Committee Reports > List of Committees > Dáil > 1992 > Committee of Public Accounts > Report - Appropriation Accounts 1989

REPORT

HEALTH

Construction of New Facilities at the Central Mental Hospital Dundrum

In November 1979 the Minister for Health sanctioned the building of a centre for custodial care of young offenders at the Central Mental Hospital, Dundrum. A premises was constructed at a cost of £2,309,083 plus £333,941 for fees. On completion of the premises in 1986 the Government decided to change the use of the facility to a detention centre for HIV positive prison inmates. By March 1990 this transfer had not taken place and the facility was lying vacant. This was due to a dispute between the Eastern Health Board and the Departments of Health and Justice concerning the appropriateness of keeping HIV positive prisoners in the Psychiatric Hospital in Dundrum.

In February 1991 the Government decided to rescind its earlier decision to open a unit for HIV positive prisoners in Dundrum and decided instead to hand the facility over to the authorities in Dundrum for use as a psychiatric hospital, to replace existing buildings at Dundrum which are to be demolished. In 1991 a further £300,000 was spent on fitting out the new buildings and it is estimated that a further £700,000 will be spent on extending these buildings and renovating the Governor’s residence at Dundrum.

The Public Accounts Committee are concerned that normal procedures for the prudent management of capital projects were not followed in this case. A building which was built at considerable cost to the taxpayer was available for occupation in 1986 but has been left vacant ever since, because of a dispute between two State agencies. This is clearly not an acceptable way of managing State resources. Moreover, the expenditure of over £2 million on this building was sanctioned before the Department of Health had made a final decision as to the purpose that the building was to serve. The Committee consider it unacceptable that a Government Department should have allowed a building programme to be undertaken in this manner.

The Accounting Officer of the Department informed the Committee that this building would be occupied very soon. The Committee accept this assurance but are left with grave concerns about how this whole matter was handled.

Local Government Auditors’ Reports on the Audit of Health Boards

In the course of its examination of the 1987 Accounts, the Committee had asked the Accounting Officer of the Department of Health to make the reports of the Local Government Auditors available to it annually. This request was made in order that the Committee could ensure that an adequate process of public accountability would operate in regard to Health Board expenditure. The Accounting Officer agreed to comply with this request.

At the time that the 1989 Accounts were examined, only the report of the Local Government Auditor relating to the Accounts of the Midland Health Board for the years 1987 and 1988 had been submitted under the new arrangements.

The Committee are concerned at the time lag arising in relation to the provision of Local Government Audit Reports. It is absurd to be still examining 1987 Accounts four years later, in 1991. The Committee expect the Departments of Health, Environment and Finance to take the necessary steps to ensure that the Local Government Audit process is brought up to date as a matter of urgency.

Mental Handicap Facilities at Cheeverstown House

To date the State has spent £20m on building, equipping and staffing this facility for 120 people yet no more than 60 people have been provided with facilities as a result. A further 60 places at the facility in Cheeverstown remain vacant because the Board of Cheeverstown state that they do not have sufficient resources to open these additional places.

The Committee deplore the fact that this saga has been going on since 1985 at considerable cost to the taxpayer. Despite being raised repeatedly at meetings of the Committee and despite numerous assurances that a breakthrough is imminent, a solution to this problem has still not been found.

The Committee find it unacceptable that one of the most vulnerable sections of the community should suffer because of administrative wrangling. The fact that an agreement drawn up in October 1990 was accepted by the Board of Cheeverstown House in the face of threatened legislative action suggests to the Committee that an earlier indication of serious intent by the Department might have been effective in helping to break the impasse. The Committee trust that the agreement will now be implemented speedily and that there will be no recurrence of the problems which beset earlier agreements. The Committee must emphasise the importance at all times of using to their full potential facilities which have been provided from taxpayers’ money in response to an accepted public need.

EDUCATION

Staffing Levels in VECs

The Comptroller and Auditor General’s Report highlighted the fact that some Vocational Education Committees (VECs) had disregarded the statutory requirements to have Department of Education approval for additional teaching posts. One VEC in particular, Co. Kilkenny VEC, had exceeded its staffing quota every year for the past ten years. There are two other persistent offenders in this respect - Co. Leitrim and Co. Longford VECs, albeit to a lesser extent than Co. Kilkenny VEC. These VECs were therefore overstaffed by comparison with other VECs. Limerick VEC which has a similar profile to Kilkenny in terms of schools and pupils had fourteen fewer teachers employed.

The Accounting Officer of the Department of Education indicated to the Committee that there was no justification for the level of staffing which exists in Co. Kilkenny and that the CEO and VEC Board of Management in Kilkenny have continuously ignored the regulations concerning recruitment of teachers, at very considerable cost to the taxpayer.

