn, affected the amount which the Department could issue from its Vote to the Vocational Education Committees (VECs) was the main point at issue in a paragraph in the 1986 Report of the Comptroller and Auditor General. According to the Comptroller and Auditor General, the mechanism was outside the scope of the legislation relating to the financing of VECs operations and outside the scope of the legislation regarding borrowing for Exchequer purposes.

The ESF provides assistance towards the cost of certain training courses provided by VECs. Payments from the ESF, which are brought to credit as Appropriations-in-Aid and are matched by grants to the VECs from a separate subhead, were made up to 1984 on the basis of expenditure incurred during the academic year but a change by the EEC to a calendar year basis led to a deferment until 1986 of grant instalments which had been expected to be received late in 1985 and had, therefore, been provided for as Appropriations-in-Aid in the 1985 Estimate for the Post Primary Education Vote. The shortfall was of the order of £5.5 million.

Following consultation, the Department of Finance directed that the shortfall in Appropriations in Aid be met by withholding from the VECs amounts which would otherwise have been paid to them from the relevant Subhead thus achieving a saving on that Subhead which equated to the shortfall. In evidence before the Committee, a Department of Finance official said that, to overcome this temporary cash flow problem, each VEC was to use its powers under the legislation (in this case Section 49 of the Vocational Education Act, 1930) to borrow an amount equal to the funds withheld temporarily from it. He added that he was surprised at the mechanism subsequently used by the Department of Education to deal with the problem and that what happened was clearly a breach of the legislation. The Accounting Officer had told the Comptroller and Auditor General that, on the grounds of maintaining effective control over borrowings by VECs generally and to overcome the need for each VEC to separately raise a loan, the Department decided instead to authorise City of Dublin VEC and City of Cork VEC to borrow £4 million and £1.5 million, respectively, to be onlent to the Department of Education and credited to Subhead A2 from which full annual grants could be paid in 1985 to all VECs. The Department repaid the loans to the two VECs together with interest of £79,477 in 1986 and charged the amounts to Subhead A2 of the Vote for that year. A shortfall in Appropriations in Aid deriving from ESF assistance again arose in 1986 and a similar mechanism as in the previous year was used, whereby the Department authorised the City of Cork VEC to borrow £12,600,868 which, again, was onlent to the Department and credited to Subhead A2 of the Vote. The loan was repaid with interest to the VEC in 1987.

The Comptroller and Auditor General indicated that this action was questionable on a number of fronts. Firstly, each VEC had power under the legislation to borrow with the consent of the Minister for Finance only for the purposes of the Vocational Education Fund maintained by it. It appeared, therefore, that no statutory authority existed for the borrowing for on-lending to the Minister for Education by the two VECs referred to. Secondly, in borrowing from the VECs the money which they had raised at his behest, the Minister for Education did not act in accordance with the legislation regarding borrowing for Exchequer purposes as statutory authority for this was vested in the Minister for Finance only. Thirdly, as the Constitution provides that all Revenues of the State from whatever source arising be brought into the Exchequer, the crediting of the proceeds of borrowings to Subhead A2 of the Vote was incorrect. Finally, the Comptroller and Auditor General said that if the VEC’s borrowing itself was invalid, the subsequent servicing of that borrowing from the Vote was invalid as Dail Eireann did not provide for the repayment with interest of borrowings by the Minister from the VECs.

In reply to the queries raised by the Comptroller and Auditor General, the Accounting Officer stated that in effect the receipts from the ESF now constituted an addition to normal sources of funding of VECs which for accounting reasons was not however channelled directly to them. He said that the aid was shown in the Estimates as Appropriations-in-Aid of the Vote for Post-Primary Education, with an equivalent amount being included in the gross estimate under the relevant subheads and, therefore, to the extent to which courses were aided by the ESF, they were not a liability on the Exchequer. If a shortfall in Appropriations-in-Aid deriving from the ESF occurred, the grants provided under Subhead A2, which were normally paid in full, would not be paid unless comparable savings could be achieved elsewhere on the Vote or a Supplementary Estimate was approved. This course of action would be justified where the shortfall was absolute rather than being due to a deferment of aid. In the instances referred to, the shortfalls were not seen as absolute as the ESF aid had been approved but the effect would have been to create cash flow problems and, in those circumstances, it was considered more appropriate to avail of the facility provided in the 1930 Act to authorise short-term borrowing by VECs to overcome the problem. However, rather than adjust the grants payable to every VEC (36 in all) and authorise each Committee to borrow an amount equivalent to the shortfall, it was decided that the most practical course from an administrative viewpoint was to adjust the annual grants payable to two large Committees in 1985 and one Committee in 1986 and to authorise these Committees to borrow the appropriate overall amount required to pay the ESF portion of the grants due to all Committees, the approved but unpaid ESF funding for all Committees when received the following year to be transferred to the Committees which had borrowed the funds.

The Accounting Officer acknowledged that in retrospect the procedure of concentrating the borrowing in one or two Committees was incorrect and outside the powers conferred on the Minister by the Act. He told the Comptroller and Auditor General that any breaches of the legislation were unintentional and that, notwithstanding what happened, the charge to the Vote in 1985 and 1986 and the funds available to the VECs were the same as they would have been had the transactions been properly arranged. He also said that steps had been taken to ensure that should this situation arise again borrowing, if it needed to be arranged, would comply with the legislation.

In summing up before the Committee, the Comptroller and Auditor General said that, if all VECs had borrowed to overcome temporary shorthall in receipts from the ESF, it would, strictly speaking, be within the scope of the authority of the Minister for Education to authorise that borrowing. However, he added that the more transparent way to have dealt with the problem would have been by way of Supplementary Estimate because the normal practice in a situation where receipts provided for in Estimates were not being realised was to have a Supplementary Estimate. The Committee agrees with the Comptroller and Auditor General in this latter regard.

On a general note, the Comptroller and Auditor General said that he had a perception that ad hoc administrative solutions to problems were beginning to creep into the system and that they seemed to be acceptable if they worked, irrespective at times of the terms of legislation. The Committee agrees that this is a dangerous and unwelcome practice and should be discontinued. Pragmatic or practical solutions which might be administratively convenient should not be countenanced at the expense of the fundamental principle of the terms of any legislation. In the Committee’s view, that would weaken parliamentary accountability and control. The Committee suggests that the Department of Finance should remind all Departments that, in carrying out their financial operations, strict adherence to the terms of the relevant legislation is a fundamental principle to be observed at all times.

15. Accumulated deficits in Comprehensive and Community Schools

The Comptroller and Auditor General was concerned that the Department of Education’s internal control procedures relating to the processing of information received from the fifty-nine Comprehensive and Community Schools (whose full running costs are met by the Department) and the Department’s monitoring of the schools’ expenditure were somewhat deficient with the result that schools received special payments to clear their end year deficits. In making these payments, some schools were paid more than the amount they indicated they needed. Because of errors, the accumulated deficits of four schools at 31 December, 1985 were overstated by £47,423 by comparison with the school records and this amount was included in special payments of £101,280 made to the schools concerned to clear their apparent deficits without establishing whether the deficits had been incurred or whether the expenditure was authorised. At the end of 1986, the Comptroller and Auditor General reported that the deficits of over £300,000 in forty schools represented expenditure in excess of authorised budgets which was being financed by bank overdraft, the interest on which according to the Accounting Officer was just under £20,000 in 1986.

The Accounting Officer told the Comptroller and Auditor General that some of this over-expenditure was, in fact, spent on legitimate school needs which would have had to be met later in any event and, to the extent that it was not met in that way, the later advances to the schools were adjusted. He said that the Department was at that stage involved in balancing the accounts of the various schools for 1986.

The Accounting Officer told the Committee that, if the Department, when retrospectively considering the expenditure which gave rise to the deficits, was not satisfied that any additional expenditure incurred should be charged to the Vote, it was by no means clear what powers were available to deal with such a situation. The boards of management had been repeatedly told that it was not permissible under any circumstances to undertake expenditure in excess of approved allocations and that they had no authority to finance such over-expenditure by way of overdraft, but the boards were very independent bodies and the Department was limited in any action it could take against them.

The Accounting Officer also told the Committee that, in practice, the Comprehensive and Community Schools operated very effectively. Their budgets were very tight and the fact that the Department had to accept excesses in these cases as being justified suggested that the Department’s own controls were very strong over their financial arrangements.

New draft revised procedures had been prepared for keeping a check on the schools’ running costs which the Accounting Officer was satisfied were along the right lines. However, further consultation within the Department and with the school managements was necessary before they could be put in place.

The Committee is concerned at the extent to which the boards of management have exceeded their authorised budgets and the lack of control which the Department seems to have in this issue. It accepts that boards of management should have a certain independence in managing their schools but it does not accept that this independence should extend to the point where the annual financial allocations given to schools can be ignored and exceeded on the mistaken presumption that the Department will have no option but to meet the extra costs eventually. The Committee would be very concerned if this attitude were allowed to prevail and breaches of financial allocations allowed to continue. It may be, as the Accounting Officer indicated, that the Department’s own allocations to these schools are too tight and, indeed, the Committee recognises the need for adequate controls. However, if schools are accumulating deficits which can justifiably be shown to be legitimate expenditure and which would be so recognised by the Department, then it may be that the procedures need to be reviewed. If such accumulated deficits represented expenditure which was not legitimate, however, then the Committee would take a very serious view.

The Committee would like to be informed of any cases where the Department has a difficulty in charging to the Vote any of the accumulated deficits from the 1986 accounts of the schools.

The Committee has recently been informed that the revised procedures referred to by the Accounting Officer have now been put in place.

INDUSTRY, TRADE, COMMERCE AND TOURISM

16. Special Loan arrangement under Export Credit Insurance Scheme

The Committee has referred in previous reports to the Export Credit Insurance Scheme whereby exporters may insure against the risk of default in payment by foreign companies to the extent of 90 per cent of the value of goods exported by them on credit terms. The Comptroller and Auditor General drew attention to further losses arising on the operation of the scheme.

An unusual arrangement was entered into in a particular case when a Nigerian company defaulted in meeting payments due to an Irish exporter who subsequently lodged a claim for £1,918,500 (90% of the amount defaulted on) in accordance with the terms of the Insurance Scheme. In the normal course of events, this claim would have been met by the Insurance Corporation of Ireland (ICI) making a payment to the exporter (The Insurance Corporation of Ireland acts as agent for the Minister for Industry, Trade, Commerce and Tourism in the operation of the Insurance Scheme). However, because the Nigerians, following negotiations, apparently agreed to pay the amount owed plus default interest on a rescheduled basis and also because of the impact the payment of such a large sum under the insurance scheme would have on premium rates in the future, an alternative method of payment was arranged. This arrangement involved a loan agreement between a bank, the ICI and the exporter whereby ICI, whose expenditure would in due course be reimbursed by the Minister, guaranteed the repayment of and paid interest on £1,918,500 being 90% of a loan provided by the bank to the exporter. In the circumstances, the loan arrangement seemed attractive as it was thought that it would only be a short-term loan in view of the rescheduling agreement with the Nigerian Company.

However, the Nigerian company defaulted again on the payments, having paid only £512,394, and the claim was eventually met in the normal way when a payment was made from the Department to ICI.

The Accounting Officer told the Committee that negotiations were continuing in an effort to secure repayment of the debts but, at end 1987, nothing had been achieved. However, he was confident that, in the case of two amounts, promissory notes would issue from the company within a short period and that a further amount would be admitted for payment by the Nigerian Central Bank resulting in the issue of a further promissory note. Substantial repayments, therefore, were envisaged over the next number of years as the amounts covered by the first two promissory notes was $860,000 and in the case of the third was $730,000.

In a letter dated 16 May, 1988 to the Committee, the Accounting Officer said that his Department had since received a promissory note valued US $1,197,364 from the Central Bank of Nigeria and a first payment of US $14,936.20 (IR£9,265.77) due under this was received. Further payments were due on a quarterly basis. Efforts were continuing to secure outstanding promissory notes and final settlement.

The Committee notes the efforts being made by the Department to recover the significant amount of money in this case and the confidence of the Accounting Officer that this can be achieved. However, on the basis of a first payment of less than IR£10,000, it would seem that it would take many years to repay the debt which the Committee reckon is now £2,056,312, excluding £533,745 on which the same company defaulted in another case. The Committee would like to be kept informed of progress.

In relation to the loan arrangement, it transpired that the loan itself was repayable by the exporter in US Dollars but, because of the fluctuation of the dollar exchange rate against the Irish pound, a large exchange loss accumulated. Under the agreement, the exporter would have been liable for this but the Minister for Finance agreed to the assumption by the State of liability for 90% of the loss (£163,243) subject to the Department of Industry, Trade, Commerce and Tourism satisfying itself that this was permissable within the terms of the export credit insurance scheme and within the ambit of the Vote. The Accounting Officer had told the Comptroller and Auditor General that it was his Department’s view that this exposure to exchange loss was properly classified as a guarantee under the Insurance Act, 1953 and that payment of the exchange loss could be seen as an honouring of that guarantee. The Department of Finance, whose stance on the issue the Comptroller and Auditor General found unusual in that it was first opposed to the idea of charging the exchange rate loss as expenditure under the scheme and then left it to the Department of Industry, Trade, Commerce and Tourism to itself decide on the issue, said that they were of the opinion that acceptance of the proposal would amount to a widening of the scheme but at the same time did not regard it as going outside the legal ambit of the scheme. The Department of Finance representative said that the impression given by the Comptroller and Auditor General that the Department of Finance regarded the proposal as lacking in propriety was not seen by them in that way but it appears to the Committee that there was a certain amount of indecisiveness in the matter.

17. Annual Accounts of Transactions under the Export Credit Insurance Scheme.

Another issue which the Comptroller and Auditor General referred to under the export credit insurance scheme related to the submission of annual accounts of the transactions under the scheme. At the time of his Report (3 October 1986), the last account submitted to him and audited was inrespect of the year ended 31 December 1981. In evidence, the Comptroller and Auditor General said that he had since received the 1982, 1983 and 1984 accounts and that these were being audited. The submission of accounts to the Comptroller and Auditor General so far in arrears is totally unacceptable to the Committee. Submission of accounts should be made as soon as possible in the financial year following that to which they relate and, certainly, no later than six months afterwards. The Committee expects that the outstanding accounts will be submitted without further delay and would like to be kept informed of progress.

18. Default in payment by two Sudanese Government Ministries

The matter of default in payment by two Sudanese Government Ministries which was referred to by the Committee in its Report dated 3 December 1980 was raised again by the Comptroller and Auditor General in his 1985 Report. In the years 1974 and 1975, the Ministries purchased from an Irish exporter a total of 40 ferries and structural parts for the construction of 26 barges and 6 push boats, the total value of the exports being Stg. £1,828,874.

Some payments were made initially by the Sudanese authorities but then they defaulted and during his examination of the 1978 Appropriation Accounts, the Accounting Officer at that time (20 March 1980) was hopeful that a significant part of the amount then outstanding viz. Stg. £1,669,007 would be recovered. Despite a rescheduling agreement with the Sudanese under which the debts were to be repaid over a period of 9 years up to 1989, only 1 further payment was received. Continuous pressure from the Department as well as from other sources for payment of the outstanding sum met with no success. The Accounting Officer conceded that there was little prospect of the amount now being recovered because the economy in Sudan was disintegrating and the country was in a very difficult position. The money, therefore, had to be written off and, accordingly, a provision of £922,446 had been included in 1988 to make good the net loss borne by the Central Fund under the export credit guarantee arrangements.

With regard to the delay in making provision in the Vote to repay the amount due to the Central Fund in accordance with Section 2(4) of the 1953 Insurance Act, the Accounting Officer told the Comptroller and Auditor General that the fact that payment was guaranteed by the Central Bank of Sudan was seen as conferring an element of security to the risk. The Comptroller and Auditor General said that this may have led in turn to the failure to make the necessary vote provision between 1977 and 1980. The Accounting Officer further stated that, when the rescheduling arrangement was signed in 1981, there was every reason to believe that this agreement was being entered into in good faith with a good prospect of recovering the amounts due. The fact that the first payment was made in accordance with the rescheduling agreement gave credence to that.

The Committee regrets the course of events in this instance and accepts that the Department pursued the matter as far as it could. It recognises that this situation has developed only because of the chronic state of the Sudanese economy. It notes that export credit insurance cover has not been available for Irish exports to the Sudan since 1979.

19. Net losses arising on operation of Export Credit Insurance Scheme

The Agreement between the Minister for Industry and Commerce and the Insurance Corporation of Ireland referred to in paragraph 16 above states that, taking one year with another, the operation of the export credit insurance scheme shall involve no net loss to State funds. Despite this, the Comptroller and Auditor General reported that an examination of departmental records showed that between 1979 and 1985 the total net cost of claims paid, excluding provisions for future claims, exceeded the total net premium income by £4.25 million.

In evidence, the Accounting Officer stated that as at the end of 1987 this figure was expected to be of the order of £12 million. Of this, about £4 million represented instances where payment had been held up because there was no foreign exchange available in the local economies (the case mentioned in paragraph 15 above is one such case). About another £6 million represented claims arising from exports to the United States a country which would not be regarded as a bad risk area. Of this £6 million, the prospects of recovering about £2.5 million from one company were very slim while negotiations were continuing with another company for the recovery of £3.7 million approximately. A further £1 million approximately would probably have to be written off. The Accounting Officer stated that the £12 million deficit should be viewed in the context of business insured for a sum of the order of £4.5 billion representing a loss on business insured of only 0.3 per cent.

