Committee Reports > List of Committees > Dáil > 1992 > Committee of Public Accounts > Final Report - Appropriation Accounts 1988

FINAL REPORT

DEFENCE

1. Misappropriation of Stores

The Comptroller and Auditor General noted that the Quartermaster General’s Branch had reported that stock deficiencies totalling £58,606 had come to light at a military barracks. The deficiencies were revealed by a check of the stores accounts following a report to the Military Police in June 1988 that an issue and receipt voucher in respect of items of clothing issued to a unit appeared to have a forged signature.

Investigations were carried out by the Military Police and by the Garda Síochána because the misappropriated articles included tunics and pullovers and the Army authorities were concerned that these items could come into the possession of subversives. The investigations disclosed that there had been irregularities in two units and that there had been irregularities in accounting procedures, including the forgery of officers’ signatures, the alteration of records, fictitious issues and the misappropriation of clothing and equipment over a period. A board of survey was convened which, though unable to prove collusion between the two stores, concluded from the evidence available that there was. Disciplinary action was pending against individuals and other aspects have been raised with the Quartermaster General in relation to the findings of the survey. The total value of clothing in the stores from which the irregular issues were made would be about £300,000.

Some of the clothing was recovered but the vast majority was not readily identifiable as clothing worn by the Defence Forces. The bulk of the stolen apparel consisted of boots, combat trousers, caps, berets, overcoats, shirts and gloves.

In later correspondence with the Committee, the Accounting Officer indicated that following a Court Martial, one NCO was ordered to be reduced in rank and a fine of £300 was imposed. A second NCO was tried by Court Martial under the Defence Act, 1954 and acquitted of all charges.

The Committee is concerned at the scale of misappropriation of stocks and the manner in which this occurred and remained undetected. It fails to understand how a stock deficiency of this magnitude would not be detected by regular stocktaking and periodic audit. The Committee wishes to stress once again the necessity for regular stocktaking at all Defence Forces stores in accordance with the prescribed regulations — a point made by the Committee in its 1984 Report. The Committee is also concerned that the items of clothing misappropriated could have fallen into the wrong hands and would like to be assured that the security aspect of Defence Forces stocks is always kept under special review.

AGRICULTURE AND FOOD

2. Bovine Tuberculosis and Brucellosis Eradication

The Committee noted that the accumulated cost of the bovine tuberculosis and brucellosis eradication scheme to the end of 1988 was £421 million in historical cost terms. The Committee also noted that ERAD had been set up during the year as an executive office which has as its objective the halving of TB levels by 1992 and the elimination of residual pockets of brucellosis. The gross cost of ERAD in 1988 was £43 million (including estimated administrative costs of £14.5 million) with receipts amounting to £22.7 million leaving a net cost of £20.3 million.

The Committee also noted that the board of ERAD were examining other ways of improving the effectiveness of the TB eradication scheme and the Committee itself considered how progress could be made to eliminate TB in cattle and to reduce the costs both to the taxpayer and the farming community. To this end the Committee in November 1991 sought submissions from interested parties asking them to set out their views on the operation of the existing scheme and make recommendations as to how the effectiveness of the scheme could be improved. These submissions will be considered separately from the normal examinations of the Appropriation Accounts. A special report will be prepared on this subject when all submissions received have been considered.

3. Purchase of Computer Hardware and Software

In 1985, a contract for the supply and installation of computer hardware and software to support the eradication programme was entered into by the Department of Agriculture in the sum of £1,152,072 inclusive of VAT. Sanction of the Department of Finance had been received for the placing of the contract. A further sum of £794,668 was paid to the same supplier for additional hardware and software and the provision of computer maintenance, bringing expenditure to £1,946,740 inclusive of VAT at 31 December 1987. In 1988 it was decided to further expand the computer system to take account of increased activity on the programme and to provide for the orderly progression to a computerised movement permit system for cattle.

A contract for the supply of additional equipment was awarded by ERAD to the same supplier without recourse to public tendering procedures or reference to the Government Contracts Committee. A sum of £2,008,839 (including £1,576,188 for hardware) was paid to the company in December 1988 on foot of this contract. The Department had estimated that in addition to the foregoing expenditure the development of a movement permit system could cost a further £4 million.

The Comptroller and Auditor General had asked the Department if a review had been carried out in 1988 to ascertain if the further computerisation needs could be met by other suppliers and whether the views of the Department of Finance, particularly its computer advisory service had been sought on the expansion plan and taken into account before entering into the contract. He also asked why the specific sanction of the Department of Finance had not been obtained for the expenditure proposed and why the contract had not been submitted to the Government Contracts Committee for approval. Having regard to the volume of business being placed with the suppliers he had queried if price reductions had been negotiated when placing the contract for the expansion of the system and whether the proposed movement permit system could, if necessary, be achieved without recourse to the current sole supplier so that the Department would not be precluded from adopting a competitive tendering process in order to maximise cost savings.

The Comptroller and Auditor General was informed that in late 1986 and again in 1987 the Department of Finance agreed that the additional hardware then required should be purchased from the original supplier without going to tender. Before sanctioning the 1987 purchases the Department of Finance requested that oral enquiries be made of a number of other suppliers to ascertain whether they would be prepared to supply suitable equipment but three of these had stated that given the existing hardware configuration, they could not provide compatible equipment. In regard to the 1988 purchases the Department stated that delegated sanction had been given by the Department of Finance to allow the National Director of ERAD to use his budget without the need for sanction for specific items of expenditure, including computer items. The board of ERAD had deemed the introduction of a movement permit system to be a priority and the National Director was instructed to proceed accordingly. An order for computer equipment was therefore placed with the same supplier under previously approved procedures which the Accounting Officer contended did not require consultation with the Department of Finance’s computer advisory service nor reference to the Government Contracts Committee. He confirmed that significant price reductions on 1987 costs had been negotiated for the business placed in 1988 and gave assurances that further development of the system could be achieved without recourse to the sole supplier. The movement permit system involved nationwide communication using the Government telecommunications network and it would therefore be necessary to seek quotations from all suppliers.

The Comptroller and Auditor General informed the Committee that while there were a number of earlier instalments in the build up of the computerised system in 1985, 1986 and 1987, he was concerned with the 1988 contract specifically as it did not involve the Department of Finance either as the sanctioning authority or in its advisory role. In not seeking competitive tenders, even in the event that only one supplier could meet the requirements, the Department, under existing contract procedures, should have submitted the single tender for approval by the Government Contracts Committee. The Comptroller and Auditor General expressed reservations about the Accounting Officer’s contention that a general delegated sanction could be applied to a purchase of this magnitude. Even allowing for such an interpretation the Department did not fulfil a specific condition of the delegated sanction viz. that it would be operated on the basis of normal tendering procedures being followed.

In evidence to the Committee the Accounting Officer repeated the assertion that only one firm could supply the equipment and that Finance sanction was not sought as ERAD had understood that because of arrangements reached with the Department of Finance in the past there was no need to seek further sanction. He added that ERAD had negotiated price reductions of 15 per cent with the firm concerned. The further development of the project now underway, to finalise the pre-movement computerisation system for ERAD and the system for payment of headage and premium grants, meant that the Department was not locked into a single supplier and would in future be in a position to seek quotations from a number of companies.

The representative from the Department of Finance explained that prior to the setting up of ERAD delegated sanction was given in an exchange of letters. It appeared to the Department of Finance that certain interpretations were put on those delegations which they found hard to follow and to accept. There was a departmental circular governing information technology specifically and this took precedence over these delegated sanctions. While there may have been some room for misunderstandings because of the way the letter of sanction was drafted, the view of the Department of Finance was that the sanction could not exceed £500,000 in any event, even if it were interpreted as applying to information technology equipment.

