Committee Reports > List of Committees > Dáil > 1990 > Committee of Public Accounts > Final Report - Appropriation Accounts 1988

AN COISTE UM CHUNTAIS POIBLÍ

(Committee of Public Accounts)

Déardaoin, 13 Meán Fómhair, 1990

Thursday, 13 September, 1990

The Committee met at 11 a.m.

Members Present:

DEPUTY G. MITCHELL in the chair

Mr. J. Purcell (Director of Audit, Office of the Comptroller and Auditor General) called and examined.

VOTE 29 — SECOND LEVEL AND FURTHER EDUCATION.

Mr. N. Lindsay called and examined.

Chairman.—The Committee of Public Accounts are resuming their examination of the Secretary of the Department of Education, Mr. Noel Lindsay, on the audited accounts for 1988, in his capacity as Accounting Officer for that Department. We recommence the examination of paragraph 38 with Mr. John Purcell, Director of Audit, Office of the Comptroller and Auditor General.

Paragraph 38 of the Report of the Comptroller and Auditor General reads:

Subhead A.—Secondary Teachers—Incremental Salary Grant.

Reference has been made in my previous Report to deficiencies in control in the Department’s computerised system for the payment of teacher salaries which facilitated the perpetration of an irregularity involving a member of the Department’s staff. The system enables pay cheques to be prepared automatically from the payroll master file records. Documentation regarding changes to payroll data held on the master file is prepared by clerical staff of the Department and authorised by their supervisors. Such authorisation of input documentation by supervisory staff is regarded as an effective way of minimising the risk of the input of incorrect data, including fictitious records to the computer. Information furnished by the schools at the beginning of each school year regarding staff changes and changes in posts of responsibility since the previous year and information on subsequent changes furnished as they arise enables the Department to update the payroll masterfile record.

A limited test check carried out by my staff in February 1989 showed that, in a sample of 68 input documents examined 25 per cent had not been authorised by supervisors or indeed by any other officer, while alterations to data as originally prepared had not been authorised in 34 per cent of cases. Further examination revealed errors in the calculation of starting salaries of some teachers, resulting in over-payments, and a review of the Department’s overpayments record indicated that the Department was making regular deductions from the salaries of other teachers to recover overpayments made in previous periods. These overpayments appeared to have arisen because of the incorrect preparation of input documentation and because teachers continued to receive allowances to which they were no longer entitled. In some of these cases the Department had been notified of the discontinuance of entitlement to the allowances but had failed to stop payment. A number of overpayments had continued for periods in excess of one year. I therefore sought the Accounting Officer’s observations on the effectiveness of internal control procedures and the steps being taken to improve them.

He informed me that the internal control procedures had been under frequent review in recent years and changes had been introduced in the light of experience. He regarded the procedures as generally satisfactory but nevertheless the process of regular review and improvement will continue.

In relation to the cases to which I drew his attention, the Accounting Officer stated that the majority of the overpayments were disclosed by post factum checking by the payroll staff, which was an unavoidable feature of the system in view of the timing of the payroll issue and the receipt of claim forms from the schools, and some of the overpayments had occurred before the introduction of procedural changes. The requirement that all input documents be authorised by an officer of a supervisory grade was not always practical in view of general staffing considerations and in such cases the forms would be authorised by another officer. In addition a limited spot check on the accuracy of payroll data on individual teachers on the masterfile was being made by supervisory staff and compatability checks, e.g. matching posts of responsibility holders with special functions allowance payees, which had already been introduced, were being gradually extended as further experience was gained.

The Accounting Officer also stated that detailed job descriptions for all staff involved were being drafted as part of the preparation for inducting new staff in anticipation of the transfer of the payroll section to Athlone and this would further strengthen controls as well as providing a formal structured examination of all procedures.

Mr. Purcell.—In recent years we have had occasion to report on control weaknesses in the computerised system for paying secondary teachers which could and have resulted in fraudulent payments and in over-payments being made in error. This paragraph in the main deals with a significant level of failure to implement internal control procedures which came to light during a test examination by my staff. We discovered in a significant number of cases that the documentation for putting through changes to individual teacher’s pay records bore no evidence that the changes had been authorised by a supervisory officer or by anybody else, as they should be, in order to prevent accidental errors and deliberate attempts at irregularities. My staff also examined the Department’s over-payments record and found that many of the over-payments were attributable to incorrect preparation of the input documents so the need for the supervision is apparent.

The Accounting Officer in the paragraph has outlined some of the controls introduced to prevent and detect errors and he indicated that he now regards the procedures as generally satisfactory but that the process of regular review and improvement would continue.

Chairman.—Mr. Lindsay, I welcome you. I should remind the committee at this stage that we have a heavy workload this morning and the committee has already undertaken a special examination of computer security throughout Government Departments on which we will be getting a special report shortly. In this connection, Mr. Lindsay, in the past we came across from your own Department two teachers whose files had been interfered with and now we find that there is still this weakness. Can you assure the committee that this problem has been eliminated?

Mr. Lindsay.—Let me distinguish between the procedures and the application of them. I have looked at the procedures that should be operational and I am satisfied that we have set up a satisfactory set of procedures. We identified more recently a particular problem — and this is borne out very well in comments made by the Comptroller and Auditor General — that where an over-payment was detected that that was not corrected for some considerable time. The reason for that is that when the over-payment was detected the teacher was notified and an attempt made to reach agreement with the teacher with regard to a satisfactory repayment schedule. Unfortunately, it was not the practice then to enter it into the repayments record and if there was any delay in reaching agreement the correction was not made. That has been addressed now. I am satisfied that there are satisfactory checking procedures.

I made the point last time that the signing-off was the most important factor and it is the one that the Comptroller and Auditor General has identified. In some of the cases mentioned I understand that while it was reported that they were not cross-checked, some were but the point is still valid, there were cases where they were not cross-checked. It was mainly a staffing problem. In the heat of the moment they were sent on without being cross-checked but we have laid down specific instructions to staff as to how they should be checked and that they should be initialled in all cases. We now have an internal auditor and one of his tasks now will be to further address this issue, as a matter of urgency, to make sure that there is not only a good procedure in operation but the application of it.

Chairman.—We can note this paragraph as we will be returning to the whole question of computer security on a special report which we are carrying out.

Paragraph 39 of the Report of the Comptroller and Auditor General reads:

Rules for the payment of incremental salary to Secondary Teachers were made by the Minister for Education with the consent of the Minister for Finance in 1958.

The rules, which are non-statutory and which over the years have been amended by Department of Education circulars, provide that the number of teachers engaged by the school authorities who may be paid incremental salary by the Department shall not exceed the quota authorised by the Department and notified to each school. The rules also provide that, in a case where a teacher has been on the authorised quota for a particular year and would be excluded from the quota in the following year owing to a decline in the number of pupils, the Minister may authorise payment of incremental salary to such teacher in that school for an additional period not exceeding one year.

In the course of audit it was noted that in some schools the number of teachers paid incremental salary by the Department was greater than the quota authorised for the schools for several consecutive years. The excess number of teachers employed in one school ranged from four to fifteen over a period of eight years. I asked the Accounting Officer why the authorised quotas of certain schools continued to be exceeded for several years and why teachers in excess of quota in those schools continued to be paid incremental salary by the Department for more than one year. I also inquired as to the total number of teachers in excess of quota who received incremental salary in the 1987/88 and 1988/89 school years.

The Accounting Officer informed me that many of the provisions of the Department’s rules governing the payment of incremental salary had been overtaken by changes which had not been the subject of formal amendment of the rules. He stated that since 1982, successive Ministers for Education had given assurances to the teaching unions that, pending the introduction of a redeployment scheme, no teachers over quota in their schools would have incremental salary withdrawn. This recognised the fact that teachers in other sectors of education were not subject to such provisions and reflected the general policy at national level of avoiding compulsory redundancies in the public service. Consequently, all teachers in excess of the quota continued to be paid incremental salary from year to year, pending agreement on a redeployment scheme.

The Accounting Officer also stated that the total number of teachers over quota in all schools who received incremental salary was 454 in 1987/88 and 312 in 1988/89. A redeployment scheme for lay teachers in Catholic Secondary schools under religious/clerical management was introduced for the 1988/89 school year with the approval of the Department of Finance. Under the terms of this scheme, teachers in excess of quota and having the necessary subjects are redeployed into schools with authorised vacancies. With regard to cases to which I drew attention, he explained that these schools were experiencing a sustained drop in enrolments and the problem was compounded by an increase in the pupil-teacher ratio in 1983 and the inclusion of certain teaching posts within the quota which had previously been outside the quota but that the quota position had shown a marked improvement since the introduction of the redeployment scheme.