The Accounting Officer informed the Committee that the appeals system which his Department operated in the past had partly contributed to this situation. It had become the habit of a number of VECs to appeal their teacher allocation and then appoint a number of additional teachers, without Department approval, on the assumption that their appeal would eventually be successful. He assured the Committee that the Department was now taking a stance against this practice and in future no such appeals will be allowed and unauthorised teachers will not be paid for by the Department. The system for allocating resources to VECs was being changed and this should help ensure that there will be no recurrence. The Accounting Officer indicated that more up-to-date direct monitoring by the Department was being introduced rather than relying as heretofore on the Local Government Auditor to bring breaches of regulations and guidelines to attention, often long after they had taken place.

The Committee expect that the new arrangement will be successful in avoiding any repetition of the matters brought to light by the C&AG and will keep the position under review. This is not the first occasion on which the Committee has had to report on some VECs exceeding their staffing quotas. It is patently unfair that those VECs which abide by the rules are put at a disadvantage vis-a-vis those which do not and the Committee are surprised that the Department tolerated the situation for so long - in one case for 10 years.

If there is any further repetition of this difficulty with Co. Kilkenny VEC, the Committee will expect the Department to take the strongest action necessary to deal with the matter. The Committee has also asked the Department of Finance to examine this area to ensure that in future adequate sanctions are in operation where officers of VECs ignore Department of Education instructions. The Committee recognised that clearing up the present overstaffing could result in individual teachers, through no fault of their own, finding themselves surplus to requirements as a consequence of VEC actions. The Accounting Officer assured the Committee that the individuals concerned would be dealt with as reasonably and as humanely as possible.

Irregularities in Sligo R.T.C.

Audit of expenditure in the Regional Technical Colleges (R.T.C.s) by the Local Government Auditor had disclosed irregularities in the case of Sligo R.T.C. where a lecturer had, without knowledge or approval of the College, used college facilities to conduct an AnCo course. Cheques totalling £48,000 to cover the running costs of the course were made payable to the RTC but sent to the lecturer. The cheques were not lodged to the College’s bank account but were presented through a separate account set up by the lecturer. Of the £48,000 some £18,000 was in respect of the lecture fees and expenses and the remaining £30,000 was for allowances payable to trainees who attended the course. FAS, which has since replaced AnCo as the State Training Authority, were satisfied that the course had in fact taken place.

The Committee was disturbed to hear that the irregularities had only come to light fortuitously when AnCo sought a small refund from the RTC during its finalisation of the course’s cost. The Committee had in earlier reports referred to the weaknesses in control over the use of RTC facilities for private purposes in Sligo and Cork and had been given to understand that corrective action had been taken. It must therefore reiterate that use of RTC equipment and facilities should be strictly controlled and charged for where appropriate. In this context the Committee note with concern that, in the case under examination, there was no attempt to recover the cost of use of the facilities. The Committee was told that a file on the matter had been referred by the Gardai to the D.P.P. who decided not to institute proceedings. At the time of the irregularities the lecturer concerned was on loan to Sligo R.T.C. from Galway VEC to which he has since returned and the Committee also expressed its concern at the fact that the only reprimand which was applied was the placing of a note on the lecturer’s personnel file.

The Accounting Officer agreed that this was not an adequate response and indicated that he was seeking legal advice with a view to more serious action being taken. The Committee wishes to be kept informed of the outcome.

Recovery of State Grants from Carysfort College

The Comptroller and Auditor General drew the Committee’s attention to the existence of a cash surplus in the accounts of the former teacher training college at Carysfort which had built up without the Department’s knowledge. The surplus had accumulated to almost £850,000 by the end of 1987. The Comptroller and Auditor General’s concern was that the figures suggested that grants towards running costs had been issued in excess of requirements and felt that this called into question the effectiveness of the departmental monitoring procedures which at that time did not require the submission of annual audited accounts from training colleges. The Accounting Officer told the Committee that the Department’s relationship with the management of training colleges had been one of trust. He accepted that, in retrospect, this had proved to be an unreliable way of controlling the issue of State grants and he assured the Committee that revised arrangements had been put in place which would involve the furnishing of audited accounts.

On the question of the build up on the cash surplus of Carysfort, the Accounting Officer made it clear that the college had always been made aware of the basis on which grants to meet current expenditure should be requested viz. to meet the difference between the college’s expenditure and income from its own resources. The Committee was told that the college had since submitted accounts in which income, previously shown as being part of the educational receipts of the college, had now been restated as income not related to the teacher training function and therefore not included in the calculation of any cash surplus.

The Department did not accept this accounting treatment but the Committee did not pursue the matter at this time in deference to the wishes of the Accounting Officer who felt that detailed disclosure of the Department’s views could well prejudice its position in future negotiations or legal action for recovery of the surplus State grants. At the time of the Committee’s examination the papers were with the Attorney General.

The Committee is keeping this matter under review and wishes to be kept informed of progress so that it can return to its examination of this issue when the legal position has been clarified.