Furthermore, during discussions with ERAD on computerisation, the Department of Finance had drawn ERAD’s attention to the need for consultation with the Department of Finance computer section and to the need to comply with all EC and National regulations and with regulations regarding public contracts.

The Committee cannot accept the Accounting Officer’s contention that what was involved here was a de facto extension to an existing contract. It was clearly a new phase of system development and as such the application of well established contract procedures should have been a sine qua non.

Regardless of how the general delegated sanction was interpreted it was disingenuous of the Department, to say the least, to enter a £2 million contract without any contact with the Department of Finance for guidance and authority. The fact that the Department did not seek the required approval of the Government Contracts Committee suggests to the Committee that the Department had decided to go its own way in any event.

The Committee deplores the failure of the Department to apply the principles of fair competition in this case. Even though compliance with accepted procedures might well have resulted in the award of the contract to the same firm the requirements of public accountability dictate that the whole process should be open and transparent.

The Committee wishes to emphasise that it is incumbent on all Accounting Officers to ensure that Government Accounting requirements are adhered to and that prior approval of the Government Contracts Committee is sought where normal contracting procedures are not being followed.

The Committee would also question the advisability of Departments getting locked into the products of particular companies on the basis of relatively small initial purchases. This can result in extra costs in subsequent system development due to the absence of competition as happened in this case.

The advent of open systems architecture means that purchasers can now largely avoid the risk of overreliance on single suppliers and the Committee trusts that all Departments have been made aware of this development in the IT field as a means of keeping costs to a minimum. The Committee wishes to be kept informed of the progress being made in developing the computerised movement system and whether the £4 million existing system can be cost effectively incorporated into the new system.

SOCIAL WELFARE

4. Central Records System

The computerised Central Records System of the Department of Social Welfare contains the contribution records of insured persons. The contribution record is based on data provided by the Revenue Commissioners who collect PRSI contributions on behalf of the Department and on the number of credited contributions awarded in individual cases for periods of disability or unemployment. A person’s entitlement to benefit is determined by reference to the contribution record. Benefit expenditure from the Social Insurance Fund was £1.3 billion in 1988.

A comprehensive examination of the records system was carried out in 1988 by staff from the Comptroller and Auditor General’s Office who submitted a detailed report to the Department identifying deficiencies in the records system. The observations of the Revenue Commissioners were also sought. The main deficiencies noted were the subject of a number of paragraphs in the Report of the Comptroller and Auditor General.

5. Inadequacies in the Data Transmitted from Revenue

In paragraph 58 of his report the Comptroller and Auditor General stated that while the system provides that the Revenue Commissioners furnish to the Department of Social Welfare full details of contributions collected in respect of each insured person the information furnished was frequently incomplete in a number of respects. Where the Revenue Commissioners furnish such incomplete data and the Department of Social Welfare are consequently unable to identify the persons to whom the contributions should be credited, the data is then transferred to an emergency file. The review highlighted that this unprocessed “emergency file” comprising 1.3 million items had built up over an extended period of time with approximately 143,000 of these items related to 1987-88.

The Revenue computer system also includes a facility which enables them to make an accurate estimate of total PRSI contributions on the basis of earnings and contribution class and to establish that the correct amount of PRSI contributions have been paid over by employers. This exercise had not been carried out since 1983. As well as that procedures had not been established to ensure that all relevant information regarding contributions collected had been transmitted to the Department of Social Welfare. An instance of failure to transmit a tape containing 125,000 records emerged only when it came to light in respect of 20 per cent of new claims being made that the relevant contribution information was not on file in the Department of Social Welfare.

The Comptroller and Auditor General was informed by the Accounting Officer that the problem of identifying insured persons contributions dated back to 1980 when about two million reference numbers were changed to facilitate the administration of the new PRSI system. Because of incomplete information from the Revenue Commissioners the contributions in some cases could not be readily assigned to individual contributors, which had a knock-on effect on many future benefit claims. He stated however that 45,000 of these cases had now had RSI numbers assigned to them following review. The Accounting Officer also explained that cost effectiveness considerations arose in deciding on efforts to be made in determining the degree of accuracy of the total PRSI collection and to that extent it was governed by priorities in the Office of the Revenue Commissioners. In order to achieve a greater degree of accuracy the performance of the PRSI system was now being continuously monitored through an analysis of the problems arising at claim authorisation stage and by inspection of employers’ records and the systems used to monitor the transfer of contribution details were being improved to reduce the scope for clerical error and omission of data.

In evidence the Accounting Officer explained to the Committee that the expression “emergency file” arose in Revenue terminology and related to persons on “emergency tax rates” prior to the allocation of an RSI number and the issuing of tax-free allowance certificates. The problems of incomplete data related primarily to young workers, seasonal workers and part-time workers. In many of these cases sufficient information was not available to enter the individual’s record on the central records system so emergency records were set up pending complete data being obtained following contact with the individual concerned. As a corrective measure the computer software was being amended in order to ensure that incomplete records on the “emergency file” are transferred to the main file once the additional data becomes available.

The Committee was assured by the Accounting Officer that unidentified contributors whose records were held on the “emergency file” would not lose their entitlements to benefit. He explained that additional information now furnished by claimants in regard to their place of employment at particular times enables the Department to match the previously unidentified data and benefits claimed for. In addition there are continuous discussions with the Revenue Commisioners in order to resolve problems of this nature.

The Accounting Officer emphasised that the Department of Social Welfare is always concerned to ensure that a very high percentage of insured persons who claim benefits qualify immediately — the level was of the order of 95 per cent and he wished to dispel any impression that large numbers of workers are denied benefit because of the failure to satisfy the contribution conditions. Any persons who appear not to qualify for benefit due to inadequate contributions are so informed so as to enable them to identify any missing contributions but the onus is on the employee to obtain and provide his/her RSI number in order that contributions can be recorded. With a view to improving the integrity and completeness of the records, agreement had since been reached between the Revenue Commissioners and the Department of Social Welfare that there would be a thorough vetting of the RSI database and the possibility of issuing RSI numbers to young persons prior to their entry into the labour market and before leaving school was also being examined.

The Committee is pleased to note that the Department of Social Welfare is continuing to improve and up-date its computer system so that insured persons who claim benefits to which they are entitled, obtain them, when in most need of such benefits, without undue delay. The Committee could not accept any suggestion that claimants might be debarred from obtaining benefits due to the failure of the Department of Social Welfare to reconcile records of contributions. The Committee is not implying that the Department of Social Welfare would adopt this attitude but from a purely administrative viewpoint it would appear to the Committee to be less costly to iron out obvious problems with the contribution data at an early stage rather than to wait until a claimant is refused benefit with all the attendant expense of resolving the matter at that stage. The Committee accordingly wishes to be kept informed of the extent to which the cases on the unprocessed emergency file have been reduced.

6. Inadequacies in Recorded Information

While entering a caveat in regard to the deficiencies already noted the Comptroller and Auditor General scrutinised such data as was entered in the Central Records System. This revealed the existence of duplicate contribution records and the failure to up-date contribution records to include details of credits awarded to persons in receipt of unemployment benefit or assistance. Instances were also noted where the existence of live disability benefit claims did not appear on the central records with the subsequent risk of duplicate claims or claims to other types of benefit being admitted for payment.

The Accounting Officer informed the Comptroller and Auditor General that the existence of duplicate records arose mainly where persons re-entered employment and in the case of women where RSI numbers changed on marriage. Agreement has now been reached with the Revenue Commissioners to the effect that the Department of Social Welfare would allocate RSI numbers to all new entrants to Social Insurance and that extensive computerised checking would be carried out to ensure that individuals had not been allocated an RSI number previously. Computer programs were being modified to remedy the more obviously duplicated records and further planned computer developments were expected to eliminate the weaknesses in relation to unemployment benefit and assistance credits.