As regards the question of the scheme operating in a way which prevents loss to the State, the Accounting Officer said that this was merely an agreement between the Departments of Industry and Commerce and of Finance and there was no question of the deficit being a breach of any statutory provision. The only statutory limit was in relation to the net amount which could be issued from the Exchequer under the scheme and this had not been exceeded.

The Comptroller and Auditor General also referred to the exclusion of provisions for future claims - the deficit referred to above represented a cash flow deficit only i.e. premium income as against claims paid with no provision for future claims - and he quoted the auditors from the 1986 ICI report on the operation of the scheme which said that “the cash flow accounts which have historically being applied as the reporting basis for the export credit insurance scheme do not, in our opinion, suitably provide an accurate measure of the scheme’s performance”.

The Accounting Officer told the Comptroller and Auditor General that, because of the nature of the operations involved and given the vagaries of international trade, a breakeven situation was sought over a somewhat indeterminate period of time but the years between 1979 and 1985 were difficult ones in relation to international trade and many export agencies in other countries had suffered losses during this period. Visits had been undertaken by departmental officials to the countries where the defaulting companies operated and the assistance of Irish agencies abroad was sought in an effort to recover the debts. Increases in premiums were introduced in 1983 and 1986 with a further increase due in 1987 to try to eliminate the cumulative deficit by the end of 1989. A new agreement with ICI, which the Accounting Officer felt would enable his Department to adequately monitor the operation of the scheme, was expected to be concluded at an early date. New accounting procedures under the agreement would take on board what would be regarded as being the accepted insurance method of accounting for contingent liability. Revised premiums will be geared towards eliminating the deficit and creating a fund which will be used in respect of future claims.

The Committee welcomes these new arrangements because it understands that the contingent liabilities in respect of exports to Iraq, Egypt, Kenya and Nigeria for which special arrangements had been made amounted to £33 million approximately. The prospect of having to meet such a sum in the event of a loss arising would have implications for our own budgetary position and it is important that proper arrangements are in place to cover all eventualities. The case involving the US companies mentioned earlier shows that even good risks can become bad risks.

The Committee would like to be kept informed of developments in regard to the new agreement with ICI and the adoption of the new accounting procedures which it will provide for. It would also like to have information on the general point of the clearing of the deficit and on the specific cases where recovery of the debts is being pursued.

ISSUES UNDER THE INSURANCE ACT, 1964

20. Financial difficulties of Insurance Corporation of Ireland

The Comptroller and Auditor General reported on the special steps decided on by the Government in March 1985 to resolve the financial difficulties of the Insurance Corporation of Ireland (ICI) which in 1983 became a wholly owned subsidiary of Allied Irish Banks (AIB). The Accounting Officer, Department of Finance explained that in late 1984 serious losses came to light on ICI’s London business which brought AIB losses on ICI, including acquisition costs, to £86 million or about 20 per cent of shareholders’ funds. AIB advised the Government in early 1985 that it could not continue to support ICI. As a consequence, the following arrangements summarised by the Comptroller and Auditor General in his Report were decided on by the Government:-

(1)the acquisition, for a nominal amount, by a company controlled by the Minister for Industry, Trade, Commerce and Tourism of the total shareholding of AIB in ICI,

(2)the petitioning of the High Court to appoint an administrator to ICI in accordance with the provisions of the Insurance (No.2) Act, 1983,

(3)the issue by the Minister for Finance, in accordance with Section 5 of the Insurance Act, 1964, of advances to the Insurance Compensation Fund to the extent which, having regard to any other payments being made out of the fund, would be sufficient to enable payments to be made from the fund to the ICI Administrator when required by him,

(4)the enactment of the legislation necessary to give effect to those decisions.

Following the Government decision the Insurance (Miscellaneous Provisions) Act, 1985 authorised the Minister for Industry, Trade, Commerce and Tourism to take up shares in Sealuchas Arachais Teo. This company in turn acquired ICI which was then placed under administration by an order of the High Court.

In order to provide the funds required to implement these arrangements it was agreed that:-

(1)a loan of £70 million would be made available to the Central Bank by AIB at finest (i.e. best possible) rates for a 15 year term,

(2)£100 million would be borrowed by the Minister for Finance from the Central Bank under authority of the Insurance Act, 1964 at a rate 7 per cent below that at (1),

(3)£100 million would be issued by the Minister for Finance from the Central Fund to the Insurance Compensation Fund for on-lending to the Administrator at the same reduced rate,

(4)AIB would pay the Central Bank an interest contribution of 3.5 per cent per annum towards the shortfall of 7 per cent in interest over the full term on its £100 million loan to the Minister for Finance,

(5)the banking sector generally would pay the Central Bank a further 3.5 per cent per annum on the £100 million loan, £2 million of this to be contributed by AIB.

The sum of £100 million was received by the Central Fund from the Central Bank and issued to the Insurance Compensation Fund in December 1985, with the approval of the High Court.

The Comptroller and Auditor General told the Committee that the accounts of ICI for 1986 showed that there was a significant improvement in the results for that year compared with the results for the previous two years although at end 1986 there was still a considerable excess of liabilities over assets. He also said that the administrator had stated in his report that the company was continuing to trade with the benefit of the assurance of State support to be provided through the Insurance Compensation Fund. The Accounting Officer said that the balance sheet of the company at the end of 1986 showed that there was a deficit of £120 million. It was hoped that this deficit would be reduced by continuing the company in a trading position. The State only became involved in arranging the transfer of the £100 million from the Central Bank to ICI through the Insurance Compensation Fund. The option was there for the State not to get involved at all and to have allowed the company to go bankrupt. However, if this had happened, it would have had serious repercussions for the banking system in general and for AIB in particular and the decision taken had to be taken to protect, and to prevent a collapse of, the banking system. He said that a bad commercial decision had been taken by AIB but the price could have been too great for the State to risk and a rescue operation had to be undertaken. It was dealt with fairly smoothly in a way which sorted out the problem. As well as the effect on the banking system, the Accounting Officer said that there was also concern that employers’ liability, public liability and other areas of insurance would be left without cover, as at the time of the difficulties, the company had in the region of a 25% share of the market, being the second largest non-life company in Ireland at the time.

With regard to the level of supervision, the Accounting Officer said that it was felt that the supervisory systems for ICI and AIB were adequate for the purpose but that exceptional circumstances developed. It was important to allow the private banking sector sufficient flexibility to operate without having undue interference. He said that the supervisory arrangements had been tightened since this particular incident. In addition, the draft Insurance Bill, which was already circulated, and a draft Central Bank Bill, which it was hoped would shortly be put before the Government, would involve tighter requirements in relation to the insurance and banking systems.

With regard to the action being taken by AIB against the auditors of ICI, the Accounting Officer told the Committee that there was an arrangement whereby the State would participate in any funds that would come as a result of this action.

The Committee fully understands the difficulties faced by the Government in this case and the reasons for the decisions taken and it trusts that the expectation that the company will be able to survive without any underpinning by the State will be realised. However, it cannot let the occasion pass without expressing complete dissatisfaction at the apparent cavalier attitude of the board of directors of the bank to this potential catastrophe and yet they emerged unscathed and still secure in their positions. The subsidising of the loan to the Central Bank, was, in itself, a small price to pay for a very bad commercial decision.

ISSUES UNDER THE IRISH SHIPPING LTD. ACTS, 1947-84

21. Repayment to the Central Fund

When Dail Eireann by legislation authorises money to be issued from the Exchequer by way of repayable advances, typically advances to a State sponsored body, and when subsequently, for whatever reason, it transpires that the amount cannot be repaid, the normal technique for bringing the situation to the notice of the Dail so that it can alter the basis on which the funds were provided is to ask the Dail to vote the amount involved. This is followed through by a bookkeeping entry to show the amount as a repayment to the Central Fund and as a charge in an appropriation account. It can be regarded as a technical point but the important point of principle here is that such a matter is brought to the notice of the Dail by this mechanism.

The Comptroller and Auditor General reported that, in the case of Irish Shipping, moneys had been issued from the Exchequer since the date of the liquidation of the Company on foot of various guarantees given by the Minister for Finance in respect of the company’s borrowings. The legislation authorising these issues from the Exchequer was the Irish Shipping Limited Acts of 1947 and 1982 and these provided that moneys issued on foot of guarantees be repayable within one year in the case of the 1947 Act and within two years in the case of the 1982 Act. The Acts also gave legislative support to the principle, as mentioned above, of providing that the moneys be voted, if not repaid.

The Comptroller and Auditor General added that when he was preparing his 1985 Report, about the middle of 1986, the time limit for the repayment of one of the first amounts advanced viz. £169,373 had in fact expired. There was no sign of any action being taken to make Vote provision. Since then, the time limits for the repayment of some subsequent and larger amounts had also expired without any Vote provision being made. His view was that, once the time limit expired, the obligation to bring the matter to the notice of Dail Eireann arose and this should be as soon as was feasible.

The Accounting Officer, Department of Finance told the Committee that their reading of the legislation was that there was not an obligation to make the payment in as short a period as the interpretation of the Comptroller and Auditor General suggested because subsection 7 of Section 9 of the 1947 Act which states that:-

“Where the whole or any part of moneys advanced under subsection (5) of this section has not been repaid to the Minister in accordance with subsection (6) of this section, the amount so remaining outstanding shall be repaid to the Central Fund out of moneys provided by the Oireachtas”,

did not impose any time limit. He said that informal legal advice supported this view. The Comptroller and Auditor General said however that when subsection 6 of the Act which stated that:-

“Moneys paid by the Minister under a guarantee under this section shall be repaid to the Minister (with interest thereon at such rates as the Minister appoints) by the Company within twelve months from the date of the advance”,

was read in conjunction with subsection 7 he was not sure that it was the intention that there would be no time limit for repayment to the Central Fund. The Accounting Officer said that the timing of repayments was really a question of administrative convenience both from the point of view of the Department and of the Dail in that it was considered better and more convenient to wait until all the Central Fund payments arising from the liquidation of Irish Shipping had been made before making Vote provision to recoup the Central Fund in one lump sum rather than on a piecemeal basis.

The Committee underlines the fact that the primacy of Dail Eireann in financial matters is paramount, that administrative convenience doesn’t override this principle and that the authority of the Dail should be sought as soon as possible if the condition under which the Dail provided money has subsequently to be altered.

OFFICE OF THE MINISTER FOR FINANCE

22. Waiving of repayment of principal and interest on special advances issued to Industrial Credit Corporation (ICC)

The Accounting Officer told the Committee that it was probable that approximately £4.4 million from a total of £12.967 million advanced from the Exchequer to the ICC would have to be written off because of the inability of the firms to whom the money had been on-lent to meet the repayments. The schemes under which the advances were made were basically to encourage firms to go ahead with what appeared to be viable schemes but which despite having a very high risk factor were considered to be ‘worth a gamble’. Firms who received advances would not have expected to get funds from the commercial banks on the normal criteria with the normal risk that such banks would take. The instance of losses would probably be in the region of 34 per cent which would be much higher than a commercial bank would tolerate but it was as part of industrial policy to encourage firms to try to develop their enterprises that the State agreed to guarantee to the ICC that it cover any loans written off at the end of the day.

The Committee would like to be kept informed of the total write-off when this becomes known.

COMMUNICATIONS

23. Proposed construction of airport at Letterkenny

The Committee heard evidence from the Accounting Officers for Tourism and Transport (to whom responsibility for airports was transferred in March, 1987) and for the Environment, an official from the Department of Finance and the Donegal County Manager in relation to a series of decisions and counter-decisions relating to a proposal to construct an airport at Letterkenny, County Donegal which the Comptroller and Auditor General had reported on in his 1985 Report. The Comptroller and Auditor General was concerned that a direction from the Department of Finance in December 1981 viz. that immediate step be taken to cancel the project, was not implemented. In view of the fact that the proposal was not being proceeded with, he had also inquired about the utilisation or disposal of the land acquired as a site for the proposed airport.

The Accounting Officer for Tourism and Transport told the Committee that during 1980 a number of statements were made on behalf of the Government indicating the intention to finance the development of an airport in the Letterkenny area. This arose from a study carried out on behalf of the Irish and UK Governments and the EEC Commission in relation to cross border communications. In a submission to the Committee, the Donegal County Manager stated that in September 1980, his Council identified a site, involving about 190 acres, at Big Isle near Letterkenny as the most suitable site for the proposed airport and that negotiations proceeded to acquire the land were entered into. In April 1981, the Minister for Tourism and Transport gave his consent under Section 37 of the Air Navigation and Transport Act, 1936 to the establishment of an airport by Donegal County Council and to the maintenance of the Airport and for the necessary services. In May of that year, the Minister for the Environment gave his consent to the Council under section 43 of the same Act to acquire the necessary land.

However, in December 1981, the Department of Finance directed that the Department (of Communications) “should initiate steps as a matter of urgency for the immediate cancellation of the project” as it was concerned that the cost of the project looked likely to cost about £2.6 million instead of £1.6 million as originally envisaged. It also seemed likely that an operating subsidy would be needed to run the service at a time when an operating subsidy was actually being paid to provide a service between Dublin and Derry which was only about 25 miles from the proposed site at Letterkenny. The letter from the Department of Finance also stated that “…, as far as the Department is aware, there is no formal Government decision or authority to site a local airport at Letterkenny.” Therefore, the Department of Finance did not see this request as being in any way in contravention of a Government decision as it was conscious that the Government had made no decision in favour of the project and had indicated no commitment to it. The Accounting Officer told the Committee that the wording of the direction from the Department of Finance was important because to him it was a recognition by the Department of Finance that his Department did not have discretion to cancel the project on its own and that certain procedures would have to be gone through before such a decision could be taken. These procedures, involving a submission to the Government and consultations with other interested Departments were being put in train when a general election took place resulting in a change of Government. The Accounting Officer explained that the new Government subsequently reaffirmed its commitment to the project in a White Paper published in October 1982 and provision for the project had been made in the draft estimates for 1983. This was some months after the Minister for the Environment confirmed a compulsory purchase order to enable Donegal County Council to acquire the land and after Donegal County Council served statutory notice to treat on the landowners. As Donegal County Council was unable to agree compensation with the various landowners, the property arbitrator was appointed to determine what compensation should be paid.

Another change of Government occurred in November 1982. The Estimates for 1983 were reviewed and revised by the incoming Government and the revised estimates did not include a provision for Letterkenny airport. The Accounting Officer stated that the Government explained publicly that it was not withdrawing from the project, that provision was not being made in the 1983 estimates due to the severe financial position of the Exchequer but that the project would be further reviewed when the financial position improved. Taking all these circumstances into consideration, the Accounting Officer said that his Department was unable to comply with the request of the Department of Finance.

Subsequently, however, in May 1984 the Government decided to withdraw from the project but as it was conscious of the fact that there could be legal commitments on the Exchequer arising from the compulsory purchase order (CPO) proceedings, it asked for a further report on the legal obligations. The legal advice which the Department received coincided with the advice available to Donegal County Council i.e. that once the CPO was confirmed and the notice to treat issued, the Department was obliged to pay for the acquisition and disturbance and legal costs as awarded by the arbitrator.

The decision to finally withdraw from the project was made by the Government in December 1984 and the Council was informed accordingly by the Department. The Council was asked, in accordance with the Government decision, to approach the owners of the land with a view to seeking their formal agreement to release the Council from the CPO procedure and to withdraw their compensation claims. The landowners did not agree to this.

Total expenditure from the Exchequer was expected to be in the region of £740,000 [with additional expenditure of some £200,000 by Donegal County Council from its own sources].

It was evident to the Committee that there was a totally unco-ordinated approach by the various Government departments involved in this project. While it acknowledges that the Department of the Environment was involved merely as an agent of the Department of Tourism and Transport, it nevertheless cannot see the logic of, on the one hand, the holding of a public inquiry, for three days ending 3 December 1981, into the compulsory acquisition of the land and, on the other hand, the issue of a letter from the Department of Finance one day later directing that steps be taken to cancel the project. In addition, as the Property Arbitrator did not issue his findings until November 1984, the Committee fails to see why the arbitration could not have been suspended as surely doubts must have been raised about the future of the project when no provision was made for it in the 1983 estimates.

The Committee notes that, while the land acquired is now owned by Donegal County Council, the Minister for Tourism and Transport has a lien over the future use or sale of the property. The Committee also notes that the land was recently let for a period of eleven months with a total income involved of some £13,400 - a very small annual return from an investment of £750,000 approximately.

From a recent submission by the Department of Tourism and Transport, following consultations between the Department and Donegal County Council regarding the future use of the site, the Committee notes that the County Council intends to proceed with the development of an airport on the site as a matter of priority and that the County Manager has been instructed by the Council to plan accordingly. The Committee further notes that the Minister for Tourism and Transport proposes to commission a feasibility study of the proposal. The Committee would like to be informed in due course of the results of the feasibility study and on the proposed financing of the project if it does go ahead.