AGRICULTURE & FOOD

Bovine Tuberculosis Eradication

The Report of the Comptroller and Auditor General expressed concern at the level of disease being detected in slaughtered animals coming from herds which have been certified by veterinarians to be free of disease. In 1988 a total of 1,253 cattle were shown on postmortem examination to have been infected with Bovine T.B., despite having come from herds which have been declared to be clear of the disease.

The Comptroller and Auditor General also referred to the fact that comparison of the test results obtained by the Department of Agriculture vets and results obtained by private veterinary practitioners, has shown that the private practitioners are less likely to detect diseased animals than the Department’s own veterinary staff. The Accounting Officer acknowledged that there is some degree of pressure on the farmer’s personal vet to “give the benefit of the doubt” to his farmer clients and that there is some evidence that sub-standard testing is being conducted by certain private practitioners. As a consequence diseased animals are being left in the herd to re-infect other animals. The Director of ERAD has concluded that half as many infected animals may have been left behind in the national herd each year from 1968 to 1988 as the actual number of reactors removed by the testing programme.

The Committee share the Comptroller and Auditor General’s concern that these findings are “a prima facie indication of a significant level of ineffectiveness in the testing programme.” While the Committee accept the Accounting Officer’s evidence that the T.B. test itself is an imperfect mechanism for detecting disease, it seems clear that sub-standard testing is a source of much of the ineffectiveness in the testing programme. It is clear that this is a problem which has not arisen overnight, yet it is only now, after the T.B. Eradication scheme has been in operation for several decades that the Department of Agriculture has begun to tackle this problem with any degree of seriousness.

The Committee note that some countries employ lay technicians to test cattle for T.B. as these lay technicians are more cost-effective than veterinary surgeons. Irish veterinary surgeons currently receive generous payment for T.B. testing - one veterinarian practice received £65,464 from test fees in 1989. The question must be asked whether the standard of testing done by some vets justifies the generous levels of payment made.

The Committee decided to conduct a special examination of the operation of the Bovine T.B. Eradication Scheme and will report its findings in due course.

Aid to Farmers in Disadvantaged Areas

Due to an industrial dispute in the Department of Agriculture, the processing of headage payments to farmers in disadvantaged areas was held up. In order to expedite payments due to farmers, the Department of Agriculture, with the approval of the Department of Finance, decided to make payments in 1989 based on the number of animals claimed for by herdowners under the 1988 scheme. When the industrial dispute ended and applications for grants were duly processed it was found that an overpayment of £2 million had been made to farmers who were not eligible under the 1989 scheme. This included payments made out to farmers who were deceased or had ceased livestock farming and who had not applied for these grants. It also included payments to farmers who had reduced their herd sizes since 1988 but who were paid on the basis of the number of animals owned in 1988.

The Accounting Officer explained that it had been intended to prepare ‘stop lists’ of ineligible farmers and this procedure would have ensured that deceased or retired farmers were not paid. However, this procedure was not followed due to an industrial dispute.

The Committee share the Comptroller and Auditor General’s concern that the accounting procedures followed by the Department were imprudent. In July 1991 £423,000 in overpayments still had not been recovered and it is clear that a substantial proportion of this sum will have to be written off. The Committee believe that the difficulties which arose in this case should have been foreseen by the Department. The Committee find it unacceptable that the Department of Agriculture should hand out grants to farmers who had not applied for and were not eligible for such grants.

The Committee recommends that the Department of Finance should take steps to ensure that it does not again sanction this type of poorly controlled expenditure.

OFFICE OF THE REVENUE COMMISSIONERS

Revenue Collection

The Comptroller and Auditor General reported that taxes totalling £7.165bn had been collected in 1989. According to Revenue’s records, approximately £3bn in tax, PRSI, levies etc. was outstanding at May 1990 but much of this consisted of estimates which do not reflect the likely true liability and therefore the amount collectible will ultimately be far less than this figure.

The Revenue Commissioners’ estimate of the amount likely to be collected is £451m based on past collection experience. The £451m does not represent all the outstanding liability since it takes account of cases where liability is not contested but ability to pay is either suspect or non-existent. Something approaching 93% of all taxes are collected in the year they arise while a carry over from one year is substantially collected in following years. The Committee recommends that an accurate and fair estimate of outstanding taxes be published each year with analysis and comment on the level and reasons for such amounts, since it is not clear from reading the accounts what the real situation is and this gives rise to differing interpretations.

The Accounting Officer informed the Committee that the method of assessment of tax is undergoing radical change with the phased introduction of a self-assessment system for the self-employed, traders and companies. The Revenue Commissioners are conducting a major drive to clear tax arrears under the old systems so that staff can be re-deployed and re-directed to deal with the new self-assessment system. 35 Inspectors had been assigned to self-assessment work by 1990 and this number was expected to rise to 100 by the end of 1991. The Accounting Officer stressed that the self-assessment audit programme should not be viewed in isolation but had to be seen in the wider context of compliance and inspection visits to premises by Revenue staff. There were 26,000 such visits in 1989. According to the Accounting officer the cost of operating the self-assessment system in 1989 was £1.8m and this gave a direct tax yield of £38m. This expenditure also had important indirect benefits in reinforcing the legitimacy of the tax regime and increasing the level of tax compliance.