While the Accounting Officer acknowledged that the differences between the information recorded on the central records and on the disability benefit system was a known hazard, he stated that the risk of incorrect claims being admitted to payment was not significant since it was not possible to have disability claims on payment concurrently. To ensure consistency however improvements in the existing system for recording disability benefit claims on the central records would be made as other pressures permitted. Proposals were also being formulated to extend the database to all persons with whom the Department might do business.

The Accounting Officer in evidence to the Committee accepted that there were problems with people being allocated more than one RSI number. The most common example was when a women married and subsequently qualified for benefits under her husband’s RSI number. Persons coming in and out of the labour market sometimes did not get numbers, sometimes they got one number and later another. There were difficulties in combining these records. If a person made contributions under two insurance records, these separate records were on the system but were not always correctly matched. Although the Department literature stresses that persons should use their RSI number and provide any other number thay may be using, these cases continue to occur. The Department had modified their computer software to make it easier to identify these cases and had assigned extra staff to the task of eliminating these duplicate records.

Following the Comptroller and Auditor General’s advertence to this problem several thousand inquiries had been made of insured persons requesting information which would enable the Department to match duplicate records. While the process is a tedious one the Department is dependent on the public to reply to the requests. However, the Accounting Officer was confident of making progress. This particular task had to be completed before the Department could fully implement the new RSI numbering system in a way that would guarantee that each individual has one RSI number for all transactions.

The Committee accepts that progress is being made in matching the records on file so as to prevent the possible duplicate payment of disability or other benefits. It wishes to stress the importance of this work and urges that it be intensified if possible. The Committee wishes to be kept informed on a regular basis, of the progress in this regard. Finally, the Committee also wishes to be informed when the allocation of RSI numbers has been fully transferred from the Revenue Commissioners to the Department of Social Welfare and how effectively the system is now operating.

7. Recording of Credits on the Central Records System resulting in Duplicate Payments of Social Welfare

Under the arrangements for the award of credited contributions (credits) in respect of periods of disability or unemployment an insured person’s contribution record should not normally show more than 52 credits as having been awarded in a full year.

Separate exercises carried out independently by the Department of Social Welfare and the staff of the Office of the Comptroller and Auditor General on cases identified by each as having exceeded predetermined thresholds of total credits in a year (Department of Social Welfare: Threshold of 60 credits. Comptroller and Auditor General: Threshold of 55 credits) produced broadly similar results. Detailed investigation of samples of the cases so identified for one year showed a level of 8 per cent of concurrent claiming of more than one type of benefit or assistance. In view of the apparent high level of concurrent claims the Accounting Officer had been asked if a full review would be carried out, such a review to include proposals to ensure that any duplicate claims would be detected.

The Accounting Officer stated that all cases from which the audit sample was drawn would be analysed, overpayments which occurred would be investigated and recovery action taken. The abuse or weaknesses highlighted would be brought under control by including assistance cases on the central records and by automating the processing of new claims and recording of credits. This would eliminate the overlapping of claims and would reduce clerical error.

The Comptroller and Auditor General told the Committee that this type of abuse of the system i.e. simultaneously claiming two types of social welfare payment where this was precluded by legislation, should not be confused with the abuse through claiming benefit and concurrent working which had been raised by him in his Report for 1983, though on that occasion also the existence of the abuse was signalled by the fact that paid and credited contributions exceeded 52 in a year.

The Accounting Officer in evidence, told the Committee that the Department had been aware that the manual system of recording credits was prone to error. Action had been taken to tackle the problem including a long term plan of computerising all local offices. All local offices in Dublin and a number of provincial offices had been computerised to date with over one-third of the live register now computerised. The system of credits would be automatically checked and up-dated onto the computer system so that the problem referred to in the Report should not arise again. A further examination from the same pool a year later had shown that the number of cases of overpayment had been reduced from 8 per cent to 1.5 per cent.

The Committee is concerned that a problem which the Comptroller and Auditor General had brought to the Department’s attention four years previously albeit relating to a different aspect of the problem than that before the Committee on this occasion, had not at the time of audit been totally eliminated. The Committee is further concerned that the failure to eliminate the problem of excess credits could lead to duplicate claims for benefit being allowed by the Department of Social Welfare in a small percentage of cases.

The Committee wishes to be kept informed of progress in computerising all local offices and expanding the database to cover persons with whom the Department does business. The Committee also seeks confirmation that a further examination of excess credits cases has been carried out and the results of such examination.

8. Overpayments in the Social Welfare System

The Comptroller and Auditor General also highlighted how his examination of the procedures for recording and recovering overpayments had thrown up deficiencies in the system. Due to the volume and nature of social welfare payments it is likely that a substantial number of overpayments will be made and therefore it is necessary to have a reliable system in place for recording overpayments so that recovery action can be taken. Detected overpayments are recorded in the appropriate administrative section and recovery action is initiated by way of deduction from current or future entitlement or by seeking a cash refund either in instalments or lump sum. The Accounts Branch must also be informed of such cases for accounting and statistical purposes. Overpayments are also recorded in the Central Records System so that cognisance of the overpayment can be taken in the event of future claims. Deficiencies were revealed in these procedures as recovery action was not ensured where a claim was made for a social welfare payment of a different type from the one overpaid. Instances were noted where Accounts Branch had not been notified of overpayments and recoveries and even in cases where details were supplied, many had been incorrectly entered or duplicated in the records. The Accounting Officer had accepted that there had been deficiencies in the system of recovering overpayments and he attributed this to the high level of staff turnover, clerical oversight, limitations on the availability of computer resources and the increased number of cases brought to light through anti-fraud measures. He outlined the steps being taken to improve the effectiveness of the recording and recovery procedures.

In evidence the Accounting Officer stated that there had been a high level of turnover of staff due to the decentralisation programme. Staff were transferred within the Department in addition to staff transferring into the Department. Training activities were augmented so as to keep the same level of expertise. The procedures for simplifying the recording of overpayments had been reviewed and the Accounting Officer was now satisfied that this, together with intensive staff training, had enabled the Department to overcome most of the problems existing in this area.

The Accounting Officer also informed the Committee that recovery of moneys overpaid was generally made by instalments and was regarded as an ongoing function. The Department has the right to initiate both civil and criminal proceedings but civil action was rarely taken as the Department did not consider it to be cost effective. However, the fear of prosecution acted as a deterrent and he assured the Committee that fraud detection measures within the Department were effective.

While the Committee appreciates that measures have been taken to improve the situation and would be concerned that a balanced approach would be taken when dealing with recovery of overpayments, it nevertheless considers that it is essential to have an effective system of detecting, recording and recovering overpayments of social welfare so as to ensure as far as possible that the overall amount available for genuine social welfare applicants would not be diminished by incorrect or fraudulent payments.

CENTRAL STATISTICS OFFICE

9. Employment of persons as Census Enumerators, Presiding Officers and Poll Clerks

In the course of the examination of the Accounting Officer for the Vote of the Central Statistics Office the Committee was informed that the award of £500 shown in the Appropriation Accounts was made to an unsuccessful applicant for a post of field officer on census enumeration following an equality case, on the grounds of indirect discrimination. The Committee was informed that staff were recruited to the Central Statistics Office as field staff or census enumerators following an interview process and that preference was given to unemployed persons. The award was made as a result of an unsuccessful applicant showing that discrimination existed in that it was more difficult for a married woman to satisfy a condition for such employment (i.e. being on unemployment assistance) than it was for men or unmarried women. The regulations for recruitment to these posts had now been changed and all applicants for these posts now had to be registered with FÁS.

The Committee considers that unemployed persons should be given an opportunity of working for State agencies when temporary employment in such positions is available. This in turn might effect savings in the Social Welfare Vote. While the £500 charge is not material the Committee considers it important enough to draw attention to this unusual charge.