24. Visit to Connaught (Horan) International Airport, Knock.

As the final instalment of capital investment by the State totalling £9.858 million at Connaught Horan International Airport, Knock was paid from the Communications Vote in 1985, the Committee considered that it would be a useful exercise to see for itself how the money was spent and to get an idea of how the Airport was coping. A delegation from the Committee flew to the airport and met with directors of the Airport Development Company who are also responsible for the management of the airport.

The Committee was told that the Airport now had 27 permanent staff and this was supplemented by temporary staff as the need arose. It was anticipated that the passenger throughput numbers in 1988 would be 110,000 but the objective was to have 200,000 by 1990. There were an average of 45/50 flights per week, and if the Company achieved its objectives of a 200,000 throughput, there would be in the region of 4000/5000 flight movements per year.

The Airport meets all the statutory requirements in relation to security and safety standards. It has fully trained staff, including training for fire fighting, there are inspections by the Department of Tourism and Transport on a regular basis, it has its own safety committee and has a category 6 safety rating.

It was explained that, on top of the £9.8 million received from the Exchequer, approximately £2.5 million had been contributed from private funds. In addition, a grant of £1.33 million had been approved by the European Regional Development fund. It was intended that this grant would be used to provide an extension to the existing building, to improve the lighting and to construct a new taxiway to provide access to a 93 acre site on which it was hoped to develop an industrial zone, or freeport, in a joint venture with the IDA. It was hoped that this venture would increase its cargo traffic and bring much needed employment to the area, with a target for jobs of 1,000.

The Directors explained that the Company did not intend to go back to the State for further financial assistance as its aim was to be self-sufficient. However, it was finding that the expense of recouping the cost of air traffic controllers to the Department of Tourism and Transport was proving to be a drain on its resources and was preventing the Company from developing further capital works from its own turnover. The cost was £96,000 per year and it was stated that the Company itself could provide its own controllers for one third of this cost although it was not explained how this could be achieved.

The Committee was impressed with the progress to date at the Airport. The enthusiasm of all the Directors of the Development Company and their commitment to the running of the Airport and to its further development coupled to the numbers using the Airport was evidence to the Committee of the support which the project had in the area. The Committee asks that the Minister for Tourism and Transport might examine the question of the provision of air traffic controllers for the airport to see if the claim made by the Company has merit.

25. Collection of TV licence fees.

TV licence fees are collected by An Post acting on an agency basis for the Department of Communications. The receipts are brought in as appropriations-in-aid in the Vote for Communications from which An Post are paid for the cost of collection, a small amount is retained by the Department to cover administrative costs and the balance is paid to Radio Telefis Eireann (R.T.E.) as a grant-in-aid. In 1986, the amount paid to R.T.E. in this manner was £38.387 million which represented 45% of its total income.

The Committee discussed with the Director General, R.T.E. the efficiency of the collection system. The Director General told the Committee that the R.T.E. Authority was concerned with the overall position regarding levels of evasion and the costs of collection. The present level of evasion was about 17% and the costs of collection were a little over 10% of the gross proceeds. By reference to experience in Europe, both of those figures were on the high side and it was the Authority’s view that they should be capable of substantial reduction. it would be the hope that there would be reductions in these costs over the next couple of years, in addition to what had already been achieved in recent years by An Post. The Authority’s formal position with regard to the question of licence collection was that they would wish to have responsibility for this task but they might be persuaded away from that posture if the levels of both licence evasion and costs of collection were reduced, within the next couple of years, to what they would see as more acceptable levels viz. an evasion level of 10% and a cost of collection of 8%. Assuming responsibility for the licence collection would not mean that they would want to exclusively operate the collection process. Undoubtedly, An Post would continue to be used as the principal collecting agency as it had an unrivalled network of retail outlets throughout the State and that was one asset that could not be ignored. However, more flexible methods of payment with a variety of channels of access to the individual might help the collection process.

The Director General said that, of the 1 million households in the State, it was estimated that 956,000 had a television set. As at February 1988, the number of current licences was 828,000 but as a small number of these were not fully paid up to date, it was the gap between something over 800,000 licences and the estimated figure of 956,000 which represented the evasion figure, viz. of the order of 150,000 unlicenced sets. This represented lost income of the order of £9 million. Considerable progress had been made in recent years in the collection process and the evasion figures were coming down, but further progress was possible.

He said that the level of fine imposed for failing to have a licence was no deterrent but that legislation which was at that stage before the Dail (since enacted as the Broadcasting and Wireless Telegraphy Act, 1988) provided for maximum fines of £400 for a first offence and a maximum of £800 for a second offence and this would considerably help in the collection process.

The Committee welcomes the progress that has been made in recent years in reducing the level of evasion and wishes to see the continuation of the efforts to reduce it even further.

FISHERIES

26. Leases for sites in Fishery Harbour Centres

Charges for the use of harbour facilities and rents for onshore properties vested in the Minister for Fisheries (now Marine) accrue as income to the Fishery Harbour Centres Fund from which the operational costs of the major fishery harbour centres are met in the first instance.

The Comptroller and Auditor General drew the attention of the Committee in his 1985 Report to a problem of completing lease agreements and collecting rents from tenants for properties in Killybegs and Castletownbere, two of the major fishery harbour centres in the country. The tenants, seven in all, were given access to the properties at various stages between April 1980 and August 1983 without entering into leasing agreements and, apart from one case where rent had been paid up to September 1983 only, no other rents had been collected resulting in a total of £86,508 being outstanding at end 1985. The Comptroller and Auditor General understood that this figure had risen to £95,000 approximately by the end of 1987.

The Accounting Officer told the Committee that the figure outstanding at end 1985 as quoted by the Comptroller and Auditor General had a number of estimation factors involved in it as leases or terms had not been agreed to. On reaching agreement, lower terms were agreed to with the result that the amount outstanding was revised downwards to £81,800. Progress was made in collecting much of the arrears and, at the time of the examination in February 1988, rents outstanding amounted to just less than £43,000. The Accounting Officer did not anticipate any bad debts in relation to any of the seven properties.

With regard to the fact that companies were allowed on sites without entering into leasing arrangements, the Accounting Officer had told the Comptroller and Auditor General that this was allowed because it was felt that the anticipated delays would have led to the proposed commercial projects being held up indefinitely, and in some cases abandoned, with resultant loss to the economy through extra jobs not materialising. The problem with the leases arose from the delay in vesting the properties in the Minister for Tourism, Fisheries and Forestry (as he was then) because most of the properties included areas of reclaimed foreshore and some areas above what is called the high water mark, i.e. areas above the reclaimed foreshore, had been wrongly registered due to a change in the high water mark from the last ordnance survey of the area. These problems had now been overcome and the process of vesting the reclaimed foreshore in the Minister was going ahead - the Chief State Solicitor was assisting in this regard. Of the seven cases mentioned at the outset, leases had been concluded and the rent paid in full for the period under review in two cases; of the five uncompleted leases, three had been agreed in all their details and were awaiting signature and a small number of queries had still to be sorted out on the other two. One of the conditions of the leases was that the rent arrears would be paid in full.

The Comptroller and Auditor General also drew the Committee’s attention to the recommendation of the State Valuer for an increase in rent for one of the properties in particular. The recommended increase was for £50,000 (from £9,000) per annum as from 1986 but the Comptroller and Auditor General said that this did not appear to have been taken into account in arriving at the arrears figure outstanding at the end of 1987 which the Accounting Officer had put at over £95,000. The Accounting Officer said that in this particular case, the company, which was involved in the fish processing industry, first entered the site in 1981. In a submission afterwards to the Committee, the Accounting Officer stated that, after the company was granted an extension of the site in 1983, the State Valuer recommended an increase to £22,500 effective from that date and a further increase to £50,000 effective from 1986. Negotiations were taking place with the company on the terms of the draft lease and the level of rent but cognizance would have to be taken of the basis on which the company first entered the site.

The Committee would like to be assured that these problems, which have proved very intractable over a long period, will be resolved without further delay. It can understand the desire of the Department to get projects up and running as quickly as possible but this should not have prevented the Department from drawing up some sort of temporary agreements which would have provided for the timely payment of rents, thereby overcoming the problem of arrears. It welcomes the new procedures drawn up by the Department in this regard, namely, that:-

(i)no entry to sites will be permitted prior to the finalising and execution of the necessary lease or contract

(ii)in circumstances where economic or other considerations warrant entry to be made pending the signing of a lease, a more formalised arrangement which provides for an enforceable liability for payments will be made.

DEFENCE

27. Irregularities in the payment of wages to civilian employees

The Comptroller and Auditor General drew the attention of the Committee (1985 Report) to an irregularity which was going on for more than five years in the payment of wages to civilians employed by the No. 1 Maintenance Company of the Corps of Engineers at the Curragh Camp. The irregularities occurred in the period February 1979 to July 1984 in the recording and notification of absences of 293 civilian employees and, as a result, deductions from pay were not made in respect of approximately 31,500 man hours with consequent overpayments amounting to just under £90,000. The Comptroller and Auditor General reported that the Accounting Officer had told him that the irregularities came to light in the course of a spot check of pay records by the Company Administrative Officer in July 1984 although it appeared that earlier spot checks during the period when the irregularities were taking place failed to discover them. The Accounting Officer in evidence before the Committee said that a very thorough audit was subsequently carried out by personnel of the Finance Branch of the Department and he was happy that the extent of the fraud was as reported by the Comptroller and Auditor General.

The Accounting Officer stated that the daily works reports of a foreman attached to the Company indicated that certain employees were absent from work, but these absences were not notified to the civilian pay section of the Department with the result that 293 civilian employees were paid for times that they had not been working. The records, in fact, had been adjusted by two civilian officers of the administrative section of the Maintenance Section to whom the foreman’s daily reports were submitted. The Gardai were called to investigate the matter but the Director of Public Prosecutions took the view that the evidence did not warrant criminal proceedings because it lacked cogency on the essential element of intent to commit fraud. While there was evidence that public funds had been put to the wrong use, there was insufficient evidence that there was a deliberate attempt to defraud on the part of the people involved and there was no evidence that the two individuals themselves gained financially from it. One of the officers retired on health grounds. The second man was suspended and reduced in rank and was no longer employed on pay duties.

The Accounting Officer also stated that a military court of inquiry was convened by the GOC of the Curragh Command to investigate whether personnel subject to military law were in any way negligent in the matter.

Of the total amount overpaid, approximately £52,000 had been recovered by various deductions leaving £37,000 outstanding, the recovery of which was proceeding. However, there might be small sums which the Department would be unable to recover.

It is obvious to the Committee that adequate internal control procedures were not in operation in this instance because, if they were, this irregularity should not have taken place or, at least, should have been discovered within a short period of time. The adequacy of the spot checks was also open to question. It welcomes the assurance that the procedures have been improved and the need for stringent control emphasised.

It would welcome information on the results of the court of inquiry in due course and on whether it is necessary to write-off any outstanding amounts.

AGRICULTURE

28. Supply of ear tags for use in the disease eradication schemes

The Department of Agriculture, in November 1984, awarded a contract for the supply of 1 million ear tags for use in the Bovine Tuberculosis and Brucellosis Eradication Schemes to a new Irish company which was established in 1984 to manufacture ear tags. At the same time, a similar contact was awarded to the company which had been generally satisfactory in supplying ear tags since 1981. However, problems arose with the new company as the tags were proving to be unsatisfactory in use and, then, in September 1985, the company got into financial difficulties and production of the tags ceased.

The Accounting Officer told the Committee that there was a constant quest for the tamperproof tag and, as the tag produced by this new Irish company - all previous tags were manufactured by non-Irish firms - seemed to offer significant improvements in this regard on previous tags, it was decided, after field trials showed it to be satisfactory, to try it out on a limited scale in three counties. This way the risk was being limited. Difficulties arose, however, in that the quality of the tags which were in general manufacture did not live up to the quality of the prototypes which had been used in the field trials. The Accounting Officer said that this was not surprising as there were teething problems with the manufacturing process in its early stages but that this was not unusual as other tags which had been used over the years also had their teething problems which were usually sorted out over a period of time. He told the Comptroller and Auditor General in response to queries that his Department was satisfied that more extensive field trials would not necessarily have uncovered the defects which, as already stated, were due to imperfect manufacturing techniques and also to a weakness in the tagging implements used. The ultimate loss of tags was in the region of fifteen to twenty per cent representing approximately £30,000 which was nothing as high as originally envisaged but which was still well above the normal loss level of about 5 per cent. The Accounting Officer said that there was no evidence to suggest that there was deliberate tampering or removal of the tags. The present level of stocks of this tag was of the order of 100,000 and these would only be used in an emergency.

In response to queries concerning the identification of animals tested by means of tattoo, the Accounting Officer said that his Department was continually looking at other methods including tatooing but the cost of tatooing was sizeable and the logistics fairly difficult. One method looked at fairly recently was the possibility of implanting electronic devices into the animal which could be read automatically by an electronic scanner and, ultimately, fed into a computer. This technique was only in the early stages of development and the cost was still fairly prohibitive but it was something which would probably come about in the future.

In his Report, the Comptroller and Auditor General also referred to the possibility of the Department being able to refuse payment or obtain some redress against the manufacturer for the faulty products but the Accounting Officer explained that the prospects looked poor because of the company’s limited assets. The position was further complicated by the fact that the owner of the factory, who had leased the premises to the manufacturer of the ear tags, was claiming against the Department on the basis of a lien which he claimed to have on a portion of the stock of tags acquired by the Department. At the time of the Accounting Officer’s examination, these two legal matters were ongoing and had not been resolved. The Committee would like to be kept informed of developments on these matters.

29. Potential losses under Calved Heifer Scheme

A Calved Heifer Grant Scheme was introduced in 1982 to encourage expansion of the cattle breeding herd. The Comptroller and Auditor General reported that, arising from a small sample cross-check, carried out by his staff, between documentation submitted in support of claims for grants under various incentive schemes, including some EEC assisted schemes, some apparent discrepancies came to light under the Calved Heifer Grant Scheme which the Comptroller and Auditor General detailed in a subsequent clarification for the Committee - animals accepted for calved heifer grants in 1984 had been accepted for suckler cow grants in earlier years or for calved heifer grants under the 1982 or 1983 schemes or had already been declared as the dams of calves for the purposes of 1982 or 1983 Calf Premium Schemes; cattle identity cards had not been notched by inspecting officers and the calculation of the basic herd number was incorrect. The sample check involved 263 herd files drawn from every county out of a total of 27,300 herds - a sample of one per cent. Discrepancies were discovered in 32 cases.

The Accounting Officer accepted that the discrepancies which came to light as a result of the cross-check had not been detected by the Departmental Inspectors at the physical inspection stage and that some overpayments in the region of £7,000-£9,000 arose in those cases. On the basis of the higher figure viz. overpayments of £9,000 from a 1% cross-check and applying the principle of extrapolation, the Accounting Officer was asked whether the overpayments could be as high as £900,000. He stated that the operation of the scheme had to be looked at in a wider context. There were in the region of 400,000 applications in 1985, all of which had to be separately checked in the same time and by the same number of staff as had been available in 1980 when the number of applications was only 90,000. The Scheme was one based on 100% physical inspection of the herds of all applicants and he said that the introduction of another 100% check by administrative staff would not be cost-effective in the context of the likely saving which would be achieved, even having regard to the figure arrived at by extrapolation on a national basis of the results of the cross-check of the Comptroller and Auditor General’s staff. The Comptroller and Auditor General stated that he was not suggesting such an administrative cross-check should be undertaken but that, bearing in mind what the Department said about the field inspections being a vital part of the control of the scheme in establishing the correct descriptions of herds, animals, etc. the evidence produced by his officers’ cross-checks could be an indication that the degree of vigilance being exercised by officers carrying out the physical inspections may have been deficient and that there was a need for the Department to remind inspecting officers of the need for greater vigilance and accuracy.

The Committee recognises that the Department inspectors discover many discrepancies themselves in the course of their physical inspections and that potential overpayments are thereby averted through this vigilance. Nevertheless, if a one per cent cross-check as applied by the Comptroller and Auditor General’s staff throws up the discrepancies as reported, the Committee has to share the concern of the Comptroller and Auditor General about the possible scale of discrepancies on a national basis. It agrees with the Comptroller and Auditor General and the Accounting Officer that a 100% documentary cross-check by administrative staff would not be cost effective. However, it feels that the nub of the problem, as the Comptroller and Auditor General pointed out, could lie in the degree of vigilance being exercised by the officers at the physical inspections and that, therefore, the Department should take steps to ensure that inspecting officers are aware of the financial implications of animals being incorrectly described by herdowners and that they insist that all application forms reflect the composition of the herd with absolute accuracy by reference to the precise requirements of each scheme.

30. Exchange Risk Guarantee Scheme on loans for Agricultural purposes

The Committee notes the comments of the Comptroller and Auditor General in both his 1985 and 1986 Reports regarding the operation of this scheme. There were two schemes involved - one initiated in July 1980 which terminated in October 1985 and the second scheme commenced during 1985. The first scheme involved the borrowing by the Agricultural Credit Corporation (ACC) of £50 million in currencies of the European Monetary System (EMS) for on-lending to farmers and agri-business to finance a range of specified activities. The associated banks were brought into the scheme later in 1980 on the same terms and conditions, and involving a similar amount of borrowed funds. The rate of interest payable by borrowers comprised the rate paid by ACC on the loans, a fixed rate to cover exchange risk and a fixed rate to cover the lender’s operating margin. The borrowers exchange risk contribution was held in special accounts in the ACC and the participating banks. The balances in these accounts were to be used towards meeting the exchange losses incurred by ACC and the banks with any additional amounts required being provided from the Agricultural Vote.