Mr. Purcell.—This paragraph deals with a situation where the Department more or less ignored the provisions of one of its own rules. The main effects of ignoring the rule on quotas for schools were that up to 450 more teachers than would be permissible under the existing regulations were being paid and that certain schools were not adhering to the prescribed pupil-teacher ratio. You will note from paragraph 39 that the Accounting Officer stated that the Department did not enforce the rule pending agreement on a redeployment scheme and that such a scheme was introduced in Catholic secondary schools in 1988-89. He also indicated that there was a marked improvement in the position since the introduction of that scheme, although I do not know if this improvement is continuing in view of the falling number of pupils attending the secondary schools which were over quota and where this problem arose.

Chairman.—What the Comptroller and Auditor General is noting is that in some schools the number of teachers paid incremental salaries was greater than the quota authorised by as many as 454 in the year 1987-88 and 312 in the year 1988-89. How did that arise?

Mr. Lindsay.—When there were changes in the staff-student ratio and correspondingly when the downturn took place efforts were made to address the overall question of over-quota posts. An early retirement scheme was introduced and efforts were made to introduce a scheme of voluntary redundancy. Voluntary redundancy means that you cannot force teachers, regardless of the circumstances, to leave the service. The problem then is where they are not willing to go, you have to redeploy them. The restraints on that relate to distance. It was agreed that 30 miles would be the distance that would be accepted as a reasonable redeployment radius. In addition, you are also faced with the question of curriculum match; in other words, where vacancies arise within the area the teachers available for redeployment must be capable of filling those posts.

As the Comptroller and Auditor General noted, there was an improvement from 454 to 312 in 1988-89. The current situation is that there are now less than 100 available for redeployment out of a total teaching force of 11,000. It has been brought down from 312 to under 100.

Chairman.—Is the terminology something of a misnomer, that the incremental salaries were greater than the quota authorised? Presumably you did authorise the teachers except that they did not meet the quota statistics for your Department?

Mr. Lindsay.—We would not have employed additional teachers but these were an existing body of teachers and by comparison with the numbers in individual schools they would be deemed to be in excess of the quota. The Comptroller and Auditor General has identified a number of schools in that regard. To illustrate the point, there was one school which had 15 teachers over quota because of two factors, one major part of their education stream was cancelled and in addition there was a significant drop in the number of students in that school. The position there is that 15 is now down to two. In another case where there were seven posts over quota that is down to zero, in another case where there were seven over quota that is down to two. Through this process of redeployment there has been a significant improvement in the situation.

Chairman.—The note states that since 1982 successive Ministers for Education have given assurances to the teaching unions that pending the introduction of a redeployment scheme no teachers over quota in their schools would have incremental salary withdrawn. I presume statutory authority exists for that?

Mr. Lindsay.—The question of the quota is not a matter for a statutory decision. This is changed by Government decision.

Chairman.—The Minister of the day would have the power to give these assurances?

Mr. Lindsay.—In the sense that the Government agreed that there would not be compulsory redundancy and that it would be a process of voluntary redundancy which would be operated and in that context it would be a matter of time before you could redeploy all of the teachers.

Chairman.—Following redeployment there are 100 or less now?

Mr. Lindsay.—And reducing.

Deputy Rabbitte.—Was the particular school where there were 15 teachers over quota in a poor impoverished part of urban Ireland?

Mr. Lindsay.—It was not. It was a school to which we paid special attention and it has been successful in reducing the numbers.

Deputy Rabbitte.—I take it that it will produce the leaders of the future?

Chairman.—I am tempted to say that you would have to go to Northern Ireland to do that.

Deputy Dennehy.—I think we would all make the same observation, that while it might not satisfy the financial people it would satisfy the rest of us. We all agree with the idea of not pulling the plug. It has been handled in a practical fashion over the years and I hope that will continue until the figure comes within the guidelines.

Mr. Purcell.—There are rules, as stated in the paragraph, that are non-statutory. If a Government decides, as a policy matter, to set aside those rules that is fair enough — and we have no criticism of that — but we need to point out the implications of doing that and of employing 400 teachers over what is recognised as necessary. There is a financial implication there and we are merely drawing attention to it without necessarily being critical of the decision to do so.

Chairman.—The situation appears to be under control and we can note this paragraph. Paragraph 40 is a lead in to paragraph 41 and I suggest we take both paragraphs together.

Paragraphs 40 and 41 of the Report of the Comptroller and Auditor General read:

Subhead F. — Annual Non-Capital Grants to Vocational Education Committees (excluding Grants in respect of Regional and other Technical and Specialist Colleges for running costs and certain student support)

40. The running costs of the 38 VECs are almost totally met by annual grants from this Vote which are based on estimates submitted by the VECs and approved by the Department. Variations between grants and actual expenditure, ascertained when annual accounts certified by the chief executive officers are received in the Department, are taken into account in determining the amount of subsequent payments to be made to the committees. The committees’ annual accounts are subject to audit by Local Government Auditors whose reports are made available to me.

Previous reports and Reports of Committees of Public Accounts referred to VECs which exceeded their authorised budgets and to the apparent failure by the Department to exercise control over the level of expenditure incurred by them. The following three paragraphs refer to instances where VECs again incurred expenditure without the prior approval of the Department and where the Department again appear to have failed to exercise the necessary control over their expenditure. Two of the paragraphs deal with matters arising in County Cork VEC, which was one of the VECs mentioned in my 1981 report as employing teachers in excess of the authorised quota. I again requested the observation of the Accounting Officer as to the adequacy of Departmental monitoring procedures for ensuring that only authorised expenditure is incurred by VECs. By way of general comment the Accounting Officer stated that he was satisfied that adequate monitoring and control procedures were in place but that a balance had to be struck between the level of central control and supervision and the freedom necessary for VECs to manage their affairs

41. A total of £682,000 was paid to six VECs on 23 December 1988 which, as the Department informed them in January 1989, was a contribution to the necessary reduction of each committee’s deficit on second level education schemes; the deficits of these VECs at the end of 1987 had totalled £770,580. The Department also informed the VECs concerned that these payments did not imply sanction for over-expenditure which may have contributed to the deficits and that it did not relieve the VECs of the onus and responsibility to take measures to clear the deficits totally. The deficits of five of the VECs at the end of 1988 totalled £188,687 while one had a surplus of £30,231. I asked the Accounting Officer why the Department issued grants in respect of expenditure which it had not yet decided should be sanctioned.

The Accounting Officer informed me that the Department’s monitoring procedures were aimed at ensuring that deficits do not occur but, where they do, it was important to take prompt action to ensure their early elimination. In making decisions about the issue of moneys to VECs, including issues in respect of deficits, the Department had information available to it from a number of sources viz. from their own data on the committees’ operations, from regular and comprehensive financial monitoring reports, from the committees’ annual accounts and from the Local Government Auditors’ reports. He also stated that it was not unusual for correspondence relating to issues arising from VEC expenditure in a particular year to be ongoing for some considerable time later and that issues relating to the legitimacy of certain VEC expenditures might not emerge until the audit had been carried out, sometimes a number of years after the year of account.

Mr. Purcell.—Paragraph 41 is a lead in to the following three paragraphs. They all deal in one way or another with the activities of vocational education committees and the Department’s monitoring of the vocational education committees financial commitments. Needless to say, a large proportion of vocational education committee expenditure is financed by the State, so there must be effective control by the Department if the taxpayer is not to be left in the position of providing a blank cheque although, as the Accounting Officer rightly states, a delicate balance must be maintained between central control and local freedom to manage. That freedom must be exercised within the statutory and financial limits laid down by Dáil Éireann. In paragraph 41 I refer to a number of vocational education committees which exceeded their approved spending limits on second level educational schemes in 1987 and how the Department issued additional grants at the end of 1988 to what we might call the offending vocational education committees to help them clear the resulting deficits. While clearing vocational education committee deficits in this manner could lead to a saving in bank interest charges I was concerned that this practice might negate the Department’s control over vocational education committee expenditure because in effect the vocational education committees over-expenditure which led to the deficits was de facto recognised as having to be met by the Department. The Accounting Officer did not see it that way. He stated that the Department’s monitoring arrangements were aimed at ensuring that deficits did not arise but if they did they had to be eliminated promptly. The question of whether the vocational education committee expenditure was legitimate might not be decided until much later and was one on which the local government auditor’s examination would have a bearing. I find it difficult to understand how effective control can be exercised in a situation where what I might call the wages of sin have already been paid by the Department.