The Committee further considers that unemployed persons should also be employed as presiding officers and poll clerks at Presidential, General and Local Elections and referenda. The Committee was informed at a later date by the Accounting Officer at the Department of the Environment that a letter expressing the views and concerns of the Committee on this subject had been drawn to the attention of the County Registrars who act as returning officers on such occasions.

The Committee hopes that its views will be favourably received by the County Registrars.

PRISONS

10. Misappropriation of moneys in Prisoners’ Deposit Accounts

The Comptroller and Auditor General referred to the arrangement under which a person, when serving a prison sentence, may deposit cash with the Prison Governor and later use it to make personal purchases in the prison shop and he outlined the accounting arrangements for the control of such cash deposits and the recording of transactions. Following an examination by the Comptroller and Auditor General of the accounts for Mountjoy Prison and the records maintained in the Department of Justice which brought to light discrepancies in the balances of prisoners’ deposits, the Department of Justice initiated an investigation which showed a possible cash deficiency of £26,350 at the end of 1988 of which £8,301 had arisen in 1988.

When the Committee examined on this matter on 26 April 1990 it was informed that the Department of Justice investigation into the irregularities involved the detailed checking of about 7,500 accounts which are opened in Mountjoy Prison annually with about 100,000 transactions and that a thorough analysis of the 1988 transactions accounting for one-third of the discrepancy had been completed at that stage. The investigation brought to light evidence of misappropriation of moneys and falsification of records over a number of years. In regard to the controls in operation to prevent such occurrences it was explained that a manual system, which was time-consuming, had been in use until recently and involved detailed comparisons between the Department’s records and the prisoners’ deposit accounts, and available staff resources could not cope with the volume of accounts and transactions. The system had now been redesigned and computerised enabling the daily balancing of prisoners’ deposit accounts. The Accounting Officer explained that for misappropriation to occur under the new system, collusion would be necessary between a number of staff in different areas. As a safeguard for the future the new computerised system would be extended to all other institutions.

The Accounting Officer assured the Committee that no prisoner suffered any loss as a result of the misappropriation. The Accounting Officer stated that investigations by both the Gardaí and the Department were ongoing and that there was the likelihood that charges would be preferred against an officer who had been suspended.

The Committee agreed, in the circumstances, to defer further consideration of the matter on the understanding that the Accounting Officer would communicate with the Comptroller and Auditor General and the Committee when the investigations were completed and any subsequent court proceedings disposed of. At that stage the Committee will also wish to know the final amount of the loss of public moneys and if any other evidence of misappropriation comes to light during the investigations. The Committee will then consider the matter further.

COMMUNICATIONS

11. Appropriations-in-Aid

Under the Wireless Telegraphy (Wired Broadcasting Relay Licence) Regulations, 1974, as amended, licensees who provide cable television relay service in defined areas are required to pay to the Minister for Communications licence fees of 15 per cent (5 per cent from April 1988) of the gross revenue, excluding installation costs and VAT, received by the licensees in any quarter. The licensee is also required to furnish annually to the Minister an audited statement of such gross revenue received. The regulations provide that licencees’ records are liable to inspection by the Department’s staff.

In paragraph 54 of his report the Comptroller and Auditor General had drawn attention to the level of arrears of licence fees outstanding, (estimated by the Department to be £1 million at 31/12/88) to the failure of licensees to furnish up to date audited statements and to the infrequency of inspection of licensees’ records by the Department. He had been told of the difficulties encountered by the Department in seeking to recover amounts outstanding and how, despite taking legal action, the Department was frustrated in its efforts by some licensees who, on the initiation of legal action, entered into arrangements to pay amounts due but subsequently reneged on these commitments. The existence of illegal broadcasting during 1986 and 1987 was seen as having had a significant bearing on the licensees’ attitude to pay any licence fees; indeed some had threatened legal action against the Department seeking compensation for their consequential loss of revenue and a declaration that the licence fee was null and void.

While the Minister had power to revoke licences this was not regarded as a realistic option because it would not lead to the collection of the arrears and would be likely to create additional illegal broadcasting.

The Comptroller and Auditor General was informed that as a result of arrangements made to pay arrears by instalments the amount outstanding at 30/9/89 was reduced to £770,000 of which £415,000 was owed by one company which was refusing to pay and was persisting in its legal action against the Department in relation to illegal broadcasting. The amounts owed by the other licensees were expected to be collected within a short time either under instalment agreement or through Court action.

In May 1990 the Accounting officer told the Committee that the arrears had been reduced to £550,000 most of which related to the licensee which had initiated legal action against the Department but had now terminated that action and had agreed to pay by instalments. He was satisfied that in most of the cases where such agreements had been made the licensees would pay.

With regard to the failure by the Department to inspect the records of licensees the Comptroller and Auditor General had been told that this was due to a lack of qualified staff but the Accounting Officer told the Committee in evidence that a suitably qualified officer had subsequently been recruited for this task. By October 1990 the arrears had been reduced to £448,000; interest is not charged on arrears outstanding.

The Committee accepts that substantial progress has been made to reduce the arrears owed by licensed cable system operators. The Committee, however, cannot condone the actions of companies who fail to meet their legal obligations, having been given exclusive licences and effectively excluding others from obtaining those licences. The Committee wishes to be kept informed of progress in reducing the level of arrears. It also feels that the imposition of interest charges on late payments similar to the legal provisions in the Finance Acts on late payments of taxes should be considered.

Finally the Committee is pleased to note that an officer has been assigned to inspect companies’ records but it deprecates the delay in assigning the officer and it trusts that the situation will not recur.

ENVIRONMENT

12. Motor Vehicle Duties

In his Report for 1986 the Comptroller and Auditor General referred to a misappropriation of £21,508 of motor tax revenues by an official in a Motor Tax Office (MTO) who altered documents by indicating that the amount of duty payable was less than the amount actually paid. At that time the Department had undertaken to improve the control procedures at all Motor Tax Offices and at the Vehicle Registration Unit (VRU) Shannon. However, in October 1988 further irregularities were discovered at the Motor Tax Office in Kilkenny following complaints made by motorists who had received reminders describing their private cars as goods vehicles. These reminders were issued by the VRU. Investigations revealed that in a two year period an official of the MTO in Kilkenny had also been altering documentation indicating a lesser amount of duty payable than was paid and had misappropriated the difference. The total misappropriated was £17,696 but this had since been recovered.

The Comptroller and Auditor General asked the Accounting Officer how, despite the improvements in control procedures made following the 1986 irregularity, the procedures at the office at Kilkenny were deficient until October 1988. The Accounting Officer stated that the officer concerned used different methods of interfering with vehicle licence application forms. Initially the fraud was perpetrated through money being taken from postal applications before stricter controls were introduced and later money was taken from counter transactions. The officer involved also sent false declaration forms and change of ownership details to the VRU to cover up fraudulent transactions. The problem was further exacerbated by the annual increase in transactions from 1983 without a corresponding increase in staff and by the absence of the MTO authorised officer on prolonged sick leave. Following a further review in the light of the Kilkenny fraud comprehensive instructions detailing the procedures to be followed had been issued to all Motor Tax Offices in July 1989. The Accounting Officer was confident that the computerisation of Motor Tax Offices over the following few years would help to prevent irregularities such as those that had occurred.

In evidence to the Committee the Accounting Officer stated that the perpetrator had been charged, found guilty and received a two year suspended sentence and the sum misappropriated had been repaid. The Accounting Officer assured the Committee that the internal control system had been further improved and that the Department had learned from the experience.