The second scheme introduced in 1985 applied to ACC only but it was on the same terms and conditions, including the amount involved, as with the first scheme, except in one respect. While the rate of interest applicable to the special accounts under the second scheme was at the highest rate paid by ACC on variable rate deposits, the rate under the first scheme - excluding the associated banks which were to give the normal deposit interest rates - was to be agreed between the ACC and the Department of Finance. It was agreed at a lower rate than the rate which would normally be applicable to deposits of the size in the special deposit accounts - the rate applicable to deposits in the £5,000-£15,000 range-even though the deposits in the accounts at one stage were of the order of £1.8 million. The Department of Finance had told the Comptroller and Auditor General that the rate agreed with the ACC was designed to provide the ACC with a margin of 4 per cent which the Department considered justified. The Department of Finance official in evidence before the Committee said that the ACC’s margin on these funds was 2.625 per cent which was considerably less than their normal margin. Taking a lower interest rate from the ACC on the special deposit accounts was to make up some of the difference between the 2.635 per cent and their normal margin. The Department official said, however, that this concession only brought their margin up to 2.675 per cent, still well short of their normal margin.

In common with the Comptroller and Auditor General, the Committee finds it difficult to understand why, notwithstanding the concern of the Department of Finance about maintaining ACC’s normal margin, a special rate of interest was agreed with the ACC when -

(i)the rate charged by the ACC to its borrowers already included an operating margin as stated earlier on in this paragraph, and

(ii)the rate which the ACC gives on large deposits presumably already includes a satisfactory operating margin in so far as the ACC is concerned,

and would like clarification on these points. This is more difficult to understand seeing that the normal interest rates applied to the deposits under the second scheme which to all intents and purposes was just a roll-over of the first scheme.

The Committee note that the exchange loss which would have had to be met from the Agriculture Vote had the normal rate of interest been paid by the ACC would have been reduced by £105,000. In the Committee’s view, this treatment of the interest amounted, in effect, to a hidden subsidy to the ACC and would have been much easier to accept if it had been so described openly.

31. Arrears of land annuities

The Committee wishes to express concern at the level of arrears of land annuities which the Accounting Officer stated had risen to approximately £4 million as at February 1988. Out of a total of 140,000 accounts, 29,000 were in arrears and approximately 90 per cent of the total outstanding was owed by about 4 per cent of the people involved. The Comptroller and Auditor General explained that since the High Court ruling in 1982 that the provisions of the Valuation (Ireland) Act, 1852 relating to the valuation of land were unconstitutional, the mechanism for recovering arrears by withholding a similar amount from grants voted for the relief of rates on agricultural land no longer existed - this procedure was designed to ensure that the Exchequer would not be at a loss through failure to recover such arrears. Furthermore, since this mechanism ceased to be available to the Land Commission, the annuitants had become less willing to pay and the arrears progressively built up. The standard remedy since then was to seek enforcement through the County Registrar but this system was not proving to be successful as the County Registrars claimed that they were understaffed, due to the embargo on recruitment, and overworked due to the large increase in the number of Revenue Commissioners’ warrants.

With the withdrawal of Revenue Commissioners’ cases from the County Registrars consequent on the appointment by the Revenue Commissioners of 12 additional Sheriffs in July 1986, it seems to the Committee that this must have resulted in a consequential reduction in the workload of the County Registrars and that, therefore, the County Registrars must now have an opportunity to devote more time to other areas of work including pursuit of the collection of arrears of land annuities. The Committee would welcome hearing whether there has been any recent improvement in the arrears position. If there has been no improvement, the Committee would like to hear whether any other enforcement procedures are being considered.

The Committee also notes that the Comptroller and Auditor General drew attention to the fact that some arrears of annuities were reduced or in some cases cleared by offsetting the amounts so due by the making of grants from the subhead in respect of improvement works carried out by the farmers themselves following allotment. The Committee would prefer to see these matters being treated in a more transparent manner with the cost of any such concessions being clearly identified.

32. Export refunds payable under CAP - Appeal to European Court of Justice against EEC ruling

The Committee notes with satisfaction that the Department’s case against the EEC Commission, who disputed the Department’s application of the normal arrangements for the payment of export refunds to a particular exporter, was successfully contested in the European Court of Justice and that an amount of £2.28 million approximately charged to the Vote in 1985 was subsequently recouped by the Commission. The Committee would like to commend the Department for the manner in which it pursued the matter.

33. Arrears of Veterinary Inspection Fees in the Pigmeat Sector

The Comptroller and Auditor General had been told by the Accounting Officer that difficulties in securing payment of veterinary inspection fees, which were payable by licensed bacon curers on presentation of pigs for slaughter, had arisen primarily from the depressed state of the pigmeat industry at bacon factory level. In addition, the curers began to withhold the fees as a means of voicing a grievance which they felt they had because local pork butchers, who were catering solely for the home market, were being treated more favourably in that they were not liable for the fees and the standards required in terms of hygiene, etc. were lower than what the licensed curers themselves were required to observe.

During the period January 1981 to May 1982 the fees were waived because of the depressed state of the bacon curing industry. On being re-imposed in 1982, the curers still expressed difficulty and they refused to pay. After prolonged discussions with the curers, the Government approved of a fresh agreement reached with the industry in June 1985. There were two main elements in this agreement: (i) that the bacon curers would resume payment of all current fees immediately and (ii) that the arrears of fees accumulated during the period from 1 May 1982 to 31 March 1985 would, in due course, be cleared by means of a special fee of 15p per pig. The latter charge would commence when legislation, which at that stage was being drafted, relating to the control of local/non-export slaughterhouses became operative and the question of continuing the 15p charge would be reviewed after 3 years from the commencement of payment. Subsequent to the June 1985 agreement, the bacon industry continued to experience difficulty. Their problems were resolved in March 1987 and since then the first element of the June 1985 agreement has been fully operative.

In a subsequent submission, the Accounting Officer stated that about 90% of current arrears (i.e. relating to the period post 1 April 1985) had now been paid and it was expected that all outstanding amounts would be collected. The legislation relating to local/non-export slaughterhouses had been enacted in the Abattoirs Act 1988, which was a framework Act and which required a series of Statutory Regulations to bring it into full effect. It was envisaged that the main Regulations would be finalised later in 1988. At that stage, the plan for paying the pre-1 April, 1985 arrears of close to £5 million through the mechanism of the special charge of 15p per pig would be due to come into operation. The Accounting Officer also stated that collection of the pre-April 1985 arrears would take in the region of ten years. The bacon industry was going through a process of rationalisation and modernisation - many plants had been there since the 1920’s - and it was expected that this would lead to greater efficiency which would enable the industry to operate competitively in the export market.

The Committee notes with concern the attitude of the licensed bacon curers towards the payment of what, in effect, were statutory fees. It also notes the generous terms for the payment of the arrears - payment by instalment over a ten year period for arrears which had built up over a three year period and which were rightly payable during that period. It trusts that if, as expected, the rationalisation of the industry leads to greater efficiency, the review of the 15p charge after three years as mentioned earlier will be such so that will lead to a speedier recoupment of the £5 million in arrears. The Committee wishes to be kept informed of progress in this matter.

34. Absence of proper stock records of beef held in intervention.

The Comptroller and Auditor General reported in his 1986 Report that storage, etc. charges for beef amounting to £27 million approximately had been paid in 1986 even though the accuracy of the charges could not be verified - and had still not been verified by March 1987 - because of the absence of up-to-date stock records. Sales of beef of some 32,000 tonnes for the period December 1985/November 1986 failed to be entered on to the records at this date.

The Accounting Officer had explained to the Comptroller and Auditor General the difficulties which were encountered by his Department in keeping the stock records up-to-date. The main difficulty arose out of the complications attached to a new type of sales system resultant from the introduction by the EEC of an accelerated programme to allow for a more flexible operation for the disposal of stocks of intervention beef. Staff resources had to be concentrated in operating this new system resulting in a delay in inputting data on to the computer. In addition, the loss of experienced staff added to the problem.

In evidence before the Committee, the Accounting Officer said that, in spite of the records not being kept up-to-date, the risk of overpayment was minimal because payments were being made to the owners of the twenty or so cold stores on a regular basis and any errors in payments could, therefore, be adjusted in subsequent payments. In updating the records, it was the experience that the records kept by the store coincided with what the Department eventually produced. So, in fact, in relation to 1986 no errors were found. It was expected that the records in relation to 1987 would be shortly sorted out and, when this was done, the Accounting Officer stated that they would then have no difficulty in keeping up-to-date in the future providing there were no staffing difficulties.

The Committee wishes to express dissatisfaction at the manner in which the Department allowed this matter to develop without any thought of the possible consequences and at how slow the Department was in resolving the problem. It finds it difficult to accept that what on the surface appears to be a relatively simple task of keeping track of purchases and sales - which is basically what the Intervention Agency is involved in - should become so complex that another relatively simple matter viz. the keeping of records should be foregone. Satisfactory stock records are essential for the control and verification of stocks in any business and the lack of such in this case could have resulted in significant overpayments particularly if the records kept by the stores themselves had been, in any way, defective. The Committee would like to be informed when the matter has been brought up to date.

35. Refund to the EEC of grants paid under the Farm Modernisation Scheme (FMS).

The Committee noted that the Department of Agriculture agreed in July 1986 to a total of £1.09 million being deducted from current claims for recoupment from the EEC under the FMS because the EEC was sticking rigidly to the terms of EEC Directive 72/159 which provides that, in order to qualify for aid under the FMS, farmers who are developing their farms must keep farm accounts for each year of their farm development plan even though grants under the scheme might be paid to a large degree in the early years of the plan. The Department paid the full grant and in turn claimed this from the EEC without insisting on this condition being complied with prior to 1979.

In evidence before the Committee, the Accounting Officer said that, in the early years after accession to the EEC, the Department relied to a great extent on informal contacts with the Commission and there were positive indications that there would be a certain degree of tolerance in relation to the regulations. However, in 1982 the EEC decided that EEC aid would not be allowable to any farmers who failed to keep accounts during any period of their development plans and recovery was sought of all aid paid to the Department from 1975 to 1982 in respect of such farmers. The Comptroller and Auditor General had set out in his 1986 Report what the Department saw as extenuating circumstances why it did not insist on accounts being kept in the year prior to 1979. The EEC were informed in December 1984 that this was because there was an absence of an accounts keeping tradition and a lack of services to help farmers keep accounts; genuine efforts were being made to keep some type of accounts and attention given by ACOT advisers to the development plans more than compensated for the lack of accounts. In addition, developments over time were leading to more accounts being kept.

These arguments failed to convince the EEC and the £1.09 million refunded by the Department represented the extrapolation to a national basis the results of a survey-carried out in County Kildare of farm accounts kept by development farms who received EEC aid - to determine how many had not kept acceptable accounts. To identify all the defaulters nationwide would have been a major task and the EEC accepted the estimate on the basis of the County Kildare survey.

The Committee feels that, while it was abiding by its own rules in acting as it did, the EEC could have been a little more flexible and understanding of the position in the light of the Accounting Officer’s comments about a degree of tolerance by the EEC in relation to the keeping of accounts. The Committee wonders how much the Department was misled by the Commission. However, in the final analysis, it feels that the onus rested with the Department to formally clear with the EEC in advance the amount of leeway which it would tolerate in relation to the keeping of accounts. It is obvious now that the informal indications which the Accounting Officer described did not turn out to be the official view. The Committee feels also that the Department may have been a little lenient in its attitude towards farmers regarding the keeping of accounts and it may have too readily accepted the arguments of the farmers against this being done. In any event, the handling of the matter lost the Exchequer just over £1 million and the Committee must express itself dissatified because of this.

AGRICULTURE AND CENTRAL STATISTICS OFFICE

36. Reconciliation of total ewe numbers

The Committee heard evidence from the Accounting Officer and the Director, Central Statistics Office arising from concern expressed by the Comptroller and Auditor General that statistics produced by the Central Statistics Office showed a lesser total of ewes in the country than the numbers for which grants had been paid by the Department of Agriculture under Ewe Premium and Headage Grant Schemes with the result that there could have been significant overpayments of ewe premiums and headage grants. The difference was of the order of 400,000 ewes in 1986 - a year in which the Department of Agriculture paid premiums in respect of some 2.5 million ewes.

The premium is payable by the EEC from FEOGA on a countrywide basis to farmers who maintain at least 10 eligible ewes while the headage grant is payable from the Vote in respect of each eligible ewe up to a maximum of 200 kept by farmers in dis-advantaged areas and designated mountain sheep areas. Payments under each scheme are made after a physical inspection by departmental officers who notch the ear of each ewe as it is checked. The Accounting Officer, Department of Agriculture said that his Department was therefore more than satisfied that its count was accurate. The main reasons for the discrepancies in the two sets of statistics appeared to arise because of a difference in timing and definition and to the method and sources used by the Central Statistics Office. In effect, the Director of the Central Statistics Office told the Committee that the two sets of statistics were not measuring the same thing. The Central Statistics Office figures were taken in June at the end of the season whereas the Department of Agriculture’s count was taken at the peak point at a time when the ewes were actually in lamb. In addition, the Department of Agriculture regarded a ewe in lamb as a ewe - which was not technically correct - while the Central Statistics Officer did not include in its figure ewes which were not going to be included in the breeding stock in future years or which it was intended would be culled later in that season.

On the question of the methods and sources used by the Central Statistics Office, the Committee learned that its figures were based on information supplied to enmunerators who carried out a sample in 60 District Electoral Divisions (DED’s) from a total of 300 DED’s approximately and the figures were grossed up from this national sample of 20% by linking them back to the last full census of Agriculture, which was held in June 1980, to derive overall sheep population estimates. It was possible therefore, that the DED sample had missed out on areas to which sheep production had now extended. The Central Statistics Office was now moving away from the DED sample method to a postal system of collection, the response to which was very satisfactory and the additional information gained from the postal returns suggested that the existing estimates for ewe numbers was somewhat low. The Director (CSO) stated that an indepth assessment of the statistics was continuing in conjunction with the Department of Agriculture in an effort to reconcile the figures and he was confident that the matter could be successfully concluded. He had no grounds for suspecting that the discrepancy in the two sets of figures could be due to fictitious claims under the schemes.

As the Committee was concerned at the large difference between the two sets of statistics, it asked to be brought up to date when the results of the review became available. That review was completed in December 1988. The conclusions drawn from the review confirmed the impression that the rate of growth in sheep between 1981 and 1987 had been consistently underestimated. During the review, the CSO established that classification and timing aspects do combine to give a lower figure for ewes in the CSO’s June postal returns, which cover each category of sheep, than the numbers accepted for the ewe premium at the time of inspection. For some 400 of the flocks in the postal inquiry, the Department of Agriculture’s inspectors, in the course of their 1988 inspection for the ewe premium, collected additional information for all other categories of sheep. Direct comparison on an aggregate basis with the CSO postal returns showed that the difference for all sheep excluding lambs taken together was much lower than for ewes. Allowance for disposals between the two periods would reduce the difference even further.

In the circumstances, CSO concluded that the revised estimates at national level for ewes were now broadly reconcilable with the number accepted for the ewe premium in 1988 and earlier years. The revised CSO estimate for 1986 showed that the difference of 400,000 mentioned at the outset of this paragraph had now been reduced to 175,000.

While the differences between the two sets of statistics have not been conclusively proven, the Committee, nevertheless, reluctantly accepts the revised figures and the explanations therefor. However, the Committee finds that the necessity to adjust figures right back to 1981 is disturbing and feels that the divergence from the true estimates for sheep numbers might have been more quickly recognised by the CSO.

OFFICE OF THE MINISTER FOR JUSTICE

37. Expenditure in excess of amounts authorised to be issued from the Exchequer.

The Comptroller and Auditor General reported that in 1986 expenditure from the Vote for the Office of the Minister for Justice prior to the voting of the Estimate by Dail Eireann exceeded the amount authorised to be issued under the Central Fund (Permanent Provisions) Act, 1965 by just under £1.5 million, thus breaching one of the basic principles of parliamentary controls viz. that expenditure be limited to the amount authorised by Dail Eireann.

The Committee shares the view expressed by the Comptroller and Auditor General before the Committee that it should only be in exceptional circumstances that four-fifths of the previous year’s estimate - the amount authorised to be spent under the afore-mentioned Act pending the voting by the Dail of the Estimate for the following year - would be insufficient to meet expenditure in the first half of the following year pending the voting of the estimates which is normally done before the summer recess of the Dail. It acknowledges that there were exceptional circumstances in this case which led to commitments on hand exceeding the authorised expenditure limits, notably, compensation payments awarded by the Tribunal examining the Stardust tragedy and notes that while the Estimate was listed for debate on 20 June, it was not taken until 27 June due to the intervention of more urgent parliamentary business. However, this does not excuse the fact that the statutory limit was deliberately ignored resulting in expenditure which was ultra vires. It regrets that the Department, which appeared to have been conscious of the requirements and procedures in the first instance, should have chosen ultimately to ignore the basic principle of parliamentary control especially seeing that a postponement of payments for a period of seven days was all that was required in the end. The Department must also have been aware of the agreement to vote all Estimates in the year in question before the summer recess and as the recess commenced just fourteen days after the Estimate under review was first listed for debate, the Committee considers that a postponement of payments till then would not have been unreasonable even in the exceptional circumstances involved.