Chairman.—There are a couple of points to be made about this. Obviously there is the question of local and central control and local and central democracy but we are concerned here with good financial accounting. We are dealing here with paragraph 41 and we will go on to the other paragraphs in due course but the point I wish to make is relevant to all paragraphs. Reference was made to the fact that the local government auditor has power to surcharge the chief executive of the vocational education committees but the Committee of Public Accounts also have power to recommend the surcharging of an accounting officer which, ultimately, means that the Secretary of the Department of Education in this regard is responsible to us on behalf of Dáil Éireann. There the buck stops with this accounting officer. Whatever about central and local government, Mr. Lindsay, as accounting officer, has the ultimate responsibility. It is not a satisfactory situation. As a former member of a vocational education committee I know it is very difficult to control but it is not satisfactory that the Department of Education should sanction, on 23 December 1988, payments of £682,000 to six vocational education committees to cover over expenditure. On that date, Mr. Lindsay, I presume your Department did not have an opportunity to ascertain whether that over-expenditure was justified? It certainly had not been approved.

Mr. Lindsay.—Perhaps I could make a general statement about this particular issue. It is one that is of considerable interest and concern to me apart from the threat of surcharge. There is a problem generally about the overall control mechanism with responsibility essentially shared. In other words, the local government auditor has the power of surcharge, not the Department. The Department’s control is an overall budgetary control. They can draw attention to irregularities. The local government auditor can also draw attention to them but, essentially, the follow-up action lies with the local government auditor. The issue that arises — I hope it is an issue on which the Comptroller and Auditor General will share my opinion — is whether it is satisfactory that an accounting officer is responsible to the Comptroller and Auditor General in respect of expenditures incurred by a local authority where in fact the power of surcharge lies with a separate auditor. This is an issue that we should address in due course.

On the general question of deficits, there was a practice of deficits throughout the vocational sector and the total amount of the deficits at the end of 1986 was £3 million. In 1986-87 there was a determined policy to change that practice. It has been brought to the stage where in 1989 the actual deficits were £480,000 in total. In other words, there was a whole change with them. It was obvious that it would be difficult to achieve the change overnight and that it would take time. Our objective is to get the idea across that there is no authority for deficits, that they must live within their budgets in exactly the same way as the central authorities must live within a budget. The most significant change is that we have actually reduced the deficit. In most vocational education committees now there is an acceptance of that but there are still a few who err in that respect and we are addressing them especially.

The VECs deal with second and third level to the extent that they deal with the regional technical colleges. There is often a confusion of charges between the two levels. Frequently, and this happened in a number of these cases, where the local government auditor re-examined the accounts and made changes on these accounts and where we were assuming a surplus at the second level it transpired that there was a deficit. It is difficult at that stage to determine what is the true position. At present we are trying to carry out a study under which we can differentiate more clearly in the VEC accounts between the second and third level to get a truer picture but it is a ongoing problem which is being addressed. The figures may bear that out.

Chairman.—I do not want to be pedantic about this but the position of the Accounting Officer is that he accounts to the Committee of Public Accounts. In the event that the local government auditor decides not to surcharge, or does not use whatever powers he has against the chief executive of a VEC, there are other sanctions which the Department of Education can bring to bear on that VEC if the accounting officer is not satisfied that proper accounting procedures are in place or that a person is vulnerable or left open to a difficult situation which is beyond control. I accept there are certain difficulties in this area in terms of local and central Government — it is good to see that the situation has been brought under control — but it is not a satisfactory accounting procedure to authorise on 23 December these amounts of money. I do not think that is a case in isolation; in 1986 it was £3 million.

Deputy Connor.—That expenditure could be either wasteful or beneficial. Have you got a profile, Mr. Lindsay, as to how that money was spent as there is a history of over-spending?

Mr. Lindsay.—I am glad that point was raised because we should look at it in the totality of the moneys that are at the disposal of the VECs. We are talking about more than £200 million for which they are responsible. We have the question of almost £500,000 of a deficit and a couple of other cases were mentioned by the Comptroller and Auditor General. If we take the totality of their actions, we can certainly say that the vocational education committees do a very fine job and perform their task very satisfactorily. As the Comptroller and Auditor General pointed out, we have to have some balance. We are not anxious to appear to carry out witch hunts. We would not have agreed that it was right to identify some cases. Overall, in relation to the expenditures that resulted in these deficits I can certainly confirm that we were satisfied that the committee were performing their tasks effectively, whether it was as efficiently as possible is perhaps, a separate issue. We are looking at this question of efficiency now. All moneys were spent effectively and on a worthwhile basis. We cannot say under any circumstances that this was wasted money. I agree with the Chairman that it is not within an effective control system and that is my criticism of it.

Deputy Connor.—Was the sum of £682,000 spread evenly over the six VECs, taking their size into consideration, or did you find a concentration in one or two VECs?

Mr. Lindsay.—The point is valid in that the majority of them did not have deficits. We are talking about a limited number of them.

Deputy Connor.—Was the money evenly spread?

Mr. Lindsay.—No, it was not evenly spread. There were a few who were, perhaps, greater offenders than others.

Deputy Connor.—Are we at liberty to ask the name of the committees described as the greater offenders?

Mr. Lindsay.—I would prefer not to do so. There might be an implication if I did and I would prefer, after we have continued our dialogue with these committees, to see whether we can get the matter in order. To give the names might give an unfair impression of the performance of particular committees.

Deputy Connor.—Of the six vocational education committees Mr. Lindsay is obviously more worried about two or three, but has a dialogue with the worst offenders started which will eventually bring about a satisfactory resolution?

Mr. Lindsay.—I am confident that by the time I appear before the Committee of Public Accounts again those ones will have been addressed.

Deputy Taylor.—In relation to the expenditure of £682,000, was that revenue expenditure or capital expenditure?

Mr. Lindsay.—It was recurrent expenditures.

Deputy Taylor.—Normal running expenses?

Mr. Lindsay.—Exactly.

Deputy Taylor.—Was the sanction given to pay off that £682,000 the Minister’s decision or a Government decision?

Mr. Lindsay.—It was a ministerial decision.

Deputy Taylor.—Had your Department examined in some detail exactly what was comprised in that over expenditure?

Mr. Lindsay.—Yes. Over the past two years the vocational education committees have been subjected to a very rigorous examination. As we pointed out to the Comptroller and Auditor General, the method of control we introduced has enabled us to do this, because what we do is allocate a certain amount of money at the beginning of the year and as the year progresses we carry out a further examination of expenditures. It is only then that we give an additional allocation to them. It is not a question of them getting a full allocation at the beginning of the year, spending that, and incurring a deficit by spending more money. There is a further examination in the autumn of each year. We get a monthly profile and a monthly return of expenditures from them. We are satisfied that we are looking closely at it. We are also at the moment in the process of a unit cost study for all second level which we think will be helpful in identifying the nature of the expenditures that might lead to problems.

Deputy Taylor.—You, as Accounting Officer, decided that this over expenditure was in order and that it should be sanctioned and it then went for ministerial approval and was paid. Was that the sequence?

Mr. Lindsay.—Yes, that was the sequence.

Deputy Taylor.—Why did the Comptroller and Auditor General query why the Department issued grants in respect of expenditure which they had not yet decided should be sanctioned, when you tell us that you had decided to sanction it?

Mr. Lindsay.—I might have picked up your question incorrectly. What I said was that there was a decision taken to actually pay them the money to clear off the deficits. The discussion that went on with regard to the validity of their payments has been ongoing. We do not know the precise amount of the deficit at the end of the year. We were not even sure of the precise deficit as between second and third level. There would be some counter balancing adjustments between the two. Where we find that one has been under-costed we actually make an adjustment in our Estimates for the next year and our allocations for the next year take care of that. It is an ongoing thing. It is an ongoing dialogue with the committees and we carry out adjustments from year to year.