While the Committee accepts the assurances given by the Accounting Officer in regard to the above matter it would reiterate the need for controls to be watertight in any area where the receipt of public money is involved. The Committee visited the Vehicle Registration Unit of the Department in Shannon to examine the operations of that office at first hand and noted the progress being made in computerising various areas of the Unit. The Committee also requests that it be kept informed of progress in computerising Motor Tax Offices.

EDUCATION

13. Public Service Early Retirement Scheme

The Comptroller and Auditor General highlighted to the Committee how two payable orders to a value of £40,295 had been fraudulently negotiated. The payable orders were in respect of early retirement lump sum payments made to primary teachers. The Department had been alerted to the fraud following an enquiry from a teacher who had received a letter purporting to be an official notification that payment of the lump sum due would be delayed due to a computer error. On further investigation it transpired that two more out of 374 lump sum payable orders had not reached their Athlone destinations and in one of these cases a similar letter had been received by the teacher concerned. Two of the payable orders had been irregularly lodged to accounts in Dublin branches of two building societies and partial withdrawals made. The orders had been honoured by the Paymaster General before the irregularities came to light. The other payable order had not been cashed, the teacher did not receive any letter and it was later cancelled.

The Accounting Officer told the Comptroller and Auditor General that the payable orders had been illegally intercepted in the postal system and fraudulently negotiated by falsely endorsing the teachers names on the orders and opening accounts in two building societies. Contact with the building societies concerned revealed that a total of £30,600 had been withdrawn from the accounts within two weeks of the accounts being opened with a balance of £9,695 remaining.

Criminal charges were being brought against two persons and a claim had been made against the building societies for the recovery of £40,295. The matter was in the hands of the Department’s legal advisers. The Accounting Officer was satisfied that there was no breakdown in the Department’s control systems.

In evidence to the Committee the Accounting Officer stated that the two persons charged had been sentenced to four years and four and a half years imprisonment respectively. They would not disclose how the payable orders were intercepted but there was general acceptance that it took place within the postal system and not within the Department. The Attorney General was satisfied that the Department had a legally sustainable claim against the building societies and negotiations were ongoing to recover the moneys. The amount still on deposit with the building society would not be returned to the Department without the authorisation of the account holder who had refused to give it. Proceedings against the building societies for recovery of the money would be taken if negotiations failed. The Accounting Officer assured the Committee that those involved in the misappropriation were not Civil Servants and he was satisfied that there was no collusion from within the Department itself.

The Committee has no reason to believe that the Department’s internal security and control systems for the handling of payable orders prepared for issue are less than adequate but nevertheless asks that these be kept under review not only in the Department of Education but in all Departments and State Bodies. This was not the first time that an instance of interception of cheques had been brought to the Committee’s attention — on a previous occasion cheques for substantial amounts payable to the Revenue Commissioners were intercepted and fraudulently negotiated. The Committee is alarmed at the ease with which building societies allowed new accounts to be opened and substantial sums withdrawn from them within 14 days as happened in this and later cases.

Finally, the Committee wishes to be informed of the outcome of any court proceedings and if the stolen moneys have been recovered in full from the building societies.

14. Employment of Substitute Teachers

Boards of Management may employ substitute teachers in circumstances where primary teachers are absent due to certified sick leave, maternity leave, jury service or approved absences for educational purposes. A sum of £5.2 million for this service was charged to the relevant subhead of the Vote in 1988. The Department of Educaion rules for primary schools state that substitutes should be qualified primary teachers, although it is recognised that this may not always be possible. In regard to anticipated absences, Boards of Management are required to make every effort to secure the services of qualified substitutes particularly in view of the large numbers of qualified teachers seeking employment. Boards of Management which employ unqualified substitute teachers for prolonged periods are issued with letters reminding them of the requirement to employ qualified substitute teachers where possible.

The Comptroller and Auditor General stated in paragraph 36 of his report that unqualified teachers had been employed by Boards of Management for 30 per cent of the substitute teaching days paid for in 1988. Some schools had unqualified substitute teachers for long, unbroken periods despite reminders having been sent to the Boards of Management of the schools concerned and in one particular case an unqualified substitute teacher had been employed continuously for over two years despite 14 reminders having issued.

The Accounting Officer explained that as payments were made in arrears in respect of the employment of substitute teachers, it was not open to the Department, under existing arrangements, to take action against persistent offending Boards of Management. The Department records showed that the greatest number of untrained teachers were employed where teachers were absent through illness and where the absences were, in most cases, for brief periods and were unforeseeable. However, there were significant numbers of unqualified substitutes employed where absence was due to maternity leave. There was no information available to the Department on the geographical spread of qualified unemployed teachers and accordingly the Department could not readily identify cases where qualified teachers were available for substitute work while unqualified substitutes were employed.

The Accounting Officer felt that the position was not as bad as the statistics might suggest since if unqualified teachers were generally being employed where qualified teachers were available the Irish National Teachers Organisation would have made formal complaints and they had not done so.

In evidence the Accounting Officer informed the Committee that the percentage of substitute teaching days filled by unqualified teachers was down from 30 per cent in 1988 to 17 per cent in 1989. In relation to maternity leave, the employment of unqualified substitutes had decreased from 15 per cent to 4 per cent. The Department had targetted continuous offenders for closer supervision and was continuing to reduce the numbers of unqualified substitutes.

The Committee is concerned that qualified teachers who have been trained at substantial cost to the State are not being utilised to a greater extent. The Committee considers that it is incumbent on Boards of Management to ensure that qualified substitutes are employed where possible so that primary school children can obtain the benefit from the resources that have been put into teacher training by the taxpayer and that the Department should be more vigilant in protecting the taxpayers’ interest in this regard.

The Committee recommends therefore that Boards of Management should in future consult the INTO placement service when substitute teachers are required. Unqualified substitutes should only be employed if the placement service is unable to provide a qualified person.

The Committee recommends that the Department refuse to reimburse boards of management for the cost of unqualified substitute teachers who are employed in contravention of the Department’s guidelines.

The Committee wishes to be informed of the level of employment of unqualified substitute teachers in 1990 and 1991.

15. Design Costs — Education Building Programme

Falling school rolls at primary level and to a lesser extent at secondary level has led to cutbacks in the Deparatment’s school building programme. This has resulted in planned projects being either abandoned, modified or suspended.

In paragraph 37 of his report the Comptroller and Auditor General drew the attention of the Committee to the level of professional fees which had already been incurred on such projects and expressed concern about the extent to which this expenditure could be regarded as a write-off.

The Accounting Officer in evidence stated that although there was a small element of what could be termed a write-off — £210,000 approximately — by far the greater portion of fees had been incurred on design costs in the third-level area on projects which had been shown as suspended at the date of audit but had since obtained the go-ahead. Another large slice of expenditure had been incurred on primary school projects which were since modified for very good reasons. In these cases the overall costs associated with the modified building project were far less than they would have been had the original project progressed and in that sense it would not be correct to consider fee costs in isolation.

The Accounting Officer rejected any suggestion that the Department should have foreseen the need for modifications when the original building plans were being drafted. A crucial factor here was the birth rate and the impact of changes in the birth rate on classroom numbers. The birth rate began to fall after 1980 but it was not evident until a number of years later that this fall in the birth rate was going to be sustained in the longer term. Meanwhile, planning decisions were being taken on the basis of identifying localities where there was pressure for places.

The Accounting Officer stated that on the basis of the information available at the time, the Department’s decisions were the correct decisions. However, as better information on the educational needs in particular localities became available, these decisions were modified accordingly.