The Comptroller and Auditor General has however expressed reservations about the level of detailed examinations taking place in regard to taxpayers who make returns under the self-assessment scheme. He noted that only 0.5% of returns had been subject to detailed examination. The Comptroller and Auditor General expressed concern that the Revenue Commissioners had not yet established a clearly defined set of procedures in regard to the examination of self-assessment tax returns. The Committee note that the staff representative bodies within the Revenue Commissioners have claimed that the 35 inspectors currently employed on auditing 200,000 taxpayers under the self-assessment system will audit 0.75% of the tax returns from these taxpayers in any one year.

The Accounting Officer stated in evidence that it must be borne in mind that the situation in Ireland is different to the situation which pertains in other countries. In Ireland, unlike the U.S.A. for example, there is in place a system of certified accounts which are completed by independent auditors. For this reason, it is the view of the management of the Revenue Commissioners that they do not need to audit self-assessment returns as often as would be necessary in countries where the role of the independent auditor has not been established.

Notwithstanding these comments, the Committee of Public Accounts are concerned that the level of audit being achieved to date is inadequate and the Committee hope to see substantial improvements in the level of auditing once the self-assessment system becomes fully operational. The Committee will continue to monitor progress in this regard.

Revenue Supply Branch

The Comptroller and Auditor General noted a number of weaknesses in the stores purchasing and stock control procedures in the Revenue Supply Branch. Stock records were not maintained for items purchased and a computer based stock control system purchased in March 1987 at a cost of £50,000 was not operational. The Comptroller and Auditor General also noted that in the case of cleaning and security service contracts, amounts being paid out were, in must instances, well in excess of those specified in contracts. Procedures were not in place to ensure that the service contracted for was being delivered and contracts had not been renegotiated since July 1987.

The Accounting Officer assured the Committee that deficiencies in control procedures relating to cleaning and security service contracts have since been redressed. The introduction of computerised stock control procedures in the Supply Branch was delayed due to staff shortages. However, staff have since been re-deployed to this area and substantial progress has been made towards computerising the stock control procedures. The Comptroller and Auditor General agreed that progress in improving control procedures in the Supply Branch has since been achieved and the Committee accept the Accounting Officer’s assurances that any remaining difficulties will be eliminated in the near future.

Theft of Motor Vehicles from the State Warehouse

Two seized vehicles held at the State Warehouse were stolen in December 1989. These consisted of a Mercedes car worth £31,215 and a tractor worth £14,000. It was also noted that in a previous theft, in 1987, vehicles and other items to the value of £28,500 were stolen from the same premises.

The Accounting Officer informed the Committee that the thefts were committed by very determined criminals who cut through locks and several doors to get into the premises concerned. These premises are rented from the Port & Docks Board and are in a location noted for a high incidence of such crime.

The Accounting Officer informed the Committee that the Revenue Commissioners notified the Gardaí of the thefts but the vehicles concerned have not been recovered. The security of this warehouse has since been improved and the Commissioners have also obtained a separate more secure premises for storing high value goods such as motor vehicles. The Committee accepts the Accounting Officer’s assurances that security arrangements have improved but will keep this matter under review and may wish to inspect such arrangements at first hand at some stage in the future.

The Comptroller and Auditor General also noted that 133 seized vehicles were being held at the premises. Some of these vehicles had been seized up to seven years previously. The Accounting Officer assured the Committee that corrective action had since been taken and many of the vehicles had now been disposed of. The Committee is concerned that such a large stock of seized vehicles should have been allowed to build up with consequent financial repercussions for the Exchequer in terms of storage costs and the reduction in the value of the vehicles with the passage of time. The Committee accept the Accounting Officer’s assurance that procedures have been put in place to prevent a recurrence.

SOCIAL WELFARE

Errors in Pension Payments

A computerised audit of the pensions schemes was conducted by the Comptroller and Auditor General’s Office. This revealed that in 1989 a total of 452 pensioners were underpaid sums totalling £325,000 and 63 pensioners were overpaid sums totalling £75,000.

The Accounting Officer explained that the majority of the errors related to the initial computerisation of records in the mid-1980s when these pensioners’ dates of birth were entered incorrectly on the computer system. Dates of birth incorrectly showed these persons to be over 80 years of age. Subsequent computer scans to assess newly-eligible pensioners for the ‘over 80’ allowance therefore failed to pick out these records and these pensioners were consequently not paid the allowance which was due to them. The Department have now installed their own computer audit software to ensure that in future this type of error cannot go unnoticed.