Deputy Taylor.—There may be ongoing dialogue, but what we have before us refers to a specific payment on a specific date. On 23 December 1988 £682,000 was paid to six VECs. There is nothing ongoing about that; that is a specific payment. At the time the decision was made to pay that money, had any examination been carried out as to what it was in respect of and how it arose or was it simply sanctioned for payment then, with the investigation to be carried out later?

Mr. Lindsay.—As the Comptroller and Auditor General pointed out, we actually paid it without having completed the investigation on the grounds that we felt it preferable, on balance, not to allow a deficit to stand with the cost that would be involved in it. We preferred to get a clean sheet for the committees as part of this ongoing improved system of control that we operate. Approval of the additional expenditure did not imply approval for any particular item of expenditure. We still reserved the right.

Deputy Taylor.—Have you concluded your inquiries on that money?

Mr. Lindsay.—We have concluded our inquiries in regard to that particular year.

Deputy Taylor.—Are you satisfied that the expenditure was in order and was fit to be approved and sanctioned?

Mr. Lindsay.—We are satisfied that all payments were justified.

Deputy Rabbitte.—As the Chairman said, our concern must be from the financial accounting point of view and the adequacy of the accounting procedures. Would it be fair to suggest that at this time, having regard to reductions that were being effected in public spending, if the Minister had not made the decision that was made, some of the VEC’s would be in serious financial difficulty indeed? Will you agree that it is very difficult for the VECs to function, having regard to all the constraints, without some such flexibility being shown towards them? For example, the note says that the deficit of five of the VECs at the end of 1988 totalled £188,000. We have just dealt with a paragraph which, on your admission, does not deal with the more deprived section of our community, where 15 teachers in one school alone would realise almost twice that figure of £188,000. In the circumstances, if the Minister had not made that decision some VECs would be faced with very difficult situations?

Mr. Lindsay.—What we are dealing with here, is a question as to whether one requires spending authorities to live within a budget. It is not a question of whether in fact, one might not be sympathetic to the nature of the payments that have been made. It is a question that there has been an allocation of money and that, in accordance with good accounting procedures, there should be a requirement to live within that, that deficits should not be incurred, and that there must be this rigid adherence to the accepted controls. Having said that I accept fully what the Deputy says, that there is no doubt that there would have been a major problem for the committees if we had not agreed to meet the deficit. The message we are trying to get across is that we cannot agree to committees incurring deficits or incurring expenditure which, however desirable, would make them exceed the agreed allocation. That is the basic principle. It is not a disagreement with regard to whether or not what they are doing is worthwhile. It is just that one cannot do it, if one does not have the money for it. That is the message we are trying to get across to the committees.

Deputy Rabbitte.—It is a factor we have seen with other accounting officers, especially where the same element of local democracy is involved. For example, in the health boards, similar deficits were incurred and so on.

Chairman.—The vocational education committees are making a major contribution in an area where perhaps educational opportunities might not be available otherwise. However, we did have this problem with vocational education committees and it ran into several million pounds and may have been as much as £50 million. If we were to allow vocational education committees to run up huge deficits it would put the Minister for Finance’s control of the Exchequer very much beyond what would be desirable. The difficulty is essentially related to control.

Deputy M. Ahern.—We all accept the necessity for controls. I am not too familiar with vocational education committees, but I presume that the same as every other body they have a budget. If something extraordinary happens during a year and they need extra funding what is the procedure?

Mr. Lindsay.—As I mentioned, what we have been doing so that we will not have deficits, or will only have negligble deficits is that we do not give a total allocation at the beginning of the year. We give a relatively high proportion of the total available funds, with the intention, having followed the profiles and monthly returns, towards the end of the year of re-examining the situation. That means that funds are available for emergencies, and we would certainly agree to that expenditure. This would apply not just to the normal non-pay side but also to the pay side, where in September a particular circumstance might arise requiring additional allocations at that point.

Deputy Taylor.—Will the Comptroller and Auditor General say whether in his view the control system operating here is unnecessarily complex and is contributing to the problem? I refer to the level of control exercised by the Accounting Officer of the Department, the local government auditors and the involvement of the Comptroller and Auditor General’s office. Is there an unecessary complexity here that is giving rise to the difficulty and, perhaps, contributing to the lack of departmental control that you refer to in your report? Could it be, perhaps, that the Accounting Officer is inclined to leave this, as it were, to the local government auditors and that there is a fall here between two positions? Are you satisfied with the present position of controls with this three level system, or do you think it should be altered or tightened up in some way and, if so, how?

Mr. Purcell.—It is hard to say. We have had, as the Accounting Officer said a system which has been developing. There is a much greater awareness over the last few years about the need for financial control. As we all know, in the late seventies and early eighties, all public sector bodies were encouraged to do things that were found to be necessary and even desirable, if not necessary. We have reached a stage where we have had to cut back from that position. As we said, there were six offenders out of perhaps 40 vocational education committees. Many of them complied with the rules and lived within their budgets. I suppose one of the purposes of highlighting something like this is to refer to what we might call persistent offenders, organisations who in a sense would do rather better than those who complied with the rules. That is patently unfair. A part from anything else that needs to be stamped out and, as the Accounting Officer said, is being stamped out.

In relation to the Accounting Officer’s position vis-à-vis the vocational education committees, normally, when a Department are issuing moneys to any State or semi-State organisation the Accounting Officer is under an obligation to satisfy himself before the moneys are issued, that there are procedures and controls in place within that organisation to ensure that the moneys are used properly and as efficiently and effectivley as possible and are accounted for correctly. That is the Accounting Officer’s position in this case.

With regard to the local government auditor, in the past there has been a problem with regard to the audit of local government accounts, including the VECs, and it has not helped the Department in keeping up to date and getting at the VECs to take effective action. While they would have information at a certain level would not have it at an official level, in order to take appropriate action. That is also improving, and the local government auditors are getting up to date. On the third point, our interest is in fact to see that the accounting officer is performing his task in making sure that these systems are working. If there is evidence that they are not working the Comptroller and Auditor General feels it is his duty to bring it to the attention of the Committee of Public Accounts. This was one such case, even though there have been many over the years.

Chairman.—We will keep the situation under review and, hopefully, the improvements carried out will deal with the problem. We can note this paragraph. We will move to paragraph 42 of the Report of the Comptroller and Auditor General which reads:

VECs may, with the prior consent of the Minister for Education, borrow by means of bank overdraft or otherwise for the performance of their statutory functions.

It was noted that a site intended to be used for a community school was purchased in 1977 by the Department for £18,900 and later transferred to County Cork VEC as a site for a new VEC community college which was completed in 1980 at a cost of £549,000. Between October 1982 and November 1984 a community hall was also built on part of the site by the local community hall association and the Department contributed £186,000 towards its cost. In June 1984 the VEC, without the Department’s prior approval, agreed to pay the local community hall association £10,000 per annum as rental for the use of the hall as a sports facility by pupils of the college and to provide relief accommodation for certain classes during school hours. Having paid the first year’s rent in 1984 the VEC in December 1985 borrowed £50,000 from a merchant bank to be repaid over ten years at a rate of interest which was 4 per cent over the Dublin inter bank rate (DIBOR) and this amount was paid over to the community hall association as advance payment of ten years rent. It was also noted that the Local Government Auditor in his latest report dated December 1988 on the accounts of the VEC for the two years ended 31 December 1987 stated that ministerial sanction for the borrowing had never been obtained and that the loan was repaid in full in 1988. I asked the Accounting Officer whether sanction for the borrowing had since been given, whether the rate of interest charged was the most favourable then available for a public sector borrower and what was the source of funding from which the loan was repaid.

The Accounting Officer informed me that sanction for the loan had not since been given and that the terms on which it was negotiated were not the most favourable available to a public sector borrower. However, following a request by the Department, the VEC renegotiated the loan and the lending agency reduced the interest rate to 3 per cent above DIBOR and waived a penalty clause of three months interest for early redemption. He also informed me that when the VEC had sought sanction in 1988 to increase its overall spending by using an additional receipt of £32,400 which had accrued to it, the Department, being still concerned at the unsatisfactory terms of the loan, indicated that this receipt should only be used towards clearing the loan and the amount of the loan then outstanding, £43,421, was cleared in October 1988, with the Department providing the extra £11,021. Loan repayments prior to October 1988 totalling £27,200 had also been funded almost exclusively from the Vote.