The Committee accepts the points made by the Accounting Officer in regard to demographic trends and the savings made on the cost of schools through redesign of buildings. The Committee must state however, that there has to be a reasonable doubt that some of the moneys spent on school designs were spent on the basis of staid formulae or inappropriate plans and that there was not as much forethought put into the planning process in the past as appears to be the case nowadays. Notwithstanding the points put forward by the Accounting Officer it appears to the Committee that there was wasteful expenditure at design stage in earlier years. The Committee is concerned that of the monies voted for the education building programme, 12.5% was spent on building design, yet many of the buildings completed were of manifestly poor design, leading subsequently to high maintenance costs due to, for example, leaking roofs or faulty windows. The Committee wishes to know what the Department of Education are doing to reduce design costs for the future.

16. VEC Deficits

The 38 Vocational Education Committees (VECs) are almost totally financed by annual grants for running costs received from the Department of Education which are based on estimates submitted by the VECs and approved by the Department. The VECs are expected to live within their allocations but in practice expenditure in excess of the allocations can and sometimes is incurred by VECs. Inevitably, the resultant VEC deficits are eventually met by the Department in order to avoid recurring bank interest charges. Although the Department informs the VECs concerned that meeting the deficits does not imply sanction for the overexpenditure the Comptroller and Auditor General found it difficult to understand how effective control could be exercised in a situation where as yet unsanctioned expenditure had already been paid for by the Department.

The Accounting Officer told the Committee in evidence that there had been a practice of incurring deficits throughout the vocational education sector and the total amount of such deficits at the end of 1986 was £3 million. A determined change in policy to reduce the deficits resulted in the annual deficits being reduced to £480,000 at the end of 1989. The Department’s objective was to make it clear that VECs had to live within their budgetary allocations in the same way as central authorities had to live within budgets. Most of the VECs had accepted what the Department had been trying to achieve and while there were still those who erred in having overdrafts, these were being addressed by the Department.

The Committee wishes to draw attention to the fact that this matter of VECs exceeding their authority in relation to expenditure and the apparent failure of the Department to take effective corrective action has been reported on by the Committee and the Comptroller and Auditor General in the past but has persisted.

The Committee would like to accept the assurances given by the Accounting Officer that offending VECs will be brought into line and that efforts will continue to be made to eliminate the deficits entirely but experience has shown that this is easier said than done. While the Committee does acknowledge the excellent work being carried out by the VECs in the educational field, it must be pointed out that in carrying out this work the Committees cannot be given carte blanche to run up large deficits as such practices seriously undermine the essential financial control of Government expenditure at a time when such control is of paramount importance. The Committee wishes to be informed of the level to which the deficits were reduced in subsequent years.

17. Unapproved Borrowing by County Cork VEC

In the period October 1982 to November 1984 a community hall was built on part of a site occupied by a County Cork VEC community college by the local community association with a departmental contribution of £186,000 towards its cost. In June 1984, without approval from the Department the VEC agreed to pay the local community association £10,000 per annum as rental for use of this hall by pupils of the college as a sports facility and also as relief accommodation for certain classes during school hours.

Following receipt of the first year’s rent in 1984 the VEC proceeded to borrow £50,000 from a merchant bank in December 1985, at a rate of interest which was 4 per cent over the Dublin Inter Bank Rate (DIBOR). The £50,000 was paid over to the community hall association as an advance payment of 10 years rent. Ministerial sanction for the loan which is required by law had never been obtained yet the loan was repaid in full in 1988 partly with monies provided by the Department.

In evidence to the Committee the Accounting Officer stated that there had been a series of errors in the transaction and the manner in which the loan had been negotiated was unsatisfactory. In mitigation, the Accounting Officer stated it had frequently happened in the past that retrospective sanction was given for VEC borrowing, but the Department’s policy now was that prior approval must be obtained. The VEC assumed they were acting in good faith in this instance as reference had been made by them to oral discussions with a member of the Department and on that basis they had understood that sanction had been given.

The Committee questions the reasoning behind obtaining the loan in the first instance in this case, as the land and the building in question had been provided at considerable cost to the taxpayer, yet the State, via the VEC, was forced to pay substantial rent for the subsequent use of the hall.

The Committee wishes to know if sanction for the loan has since been given and the terms and conditions negotiated finally for the use of the community hall. On a more general level, the Committee wishes to be assured that meaningful measures have been put in place to prevent VECs going outside their statutory remit with regard to borrowings.

18. Purchase of Site by County Cork VEC

The Vocational Education Act, 1930 requires VECs to obtain the prior approval of the Minister for Education for the purchase of land and the Department may provide grants up to the full cost of land so purchased.

In July 1982 the Chief Executive Officer of County Cork VEC went ahead with the purchase of an 18 acre site for £167,407 for the building of a new vocational school despite the fact that the Department had earlier refused to approve his proposal for purchase. This purchase only came to light in early 1983 after the Department had agreed in principle to a new school on a site not exceeding 7 acres. The CEO sought retrospective approval on the understanding that 11 acres would be resold. Departmental approval was given for the retention of 10 acres in July 1983 and a grant of £90,209 was paid to the VEC. In June 1987 approval was given for the sale of the surplus 8 acres for £60,000.

At the date of the Committee’s examination no final decision had been taken on what to do with the remaining 10 acre site.

The Accounting Officer informed the Committee in evidence that VECs were repeatedly reminded 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. He confirmed that there was no indication in the Department’s records that it was aware that the site had already been purchased before the authorisation to acquire a smaller site was given. He had no doubt that if the capital investment and interest were taken into consideration there would be some loss on the original purchase.

The Committee cannot condone the fact that the Chief Executive Officer failed to obtain prior approval before proceeding with the purchase of the land. In effect, he presented the Department with a fait accompli with some of its consequences still not resolved ten years later. The Committee notes with concern that this particular CEO had previously flouted the provisions of the 1930 Vocational Educational Act on a number of occasions.

Based on the numerous similarities between cases which have come before the Committee in recent years it appears to the Committee that the Department of Education is not adequately carrying out its statutory functions in regard to controlling expenditure under the Education Votes. The Department seems at times to act in the role of spectator rather than fulfilling its statutory role as controller of overall expenditure on education. The Committee therefore wishes to be informed in detail of the steps that the Department is taking to ensure that in future all expenditures from the Education Votes will be properly monitored and controlled. Specifically the Committee wishes to know what steps are being taken to ensure that VECs do not incur unsanctioned expenditure in future.

The Committee wishes to point out that Vocational Education Committees are legally obligated to stay within the provisions of any Acts under which they operate. The Department of Education is requested to bring the comments of the Committee to the attention of all the VECs and the Local Government Auditors. The Committee wishes to be informed of the Local Government Auditors views on this matter.

The Committee also wishes to be informed of what ultimately happened to the remaining 10 acre site.

HEALTH

19. Non Exchequer Funded Capital Suspense Account

During 1988, following negotiations between the Department of Health and certain voluntary hospitals concerning the sale of hospital lands and the disposal of the proceeds of sale, contributions totalling £1,313,390 were received by the Department from the Boards of Governors of two such hospitals. These moneys were not paid into the Exchequer but were retained by the Department in a suspense account from which they were paid to three other voluntary hospitals as building and equipment grants.

The Comptroller and Auditor General in paragraph 65 of his Report questioned this way of dealing with moneys payable to the State. He outlined the constitutional and legal provisions which apply to such moneys which dictate that, unless otherwise prescribed by law, they should be treated as either Appropriations-in-Aid of the Vote or as Exchequer Extra Receipts.

The Comptroller and Auditor General, when giving evidence to the Committee, stated that his concern was that the moneys referred to should have been brought into the Exchequer under the normal procedure and that it should have been a matter for the Dáil to decide if and how the contributions should be used in the normal course of its consideration of estimates. While the Accounting Officer stated that the arrangements made to dispose of the contributions had been made known to the Department of Finance, that Department informed the Comptroller and Auditor General that it was not aware of the detailed accounting arrangements used by the Department of Health to earmark these moneys to fund part of their capital programme and confirmed that any payments made by the hospitals to the Department of Health should have been paid into the Central Fund as either Appropriations-in-Aid or Exchequer Extra Receipts.