Therefore, the Committee must insist that, in the vital area of control of public expenditure, the primacy of the Dail remains paramount and it does not want to see a recurrence of such a case.

OFFICE OF THE MINISTER FOR JUSTICE AND GARDA SIOCHANA

38. Weaknesses in internal control - payment on foot of pro-forma invoices

Weaknesses in internal control in the Barrack Master’s Office at the Garda Depot and in the Accounts Branch, Department of Justice resulted in a duplicate payment of £6,330 for an item of computer equipment. The overpayment which was subsequently recovered from the supplier, occurred at a time when the internal control procedures both in the Garda Depot and in the Department had supposedly been reviewed. The Comptroller and Auditor General wondered, therefore, whether the review was effective. Another duplicate payment of £200,000 approximately, which involved payment in Deutsche Marks, was only avoided by what the Comptroller and Auditor General referred to as the rather fortuitous detection of the duplication at the last minute. A bank draft which had been ordered had to be subsequently cancelled resulting in a charge of £285 by the bank which, with the agreement of the Department of Finance, was written off in the 1986 Appropriation Accounts.

The Accounting Officer told the Committee that these two cases arose because pro-forma invoices had been accepted as original invoices. However, instructions had been issued that in no circumstances should payment be made on anything other than the original invoice and the Barrack Master’s Office had been instructed not to certify pro-forma invoices for payment. Negotiations were continuing with the Department of Finance for a specific computer installation that would obviate the possibility of making duplicate payments. He added that a restructuring in Garda Headquarters, including the Barrack Master’s Office, was taking place and, while discussions with the Garda Authorities concluded that there was nothing wrong with the procedures in existence, the restructuring would incorporate a streamlining of procedures and the issuing of clearcut instructions to everyone in the area.

A third case where payment for computer equipment was made on 31 December, 1986 on foot of a pro-forma invoice dated 23 December, 1986 was also brought to light by the Comptroller and Auditor General. However, while in this instance it did not lead to a duplicate payment even though a later invoice was issued by the supplier, the Comptroller and Auditor General was concerned that payment had been brought forward into 1986 as the actual invoice from the supplier which was dated 11 February, 1987 stated that the equipment had not been shipped until 5 February, 1987.

The Accounting Officer had told the Comptroller and Auditor General that the agreement for purchase of the equipment, which was for the central processing unit at the Garda Computer Centre, provided for payment to be made on the date of installation unless the customer elected to delay installation as specified by the supplier, in which case payment was to be made on delivery. However, as the installation of the equipment was to be arranged in order to cause the least disruption to Garda operations, the supplier could not be afforded the option of specifying the installation date so payment was made on delivery in December 1986. When the installation of the equipment commenced some weeks later, it was found to be a different, although more expensive, upgrade than that ordered and had to be sent back. The Accounting Officer told the Committee that the equipment consisted of highly technical computer and software components with which an ordinary person would not be familiar and for this reason would not have been recognised as being the right or wrong equipment. The reference on the invoice dated 11 February, stating that the equipment was shipped on 5 February, related to the delivery and installation of the correct equipment.

The Committee agrees that to have a proper system of internal control satisfactory procedures must be in operation. It is obvious that such control procedures were not in operation in this instance and it is fortunate that there was no significant loss to the taxpayer. It welcomes the assurance of the Accounting Officer that the control procedures have been tightened and it trusts that the weaknesses highlighted by the Comptroller and Auditor General will not recur.

COURTS

39. Failure to effect payment of matured liability

A condition of a contract worth £189,756 for the delivery and installation of a Local Area Network to improve the efficiency and quality of communications and data transmission links between a computer based in the Four Courts and terminals located in various buildings in and about the Four Courts Complex which housed the Dublin Metropolitan District Court and the Land Registry, was that a part payment of £102,000 be made by the end of 1986. As the new Network was to be a shared facility, £27,000 was chargeable to and paid from the Land Registry Vote in 1986 but the balance of £75,000 chargeable to the Courts Vote was not paid until 1987 even though the total bill was received under the same invoice. The Accounting Officer had told the Comptroller and Auditor General that the account was either overlooked or mislaid and the failure to make payment was only noticed following representations from the supplier.

The Committee note that, while the amount not paid was £75,000, the saving on the Appropriation Account was only £51,584, thereby raising the question as to whether the payment had been deliberately held back to avoid incurring an excess Vote. The Committee accepts the Accounting Officer’s explanation on the matter but it must point out, as it has in the past, that matured liabilities must be paid before the end of the financial year and must not be postponed even at the risk of an excess Vote. The Committee would take a very serious view if this accounting principle was deliberately breached.

LAND REGISTRY & REGISTRY OF DEEDS

40. Staffing difficulties and delays

Arising from the questioning of the Accounting Officer in April 1988 about the delays in the registration of lands by the Land Registry - which the Accounting Officer said was attributable to staff shortages, the Department of Finance representative expressed his concern about the efficiency of the Land Registry in very forthright terms. Because of this, the Committee agreed that the matter necessitated examination in greater detail and, indeed, that it would be abrogating its responsibilities if it failed to follow up the concerns expressed by the Department of Finance.

Accordingly, in July, 1988. the Committee wrote to the Accounting Officer requesting a detailed report on the matter. When a reply had not been received by late September, the Accounting Officer was requested to attend a meeting arranged for 6 October for which the agenda was ‘staffing difficulties and delays in the Land Registry’. The Accounting Officer’s availability to attend was confirmed but subsequently he indicated that he was unable to do so due to circumstances beyond his control. At the meeting held in his absence, it was agreed to again request his attendance at a meeting arranged for 13 October.

In the interim, correspondence was received from the Minister for Justice stating that he had instructed the Accounting Officer not to attend the meeting on the grounds that the subject matter of the agenda was outside the Committee’s terms of reference and a matter for which he, and not the Accounting Officer, had overall responsibility as it covered a policy matter. Further correspondence was exchanged and the Accounting Officer appeared before the Committee on 26 January, 1989.

The Committee has always accepted that it is open to any Accounting Officer to decline, during the course of a meeting, to answer any question which he can justifiably claim to be related to a matter of Government policy; there are numerous examples of this happening not just with this present Committee but also with past Committees. In this instance, it was solely with the non-policy aspects of the staffing difficulties and delays within the Land Registry that the Committee wished to examine the Accounting Officer. The Committee must assert that issues like the use of computer equipment purchased from Voted moneys, which the Department of Finance representative at the 14 April meeting stated was not being used by certain members of staff, and which must, therefore, have had implications for efficiency and economy within the Department are clearly within its remit. Likewise, staffing difficulties and delays could, prima facie, also have a bearing on the collection of State revenue by this Office which was responsible for generating approximately £8 million in fee income in 1987. In this context, the Department of Finance publication, “An Outline of Irish Financial Procedures” sets out clearly the responsibilities of Accounting Officers. It states:-

“The Accounting Officer is personally responsible for the safeguarding of public funds and property under his control, for the regularity and propriety of all transactions in each Appropriation Account bearing his signature, and also for the efficiency and economy of administration in his Department”

This responsibility of Accounting Officers was confirmed as recently as 10 November, 1988 by the Minister for Finance in Dail Eireann when he stated, in reply to a parliamentary question, that “Accounting Officers of Departments have a particular responsibility in ensuring efficient management of resources which is the subject of review by the Comptroller and Auditor General and the Committee of Public Accounts.”

While the Committee would not have any function in relation to the actual allocation of staff and other resources which is clearly a policy issue, it would regard it as a normal function to examine the Accounting Officer on how well these resources are used. This, because of the statements made by the Department of Finance representative, would have been one of the issues which the Committee was concerned about when it wrote to the Accounting Officer on 27 July, 1988. Had this been responded to to the Committee’s satisfaction, it is likely that the subsequent controversy involving the intervention of the Minister for Justice could have been avoided. This latter aspect brought a political dimension to the issue which the Committee regards as unfortunate since the Committee has no function vis-a-vis the Minister or vice versa. In this context, the Committee wishes to point out that An Outline of Irish Financial Procedures states that ‘an Accounting Officer should consult the Department of Finance on any point of doubt concerning his duties and responsibilities’. The Committee is not aware that such consultation took place. Indeed, had the Accounting Officer explained his difficulties to the Committee - as he is entitled to do in his own right - it is certain that the Committee would have reassured him that it had no intention of questioning him on policy matters.

At the Committee’s insistence, the Accounting Officer re-appeared before the Committee on 26 January, 1989 when the agenda set was to conclude the examination of the 1986 Appropriation Accounts for the Justice Group of Votes - the original examination of which brought to light the difficulties in the Land Registry. The Accounting Officer repeated to the Committee that the difficulties in the Land Registry were related to staff shortages. The staff complement of 541 in 1980 had been reduced to the present day number of 383, a reduction of 29 per cent. Computerisation in the Office commenced in 1982 and by the end of 1986 just short of £1 million had been spent. The computerisation programme was proceeding at a pace which the available staff resources allowed; approximately 20 per cent of the work had been computerised to date. When computerisation had commenced it was envisaged that it would take ten years but the programme had now fallen into arrears because of the staff shortages and it was difficult to say when it would now be completed.

In relation to the comments made by the Department of Finance representative, the Accounting Officer stated that it was not true that computers had been left unused by virtue of a decision of the staff in the Land Registry to boycott new technology. The equipment was being fully utilised and utilisation of the equipment was never used as a bargaining point by staff. The Department of Finance representative said that the information available to his Department was that, when changes in procedures involving the use of computers were being introduced in the Land Registry in 1986, there was a certain degree of acrimony towards the changes and some members of the staff decided not to utilise computers for a specific period. However, he was happy to accept the information given by the Accounting Officer who was obviously closer to the situation than he was.

The Committee is glad to get the assurances of the Accounting Officer that the computer equipment purchased to date for the Land Registry is being fully utilised and that the staff are working efficiently and effectively. However, it still has to express its concern about the long delays affecting land registration which currently exist in the Land Registry and which have been a cause of serious public inconvenience for many years. It will monitor the progress being made in the computerisation programme over the next few years and it can only hope that the recent decision of the Department of Finance to allocate an additional 36 staff to the Office will speed up this process and, ultimately, lead to the elimination of these delays.

OFFICE OF THE COMPTROLLER AND AUDITOR GENERAL

41. Staffing

Again as in previous reports, the continuing unsatisfactory situation regarding the level of staffing in the Office of the Comptroller and Auditor General was brought to the Committee’s attention in the 1985 and 1986 Reports. This matter is still of concern to the Committee.

The Committee published its own special report in May, 1988 on the future role of the Comptroller and Auditor General and the Committee of Public Accounts and it made 29 recommendations in relation to the Comptroller and Auditor General alone. The Committee understands that the Minister for Finance has recently agreed to the filling by redeployment of vacant posts in the Office of the Comptroller and Auditor General. However, in the context of a possible expanded role for the Comptroller and Auditor General which the Committee recommended in its special report, much more will be required and the Committee hopes that the whole question of staffing and the expanded role will be quickly dealt with by the Minister for Finance who, it understands, is close to completing his own review of the matter.

FORESTRY

42. Financial involvement of the State in Chipboard Products Ltd. (in receivership and in liquidation)

The question of the State’s financial participation in the restructuring of Chipboard Products Ltd. and the subsequent going into receivership in November, 1983 and into liquidation in July, 1984 was reported on by the Comptroller and Auditor General in his 1985 Report and raised with the Accounting Officer and the Department of Finance. In evidence, the Accounting Officer told the Committee that the total state exposure in the case amounted to £3.371 million comprising share capital (£0.534m), state loans (£0.466m), state guarantees (£1.157m), capital grants (£0.195m) and timber supplied from state forests (£1.019m). Investment in a previous version of the company called Chipboard Ltd. mainly through the IDA and Foir Teoranta, brought the total State investment to over £6 million of which in the region of £2/£3 million was expected to be recovered.

The delay in finalising the matter arose because of legal complications arising from another case which was before the Supreme Court in relation to charges on companies’ book debts which had a relevance to the receiver of Chipboard Products Ltd. When that judgement was delivered in November, 1985, other complications arose in relation to the amounts that might be due to the Department of Finance and the banks in connection with the state quarantees.

State guarantees of the company’s bank borrowings of £1.1 million were met in Feburary, 1984 by payment from the Central Fund of £1.157 million, including interest of £57,000. Subsequent to his examination, the Accounting Officer informed the Committee that this sum had recently been repaid by the Receiver to the Department of Finance by virtue of the Minister’s Right of subrogation under common law whereby the State had adopted the rights that the Bank of Ireland, who had appointed the Receiver, had on foot of the Bank’s debentures to collect the moneys which the State had guaranteed and had paid over to the Bank. The Accounting Officer further stated that entitlement to interest remained to be resolved and would be the subject of further discussions between the Department of Finance and the Receiver.

The loan element in the amounts quoted at the outset was directly secured by a debenture giving the Minister for Forestry (as he then was) a fixed charge on the company’s land, buildings and plant and this enabled £348,000 to be recovered in July, 1987 in partially meeting the claim of the Minister. Any further amounts due to the Minister for Energy (who now has responsibility for the matter) would not be known until the Receiver furnished information on his final distribution of funds.

The Committee would like to be kept informed of developments in this case.

43. Monies due from the sale of timber

Difficulties encountered by the Department of Forestry in collecting monies due from the sale of timber were related by the Comptroller and Auditor General in three separate paragraphs in his 1986 Report.

One of the cases was previously referred to in the 1983 Report of the Comptroller and Auditor General and in paragraph 45 of the Committee’s own Report on the 1982 and 1983 Appropriation Accounts. The Accounting Officer told the Committee that legal proceedings had just commenced against the guarantor who had refused to pay the sum covered by a guarantee it had given for a subsidiary company which defaulted on a payment of £215,553 due for timber supplied. The Company had a credit limit fixed at £150,000. He said that he understood that legal proceedings may be initiated against the Department for failure to supply the relevant timber.

In the second case, the Department had been informed by the Chief State Solicitor that, as the company involved had no remaining assets after ceasing to trade in February, 1986, it would not be practical to pursue through the courts the recovery of the amount involved viz. £42,446. Part of the amount outstanding involved dishonoured cheques and post-dated cheques which could not be negotiated. The balance represented money due under credit arrangements where the credit limit was fixed at £20,000.

The Accounting Officer had explained to the Comptroller and Auditor General that the Department now included a “Retention of Title” clause in its contracts of sale in order to allow for repossession of identifiable material removed should similar situations arise. In evidence, he said that this procedure had at one stage been identified as ‘the magic wand’ for dealing with such cases, but his Department had not to rely on this recourse to date. The Department now had a rigorous system of control of credit, being allowed to a limited number of companies only and being guaranteed by the banks. The question of accepting post-dated cheques was not something which was normally done. He said that the amount of losses incurred was minute in relation to overall sales which was in the region of £15/£20 million annually.

The third case involved a dispute between the Department and a customer in regard to the interpretation of the terms of a contract for the continuous supply of pulpwood under an agreed pricing structure which allowed for a specified increase after the first three years of supply. The dispute revolved around the operative date of the increase. Under the Department’s interpretation, a sum of £144,747 was still owing by the Company.

The Committee would like to be kept informed of the progress made in relation to the first and third cases.

ENERGY

44. Avoca Mines Ltd.

The Committee received an update on the receivership of Avoca Mines Ltd. from the Comptroller and Auditor General and the Accounting Officer. Loans totalling £9.9 million together with accrued interest of £10.7 million were written off as irrecoverable.

The Accounting Officer told the Committee that the receivership had been terminated and the Department itself was concluding the disposal of the remaining assets, for which it expected to get about £170,000. The full cost of the receivership was about £3 million of which £650,000 was for fees and expenses of the receiver. He added that there was little prospect of the mines being operated again as previous attempts by the State in assisting a mining venture at Avoca proved unsuccessful.

The Committee is pleased to learn that the receivership has been terminated and that the Department itself is disposing of the remaining assets. The Committee has on a number of occasions expressed concern about the duration of receiverships and liquidations involving State enterprises where the ultimate costs are being borne by the taxpayer and where the prolongation of the receivership/liquidation increases those costs, particularly the costs incurred on fees. It considers this case to be a good example on an unnecessarily lengthy exercise. It feels that the Department of Finance should consider whether any means can be found whereby costs arising in such cases can be minimised, whether, for instance, the appointment of an official receiver would be worth considering or whether, in certain circumstances, an official of a sponsoring Department could conveniently be nominated to fulfil that statutory function.