Mr. Purcell.—This case is straightforward. The County Cork VEC borrowed without the consent of the Minister for Education and this is something which is prescribed by law. The proceeds of the loan were used to fund an unusual arrangement with the local community hall association. Effectively, what was involved was the payment of ten years rental in advance for the use of the hall. The VEC also paid over the odds for the loan and it has since been redeemed. As far as I am aware the Minister still has not sanctioned the borrowings. The question of who ultimately will have to foot the bill is presumably open.

Chairman.—They showed great imagination. It was a great way of getting a community project funded. What is the current situation on it?

Mr. Lindsay.—The current situation is, as the Comptroller and Auditor General has stated, we have not yet sanctioned the £50,000 even though it might seem somewhat anomalous that we have actually contributed significantly to clearing if off. The reason was that we were not satisfied that the rental terms that were negotiated for it were satisfactory and took sufficient account of the fact that there was a part payment towards the cost of the hall by the committee. We are still in negotiations with them and asking the committee to try to negotiate a better rental term for the use of the hall for the students of the school. There is a technical holdup pending agreement with regard to the rental terms got by the school.

Chairman.—It is not just a question of them going off and borrowing the £50,000 but a question arises as to the rate of interest at which they borrowed. They borrowed at 4 per cent over the Dublin inter bank rate. That was subsequently renegotiated by the Department down to 2 per cent over the rate.

Mr. Lindsay.—Yes.

Chairman.—By what authority did they do this?

Mr. Lindsay.—They did not have any authority. The method they used for borrowing was an incorrect method of borrowing.

Chairman.—Did the chief executive of the vocational education committee not think it necessary to advise the Department before this was done even though, presumably, it was done with the authority of the committee itself?

Mr. Lindsay.—He did not advise the Department. I would like to say in defence of the chief executive officer concerned that he is a man who has achieved a great deal as a chief executive officer. I do not think anyone could fault his energy, initiatives and achievements for the county. Any criticism that I would make would be in that context. He has done an excellent job but that does not excuse in any way what he has done. There were a series of errors and omissions in that he borrowed without authority and in an incorrect manner and negotiated terms which were unsatisfactory. The rental agreement which was reached was also unsatisfactory. In our view, the fact that the committee had contributed to the cost of the hall was not adequately taken into account, and discussion on that, is still ongoing.

Deputy Connor.—In relation to the building of the community hall, there was a contribution made towards that. Could we have a little more detail on the relationship that was established between the local community hall committee and the vocational education committee with regard to the building of the hall on what appears to have been vocational education committee lands?

Mr. Lindsay.—The procedure followed would not be uncommon for this purpose. You may recall in the late sixties, throughout the seventies and into the early eighties a very dramatic effort was made to try to link community use of facilities with school activities. One of the obvious methods was to establish a hall which would serve the school and the community. Ideally, in terms of the daily use of the hall by the school, it would be situated on a school site, and this was simply one of many examples of that. The actual contribution towards the hall was not made directly from school funds. The site was the contribution from the school and the actual contribution from the Department was through the separate system of sports grants. That was not an uncommon thing but the fault was it did not follow proper procedures.

Deputy Taylor.—Did I understand you to say that for the vocational education committee to obtain a loan of this type, it is a statutory requirement that the Minister’s consent be obtained in the first instance?

Mr. Lindsay.—Yes, that is correct.

Deputy Taylor.—Does it not follow then that if that loan was obtained without the Minister’s consent, the whole transaction would be void? It would be contrary to statute.

Mr. Lindsay.—That brings me back to the point I was making originally that the power of surcharge lies with the local government auditor. If the local government auditor felt that the committee, and the CEO on behalf of the committee, acted contrary to statutory requirements, it would be a matter for him to take such action as he felt appropriate.

Deputy Taylor.—What was the actual loan raised?

Mr. Lindsay.—Fifty thousand pounds.

Deputy Taylor.—How much is still owned by the vocational education committee to the loan institution, of has the loan been paid off?

Mr. Lindsay.—The loan has been paid off.

Deputy Taylor.—Who made the decision to repay it? Was that your decision?

Mr. Lindsay.—It was a joint decision. We did not want the loan outstanding. It is really part of the process I referred to under the deficits.

Deputy Taylor.—If the loan was void, was it legally recoverable?

Mr. Lindsay.—As I mentioned, we feel that any decision of that nature in terms of acting ultra vires or contrary to statute would really lie with the local government auditor. Our concern was to look at the budgetary and the financial situation. We felt the loan should not be left outstanding. We did not see anything particularly wrong with the question of a loan per se. That would not have been a problem for us. We would have agreed to the loan, and we would still agree to it, as I mentioned. It is only due to a technicality that we have not approved it. We want these people to seek better rental terms. We would have agreed— no doubt the local government auditor took this into account—to give sanction for that loan if we had been satisfied with the rental terms.

Deputy Taylor.—If that loan was void as being contrary to statute, as you said—I am just probing — perhaps the bank or loan institution would not be legally entitled to recover it at all? Did you look into that? If that was so and you gave approval to pay off a loan that was not legally recoverable, that could raise questions.

Mr. Lindsay.—I am sure the Deputy will appreciate that we could not run our business and manage the budget of £1.4 billion on the basis of, if you excuse me saying, legal technicalities. We would have approved that loan and it would have been perfectly in order but we were not satisfied with what accrued from it, that was the benefit in rental terms that would result from paying the £50,000. We certainly would not have made a legal issue out of it in those circumstances. If, on the other hand, we wanted to pursue these people and really make life difficult for them, that would have been a different matter. It really is not a policy with committees which we are satisfied are operation generally in a very responsible fashion to seek to adopt tactics of that kind, and I know the Deputy is not implying that.

Deputy Taylor.—I am not. In relation to the ministerial consent that is given when loans are raised by vocational education committees, is it normal procedure that the Minister’s decision is sought and given before the loan transaction is concluded or does it very often happen afterwards?

Mr. Lindsay.—In the past it frequently happened retrospectively but it is a strong policy of the Department that prior approval must be obtained. We have made dramatic progress in our relationships with Vocational Education Committees on this matter. By and large they are acting in a very responsible manner. In this case I assume they thought they were acting in good faith and they thought what they were doing was good. There was a reference to oral discussions with a member of the staff of the Department and that there was an understanding that it was all right to borrow the £50,000, but we have no record of those discussions. The person concerned have, in the traditional way, left the Department. That claim was made at the time and there was a record to that effect in the minutes of a meeting but we had no record of it.

Deputy Taylor.—The Comptroller and Auditor General states that Vocational Education Committees may obtain loans with prior consent of the Minister. Are you saying that is a provision that is very frequently ignored and that in actual fact it is a subsequent consent rather than a prior consent?

Mr. Lindsay.—I said the opposite. I said there was a time when that procedure was not followed as rigorously as it should be.

Deputy Taylor.—Is it now rigorously followed?

Mr. Lindsay.—It is followed rigorously now and that is why this case received such attention.

Deputy Dennehy.—My biggest concern is borrowing over the rate because the individual involved would be a person who would usually squeeze the best possible service for the public out of any transaction.

Chairman.—Is there a Corkman who would not do so, Deputy Dennehy?

Deputy Dennehy.—The person concerned is a Kerryman as it happens, but an adopted one. I am concerned that some of these matters are taken out of context. Our role here, as I appreciate fully, relates to the accounting aspects which are of primary importance to us, but when you start to get into the rules and regulations it seems that somebody is totally ignoring the rules. We need to go back to the point mentioned by Deputy Connor as to what was happening. At that stage the aim of the public, public representatives and everybody else was to utilise educational facilities to the full. There was a terrible scandal of halls being empty at weekends and evenings and being totally under-utilised. We demanded that they be used for educational and sporting activities and it was in that context that this transaction would have been pursued and dealt with. We want to change the practice where halls costing millions of pounds were left idle. Links were being established and, as Mr. Lindsay said, the thinking was that where possible recreational and sporting facilities would be built on an educational campus, and that was followed through in, most areas. That was the thinking in this case and the area would never have got a sporting facility otherwise. The individual concerned has been totally to the forefront and one of the leaders in pursuing public policy of getting young people involved in sport through providing facilities in the schools. The amount of work that has been done might be lost sight of if we deal with a matter like this purely from a technical point of view. We appear to be saying that somebody got it all wrong.