The Accounting Officer in evidence told the Committee that in so far as the Department was concerned the key issue was whether the properties were State properties or not and in this case they were voluntary hospitals i.e. independent institutions not owned by the State. He reiterated his view that the disposal of the proceeds of the sale of voluntary hospitals was a matter for the hospitals concerned and only in very rare cases had the Department of Health or the State agencies a lien on such proceeds. However, the Department was, as the main funding agency for the health services, in a position to influence the boards of Governors to use all or part of such proceeds for the benefit of the health services generally. The £1,313,390 represented voluntary contributions and as such, these receipts were “not proper to the Vote” and a suspense account mechanism was used which had the advantage of bringing it within the Comptroller and Auditor General’s audit remit.

The Committee cannot accept the views put forward by the Accounting Officer that receipts from the sales of buildings or lands operated by voluntary hospitals should be brought to account by way of a suspense account with the result that the Department rather than the Dáil, would decide the priorities for disposal of such receipts. The constitutional and legal position in this regard is quite clear. Furthermore the Committee wishes to draw attention of the Department of Health to paragraph 3.18 of the booklet — Public Financial Procedures, An Outline — published by the Department of Finance, which states, inter alia, that Exchequer Extra Receipts are receipts which the Department of Finance directs must be credited direct to the Exchequer and cannot be retained by Departments for their own use. Large receipts which have no direct connection with the Vote expenditure and “windfall” receipts are brought to account in this way. The booklet specifically refers to proceeds of important sales of property as an example of the type of transaction that would fall into this category.

It is clear to the Committee that, in the absence of a provision in the Estimate, the receipts should have been treated as Exchequer Extra Receipts.

The Committee expects all Departments to faithfully comply with the constitutional and legal requirements of the State in this regard in future. These requirements underpin the fundamental principle that all public money should be brought to account for Dáil Éireann to decide how or if the money is to be expended.

The Committee was surprised to learn that only in very rare cases had the Department a lien on assets of voluntary hospitals which the Department itself had largely financed. This aspect assumes greater importance now that it is not unusual to see the assets of voluntary hospitals being sold off. The Committee considers that the State must have rights in any such disposals and would like to be informed by the Department of Finance of its views on the ways in which taxpayers’ interests are being protected in State financing of assets for use by third parties.

20. Health Board Borrowings and “Letters of Comfort”

The Comptroller and Auditor General in paragraph 65 of his report referred to borrowings undertaken by Health Boards and hospital authorities for the purpose of funding the equipping of health facilities on a deferred payments basis. The borrowing had the required consent of the Minister for Health and while there is no statutory provision for giving Ministerial guarantees in respect of such borrowings the banks, when granting the loans sought, were given a letter by the Minister for Health stating “that sufficient moneys, independent of the normal allocation for funding, will be disbursed by us to an account to be specified by you, the exclusive purpose of which will be to meet all sums due in respect of principal and interest under the terms and conditions of the facility”.

The Comptroller and Auditor General felt that these letters could only be interpreted as guarantees to the banks that the loans would be repaid and as such had all the characteristics of “letters of comfort” which had been outlawed by the Department of Finance in 1984 following adverse comments by both the Committee and the Comptroller and Auditor General.

The Accounting Officer in response to the Comptroller and Auditor General’s enquiries stated that the letters which issued to the banks dealt with details of the mechanisms for repayment but did not provide a written guarantee to secure the loan and therefore in his view did not constitute letters of comfort as specified in the Department of Finance instructions.

However, in evidence to the Committee he stated that while the letters in question had been issued in good faith, the practice of issuing such letters was discontinued when the query was raised by the Comptroller and Auditor General. The Accounting Officer also stated that in view of the concerns of the Comptroller and Auditor General and the concerns of the Committee, letters of this type would not in future be issued.

The Committee does not accept the case put forward by the Accounting Officer that the letters as issued to the banks could not be regarded as letters of comfort. It is clear from the evidence given by the Comptroller and Auditor General and the contents of the letter he quoted from that the letters were in fact letters of comfort. The Committee is unhappy that its views and those of the Comptroller and Auditor General, and the instructions of the Department of Finance were clearly ignored on this occasion. The Committee requests that the Department of Finance updates and reissues the 1984 guidelines to all Departments. The Committee also wishes to reinforce the comments made in the 1982-83 report that under no circumstances should letters of comfort be issued by any Departments without the express approval of Dáil Éireann.

21. Delays in Commissioning new Health Facilities after Completion

The Comptroller and Auditor General in paragraph 66 of his Report drew attention to a number of hospital facilities which had been constructed at a total cost of some £173 million but which had remained either fully or partially uncommissioned for varying lengths of time. The major cause of delay was the shortage of resources to meet the staffing and equipment needs of these facilities and this necessitated going ahead with certain projects on a phased basis and the deferment of other projects.

The Comptroller and Auditor General pointed out to the Committee that leaving newly built hospitals vacant had implications in terms of costs, such as maintenance and security, and there was always the danger that due to delays in commissioning, faults might not be discovered during the defects liability periods of contracts. However, on this latter point the Accounting Officer allayed such fears by his reassurance that the buildings were regularly inspected and equipment and plant checked out.

The Comptroller and Auditor General also referred to a planned mental handicap centre at Loughlinstown where design and other preparatory costs of £1 million had been incurred but as yet the centre had not been built.

The Committee recognises that the timely commissioning of hospitals and other health facilities is dependent on the availability of financial resources and that in the absence of resources there was very little the Department could have done to expedite matters. The Committee would however like to point out that apart from the financial costs referred to by the Comptroller and Auditor General of leaving newly built hospitals uncommissioned there are also human and social costs which are not so easily quantified but which nevertheless are real and therefore the Committee would like to be assured that available resources will be channelled into bringing these facilities into full operation on a priority basis before new projects are undertaken.

The Committee wishes to be informed of the up-to-date position regarding the proposed mental handicap centre at Loughlinstown.

INDUSTRY AND COMMERCE

22. Export Credit Insurance Scheme

References have been made in previous reports to the Export Credit Insurance Scheme whereby exporters may insure against the risk of default in payment by foreign companies for goods exported by them on credit terms. The scheme is operated by ICI as agent of the Minister under an agreement which provides, inter alia, that ICI shall endeavour to ensure that, taking one year with another, the scheme shall involve no net loss to the State. A cumulative deficit of £8.25 million based purely on premiums received and claims paid had, however, been built up by 30 June 1989.

From information furnished to the Department by the ICI the maximum liability at end June 1989 was £259 million of which £118 million related to “national interest” policies including £107 million in respect of exports to Iraq. A total of £60 million was overdue on foot of the Iraqi contracts at that time but this did not necessarily mean that the State would have to meet a liability of that amount.

The Comptroller and Auditor General told the Committee that he had referred to various aspects of the export credit arrangements under the Insurance Act, 1953 in a number of previous reports. He had referred to the scheme because, inter alia, of the very large contingent liability of the State by comparison with the level of premium income. Notwithstanding the arrangements which provide that ICI would endeavour to ensure that the scheme breaks even, it had been clear for some time that no matter how the figures were computed, whether on a cash or an accrual basis with provisions etc., a cumulative deficit had built up on the scheme. The maximum liability of the Minister at 30 June 1989 on foot of insurance policies written at that stage as reported by the Comptroller and Auditor General to the Committee, needed to be revised because since publication of the report the Minister for Industry and Commerce had decided to void certain policies.