45. Bord Gais Eireann - Acquisition of Dublin Gas Company

The Committee notes that up to 31 December, 1986 the profits of An Bord Gais Eireann (BGE) from the supply of natural gas amounted to £320,410,000 of which £293,555,000 was applied under Section 11(2) of the Gas Act, 1976 as follows:- Payments to Exchequer £245,500,000, loans to Dublin Gas Company £48,055,000. The Accounting Officer told the Committee that, under the original plan, proposed funding by the State in Dublin Gas Company was to amount to £104 million by the end of 1987. However, as the Company started to get into difficulties, it went into receivership. Funds were made available during the receivership to discharge obligations to certain unsecured creditors, whose services were essential to keep the company going. BGE acquired the Company which was to continue as a separate corporate entity but, in effect, was a division of BGE and, by the end of 1987, State funding had risen to £134 million.

The Accounting Officer said he was satisfied that there was no real alternative to the course of action which was embarked on. Banking and other liabilities of Dublin Gas amounting to £62 million became a liability of BGE on acquisition and these would be discharged in accordance with new banking arrangements which had been concluded in November, 1987. The Accounting Officer expected that Dublin Gas would be making profits in its own right in a few years and that BGE, as the global enterprise, would therefore, resume paying profits to the Exchequer. No such funds had been paid to the Exchequer since 1986.

The method for application of the profits of BGE was discussed during the examination. While the Committee accepts that the application of the profits was in accordance with Section 11(2) of the Gas Act, 1976, nevertheless it feels that the extent to which BGE, and, therefore, the State, was subsidising the Dublin Gas Company would have been more transparent if Dail Eireann had been asked to vote specifically on a matter, which related to the use of what was, in effect, public moneys.

STATIONERY OFFICE

46. Deficiencies in paper stocks

The Comptroller and Auditor General told the Committee that large deficiencies in the stocks of certain types of paper held by the Stationery Office and which was estimated at £100,000 at the end of 1985 had risen to £137,000 by the middle of 1986. Garda investigations of the deficiences proved inconclusive. The deficiences occurred while the paper stocks were held in rented accommodation at the Dublin Docks but, since the transfer in July 1986 of the stocks to the Stationery Office’s new accommodation in Bishop Street, no serious deficiencies had arisen.

The Accounting Officer told the Committee that, at the beginning of the 1980’s, most of the Stationery Office’s paper supplies was being supplied by Clondalkin Paper Mills Ltd. who held a lot of the stocks until they were required. However, when Clondalkin Paper Mills began to experience difficulties, the Stationery Office started to purchase from UK mills and the paper had then to be taken into stock. Because of this, temporary rented accommodation in the North Wall under the management of a Dublin warehousing company had to be acquired by the Office of Public Works and the Stationery Office occupied these premises from the end of 1981 to the middle of 1986. He said that the keys of the warehouses were retained by the management of the warehousing company who also provided night security. Whenever paper stocks were required, employees of the Stationery Office got the keys from the Company, removed whatever material was required, locked up and handed back the keys to the Company. The warehouses were deemed to be secure in the period to 1984 but when the deficiency was noticed at the end of 1985, extra security works were carried out by the Company at the request of the Stationery Office and the Gardai were called in in January 1986. All possibilities were looked at by the Gardai during the course of their investigations but, beyond having their suspicions as to who might have committed the crime, nothing conclusive emerged. In the region of 30 to 40 tonnes of paper disappeared compared with purchases during the year of about 1,500 tonnes.

The Committee agrees that the security arrangements for the handling of the stocks were less than adequate. To allow access to the stocks by personnel other than employees of the Stationery Office was an extraordinarily naive decision. With regard to the end 1984 stocktaking showing up a decrepancy of £16,000, the Committee feels that this in itself should have given some cause for concern as the amount itself represents a considerable volume of paper - even though the amount is small when account is taken of the total purchases in the year - and that, therefore, greater vigilance should have been exercised in the months immediately following that stocktaking. However, regular spot checks did not appear to have been carried out in 1985. The Committee wishes to express dissatisfaction that this was not done as this would have shown that the stocks were still disappearing and the problem would have been nipped in the bud much sooner. The Committee wishes to reiterate its dissatisfaction in this matter.

PUBLIC WORKS AND BUILDINGS

A series of issues highlighted by the Comptroller and Auditor General in his Reports for 1985 and 1986 regarding the Office of Public Works (OPW) made disturbing reading for the Committee. The items were dealt with on consecutive days by the Committee and, in one case, that relating to a building at No. 5 Kildare Street (Dublin), involved a special visit to the site. The items examined are dealt with in the following paragraphs.

47. Costs associated with the purchase and renovation of a building at No. 5 Kildare Street (Dublin)

In his 1985 Report, the Comptroller and Auditor General cited the sequence of events from 1979 to 1985 in connection with the leasing and eventual purchase of a building at No. 5 Kildare Street. In evidence before the Committee, the Accounting Officer told of the background leading to the purchase and updated the Committee on the position. He stated that in the very early seventies the Department of Education, which was responsible for the National Library, was concerned about the future accommodation needs of the Library and they engaged a consultant to prepare a report for them. That report was then considered by an interdepartmental committee and one of the recommendations of the committee was that the Commissioners should seek to acquire all the property from the Nassau Street corner up to and including No. 6 Kildare Street and that that entire accommodation plus the accommodation in the existing premises of the Library could deal with the existing and projected future needs of the Library. The premises at No. 4 was owned by the State at the time and the Office of Public Works pursued the idea of purchasing No. 5 which was held on lease at that stage by Coras Iompair Eireann (CIE). CIE had a lease which commenced in 1961 and which was to expire in 1982. The Office of Public Works had protracted negotiations with CIE in the hope that it could take over their lease and that, by having its foot in the door, it could manage to acquire the property from the landlord or, under the terms of future legislation, it could secure an extension of the lease, under the Landlord and Tenant Bill as it was then and which became an Act in 1980. This latter assumption did not prove to be the case.

In the meantime in 1975, OPW secured Nos. 1, 2 and 3 and as it already had No. 4, it intensified its efforts to get No. 5. The leasehold interest was eventually purchased for £70,000 in 1979 when it had only three years to run. The Accounting Officer admitted that the decision to take the lease from CIE with three years to go was fraught with risk and danger. However, it was considered by the Board at the time as being an acceptable risk because it felt that if it lost the chance of getting No. 5, it would lose the opportunity, perhaps forever, of dealing with the National Library in the way it had intended. As the lease had three years to run, the question arose of making the building available to other Departments until the future of the building was decided on or until the fee simple was actually secured from the owner. It was offered to the Departments of Industry and Commerce, Labour and Justice but none of those was willing to move in without substantial alterations or renovations. Meanwhile, the time available under the lease was rapidly running out. There was a reluctance to do any work in the building since, firstly, it was not going to be occupied by any of the Departments it was offered to and, secondly, if OPW secured the fee simple, the proposal was actually to gut the building or, perhaps, take it down altogether and rebuild it as part of a wider scheme. Effectively the Accounting Officer said that the management of the property portfolio in OPW fell between two stools.

Nothing was done with the building up to early 1981 when it was discovered that there had been a break-in at the premises and that lead had been stripped from the roof and cisterns and other items had been taken from inside which had led to the building being saturated with water. Remedial works were carried out to the roof and some other minor repairs were done inside at a cost of £19,296. A malicious injuries claim was lodged with Dublin Corporation on foot of which a payment of £13,000 was received. By the time the remedial and other minor works were completed, there were only about nine months to run on the lease. Again, nothing was done because, as the Accounting Officer told the Committee, officials were afraid to commit themselves to expenditure on a building where an extension of the lease or outright purchase might not be achieved.

OPW again intensified its efforts with the owners of the property to seek to acquire it. The owner at that stage was an elderly lady resident in England but it was very difficult to establish contact and make progress with a view to buying out her interest. The Accounting Officer said that at the time the lease was secured from CIE, OPW was satisfied that it would have concluded such a deal with her because in a similar case - a property at No. 1A in Leinster Lane behind the premises in question - she also had been the fee simple interest holder and OPW had bought it out after acquiring the leasehold. She subsequently transferred the dealings with the property to one of her family and her family sold it to a property company. That property company subsequently transferred it to another property company in which the family maintained shares. This, the Accounting Officer said, was where it went wrong for OPW in that its negotiations with the second property company did not bear fruit because, in the sale from one company to the next, it was sold for a nominal price and the eventual owners were then not prepared to sell it on to OPW and show a huge capital gain. Instead they offered a ten year lease which was not acceptable in view of OPW’s long term plans for the building. Arising from all this, nothing was done and, while the lease ran out in the middle of 1982, OPW did not quit the premises until July 1983. In August 1983, the owners put in a dilapidations claim amounting to over £1 m on the grounds that lack of maintenance had led to a serious deterioration of the building and that dry rot, which the Comptroller and Auditor General reported had been discovered in the building while the damage to the roof referred to earlier was being repaired, had remained untreated up to the time of the surrender of the property. The Accounting Officer agreed that, in this regard, the OPW was in breach of the covenants of the lease agreement by not maintaining the building over the three year period. The claim was finally settled out of court in July 1985 for a sum of £550,000 plus costs amounting to £94,000. The Commissioners of Public Works own costs amounted to £28,000. Part of the settlement was that the building be sold to the OPW for an additional £50,000.

The Accounting Officer said that the out of court settlement was agreed to because it was felt there was nothing to be gained by going to court and incurring further substantial legal costs. The Commissioners had estimated the minimum settlement possible at £505,000. This figure was based on the capital value of the property, if maintained, at £480,000 less its value, as surrendered, at £100,000 plus the owner’s interest entitlement at 11 per cent from July 1982. In addition, the cost of restoration works was put at £535,000 including interest. The settlement sum was within those figures.

In 1985, legal proceedings were instituted against the Commissioners by the Royal College of Physicians in Ireland, the owners of the adjoining building at No. 6 Kildare Street, on the grounds of alleged spread of dry rot to their property. The court required the OPW to undertake certain works including eradicating the dry rot and this, along with the structural reinforcement of the shell of No. 5, cost approximately £150,000. An out of court settlement was agreed with the Royal College of Physicians in the week prior to the Accounting Officer’s examination but, as the matter was to be raised in Court at a later stage, the Accounting Officer was reluctant to give the exact amount of the settlement. The Committee understands that this would be in the region of £400,000 including costs.

With regard to future work on the building, the Committee understands that a contract for adaptation works to convert the building to suit the needs of the National Library was awarded in February 1988. The Accounting Officer indicated that this would cost £650,000 approximately, that the works would be completed around mid 1989 and that the building would be fully occupied before the end of 1989.

The Department of Finance official who was examined by the Committee said that his Department did not become aware of what happened until after the event and it was then faced with a damage limitation exercise. It had no discretion about allowing the charging of the amounts involved in the claims to the Vote because these involved court decisions. However, sanction for so doing did not imply in any way that the Department condoned or approved of what actually happened. He said that, as regards the operation of the procedures in the Office of Public Works for the purchase and maintenance of buildings, the case under review was a once-off situation and that it was not possible to prescribe detailed rules to cover all cases which arose in the on-going management of the property portfolio. In general, the Department of Finance took the line that there was a responsibility on the part of management of other Departments to manage their own affairs in a reasonably competent manner.

As the extent of the overall expenditure on this project may not be clearly evident from the foregoing paragraphs, the Committee feels it appropriate that it should be summarised at this juncture. Expenditure totalling almost £2 million will have been incurred on completion of the project.

The Committee is seriously disturbed at the sequence of events which has led to this appalling misuse of taxpayers money. The Accounting Officer admitted to the Committee that the value of the building on completion of the renovation and other works would be somewhere in the region of £500,000 and £750,000. The Committee would tend to lean towards the lower of these amounts which puts the extent of the misuse of funds into perspective. The assumptions made by the Office of Public Works that it would have no difficulty in acquiring the building on the termination of the lease coupled with the apparent doubt and indecision as to what its tactics should be when the assumptions did not turn out as expected were the contributory factors in this situation.

The Committee wishes to comment on other aspects of this case. The agreement reached regarding the purchase of the property, involving as it did a huge compensation claim and a nominal price for the property, merits further clarification. The Committee wonders how much this method of settlement contributed to the property owner legally reducing its tax liability arising on the sale of the property and whether, in fact, the compensation settlement may have been deliberately inflated so as to pitch the price of the property as low as possible thus avoiding a larger tax payment by way of Capital Gains Tax.

While acknowledging that the Accounting Officer told the Committee that the three year lease was valued at £70,000 by O.P.W.’s valuers, the Committee, nevertheless, considers that this was high considering the amount being paid by C.I.E. on an annual basis (£1,400).

Finally, the Committee wonders to what extent C.I.E. might have been negligent in meeting its maintenance obligations during its period as lease holder of the property. It wonders whether this possibility might have been looked at when the dilapidations claim was being settled as the extent of the repairs which was necessary could suggest that the building was allowed to run down.

The Committee would like to know what action has been taken internally in OPW as a result of this case in order to ensure that, at least for the future, the lessons learned will be put into effect. It is clear for instance that there was a serious lack of liaison between the Property Division and the Maintenance Division which must have at least been a contributory factor in this appalling incident. No doubt there are other procedures and decision making processes within the office which might need looking at. The Committee understands that the Government has ordered a review “to examine the present operation of the Office of Public Works in all its aspects and to recommend whether changes are necessary to ensure an efficient and cost effective service to the State”. The Committee will be interested to see the outcome of this exercise.

48. Leasing of office accommodation in Cork

Office accommodation at South Mall, Cork was leased for a period of 35 years from August 1977 even though a site at Sullivan’s Quay was purchased in the years 1976 and 1977 with the intention of erecting a central office building to accommodate staff from a number of Government Departments.

The Accounting Officer explained to the Committee that the 35 year lease was the shortest that could be negotiated by the Commissioners in respect of badly needed accommodation in Cork City arising out of conditions which gave rise to many complaints by staff associations and public servants. The accommodation being occupied by staff of the Revenue Commissioners in the middle seventies had been described as frightening. In one instance, the staff were sharing toilet facilities with the patrons of a bar and restaurant on another floor. The Commissioners (of Public Works) were in breach of the Office Premises Act and industrial action had been threatened if suitable alternative accommodation was not found within a very short time. At that stage, civil servants generally were aware of the standards that were being provided for employees in the private sector - banks, building societies and insurance companies - and, not being prepared to accept substandard conditions, sought similar conditions for themselves. Under these circumstances and recognising that the Office of Public Works was operating in a seller’s market, the accommodation at South Mall was leased for thirty five years at a yearly rent of £52,150 plus service charges, subject to five-yearly reviews. The arrangements were approved by the Department of Finance. The first review in 1982 increased the rent to £126,000 plus service charges. The Accounting Officer added that it was felt, at the time, that there would be no difficulty in surrendering the lease at a future date when the offices planned at Sullivan’s Quay came on stream but, unfortunately, the bottom had fallen out of the property market by then. When the Sullivan Quay building became ready for occupation in 1984, staff were moved in as quickly as possible on a phased basis and any surplus accommodation was disposed of by the non-renewal of leases which expired. The Accounting Officer had told the Comptroller and Auditor General that negotiations were then opened with the lessors with a view to their accepting a surrender of the lease but this did not work out and the disposal of the Office of Public Works interest in the property by public advertisement also failed due to the depressed state of the property market generally. He told the Committee that the entire office space in Cork city was then rationalised to make the best possible use of what was on hands. The only area that was unoccupied in Cork city at the time of the examination of the Accounting Officer (July 1988) was one floor of the building at South Mall (three floors were leased) and that was due to be occupied within a short period by the transfer of the Department of Agriculture from rented space on which the Office of Public Works was already overholding as the lease had expired.

In relation to the site at Sullivan’s Quay, the Accounting Officer told the Committee that the Office of Public Works had been trying to acquire this site for a number of years to provide accommodation that would relieve pressure on the Revenue Commissioners in Cork city. The delays in actually bringing the project to completion as explained by the Accounting Officer were set out in the Comptroller and Auditor General’s Report. The Office of Public Works did not gain possession of the full site until June 1977. Various objections and proposals put forward by the planning authorities to the consulting architects designs were not resolved until October 1979. Following the obtaining of Department of Finance sanction to proceed in December 1979, the consulting architects was immediately instructed to prepare contract documents which were available in September 1980. Department of Finance sanction for expenditure on the project was obtained in March 1981 following the examination of tenders which had been received in December 1980 and the contract was placed in May 1981. The Accounting Officer had told the Comptroller and Auditor General that he was satisfied that there was no unavoidable delay by the Office of Public Works in the placing of a contract in this case.

The Committee has considered this case carefully and regards the position in which the Office of Public Works found itself as unfortunate. However, in relation to the first rent review in 1982, the Committee finds it difficult to accept that an increase of almost 125 per cent could be justified, particularly considering the subsequent depression in the property market. The Comptroller and Auditor General had stated that this accommodation was more expensive than other accommodation which the Office of Public Works was surrendering. The Committee wonders, therefore, if the fact that cheaper accommodation is still available in Cork city is one of the reasons why the owners of the building had not looked for a rent review as they were entitled to in 1987.

On a general note, the Accounting Officer mentioned during the course of the examination that the Commissioners had 5.5 million square feet of accommodation to manage with a small number of staff and numbers which were getting smaller with the effects of the embargo. His comment that the property portfolio was “being managed as best we can” could be interpreted as meaning that it was not being managed effectively. The Committee would not regard it as good financial management if, on the one hand, there is a saving resulting from a reduction in staff numbers, but on the other hand, there is an even bigger loss through an office not having sufficient time and resources to effectively carry out its functions. If this is the case, the matter should be looked at by the Minister for Finance.