I will go back to the point I made earlier that there are rules and regulations and we need to point out issues, but in a public discussion like this we highlight and give headlines to a matter which is based on a technical aspect and we forget the work that has been done. I am glad Mr. Lindsay has balanced the books by pointing out the work that has been done in this area. County Cork Vocational Education Committee have one of the biggest budgets in the country and great work has been carried out. I must point out that I am concerned that the borrowing was over the limit. That appears to be one of the very few mistakes made by the chief executive officer concerned.

Chairman.—A practice not to be followed.

Mr. Lindsay.—Yes.

Paragraph 43 of the Report of the Comptroller and Auditor General reads:

Subhead N.—Second-Level Schools— Building Grants and Capital Costs.

Section 28 (1) of the Vocational Education Act, 1930 requires VECs to seek the prior approval of the Minister for Education for the purchase of land. The Department may provide grants up to the full cost of land purchased.

It was noted that in April 1981 Ministerial approval for the purchase of an 18 acre site by County Cork VEC for the building of a new vocational school for senior cycle pupils as an alternative to a proposed extension to the existing school, which has already been approved, was refused on the grounds that the number of students to be catered for did not warrant such a provision. In November 1982 the Department reversed its decision by agreeing in principle to the provision of a new school catering for 550 pupils on a site not to exceed 7 acres and requested the VEC to furnish details of available sites before sanction could be given for such a purchase. The Chief Executive Officer of the VEC, however, informed the Department in February 1983 that he had already proceeded with the purchase of the 18 acre site for £167,407 in July 1982 and he sought the Department’s retrospective approval on the understanding that he would resell 11 acres. The Department approved the retention of 10 acres in July 1983 and paid a grant of £90,209 to the VEC. In June 1987 the Department approved the sale of the surplus 8 acres for £60,000 and the VEC used the proceeds to clear some of the deficit on its capital account even though the Department had indicated to the VEC that this should not be done. As noted in the Local Government Auditor’s Report dated December 1988 on the accounts of the VEC for the two years ended 31 December 1987 the net cost of the transaction to the VEC was, therefore, £17,198.

Due to a general drop in enrolments at primary level, which would ultimately have an impact at second level, and to constraints on capital expenditure, the Department notified the VEC in November 1987 that it had decided to abandon the plan to provide a new vocational school in favour of refurbishing the existing school and requested the VEC to arrange the sale of the remaining 10 acres.

I asked the Accounting Officer what action has been taken in regard to the VEC’s purchase of the site without the prior approval of the Minister; why having refused Ministerial sanction for the purchase of a site, this decision was changed within 18 months, especially as five years later the Department reverted to its original position by instructing the VEC to dispose of the site. It also inquired as to the current position regarding the remaining 10 acre site and whether any other VECs had entered into similar transactions without the prior approval of the Department.

The Accounting Officer informed me that VECs were repeatedly reminded by the Department of Education of the necessity to secure prior authorisation for expenditure but that the power to disallow payments and to recover money by way of charge or surcharge rested with the Local Government Auditor. The CEO had been told that the statutory provisions must be complied with and that the £60,000 realised from the sale of part of the site must not be used to reduce the VEC’s deficit on its capital account.

He stated that the decision in November 1982 to build a new school followed a review of requirements and that consequently the original refusal was reversed and the VEC was then authorised to purchase a site. There was no indication in the Department’s records that it was aware that the site has already been purchased before this authorisation was given. Despite the subsequent decision to abandon the plan to build a new school and to sell the remainder of the site, the Accounting Officer told me in September 1989 that this site was not now to be sold but was being retained pending a submission by the VEC on future education developments in the area. He assured me that the Department was not at present aware of any similar cases of unapproved capital expenditure.

Mr. Purcell.—Having listened to Deputy Dennehy I am almost reluctant to go ahead as this paragraph refers to County Cork Vocational Education Committee also. The key point is that an 18 acre site was purchased at a cost of £167,000 or £9,300 per acre, for a new vocational school, without the required approval of the Minister. The subsequent sale of part of the site for £60,000 represented a selling price of £7,500 per acre. The Department was unhappy that the vocational education committee did not account for the £60,000 receipt in accordance with their instructions. The committee will note that there seemed to be a fair amount of indecision on the question of whether a new school was needed and I would like to make a general observation here.

It appears the Department are powerless to take effective action when they are presented with a fait accompli such as this. If a site has been bought legally and the money has been paid, it cannot be undone. I do not know how the local government auditor would view this — I certainly do not want to pre-empt anything he might decide. With regard to the remainnig ten acres of the site, my understanding is that is it to be sold off but the sale would need to realise £10,700 per acre if there is to be no loss. That ignores the question of interest, capital and perhaps other overheads that might arise on purchase and resale.

Chairman.—What happend here was that the chief executive officer of the vocational education committee informed the Department in February 1983 that he had purchased the 18 acre site for £167,400 in July 1982. He sought the Department’s retrospective approval on the understanding that he would resell 11 acres. It would appear that the resale will not realise the cost plus interest which should accrue to the State, and there will actually be a loss involved. Is that correct?

Mr. Lindsay.—While this case may seem worse than the others, that is actually not true. What the man was guilty of in this case is over-enthusiasm and zeal. In early 1982 nobody visualised there was going to be a demographic downturn. He was doing something which was generally felt to be very good in the context of educational development at that time — planning ahead for such development — and clearly for him the question of the purchase of a site was the right thing to do. Our decision at that time was that the existing school should be extended, but he was satisfied, on the basis of whatever data he had, that this was a wrong decision and that, taking account of demographic trends in the seventies, he would need a new school on a new site. That was the background to the case and that was the reason he acted in such a way.

The battle has gone on since then. The person concerned sold off the ten acres but has not sold the rest as yet. We have only recently written to him again confirming a decision that he should sell off the rest. The reason we bent backward with him on this— the Comptroller and Auditor General pin-pointed it — is that there have been developments outside the ordinary type of school development in the context of vocational preparation training courses and so forth. He argued, by the nature of the developments in Cork, that he was still satisfied this site was required and there have been ongoing discussions with him. Up until last year the matter had been reviewed by the Department and we have come to the conclusion that the site must be sold. We do not know what he will get for it — he got a reasonable price for the land he has sold. I have no doubt there would be some loss if the actual capital investment plus interest was taken into consideration. I do not believe there would be a loss in terms of the actual capital investment but in terms of interest, there would be a loss.

Chairman.—There is a financial loss to the State. What you have said is correct but effectively this man was doing your job and that is unsatisfactory. Are we talking about £1,000 £100,000 or £1 million? Where do you stop? You are a person who is accountable to the committee. There are procedures laid down for control. However good the particular person appears to be, it is unsatisfactory that arrangements of this kind are made. One can only presume that this came about because your Department would not give sanction. There will be a loss to the State.

I understand that from time to time you meet with chief executive officers in a group. Would yo be kind enough to bring to their attention that there is an accounting procedure and the Committee of Public Accounts expect those procedures to be met. We have had occasion in the past to call in county managers and heads of health boards and we do not want to have to call in chief executives of VECs — that is your job as Accounting Officer. It is time the people concerned realised that whatever the social implications, the accounting requirements have to be met or else the whole system will simply fall down.

Deputy Dennehy.—There was a change in decision in the space of 18 months, from April 1981 to November 1982 when the purchase was sanctioned. What brought about such a radical change or who would have made the decision? Would it have been the Department or was it a ministerial decision?

Mr. Lindsay.—The decision to sanction the purchase of the site?

Deputy Dennehy.—Yes.

Mr. Lindsay.—It was part of the work of the post-primary planning section of the Department to examine demographic trends and other needs in the area. It was a time of very considerable uncertainty. The demographic trend started to go downwards in terms of births in 1980. In 1982 no one was certian what the trend was going to be, and there was considerable difference of opinion. In 1982 one could have argued either way. We acted relatively cautiously on this particular matter. The person concerned was involved in developmental work and felt we were being far too cautious. He took on himself something he had not the authority to take on. As I pointed out, the decision was made on the basis of trends throughout the seventies but unfortunately they began to reverse in the eighties. It was the change in the number of births which actually led to the change in decision with regard to whether a school would be required.