Pensioners who were underpaid have since received the full amounts which were due to them. Pensioners who were paid a larger pension than they were entitled to have been asked to refund the overpayment. The Accounting Officer explained that any overpayment, whatever the cause, is legally the property of the State and the Department is legally obliged to recover this money. The Committee accepted the Accounting Officer’s assurances that the Department takes a sympathetic view where these repayments would result in genuine cases of hardship.

Overpayments and Fraud Under the Social Insurance and Social Assistance Schemes

In 1989, overpayments amounting to £9.4m were recorded, of which £6.05m was attributed to 7,661 individual cases of fraud. Most of these fraud cases relate to persons claiming unemployment assistance or unemployment benefit while working. The Committee note that of the 7,661 individual fraud cases, only 269 cases were prosecuted in the Courts and of these 254 were successfully convicted of social welfare fraud. In evidence the Accounting Officer stated that the reason so few cases are prosecuted is that the level of proof needed to prosecute successfully is very high. Nevertheless, the Committee note that 95% of cases which do go to court result in convictions. This very low rate of prosecution allied with a very high success rate in court leads the Committee to conclude that not enough is being done to prosecute persons who commit social welfare fraud. The Committee expect that there will be meaningful penalties imposed on those who are discovered to have committed fraud.

The Committee note that the Department of Social Welfare estimate that about 2% of welfare payments are claimed fraudulently. This suggests that total fraud, much of which goes undetected, amounts to something in the region of £30m per annum. This is money that those in genuine need of social welfare payments could well do with.

The Committee will keep this matter under review.

INDUSTRY AND COMMERCE

Export Credit Guarantee Scheme

This scheme is operated by the Minister for Industry and Commerce to provide insurance cover to Irish exporters against the risk of default in payment by foreign clients. Cover is provided up to a maximum of 95% of the contract value of goods exported. In consideration of a bank agreeing to make advances to the exporter a finance guarantee can also be provided by the Minister to the financing bank. The Insurance Corporation of Ireland (ICI) administers the scheme on behalf of the Minister.

In 1986 an Irish exporter entered into a contract with a Canadian company for the construction of an experimental indoor farm centre, at a cost of Can$16m. A government guarantee for $12m was given to the financing bank via the I.C.I. On the purchaser’s side a number of arrangements were put in place including a Can$3m bank guarantee and a fixed charge on the purchaser’s assets.

In 1988 the Canadian company defaulted and the State became liable for an amount of Can$10,082,880 (about £6 million).

Some of the assets of the Canadian company which were offered as security have since proven to be worthless. However, the physical assets in the form of land and buildings have been secured and I.C.I. is currently arranging the disposal of these to recover some of the losses.

An examination of departmental papers revealed that the Department was aware of the technical insolvency of the Canadian Company before the export guarantee was given.

In evidence to the Committee the Accounting Officer stated that the insolvency of the Canadian company was only one of a number of factors taken into consideration at the time that the loan guarantee was granted. At that time the Canadian purchaser had made a down payment of Can$4m and had provided a bank guarantee of Can$3m and a further guarantee from a second Canadian firm for Can$11.4m. As evidence of the fact that they could be regarded as a going concern, the Canadian company also forwarded a facsimile copy of a letter from the British Columbia Milk Board which stated that the company had a milk quota available to them. Based on all these factors the Department of Industry and Commerce decided that the technical insolvency of the Canadian company could be ignored. It subsequently transpired that the fax copy of a letter confirming the availability of a milk quota had been falsified and the second Canadian company guarantee of Can$11.4m has proved worthless. The Accounting Officer accepted the view of the Comptroller and Auditor General that a facsimile copy of a letter should not have been accepted as proof of availability of a milk quota and the existence of this quota should have been verified with the Milk Board.

The Committee are concerned about a number of aspects of this case. Firstly, the Committee is concerned that under the Export Credit Guarantee Scheme the State is undertaking credit risks that the commercial insurance sector would not normally undertake. The Committee notes that although the scheme was launched with the intention that it would operate on a break even basis it has run up losses of £8.8 million to date. In this context the Committee wishes to be informed of the contents of the recent Consultants Report into the operation of the scheme.

The Committee are also concerned with the “labyrinth of relationships” which the Comptroller and Auditor General referred to in this case. Given that the Canadian company did not own a milk quota and had little prospect of owning a sizeable quota within five years, it was never likely that the advanced technology indoor farm centre would operate as a commercially viable entity. This suggests to the Committee that the whole scheme may have been, from the outset, an elaborate attempt to defraud the Department of Industry and Commerce and the Irish taxpayer, through the mechanism of the Export Credit Guarantee Scheme. The fraud was facilitated by the fact that the Department in this case ignored the insolvency of the company and failed to check the authenticity of documents provided. The Committee recommend that in future all documents which are crucial to an application for Export Credit Insurance should be properly verified and proven. The Accounting Officer informed the Committee that this is being done and it will not be possible for such a case to arise again.

The Accounting Officer informed the Committee that the Department of Industry and Commerce has obtained legal possession of the assets of the Canadian company and will be trying to dispose of these assets so as to minimise the State’s losses.