49. Erection of new Government Offices in Leeson Lane, Dublin.

The Comptroller and Auditor General reported that, of the final cost of £4.223 million for the erection of new Government Offices in Leeson Lane, Dublin, just under £400,000 related to payment of a claim for compensation to the contractor for damages and loss incurred by him due to a delay by the Commissioners in furnishing design information and instructions during the contract. It also included professional fees amounting to £21,350 paid to some of the consultants, who had been engaged by the Commissioners for the project, for consultation, examination and reporting on various aspects of the compensation claim.

The Accounting Officer told the Committee that the initial claim by the contractor, in excess of £1 million, was on the basis of the delay as outlined by the Comptroller and Auditor General. He said that, in reading the files on the matter (he was not Accounting Officer when the claim was lodged in 1983), there was a serious doubt in his mind that there was any extensive delay but the illness and subsequent death of the structural engineer, who was part of the design team, may have afforded the opportunity for putting a case to the courts which would be difficult for the Commissioners to refute. Accordingly, it was the opinion of counsel that the action should be settled out of court.

The Accounting Officer explained that the structural engineer was the sole practitioner in the firm and was one of the most highly esteemed and frequently sought after. He had become terminally ill and it was some time before this became known to either the Office of Public Works or to members of the design team. As soon as the Architect became aware of the illness of the engineer another engineer was employed.

In the meantime, there was some small delay but the Accounting Officer was not satisfied that the delays were such as to justify the award that was ultimately agreed on. He agreed that the engagement of a sole practitioner led to problems and he said that this would be borne in mind for the future.

As regards the adequacy of the procedures for the monitoring of progress on contracts, the Accounting Officer told the Comptroller and Auditor General that the procedures which operated for this project were those which were in general use at the time for such projects. Since then, revised procedures have been in operation which involved extensive and frequent consultation between project officials and consultants and were proving satisfactory.

The Committee agrees that the illness and untimely death of the consultant was a major factor is giving rise to the claim for damages. However, it trusts that the Office of Public Works will have learned from its experience in this case and it would like to be assurred that the current procedures incorporate an early warning system which would prevent a recurrance of the delays experienced and the costs associated with such delays.

50. Claims against the Insurance Corporation of Ireland on foot of insurance bonds.

The Committee notes with concern the delay in the recovery of amounts claimed in two cases from the Insurance Corporation of Ireland by the Commissioners on foot of performance bonds arising out of the failure of contractors to complete their contracts. The total amount involved is £309.000 approximately. The Accounting Officer said that, in one case, the Company were contesting the amount it should pay and, in the second case, it was contesting liability of any sort. Both cases were now the subject of legal proceedings.

The Committee is concerned that an Office of the State and an insurance company propped up by the State cannot reach a mutually satisfactory resolution of those cases without recourse to the courts with all the attendent costs that that implies. It would like to see a speedy conclusion to these cases and would like to be informed of the outcome.

51. Dry rot eradication and other improvement works at six houses in Merrion Square, Dublin.

The Comptroller and Auditor General reported that a contractor, who was awarded a contract worth £34,000 for the eradication of dry rot and for other improvement works at three houses in Merrion Square, Dublin, carried out further works on these houses and was also given a contract to carry-out similar works at three further houses in the area without the additional works going to tender. The contractor was eventually paid £427,000.

The Accounting Officer told the Committee that quotations were sought in 1982 from a number of reputable firms for the original works at the three houses and the lowest suitable quotation was accepted in June 1983 on a schedule of rates basis as the indications were that it would not cost a lot. However, when the contract got off the ground and the work developed, the extent of the dry rot problem was discovered to be much greater than originally envisaged. Dry rot was then discovered in three other houses in Merrion Square. The architect responsible for overseeing the work, conscious of the problem which had arisen in relation to the spread of dry rot in No. 5 Kildare Street (paragraph 47), was not prepared to see the buildings deteriorate further and recommended that the additional works required should be contracted to the contractor already on site without seeking fresh tenders. This was on the basis that the rates which were applying under the original contract were highly competitive and considered to be good value. It was expedient also to tackle the dry rot problem as halting the eradication works to allow fresh tenders to be sought could have led to even greater expenditure. This course of action was approved at senior administrative level within the office.

The Comptroller and Auditor General had, in fact, expressed concern that this type of administrative control and monitoring of the contract might be lacking. In response to these concerns, the Accounting Officer at the time told him that formal administrative approval did not keep step with the rising expenditure involved due to the protracted illness of the Office of Public Works senior architect and that adequate financial control was not exercised to the extent that the Office of Public Works management were not kept informed of the escalating costs. However, irrespective of the question of the controls, the eradication works could not be halted. He also told the Comptroller and Auditor General that a circular had been issued to staff pointing out the necessity for prior administrative approval to be obtained in advance in such cases.

Nothwithstanding the Accounting Officers assurance that the circumstances dictated urgent action and that the rates at which the additional work was carried out were highly competitive, the Committee wishes to reiterate its view that the public tendering system should be used save in exceptional circumstances in order that equity can be seen to have been applied in the award of contracts.

The Comptroller and Auditor General also enquired as to whether or not there was a planned approach to maintenance because the absence of such could lead to deterioration especially in the fabric of old buildings. There were some indications that there was no planned approach to maintenance - one of the houses concerned had been vacant for many years without maintenance and another had suffered severe water damage for the want of a proper fitting of a downpipe. The then Accounting Officer replied to these queries by stating that he considered that a very satisfactory maintenance and inspection programme was being implemented but, on the basis of the evidence taken, the Committee would find it difficult to agree with this. Indeed, while the re-issue by the Office of Public Works of an architectural practice and procedures circular to staff putting special emphasis on the early detection of dry rot is to be commended, it would seem to suggest that something was amiss and that, what was happening in practice, fell somewhat short of what was laid down in procedures. It is clear to the Committee that neglecting or skimping on maintenance can be a false economy and can give rise to even greater costs ultimately to the State. The Committee trusts that this is recognised when cost equations are been drawn up.

Of the six houses under review, five were owned by the State and the other was on a long term lease. The Accounting Officer told the Committee that one of the houses had been sold the previous week and that there was a 100% profit over and above the amount of money that was put into it. Two more houses were also on the market and the remaining two would be put on the market on the transfer of staff to other premises at the end of the year. It was expected that there would be a substantial return on the sale of these houses also.

52. Deferral to 1987 of matured liability

The probability of an excess arising on the Vote in 1986 was averted by the decision of the then Accounting Officer to defer payment to 1987 of amounts totalling £384,000 which had been supported by vouchers which had been certified for payment between 7 November and 16 November, 1986. The Accounting Officer had explained to the Comptroller and Auditor General that he was not prepared to meet these payments as it would have meant spending more money than the Dail had allocated to him in 1986.

As the Comptroller and Auditor General pointed out, the normal course would be to identify, if possible, the excess expenditure in good time to enable the Dail to vote a Supplementary Estimate. If this was not possible, the liabilities as they arose should be met, thereby incurring an excess vote. Then this Committee would decide the issue on its merits and make recommendations to the Dail. The integrity of this process has been well established and successive Committees have commented critically when it has not been complied with in the past.

The Committee feels that expenditure monitoring procedures within the Office of Public Works should have been such as to highlight the likelihood of overspending particularly so, as the Committee, in its examination of the 1983 Appropriation Account for the Office of Public Works, had reason to examine the Accounting Officer on what appeared to be payments on foot of immature liabilities. It trusts that more attention will be given in future to this fundamental requirement of financial management and control so that timely action can be taken to seek the approval of Dail Eireann for whatever additional funds may be neccessary to meet the cost of the service in the year.

REVENUE COMMISSIONERS

53. Collection of Outstanding Taxes.

The Committee notes that the appointment of twelve additional Sheriffs in place of the twenty-four County Registrars outside of Dublin and Cork for the sole purpose of enforcing certificates issued under Section 485 of the Income Tax Act, 1967. In support of his claim that this new system of revenue sheriffs was working successfully, the Accounting Officer quoted the following figures for the Committee:-

Despite the apparant success rate, the Committee notes that the backlog of cases was still a major problem. At end June 1988, the number of certificates with the Sheriffs had risen to almost 135,000 and the number of referrals with solicitors was over 18,000. The face value of the certificates was of the order of £500 million, but the Accounting Officer stated that only a small proportion of this, in the region of £50/£100 million, would be collectable. In addition, some 100,000 certificates due for enforcement had not been referred to the Sheriffs because of the volume of certificates already with them.

The Committee is concerned to note the large number of certificates due for enforcement which have not been referred to Sheriffs and it will continue to monitor the progress being made in the collection of outstanding taxes and what effect the new system of sheriffs is having in reducing the number of certificates awaiting issue and the number actually with the Sheriffs for enforcement.

54. Irregularities involving the fraudulent claiming of VAT repayments.

The Comptroller and Auditor General drew attention in his 1985 Report to a number of serious irregularities involving the fraudulent claiming of VAT repayments which were fortuitously brought to light through the vigilance of a bank official whose suspicions were aroused when a cheque was presented to him. Internal investigations uncovered other similar irregularities.

The frauds were initiated by officials of the Revenue Commissioners setting up fictitious companies constructing fraudulent repayment claims and opening bank accounts in the names of the fictitious companies to which repayments were made. The Accounting Officer told the Comptroller and Auditor General that a total of £18,000 had been fraudently obtained in this way but that approximately £11,000 had been recovered and there was legal recourse to some small amounts which were held in the bank accounts of the fictitious companies. Four officers were involved and they were charged and convicted; three resigned and one was dismissed. The Accounting Officer also told the Comptroller and Auditor General that a further similar case had been discovered involving an amount of £500 but that they had not succeeded in detecting the perpetrator.

The established procedures were geared primarily to prevent traders making fraudulent repayment claims. The Accounting Officer told the Committee that, following the report of a special investigation team, the whole staffing and organisation of the office were changed and tightened up and several security improvements and procedures were brought in. The manual system was replaced with a computer system. Individual officers were provided with individual badges and passwords to gain access to the system, thus enabling every transaction to be traced back to its origins. All new firms applying for registration for VAT were now visited by an inspector - previously there was no check on a newly registered firm if the repayment claimed was under £500 - and no repayments of more than £5 would be made until such a visit took place.

Bearing in mind that a serious irregularity involving £51,000 was perpetrated in the VAT repayments area as long ago as 1978 and that, at that time, the Comptroller and Auditor General had identified deficiencies which could facilitate such irregularities, the Committee must repeat its grave concern that controls were again found to be inadequate. It trusts that the introduction of the improved controls outlined will prevent a recurrence.

55. Control Procedures for collection of Customs duties and VAT.

The Comptroller and Auditor General drew the Committee’s attention to his 1983 Report in which he noted that certain control procedures regarding the collection of customs in the Dublin collection area were not being operated and that this was leading to delays in payment and failure to establish correct amounts of customs duties payable. He said that failure to operate these control procedures was perhaps instrumental in cheques received from importers on various dates between May 1979 and January 1987 by an official of the Customs and Excise Service not being brought to account. This had been discovered by the Revenue Commissioners following an investigation of the official’s actions over a period.

Other irregularities discovered included:-

-goods sometimes released from customs control without duty being paid or secured;

-goods released as duty free samples when it appeared they were commercial consignments;

-failure to record on customs entry documents whether goods had been examined;

-preparation by the customs official of entry documents on behalf of traders;

-blank cheques provided by an importer attached to entry documentation dated September 1985 (discovered January 1987);

-delays in payment varying from one day after clearance to thirty one months on one occasion;

-unlodged importers’ cheques and three presigned but undated and blank cheques drawn by importers and intended to cover consignments which had already been released without entry found in a desk drawer by a supervisory officer.

The Accounting Officer had told the Comptroller and Auditor General that the irregularities had not been detected earlier because of the additional accounting duties arising from the introduction of VAT at import in 1982, which led to the withdrawal of staff from the area responsible for reconciling import entries with cargo manifests; as a result the control procedures became deficient. The Accounting Officer told the Committee that there was no fraud involved in this case. It was more a case of carelessness and lack of attention to proper control by the officer concerned. After suspension for a period, he was re-instated but downgraded from his rank of being a fixed officer at the airport and reverted to unattached status. The loss in revenue was of the order of £52,000 as one of the firms involved went into liquidation so the chances of recovery were slim. The Accounting Officer admitted that the operation of the system was faulty and that he could not stand over a continuance of what was happening. He said that the procedures were now being fully implemented.

On the broader issue of the general procedures for dealing with customs entry documentation, he said that a major consultancy study, in co-operation and in consultation with the trading community, on the question of computerising the procedures was about to be launched.

The Committee welcomes the assurances of the Accounting Officer that the control procedures are now being implemented but it must express its concern that, although the Comptroller and Auditor General had already brought to attention in 1983 deficiencies in the control procedures in the Dublin collection area, little appeared to be done in the interim. The Committee wishes to be kept informed of the progress made in the computerisation project.

56. Irregularities under Retail Export Scheme.

The Comptroller and Auditor General told the Committee that, in contravention of the Value Added Tax (Goods Exported in Baggage) Regulations, 1984, two Customs Officials, in apparently unrelated instances in Dublin and Shannon, irregularly facilitated the same Dublin company over the period July 1985 to November 1986 by certifying retail sales invoices as representing VAT free sales to visitors intending to export the items concerned. This had been done at the request of an employee of the company sometime after the visitors had left the country when it was impossible to verify the validity of the transactions. In one instance, it involved the certification by an official at Connolly Station (Dublin) of sales invoices for goods he did not examine and which had already been exported by persons departing via Dublin Airport. These practices enabled the company to substantiate what it claimed to be its VAT exempt entries in their VAT returns. In the absence of such certification, the sales invoices would not be acceptable to the Revenue Commissioners as representing VAT free transactions.

The Accounting Officer told the Committee that the initial investigations were designed to establish what exactly had happened in these cases and whether or not there was evidence to justify dismissing the officials concerned. For this reason, the Gardai were not brought in. He said that it was important from the Revenue Commissioners point of view to try to ensure that people who were unsuitable did not continue to serve in the office. One official resigned and the case of the other, who was suspended, was being considered by the Department of Finance.

The potential loss of VAT revenue was never fully established but the company involved agreed a settlement with the Revenue Commissioners and no outstanding VAT liability existed for 1985. The later years were still the subject of discussion with the company.

The Committee is concerned that such serious irregularities on a grand scale could continue for almost a year and a half without being detected. It notes the Accounting Officer’s assurance that the scheme is now being properly operated by all traders.

57. Irregularity under the PAYE System.

Another unauthorised practice reported on by the Comptroller and Auditor General related to the deliberate amendment of the tax free allowances on the PAYE file by an official of the Revenue Commissioners which had the effect of granting tax-free allowances in excess of entitlements to two taxpayers and which had not been claimed by them.

The Accounting Officer told the Committee that the underpayments resulting from these irregularities were recovered from the taxpayers involved. The official was suspended when the matter was discovered and he had since resigned. As to the concern of the Comptroller and Auditor General with the failure of the system controls to detect the spurious data at the input stage, the Accounting Officer said that the Supervisory Officer goes through the records periodically to check the justification for the allowances but this could only be done on a limited basis. Subsequent to this irregularity being discovered, over 500 cases were checked and no evidence of further irregularity was discovered. He had told the Comptroller and Auditor General that the irregularities must be viewed in the context of the many thousands of transactions that were being processed honestly each day and that the revenue risk was not of an order that would justify the deployment of resources on the scale needed to eliminate it entirely.

The Committee agrees that the controls must be cost effective but, at the same time, it feels that special care must be taken in an area such as is where one must have regard to the potential exposure.

On the general question of what action should be taken against employees who become involved in irregular transactions, the Committee believes the full rigours of the law should be applied and that this should become the general policy. The mere threat of suspension, or being allowed to retire anonymously, is not sufficient deterrent in many cases.

58. Fraudulent and attempted fraudulent encashment of cheques.

The fraudulent or attempted fraudulent encashment of cheques sent by taxpayers to the Revenue Commissioners and repayment cheques issued by the Revenue Commissioners which was raised by the Comptroller and Auditor General in his 1986 Report and was referred to briefly by the Committee in paragraph 23 of its 1984 Report was further discussed on a number of other occasions when the Accounting Officer came before the Committee during 1987 and 1988.

The position as reported by the Comptroller and Auditor General was updated by the Accounting Officer for the Committee. As at 31 August, 1988, this was:-

Under category (1), no loss was incurred because either credit had been received from the bank which cashed the cheque or payment had been stopped and a replacement cheque received. Under the ‘loss’ category were included repayment cheques issued to taxpayers but diverted into criminal hands and lodged to third party bank accounts. The banks have refused to compensate on the grounds that the warrants authorising payment were intercepted and altered to show false addresses which appeared on the cheques before they left the Office of the Revenue Commissioners.

Under category (3), the latest position was that in 19 cases legal proceedings were being prepared against banks for amounts totalling almost £170,000, in 12 cases the Collector General was in correspondence with the taxpayer and in the remaining 2 cases he was awaiting further information before deciding on a course of action. Under category (4), the cheques stolen had not been negotiated and payment had been stopped.