Deputy Dennehy.—Apart from the problem with the Chief Executive Officer, there has been some confusion within the Department during the past five years where permission to build a school was refused first but granted later and sanction given to purchase a site. However this decision was later reversed and it was decided to sell the site and refurbish an old school. Whatever about the accounting aspect, it would appear that there was some degree of confusion or uncertainty about that school. I am not familiar with this area but I accept the Chairman’s point that people cannot be allowed to run wild — even the Department do not normally agree to reverse a decision. In November 1982 it was decided that there was a need for a school and the Department gave sanction to purchase a site at that stage. However, in 1985 they reversed that decision and decided instead to spend the money on an old building. I would be worried if people could go off and do their own thing willy nilly.

Chairman.—The only difficulty in this case is that what was sanctioned eventually was a seven acre site but the Chief Executive Officer purchased 18 acres, without anybody’s approval. This has happened in the case of 40-odd VECs and many health boards. It is not acceptable practice and I should communicate that to the Chief Executive officer on behalf of the Committee of Public Accounts.

Paragraph 44 of the Report of the Comptroller and Auditor General reads:

Subhead O.—Appropriations in Aid

44. As I have mentioned in a number of my previous Reports dealing with errors in claims for EC Social Fund moneys, the EC Social Fund (ESF) provides assistance towards the cost of certain training courses provided by VECs and other second level schools. Grants towards the costs incurred by the VECs and the schools in providing the courses are paid in the first instance from a number of subheads of the Vote and the amounts received from the ESF are brought to credit of the Vote as Appropriations in Aid. The costs of the courses are notified by the VECs and other schools to the Department which submits final claims to the EC Commission within prescribed time limits.

It was noted in the course of an examination of claims for grant aid on foot of which the Department of Education received final payments from the ESF in 1988 that the total cost of the Vocational Preparation and Training Programme run by VECs in 1987 as stated by the Department in the claim submitted to the EC did not agree with the certified costs notified to the Department by the VECs. Following a reconciliation which was requested during the audit, the Department indicated that the amount included by it in the claim made on the ESF was overstated by £238,418 resulting in an overclaim of aid of £131,130. I asked the Accounting Officer for information as to the circumstances in which the amount claimed was overstated and whether there were any other instances where the incorrect amount of aid had been claimed from the ESF.

As the Accounting Officer had previously stated that the use of computers and the provision of additional staff had largely eliminated problems in the preparation of claims for ESF aid I asked him for his further observations on the reliability of the Department’s procedures for the preparation of claims for ESF aid.

The Accounting Officer informed me that while the computer programmes had operated satisfactorily with low volume data inputs, the overclaim arose due to overloading the computer and partly because a small number of errors were made in computer data entry. The necessity to submit the claim by the EC deadline prevented the limited number of staff available at the time from carrying out an adequate level of checking. He stated that the separate claims submitted by secondary, community and comprehensive schools were now being re-examined and reconciled with the total costs included in the final claim as this had not been done before the claim was submitted.

The Accounting Officer also informed me that more staff had now been assigned to the section, the computer operations had been reorganised, data entry was being double-checked and a proper analysis would be carried out on the 1988 ESF claim to ensure its accuracy before its transmission to the EC.

He was now satisfied that all reasonable steps were being taken to avoid a recurrence of the problem.

Mr. Purcell.—I suppose the subject of this particular paragraph has become an annual chestnut. Training courses under the vocational preparation and training programme are provided by VECs and other second level schools and they are co-funded by the EC Social Fund. While test checking the VEC element of the claim for EC funding, my staff noted a number of inconsistencies in the figures. When these were investigated by the Department at our request it emerged that the claim was over-stated by £131,000. While this amount is not high in the context of the total sum claimed — the Accounting Officer has pointed this out in the past — I was surprised that an over-claim had arisen at all in the light of our repeated findings in this area and the consequent reassurances of successive Accounting Officers. As this suggested that the problems had not been fully ironed out, I asked the Accounting Officer to check out the other element of the EC claim relating to courses provided by secondary, community and comprehensive schools but I do not know if this check has been completed. I am also awaiting the results of a departmental recheck of depreciation costs included in a earlier EC claim which was carried out as a follow-up to a reference in paragraph 44 of the 1987 Comptroller and Auditor General’s Report.

Chairman.—What were your findings in relation to the comprehensive and other schools?

Mr. Lindsay.—That check has not been completed as yet. I might mention in mitigation of that, that as you are probably aware we were negotiating with Brussels a fairly massive expansion in the whole programme for ESF funding under the five year plan. At the moment we have a £670 million programme, of which £405 million will come from Brussels. That, in fact, did take up all the extra time of the staff. I mentioned the last time — and you may recall this — that I felt the methods of calculation, the complications of the actual calculations in the schools and the type of appointments that were carried out, were far too complicated and contributed significantly to the possibility of error. I think I reported to you then that I was proposing that we would change the whole basis of accounting for it and calculation of it on to a unit cost basis. We have completed that study and we have actually made proposals to Brussels to accept a changed basis of accounting for it. The reaction has been quite favourable but a number of Director Generals have to approve it. Unfortunately we have not been able to appply it to the 1989 claims but you can take it that the errors which have occurred in the past could not happen under a unit cost basis as it is an entirely different system. With that out of the way now and with the five year programme completed, staff will be completing the checks the Auditor General wants and we will certainly have them ready by the end of the year.

Chairman.—This paragraph refers only to VECs and there could be errors in the case of comprehensive schools as well. What bothers me is that these errors are always over-stated and we are constantly over-claiming from the ESF. Could that not put our claim for £405 million in danger? Where would we be if they turned around and said to us “we are not giving you any more money because you do not have good accounting procedures”?

Mr. Lindsay.—I do not think there is any danger of that happening. Our standing with Brussels is quite good. I think you are probably aware from publicity with regard to other countries that there is not 100 per cent accuracy anywhere in this. Very often this is because of the nature of the data Brussels require. We are trying to agree on a totally simplified system which will obviate the process of error, and they accept from our submission to them that that is our intention. I do not think there is any danger as I think they can see we are addressing the issue. If they agree to our proposal, it will be far easier for them and for us and I believe we will have a system which is not equalled in any of the other countries in the EC.

Chairman.—What happens in other countries is a matter for their public accounts committees or their equivalent in those countries but we have to ensure the integrity of the system here. A body like the Department of Education must get their act together on this particular point. We have come up against it time and time again and the Committee have had to make some harsh comments in the past about it. It is not satisfactory and I hope that by the time we meet again, this problem will have been ironed out.

Mr. Lindsay.—I am not trying to belittle the points made by the Auditor General or you but I can assure you that if we do go for a unit cost method, it will change the whole basis, simplify the system and ensure that we have a system which is acceptable to everyone.

Chairman.—I think we can note this.

VOTE 30—THIRD-LEVEL AND FURTHER EDUCATION

Mr. Lindsay further examined.

Paragraph 45 of the Report of the Comptroller and Auditor General reads:

Subhead D.—Training Colleges for Primary Teachers

Reference was made in the 1974 Report and in the Report of the Committee of Public Accounts (PAC) for that year to the failure by the Department of Education to exercise proper financial control over the execution of a major scheme of adaptation and extension works at Our Lady of Mercy College of Education, Carysfort and to the need to ensure that, in the light of the substantial investment of public moneys in college buildings and equipment, the continuing use of the college for approved educational purposes would be guaranteed. In March 1977 the PAC was informed by the Department of Education that it was intended that an indenture would be executed by the college authorities to secure that the college would continue to be used exclusively for the training of national school teachers or for some other educational purpose approved by the Minister for Education and that provision would be included in this indenture for the repayment of State capital grants in the events of the college ceasing to be so used. Later reports of the PAC expressed concern at the delay in executing this debenture. In its report dated 26 November 1987 the PAC again noted that, while the draft indenture had been forwarded to the college’s solicitors for agreement in March 1981, no formal reply had been received by June 1984 despite constant reminders. In his response to this report on 27 July 1988 the Minister for Finance stated that he shared the PAC’s concern about the delay in this matter but that he had been advised that the indenture had not been executed. The Minister reminded the PAC that it had been decided in 1986 to phase out teacher training at this college with effect from the end of that academic year and that the Department of Education had written to the Chief State Solicitor’s Office asking for a legal opinion on whether the indenture should be pursued and on the consequential legal and other implications.

Some £2.4m has been paid from the Vote in respect of capital works at this college in the years 1974 to 1977 and the annual grant to the college, £1.7m in 1987, (the last full calendar year in which the college functioned as a teacher training college) included, inter alia, a provision for the purchase of books and equipment. It appears that the college held books to the value of more than £1m and educational equipment’ to the value of approximately £600,000 at December 1988.