In evidence the Accounting Officer informed the Committee that export credit insurance covered a large spectrum of industrial and service activity but not all the insurance written could be justified in commercial terms alone. For reasons unrelated to commercial risk, decisions were taken that, in the national interest, it would be beneficial to supply products to a particular market. A number of countries including Iraq had now been excluded from the export credit insurance scheme because of defaults in payment for products exported. In regard to the deficit on the operating costs of the scheme, which was now in excess of £9 million, he stated that this was something influenced not only by claims against the scheme but also by premium income and outstanding recoveries. The deficit included £8 million tied up in what is referred to as “currency pipelines”. This arises where a purchaser of an item or product who is in a position to pay in local currency has little or no access to international currency. The cumulative deficit was in fact less than 0.2 per cent of the total export turnover insured under the scheme which was of the order of £5 billion approximately.

The Accounting Officer told the Committee that, as a result of decisions taken in October 1989 to void policies, one of the companies holding a policy had initiated legal proceedings against the Minister but he was not in a position to say what the exposure position would be in the event of the claim against the State being successful. A statement of defence had been lodged on behalf of the Minister. Legal advice had been obtained by him and he was advised that he should make no further comment about the detail of the case as to do so could be prejudicial to the proceedings.

The Committee agreed to defer consideration of the matter pending the outcome of the court proceedings. The Committee wishes to be told when these proceedings have been disposed of.

The Committee is also conscious of the fact that, since the Export Credit Insurance Scheme was discussed, a judicial inquiry has been established to inquire into various matters connected with the operation of the Beef Industry and that the matters referred to in the Report of the Comptroller and Auditor General may relate to aspects of export credit insurance which may come under inquiry.

23. Property Sales by the IDA and SFADCo

The Industrial Development Authority (IDA) is provided with moneys from the Vote for the purchase of land and factory space to meet its industrial promotion activities. In July 1987, in a series of measures to reduce public expenditure the Government decided that the IDA should, in 1988, remit £5 million from the disposal of land and factory space to the Exchequer and that SFADCo should similarly remit £700,000.

Owing to difficulties in disposing of certain properties it was not found possible to implement the Government decision setting the £5 million target and the Department of Industry and Commerce set a revised target of £3.8 million for the IDA with the target for SFADCo remaining unchanged. Property which originally cost the IDA £11.815 million was disposed of for consideration totalling £4.1 million which was paid into the Exchequer at different stages during 1988 and 1989. SFADCo for its part paid its contribution in two instalments of £250,000 and £450,000.

In evidence to the Committee, the Comptroller and Auditor General stated that in overall terms a loss of £8 million was incurred in relation to the property sales by the IDA and SFADCo. £7.7 million of this loss was incurred in respect of the IDA properties.

In evidence, the Accounting Officer informed the Committee that although the decision to dispose of the properties was taken by Government, the implementation of the directive and the realisation of fair value was a matter for the IDA and SFADCo. The lands and properties which were disposed of were sold by tender and sales were advertised in the normal manner through professional auctioneers. The prices obtained to some extent reflected the fact that these sales could be regarded as “fire sales” as they were not initiated by the Board of the IDA but were initiated to meet the deadline set out in the Government decision.

The Accounting Officer stated that the IDA had accumulated land and buildings in order to be able to provide serviced sites or suitable factories as these were required. This practice was one in wide use internationally as an incentive for industrial development purposes. In the White Paper entitled “A Review of Industrial Policy” published in 1984 concern was expressed about the volume of holdings by the IDA and the other agencies. This document recommended that the level of unused premises should be reduced from 3 million sq. ft. to 2 million sq. ft. and concern was also expressed about the amount of land held. Land holdings at the time totalled 5,500 acres. In relation to the question of whether the IDA land holdings were over-valued, the Accounting Officer stated these were valued in the accounts at book value.

The Comptroller and Auditor General explained to the Committee that a complete revaluation of property holdings had been carried out by the IDA some years previously resulting in a very significant write-off in the accounts. The value of the properties as shown in the accounts was therefore considerably less than their purchase price. While one could take a view that the sales realised near enough to book value, the sales did not realise the historic costs of the sites. What he was concerned with therefore was the cost to the taxpayer, which was the difference between the historic cost price and the sale price.

The Committee decided that a report should be prepared, to include full details of purchase and sale prices of the lands which had given rise to the concerns expressed by the Comptroller and Auditor General. The Committee agreed to defer consideration of the matter and to recall the Accounting Officer when the report was submitted.

When the Committee received that report, a copy of which is included in the attached Appendices, the Accounting Officer was recalled for further questioning. On that occasion he stated that the Department was concerned with some of the responses received from the IDA as a result of the Committee’s enquiries and the Department was conducting a further review of the IDA’s land bank arrangements.

The method of acquisition used by the IDA was explained in the report submitted to the Committee and the Accounting Officer stated that the Department was satisfied that these mechanisms were adequate. Land acquired by the IDA would have to be suitable for industrial purposes and where land was either zoned or capable of being zoned for industrial purposes this conferred a premium on the property value. It could therefore be expected that a price above the agricultural price level would normally arise in such purchases. Although there were losses on the sales of the land sold on the basis of the Government decision, in the course of normal sales and property transactions the performance of the IDA had been satisfactory. It had been recognised in advance that certain losses on the “fire sales” would be incurred. However, it was not envisaged that the losses would be as high as had eventually transpired. Suggestions had been made that lands were acquired by the IDA at inflated prices but the Accounting Officer stated that every effort was made to ensure that land was obtained at the best possible price. The Accounting Officer also assured the Committee that no member of the Board or staff of the IDA had purchased any of the lands put up for sale on foot of the Government directive.

The Committee is of the view that irrespective of how the figures are dressed up the IDA paid well above the going rate for lands at the purchase stage and was a “soft touch” for the vendors involved. It was equally inept when it came to selling the sites subsequently. Clear evidence for this is shown in a number of cases:

(i) A site at Ballyfermot purchased from Semperit at a cost of £2 million including development costs, was sold by the IDA for £250,000 and later placed on the market by the purchaser with a price tag reported to be £4.2 million.

(ii) Lands at Letterkenny purchased at a cost of £440,130 were sold back to the original owner for £112,545.

(iii) There were similar cases in Wexford and Carrick-on-Suir where sites were sold back to the original owners at substantially less than the purchase prices.

It is clear that the IDA had a landbank during the 1980s which went way beyond the level required for its promotion of industrial development and this must call into question the prudence of the IDA at that time in making decisions to purchase sites. The Committee therefore wishes to be advised of the precise steps now being taken by the Department to ensure that the IDA land holdings match the real needs of industry. The Committee considers that the IDA acted almost recklessly in some of its earlier property transactions leaving it to the taxpayer to foot the £8 million bill for the IDA’s actions. It seems reasonable to suspect that the sale of lands which gave rise to these losses were lands that the IDA should not have acquired in the first place and that the Government directive was conveniently used by the IDA as justification for disposing of some lands which never had any development potential.

The Committee further considers that the Department of Industry and Commerce was negligent by its failure to keep abreast of developments on these sales and by failing to ensure that the taxpayers interests were protected. It must have been clear to the Department that something was amiss when the IDA had indicated at an early date that it would not be able to comply fully with the Government directive and when a revised target of £3.8 million had been set.

It is not unreasonable to suggest that the Department should have gone back to the Government with the facts once the magnitude of the losses involved in implementing the Government decision became apparent. The Committee assumes that Government decisions are made on the basis of the best information available at the time but surely good administrative practice would dictate that once information comes to hand which might have a serious impact on that decision it is incumbent on the relevant Department to put that information before the Government so that it may reconsider its decision if it chooses to do so.

The Committee wishes to emphasise that State Agencies in implementing policy decisions, should not do so blindly on the basis that the Government is solely responsible for the consequences but should always ensure that the decisions are implemented with due regard to value for money considerations.

The Committee requests that these comments be brought to the notice of all State Agencies.

GAY MITCHELL T.D.,

Chairman.

2 July 1992.