The Accounting Officer told the Committee that eight people had been charged in connection with the frauds. Four were convicted but one had lodged an appeal. The charges against two were dismissed on the grounds of insufficient evidence, one case had been adjourned more than once and, in the remaining case, the defendant had failed to appear in Court and a warrant had been issued for his arrest. None of those charged were employees or former employees of Revenue or members or former members of the Public Service. However, the Accounting Officer said that the events must give rise to the suspicion that some member or members of the Revenue staff were involved but the Gardai had no firm evidence to indicate any such involvement. Garda Fraud Squad investigations so far had failed to show who took the cheques out of the system or how exactly it was done, but investigations were continuing.

To try to prevent a recurrance, the Accounting Officer told the Committee that they had taken a number of steps to strengthen the procedures in the Office. These included;

-changing Income Tax demand forms so as to discourage taxpayers from sending payments via Inspectors of Taxes;

-strengthening of the Cash Office staff dealing with Inspectors’ payments;

-installation of a strong room in the Cash Office to replace the system of filing cheques overnight in steel cabinets;

-restriction of entry to the Cash Office area;

-supervisors in the Cash Office and Post Room constantly reminded of the need for vigilance;

-cheques now stamped ‘Revenue Commissioners Account’ as soon as the envelopes were opened in the Post Room rather than, as previously, when the cheques were received in the Cash Office from the Post Room nearby. Supervisors in areas other than the Cash Office have been given stamps and directed to ensure that any cheques received by them direct from taxpayers were stamped as soon as the envelopes were opened;

-the strengthening of the Internal Audit Unit and the expansion of its role;

-the undertaking of a major study on the feasibility of introducing Electronic Funds Transfer systems for the payment of taxes and for the making of repayments.

The Committee is concerned that such a major fraud was perpetrated without, at this stage, being able to pinpoint the origin of it. For this reason, it cannot be satisfied that the extent of the fraud is as reported. It acknowledges that the steps taken and outlined in the previous paragraph will, undoubtedly, strengthen the procedures already in operation in the Collector General’s Office, but it feels that it is a situation which needs to be kept under continual review. The Committee would like to be kept informed of developments in this matter.

On the general question of lodging cheques, the Committee is concerned that there may be delays in some cases in the lodgement of cheques. This is unacceptable to the Committee as the maximum use should be made of revenue accruing to the State. The Committee acknowledges that this may be happening only in cases where queries arise but it strongly advises the immediate lodgement of cheques pending the settlement of any cases on which queries arise.

OFFICE OF THE MINISTER FOR FINANCE AND AGRICULTURE

59. Redeployment of staff on abolition of Farm Classification Office.

The Committee discussed with the Accounting Officers of the Departments of Finance and of Agriculture the position of the 91 former Land Tax Inspectors who were on loan from the Department of Agriculture and Food and had completed their work on the classification of land under the Farm Tax Act, 1985 by the end of June 1987 following the decision of the Government earlier that year to disband the Farm Classification Office.

The Department of Agriculture was informed by the Department of Finance that the loan of 88 of these officers was being terminated and they were placed with effect from 1 July, 1987 on the payroll of that Department. However, it was recognised by both the Department of Finance and the Department of Agriculture that the Land Commission work on which the Inspectors had originally been deployed could not absorb the full complement of returning officers and that, in the long term, most of them would be surplus to the requirements of the Department of Agriculture. The shortterm engagement on such work of any significant number depended on the stance adopted in regard to the disposal of the Commission’s land bank where different options (e.g. free sale or selective redistribution) had significantly different manpower implications. The legal implications of each of these options was under consideration by the Government’s legal advisers and final decisions to operate on the redistribution basis were not taken until Spring 1988.

As a result of these decisions 39 Inspectors were assigned to Land Commission work on 14 March, 1988 and 35 more on 9 May. In the interval some 12 had decided to take retirement or leave of absence and 2 had been redeployed as Managers of Fisheries Boards.

In evidence before the Committee, the Accounting Officer (Department of Agriculture) stated that the officers concerned did not physically return to the Department until January 1988. When questioned separately on the matter, the Accounting Officer (Department of Finance) stated that it was his understanding that, during the intervening period from July 1987 to January 1988, some of the officers were at home while others spent their time in the offices of the Farm Classification Office although the Department of Agriculture had no work for them. The Accounting Officer estimated that the salary costs of these officers during the period was of the order of £1 million. Various options were being considered for the officers but as the officers concerned, with a few exceptions, were graduates in Agriculture with pass degrees, there were no posts in the civil service or in the wider public service requiring the particular skills and qualifications held by the inspectors into which they could be absorbed.

The Committee wishes to express deep dissatisfaction and concern that a situation was allowed to develop whereby almost ninety staff were paid for a period in excess of six months without being assigned to particular areas of work. The Committee cannot accept that the only areas in the public service which were suitable for these officers were those outlined by the Accounting Officer (Department of Finance) in a submission viz. the Agricultural Inspectorate, the Valuation Office, ACOT and An Foras Taluntais, as it is aware that there are numerous officers throughout the public sector with a diverse range of qualifications and skills operating in areas where those qualifications and skills are not required. The Committee has been continually hearing from Accounting Officers over the last number of years that work in their Departments was being affected through the non-replacement of staff. The Committee cannot understand why some of the areas worst affected by staff cutbacks could not have been temporarily relieved by the redeployment of the Inspectors concerned, notwithstanding their particular qualifications. To avoid inefficient use of resources, the Committee recommends that, in the event of programmes or sections being disbanded in the future, areas should be identified by the Department of Finance where the need for staff resources is greatest so that redeployment could take place without undue delay.

HEALTH

60. Advances to An Bord Altranais

The Comptroller and Auditor General reported that advances totalling £300,000 were issued in 1986 from a suspense account to An Bord Altranais to enable it to meet its financial commitments pending the receipt of fee income as provided for under the Nurses Act, 1985. The new Board which was appointed had taken over the liabilities of the old Board and was incurring expenditure on a current basis but the mechanism whereby it could collect fee income was not in place at the time. The Department of Finance refused to allow the advances become a charge on the Health Vote, but accepted, however, that the circumstances at the time were financially difficult for the new Board. The Comptroller and Auditor General’s concern related to the authority for the making of the advances.

The Accounting Officer told the Committee that, in making the advances, he had authority under Section 4 of the Nurses Act, 1961 which read in conjunction with Section 59 of the Nurses Act, 1950 suggested that, if the Board was in difficulty with its current expenditure, the Minister could assist it and, where an amount was advanced to the Board under Section 59, it was possible to spread half of that cost over the health authorities. In this particular instance, it was necessary to ensure that the Board continued to function and to keep it afloat financially as there was tremendous potential for embarassment. There was no doubt in his mind that, under the Acts, the Board could be assisted in a situation in which it was in difficulties.

However, the advice given by the legal section in his Department was to the effect only that it was possible that the issues were covered by the legislation and, in the Committee’s view, this therefore casts some doubt over the authority for the making of the issues and the manner in which this may be done. The Committee would welcome further clarification of this issue particularly in view of the line taken by the Department of Finance.

With regard to the recoupment of the advances from An Bord Altranais, £100,000 of which had been recouped, the Committee would like to be kept informed of the progress in recovering the balance.

61. Computerisation in the Health Sector.

In dealing in his 1986 Report with the question of the implementation of a comprehensive computerisation programme in the Health Sector - which the Review Body on the organisation of Computerisation in the Government Services recommended in 1982 should become the responsibility of the Department of Health - the Comptroller and Auditor General’s main objective was to consider whether, when the project was initiated in the early 1980’s, there was a clear statement of objectives, a clear perception of where it was going and a co-ordinated plan for getting there. In addition, he was anxious to ascertain whether it was possible to quantify whether the rate of progress was satisfactory in relation to the expenditure already incurred, whether the concept of a fully integrated computerised information system for all the health services was attainable, and attainable at a satisfactory cost, and whether it would lead to greater efficiency and cost savings.

At its first meeting with the Accounting Officer on the matter, the Committee requested a special report which would set out the background, the progress to date and the approach for the future. This Special Report compiled by the Department of Health in conjunction with the Department of Finance is appended.

On the basis of this Report, on which the Accounting Officer and the Department of Finance were examined, it seems to the Committee that there is a serious question mark over the adequacy of the planning for the project. Some examples of this are:-

-there was no real consensus on the approach. The Report admits that the selection of the McAuto HDC Patient Administration System did not find favour in a number of health agencies and was met with resistence from the Local Government and Public Services Union;

-the key areas initially identified as priority areas were stock control/pharmacy, patient administration and community care index but financial systems were not so identified although the Report states that subsequently “it soon became evident that the development of and implementation of computerised financial systems was essential if the Department was to carry out its function in monitoring and controlling revenue and expenditure”;

-there was no firm costing of the project until May 1985 even though the Department committed itself to hardware and software much earlier than that;

-the fact that some £511,000 worth of equipment purchased in December 1982 was still in the supplier’s store in April 1986 is an indictment of the Department’s purchasing policy especially when one has regard to rapid developments in the computer hardware industry which can render equipment obsolete within a short time;

-a Dublin-based software company Praxis was selected for the financial systems on the basis of a general specification of functional requirements only but prior to any examination being carried out of existing local procedures - to the Committee, this is akin to putting the cart before the horse;

-Praxis costs covered only the minimum of basic training and envisaged a level of expertise in client agencies which was not actually available within the health area and whose absence only became apparent after commitments had been entered into with the result that unforeseen consultancy costs had to be incurred in implementing and operating the selected systems. The Committee is at a loss to understand why this situation was not recognised much earlier;

-the Department’s own information needs were not precisely specified so that it was difficult for health agencies to develop systems in the absence of such specifications.

The Accounting Officer told the Committee that the planning process had some deficiencies but the Department was operating within the parameters which ordained progress in the computer area generally at that time, by working through the Review Body on computerisation, which was set up in the Government Services, and the associated study and project groups. The Department made decisions on the basis of the conventional wisdoms at the time.

On the question of a consensus regarding the approach, the Accounting Officer said that the health sector was not a unitary system comprising as it did eight health boards and many voluntary agencies and hospitals. The voluntary hospitals had traditions of autonomy and jealously guarded their own independence from the Department of Health in terms of management of the hospitals and solutions imposed from the centre were often resented and resisted. In the circumstances, he said that it would have been extremely difficult to get representation of all the agencies on any of the initial groups which were set up. This was one of the areas in which major difficulty was encountered.

However, the Committee has to share the views of the Comptroller and Auditor General that the health agencies and the voluntary hospitals, as major players in the game, should have had a significant input into the original planning process. It should have been recognised by the Department of Health that, aware as it was of the manner in which the autonomous health agencies had traditionally reacted to decisions imposed on them from the centre, planning without an input from the major participants would lead to difficulties. The better approach would have been to try to reach some consensus among all the parties involved. That a new approach had now been accepted by the Department was at least a recognition by them that a fresh start was required if further progress was to be achieved in the project. A group representative of the Department itself, the Health Boards, the Voluntary Hospitals, other health agencies and outside consultancy expertise completed a review in August 1988 of the policies and systems implementation since 1982 and this had led to a change in direction whereby the Department would be responsible for, inter alia, policy formulation and would publish guidelines to be followed by the health agencies for the planning, selection and implementation of information systems. Within those guidelines, hospitals and agencies would have discretion to select their own systems.

On the question of the areas identified as priority areas for computerisation, the Accounting Officer said that, while it was understandable that the failure to identify financial systems as a priority much earlier would raise questions, one of the major concerns of the Trident Report, which was issued around that time, related to allegations of waste in the drugs area and this predisposed those recommending priorities to deal with that area and then to follow through to patient administration, etc.

While these areas are important in their own right, the Committee, nevertheless, feels that the failure to initially identify financial systems, so vital for monitoring and controlling revenue and expenditure in any large organisation, as a priority area is again a reflection of the inadequacies of the planning process.

The Accounting Officer admitted to the Committee that his Department had always acknowledged that it had less expertise than was required to manage the project fully and that this still was the position. Both the Review Body and the Study Group recognised the need to establish within the Department a computer unit which would have a general competence in computer based health systems. The Department had recently made proposals to the Department of Finance for an expansion of the expertise which was currently available within the Department, without which, the Special Report pointed out, the programme could not be fully effective.

The Committee can only conclude, therefore, that in the absence of a level of expertise which was clearly recognised as essential, the Department’s plans were too ambitious and that, perhaps through no fault of its own, there was some doubt as to its capacity to plan and oversee the implementation of a project of such magnitude and complexity. That this was so can also be gleaned from the Department’s admission that it was not aware of any location in Europe where there was a completely computerised Health Services system.

The selection of hardware and software generally is the area which appears to have given rise to greatest concern. This is understandable when one considers that the Department was attempting to impose the systems, particularly that relating to patient administration (McAuto), on agencies without any real consultation. Three hospitals - the Mater, St. Vincent’s, Elm Park and Portiuncula (Ballinasloe) - actually proceeded to instal different systems even though they were foregoing Exchequer funding by not going for the approved systems. Whether these hospitals had better advice in reaching their decisions to go for alternative systems is unclear. However, the Accounting Officer agreed that the Department of Health had to look helplessly on as competing computer companies incessantly approached the individual voluntary hospitals and successfully exploited the situations in those hospitals for their own commercial advantage.

The Special Report stated that the patient administration system selected as a standard for hospitals had been superceded by a more recently developed McDonald Douglas system which was not supported on the standard Digital hardware chosen. In addition, the Report says that major parts of the software designated as standard for financial systems were no longer locally supported. The Accounting Officer told the Committee that this did not imply obsolescence although he knew of no guarantee against this in the computer area; the Department had, however, a commitment from the firm to continue to service the systems.

The Department of Finance official when questioned by the Committee said that he was satisfied with the procedures which were used to make the original selection for hardware and software. The choice of supplier required the availability of a range of equipment which could use the same software throughout. As it turned out, the lower range (VAX 730) was overtaken by developments but there was no evidence to suggest that, at the time the recommendation was made in favour of the VAX 730’s, they were not the most viable proposition for the smaller hospital units. The Committee finds it difficult to accept the contention that the VAX 730s were ever a viable option for the small hospital units. The Special Report supports this view in stating that “the processing power of this equipment was not sufficient to cater for all the transactions which might be required even in the smaller sized hospitals.” This must surely call into question the adequacy of the pre-selection research undertaken. In addition, the Report concluded that the high maintenance costs did not make economic sense today but despite these high maintenance costs, the Committee notes that two of the three VAX 730 configurations which were purchased in 1982 were given in December 1986 to the Eastern Health Board for use in St. Brendan’s and St. Mary’s Hospitals. The third VAX 730 was converted into a model in the higher range of the equipment (VAX 750) at no extra cost to the Department. The Committee trusts that the two computers given to the Eastern Health Board are being put to the most cost effective use and that it was not just a case of finding a home for them for reasons other than economic ones.

The Committee was told by the Accounting Officer that the VAX 730 configurations were purchased on the advice of the consultants. The Accounting Officer said that he did not think it would be fair to blame consultants because the VAX 730’s were inadequate for the smaller hospitals or because this equipment now had uneconomic maintenance costs. The Committee cannot agree with the Accounting Officer in this regard, however, since the consultants were employed because of their knowledge in this particular area. If they were unable to advise soundly even on the capacity of the chosen equipment to cater for all the transactions in the smaller hospitals - something which to experts would appear a relatively easy task regardless of developments within the computer field - then the value of their employment must surely be called into question. As to the delay in making use of the three VAX 730’s, the Committee regards this as just another example of bad planning of the project.

To conclude, while the enormity of the task with its inherent complexities facing the Department of Health in its efforts to computerise the health sector has to be recognised, it is clear to the Committee that the lack of a coherent and uniformly accepted plan to achieve realistically attainable objectives created many difficulties which has seriously delayed progress on the implementation of this project. It appears that the Department was simply learning as it was going along and doing so expensively with the major beneficiaries being the suppliers and the consultants whereas the learning process should have taken place before any commitments were entered into. In addition, in an industry where technological development was so rapid, the Committee fails to understand why a decision was made to confine the contracts to single suppliers or at least not to have framed the contracts in such a way that the benefits of further future developments could be availed of. Since this expensive exercise was carried out at the expense of the taxpayer, the Committee is highly critical of the entire episode which seems to be without justification.

The Committee is glad to note, however, that its examination of the programme for computerisation which led to the preparation of the Special Report is seen by the Accounting Officer as contributing in a valuable way to putting future development of the programme on a proper footing. The Committee will continue to monitor progress on the programme, on which expenditure of £11 million has been incurred to date, in its examination of the Appropriation Accounts for future years and, if necessary, it will comment further in future Reports.

OTHER ACCOUNTS

62. Noting of certain Appropriation Accounts.

The following Accounts were noted by the Committee without calling the Accounting Officers for examination:-

Department of the Taoiseach, An Chomhairle Ealaion, National Gallery, Valuation and Ordnance Survey, Rates on Government Property, Civil Service Commission and Charitable Donations and Bequests.

Gay Mitchell, T.D.

Chairman.

9 March, 1989.