The Department is also investigating all of the transactions which took place prior to the granting of Export Credit Insurance and will be making further reports to the Committee in due course. The Committee will make further comment on this case when further information is made available and wishes to be kept informed of developments.

Eolas: Science and Technology Audit Programme

This programme was commenced by Eolas in 1989 and the costs incurred are met from the Industry and Commerce Vote. Under this programme Eolas provides an efficiency audit to small manufacturing companies, with the objective of helping them to achieve higher levels of productive efficiency and reduce their operating costs. Some of these audits are conducted by external consultants, others are conducted by staff employed under contract.

Eolas advised the Department that the employment of contract staff would result in lower costs but the audit has revealed that the reverse is the case. Forty audits conducted by consultants cost an average of £3,127 each while Eolas contract staff conducted 52 audits costing an average of £5,006 each. In each case companies were charged only £500 for these services.

Eolas made excessive claims for recoupment of the costs of this programme and was consequently overpaid by the Department to the amount of £82,629. They also completed fewer audits than had been set out in work targets (92 audits, as against a target of 170) and charged the companies a lower rate than had been agreed.

In evidence the Accounting Officer told the Committee that the moneys overpaid to Eolas have since been fully recovered and the operation of this audit programme has now been regularised. He informed the Committee that the charge for this service was set at £500 because the Department felt that it would not be appropriate to charge the full economic cost for the audit, as this programme is subsidised by the European Social Fund. The Accounting Officer accepted that the actions of Eolas in over-charging the Department were highly irregular. He assured the Committee that mechanisms have been put in place to prevent a recurrence of this problem. The Committee accept this assurance but wish to express their disquiet that Eolas was less than forthright in its dealings with its sponsoring Department.

Disclosure of Information in State Agencies

In the course of discussions concerning the adequacy of legislation and regulations governing the disclosure of conflicts of interest by public servants, office holders and those engaged in the wider public services, the Committee passed the following two motions:

MOTION NO. 1

“In view of recent developments, the Committee of Public Accounts of Dáil Eireann requests the Secretary of the Department of Finance in consultation with Accounting Officers and the Comptroller and Auditor General, to draw up a code of ethics in regard to the conduct of office holders, civil servants and the wider public service under their aegis, to apply to all circumstances involving the sale of State assets, including shares, and to the purchase of assets, including shares, on the State’s behalf and to any other transactions or contractual arrangements on behalf of the State, such code to include the requirement that a clear declaration of interest be made where there is any possibility of a conflict of interest arising and in particular to require such individuals to disclose any beneficial interest in any company registered outside the jurisdiction. The Committee asks that such a code be put in place as a matter of urgency and that the Committee be informed when this has been done.”

MOTION NO. 2

“The Committee of Public Accounts,

being concerned that the Exchequer should not suffer financial loss as a result of revenue foregone through the participation of State Agencies in arrangements which confer or which are capable of conferring a tax advantage of any kind on any party whatsoever,

being also concerned whether and to what extent Board Members or Executives of State Agencies may be receiving material financial benefits over and above their authorised remuneration or achieve financial gain through personal involvement in matters connected with the financial affairs or commercial activities of the Agency,

requests the Department of Finance to instruct all State Agencies to desist from such practices if they have been taking place and to obtain details of all instances occurring in the past five years.

The Committee also requests the Comptroller and Auditor General to provide it with details of any such cases which have come to his notice and to which he has drawn attention in the course of his audit of State Agencies”.

The Committee are very concerned at the lack of control within certain State Agencies in regard to the use of public monies. The Committee believes that it is essential that taxpayers’ moneys should be be fully accounted for, regardless of whether the moneys are spent by Government Departments or by State Agencies. Recent revelations relating to the operations of State Agencies have created a great deal of public disquiet regarding the level of supervision and control being exercised by Government Departments. The Committee feels that any shortcomings must be redressed as a matter of urgency.

The Committee notes that revenues received from the sale of State assets, including shares, are lodged to the Central Fund and are noted in the Appropriation Accounts, both of which are audited by the Comptroller and Auditor General and reported to Dail Eireann and form the basis of the Committee’s examination.

The Committee requests that Accounting officers take the necessary steps to protect revenue due to the State in this way so as to ensure full value-for-money for the taxpayer and regularity in dealings related to the sale of State assets, including shares.

The Committee further asks the Comptroller and Auditor General to report to the Dail, by way of Interim Report if necessary, any irregularities or unusual dealings in connection with the sale or disposal of State Assets, including shares.

ENVIRONMENT

Custom House Docks Development Authority

The development of the Custom House Docks site is essentially a joint venture between the State, which owned the land, and a private sector company which is responsible for the construction and sale of the facilities.

The Development Authority is responsible for the overall planning and management of the project with a view to protecting the State’s interests in the project. The Authority has been given the objective of achieving a minimum of 5% real return to the Exchequer on the State’s investment in this project.