I understand that the Department of Education is having ongoing correspondence/negotiations with the college authorites with a view to securing an agreed level of compensation for the State in the event of the property being sold.

The college ceased to operate as a training college when the final students completed their course in June 1988.

The position regarding the staff of the college is as follows:—

£139,000 was paid in 1988 to those who. availed of the early retirement/redundancy scheme. Since July 1988, £802,200 has been paid to the college authorities from subhead D to meet the salaries of the staff up to 31 December 1988 and a further £550,000 has been paid up to 30 June 1989.

Mr. Purcell.—The Committee will note that concern about protecting the State’s investmnet in Carysfort College goes back a long way and that the matter had not been resolved at the time it was decided to discontinue using the college for teacher training. The issue raised in the paragraph has been overtaken by events because although the indenture in question was never executed, the Department have succeeded subsequent to the date of this report in coming to an arrangement with the college authorities and, as a result, £1.75 million out of the proceeds of the sale of the buildings and land has been paid to the State in settlement of all claims on foot of State grants and investments. The arrangement also provided for the return to the State of all educational equipment and library stock purchased with State funds.

The Carysfort experience — if I might call it that — raises the general point of the need to ensure that the State’s interests are adequately preserved where moneys are paid from the Exchequer to fund capital projects for third parties even when these parties are themselves the providers of vital social services on behalf of the State. This is by no means confined to the educational sector. As an ancillary point, you will see at the end of the paragraph that 38 staff members were still being paid from State funds one year after the closure of the college.

Chairman.—This saga is coming to an end; whether or not it will be a satisfactory end is another question. Between 1974 and 1977 the State paid £2.4 million in respect of capital works at this college. The note points out that the college held books to the value of more than £1 million and educational equipment to the value of approximately £600,000, giving a total of £1.6 million. Can the Committee take it that the £1.7 million in settlement has been added to the tune of £1.6 million in terms of equipment and books as part of the settlement?

Mr. Lindsay.—Yes, all books and equipment which were grant aided by the State and some others as well were returned by the college authorities and have been distributed to other institutions so that the actual sum of money was simply an accepted figure in terms of the so-called unexpired value of the grant payment that was actually made to the college.

Chairman.—Are you satisfied that the value of books and educational equipment held would be something of the order of £1.6 million?

Mr. Lindsay.—It is difficult to put a price on it when things are — for want of a better term — second-hand. However, we recovered everything that was given to them, they are all intact and have been redistributed.

Chairman.—What was the basis used for assessing the £1.75 million?

Mr. Lindsay.—It was done through discussion. We took a figure in excess of £2 million and allowed for a number of years. There was an argument about whether it should be £1 million or £2 million but we thought £1.75 million was a reasonable settlement.

Chairman.—When was this agreement reached?

Mr. Lindsay.—It was reached last summer. As it was to be paid when the premises were sold the actual payment to the State took place as of 1 July this year.

Chairman.—1 July?

Mr. Lindsay.—Yes, that was the date on which the transaction for the sale of the premises——

Chairman.—What happened to the equipment and the books?

Mr. Lindsay.—The books and equipment have been redistributed to the third level institutions we are funding.

Chairman.—Was this amount of £2.4 million the total amount paid by the State over the lifetime of this college for capital works?

Mr. Lindsay.—Yes.

Chairman.—You sent the draft indenture in March 1981 and no formal reply had been received by June 1984. In July 1988 the Minister for Finance stated that he shared the concern of the Committee of Public Accounts about the delay in this matter. Why had there been no reply? At that stage there was no question mark hanging over the future of Carysfort. It brings into account the general question put by Mr. Purcell: do similar indentures exist between the Department and other institutions of this kind?

Mr. Lindsay.—This case was unique in terms of the length of time and the extent of debate backwards and forwards between all the legal authorities involved. There were legal technicalities and disagreement with regard to legal clauses in the lease. That was the reason for the delay, I should say that even if it had been signed it would not have been of any help because the traditional form of lease signed for such a property allows for the fact if a school closes the unexpired value may be returned to the State but where the State is responsible for closing the institution it would not normally have been covered. This was a unique situation and it was a very lengthy process. I might mention also that we do have a general legal cover — we have got legal advice on this — where a grant is paid under conditions and terms which are stipulated, which include refund of the unexpired value of the grant, the person receiving the grant is legally liable to refund regardless of whether a lease has been signed or not. We have legal cover for our grant.

Chairman.—Do you know how much this building was sold for?

Mr. Lindsay.—I can only speculate about this as we are not a party to the sale and we can only talk about what was in the papers. The newspapers said that the buildings and all the land attached to them were sold for £20 million. I have no knowledge of the actual details of the sale.

Chairman.—Do you think in those circumstances that the State’s pay-off, if you like, was reasonable and satisfactory given the amount of money that was achieved on the sale? Presumably, if the money that was spent over the years on capital improvements had not been spent this asset would not have been worth that money?

Mr. Lindsay.—It would not have made any difference at all. The land, as you are probably aware, is where the value lay — there were 95 acres of prime land. In fact, the buildings were a difficulty as old buildings are not necessarily a major asset. They were the least valuable part of the sale.

Chairman.—Are you happy that the State got a good deal?

Mr. Lindsay.—I am very satisfied that we got a good return on our grant.

Chairman.—Are there any other questions? We will note this Vote.

VOTE 27—OFFICE OF THE MINISTER FOR EDUCATION.

Chairman.—Are there any questions on subheads A.1 to B.7? We will note this Vote.

VOTE 28—FIRST LEVEL EDUCATION.

Mr. Lindsay further examined.

Chairman.—Are there any questions on subheads A to L? I understand the school at Recess is a primary school. It is being kept open at great cost to the State and there is an ongoing dispute about it. How long has that dispute been going on?

Mr. Lindsay.—The school is not being kept open at great expense to the State.

Chairman.—Presumably you are paying a salary, heating the school, repairing and maintaining it and there are no students there.

Mr. Lindsay.—There are students attending the school.

Chairman.—Since when?

Mr. Lindsay.—All the time. As you are probably aware, they are not actually going into the class of the principal teacher.

Chairman.—But they are attending other classes?

Mr. Lindsay.—Yes.

Chairman.—The school is not empty; it is just a classroom that is empty. Is that correct?

Mr. Lindsay.—That is right.

Chairman.—How long has this dispute been going on?

Mr. Lindsay.—About five years.

Chairman.—Is there any sign of it being resolved?

Mr. Lindsay.—I think we all thought it was resolved. I am sure you are aware of the details. There was some publicity about the fact that some students were going into the class of the principal teacher but, unfortunately, it has not worked out like that. You are also aware that everybody involved has tried to resolve the issue but it has been not been resolved. There has been no extra cost to the State in the sense that there are two teachers there and they would be entitled to two teachers. A question will arise if the number of pupils this year will justify two teachers next year. That will be a separate issue because our information is that there has been a decline in the number of students attending this year.

Chairman.—Does this mean another teacher has to take more students, that they have to go to another school or what? What are the implications?

Mr. Lindsay.—A number of things have happened. Originally the board of management made a room available in the school and the parents employed a teacher themselves. That is not acceptable as it is contrary to the rules and they had to be informed that they could not use the school premises for that purpose. There was then a temporary arrangement where a second teacher was assigned. That was not successful and has ended now. At present the situation is that there is one teacher teaching a large class. We believe — we have not got the full details yet for this year — that some other students are not attending the school but are going to some other school.

Chairman.—Are there any other questions on first level Education? We will note the Vote.

VOTE 29 — SECOND LEVEL AND FURTHER EDUCATION.

Mr. Lindsay further examined.

Chairman.—We will take items A-O, two pages. Are there any questions on Vote 29? We will note the Vote.

VOTE 30 — THIRD LEVEL AND FURTHER EDUCATION

Mr. Lindsay further examined.

Chairman.—On Vote 30, Third Level and Further Education, I note that the higher education grant was under-expended by £129,000. What was the reason for that? Was there a lower demand for grants?

Mr. Lindsay.—It is directly related to the numbers. The cost of a grant can vary depending on whether children are living at home or living away from home. It is impossible to calculate it exactly. I think the actual amount is relatively small in the totality. It is a variable from year to year.

Chairman.—Any other questions? That concludes the examination. It was very satisfactory. Thank you very much.

The witness withdrew.

The Committee adjourned.