In order to facilitate the implementation of this project the State provided grants of £1.3 million to the Development Authority and transferred ownership of the docks site which was effectively valued at £9 million for the purpose of the transfer. At the time that this matter was examined by the Committee the Authority was calculated to owe the State a minimum of £15.5m, being the amount of the initial investment plus interest. An additional 5% per annum is also due if the Development Authority is to achieve its targeted rate of return.

The Committee note that an initial payment of £3 million will be made by the Authority to the Exchequer in 1991. The Committee welcome this and will continue to monitor the return on investment to the State from this project.

Provision of Toll Facilities on the Dublin Ring Road

The Committee heard evidence that in the course of construction of the Dublin Ring Road some adjustments to the ramps being constructed on the Western Parkway became necessary in order to permit tolling. It was agreed in principle by the Steering Committee for the project, comprising representatives from Dublin County Council, the Department of the Environment and the Department of Finance, that the most cost effective approach would be to get the contractors building the road to carry out the necessary work. This decision was made in anticipation of County Council approval for the introduction of toll facilities on that route.

After the required modifications had been identified, a variation order was issued to the contractor in November 1989 and the specified works were commenced shortly thereafter. The cost of the works involved was determined by reference to the unit prices originally contained in the successful tender together with any sum payable on foot of a successful claim for disruption by the contractor. Some £2.3m (exc. VAT) was paid to the contractor on foot of the additional work.

However, the County Council subsequently refused to approve the tolling of that section of the road and consequently the toll plinths, which had been built as part of the additional work, were removed at a cost of £50,000 approximately. These costs were refunded to Dublin County Council by the Department of the Environment.

The Accounting Officer informed the Committee that in advance of the construction commencing, his Department had written to the County Council informing them of the proposals. On receiving no response from the Council the Department assumed there were no objections to the construction and proceeded as planned.

Notwithstanding this explanation, the Committee would point out that the levying of tolls is a statutory function of the Local Authority, and not the Department. The Department therefore had no right to proceed with this construction work until it had received the agreement of the County Council. The fact that this procedure was not followed has caused considerable and needless expense to the taxpayer. The Committee recommend that in future the Department defer to the proper statutory authority in these matters.

DEPARTMENT OF THE TAOISEACH

National Theatre Society Ltd. - (Abbey Theatre)

The National Theatre Society Ltd. operates the Abbey and Peacock Theatres. The Company is controlled by a board of directors advised by 25 shareholders. The board consists of two directors appointed by the Taoiseach, 2 representatives of the employees of the Theatre and 3 ordinary directors appointed by the company shareholders. The Society employs 125 people. An annual grant in aid is provided by the Government through the Arts Council. In 1990 this grant amounted to £2m. The Articles of Association provide that the Abbey should perform plays by Irish authors; plays of Irish life; and such works of foreign authors as would interest the Irish public. A wide range of work is presented in the Peacock Theatre where drama in the Irish language is also featured.

When examining the 1989 Appropriation Accounts for An Chomhairle Ealaíon (Arts Council) a number of Members expressed concern at the failure of the Abbey Theatre to tour the provinces with successful plays prior to these being staged by the Abbey on Broadway and the West-End. The Accounting Officer, Department of the Taoiseach, suggested to the Committee that a meeting with the Board of Directors of the Abbey Theatre might be arranged where the matter could be discussed in detail. Accordingly, arrangements were made to meet with the Board and this meeting was held on 18 July 1991.

The meeting was attended by Mr. Noel Pearson, Chairman, Ms. Garry Hynes, Artistic Director and Mr. Martin Fahy, General Manager, Abbey Theatre. In attendance also was Mr. Richard Stokes, Assistant Secretary, Arts and Culture Division, Department of the Taoiseach.

Following a tour of the Theatre Mr. Pearson provided the following information to the Members of the Committee:

Finance

A grant of £2 million is received annually from the Arts Council Vote representing 50% of the Abbey’s funding. Box office receipts in 1990 amounted to £1.2m.

Refurbishment

The recent £1 million extension was aided by a £300,000 EC grant, with the balance coming from fund-raising and the Abbey’s own resources. A further £3m was now being sought to finance a museum, rehearsal room and storage area.

New Productions

These cost approximately £150,000 per production before any box office receipts are taken.

Touring Policy

A list of 9 plays taken on tour by the Abbey Theatre in the past few years had been circulated to Members in advance. The policy of the Theatre was to undertake provincial tours but because of the lack of suitable theatres it was not always possible to undertake tours with larger successful productions such as ‘Dancing at Lughnasa’. No separate funding is given for tours.

Overseas Tours

Guarantees are sought in advance to cover the cost of such tours. Mr. Pearson explained the necessity for external investment for plays going overseas as the Abbey Theatre cannot use its State funding outside the Country. In regard to the staging of ‘Dancing at Lughnasa’ in the West End the Abbey was participating in a profit share arrangement even though it had made no financial contribution towards the cost of the tour.

In normal circumstances the Abbey Theatre gets a percentage of the box office receipts.

Profitability

Mr. Pearson stated that before he became Chairman in 1989 a deficit of £500,000 had been incurred whereas at the end of 1990 a working surplus of £145,000 had been earned.

The Committee agreed at the time that the Abbey Theatre as a National Theatre was run on a shoestring. There was no available space to expand within the Theatre complex at present.

Subsequent to the meeting with Mr. Pearson the Chairman was contacted by Mr. Ulick O’Connor, Author and former member of the board of directors and the Committee agreed to meet him. Separate meetings with Mr. O’Connor, Mr. Adrian Munnelly, Director, and Mr. Phelim Donlon, Drama Officer, Arts Council, were held on 19 September 1991.

In the course of evidence two specific matters were identified by Mr. O’Connor as being of concern to him as a shareholder of the Abbey Theatre -

1. Payment of a salary to the Chairman of the Abbey Theatre as ‘Executive Chairman’ while holding the post of Artistic Director.

2. Involvement by the Chairman, Abbey Theatre, in privately promoting a play which had originally been produced and promoted successfully by the Abbey.

Payment of a Salary to the Chairman

According to information provided by the Arts Council, the Board of the Abbey decided that the Chairman, Mr. Noel Pearson should act in an executive capacity during the six month period from 16 April 1989 to 15 October 1989 pending the appointment of a new Artistic Director. A fee of £17,542 was paid to his management company in consideration of his services.

When it became apparent that the process of securing a new Artistic Director was more protracted than had been envisaged, it was judged by the Board to be more appropriate to pay Mr. Pearson a direct salary on a month to month basis. This situation continued from 16 October 1989 1 January 1991 when Ms Garry Hynes was appointed as Artistic Director on 1 January 1991. The amount of salary paid to Mr. Pearson during this period was £29,074.

Mr. O’Connor stated in regard to this matter that under the Memorandum of Association no member of the company could benefit from profits derived from its activities nor indeed could a member of the Governing Body.

The relevant section in the Memorandum of Association is as follows -

“The income and property of the Company, wheresoever derived, shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise howsoever, by way of profits to the members of the Company.

PROVIDED that nothing herein contained shall prevent the payment in good faith of remuneration to any officers or servants of the Company, or to any member of the Company, or other person in return for any services actually rendered to the Company, or the payment to any such person or persons of royalties or fees at current rates in respect of any play or plays written by any such person or persons and performed or made use of by the Company.

PROVIDED that, save in so far as may be necessary to give effect to the last provision, no member of the Governing Body of the Company shall be appointed to any salaried office of the Company or any office of the Company paid by fees, and that no remuneration shall be given to any member of such Governing Body, except repayments of out-of-pocket expenses and interest for money lent, or rent for premises demised to the Company.”

He added that this section of the Memorandum bore out his contention that Mr. Pearson should not have received the monies as stated in the annual accounts and that this was confirmed by Counsel’s Opinion submitted to him by Mr. Frank Clarke S.C. who states -

“in my view it is beyond the powers of the Directors to create a post of Executive Chairman or any other post which would permit the payment of a salary to a person who is already, at the time of their appointment, a Director of the company”.

Mr. Clarke stated separately, that while the clause is not free from ambiguity he had formed the opinion that there is an absolute prohibition on members of the Governing Body to hold salaried office.

However, separate legal opinion provided to the Arts Council by Mr. John D. Cooke S.C., states:

“while the construction of the Clause is undoubtedly difficult and there are undoubtedly arguments to be made on either side, I am of the opinion that the second proviso did intend to prohibit the payment of salaries to directors as such while leaving it possible that some members of the board might, from time to time, be paid fees for particular services which might actually be rendered by them on an independent or once off basis and other than pursuant to a contract of employment or as an office holder”.

He adds -

“In the circumstance, therefore, if it is proposed to continue the appointment of an executive chairman in receipt of salary it may obviously be prudent to procure the necessary amendment to the Memorandum of Association”.

Possible Conflict of Interest

Mr. Ulick O’Connor also expressed the opinion, in evidence to the Committee, that there was a conflict of interest involved as the Chairman was transferring a successful play, ‘Dancing at Lughnasa’ to the West End as an impressario, taxpayers money having been originally invested in making the production a commercial success.

Mr. Phelim Donlon, Drama Officer, Arts Council (who attends Board meetings of the Abbey) told the Committee that he was aware of the arrangements which were outlined by Mr. Pearson to the Board of the Abbey Theatre. These arrangements were realistic commercial and fair and did not bring the Abbey into any area of risk. Under these arrangements the Abbey Theatre would make no financial contribution towards the costs of producing the play “Dancing at Lughnasa” but the Abbey would still receive royalties. In regard to the Broadway production of the play the Abbey would receive 1.5% of box office receipts plus 20% of profits. The question of there being a possible ‘conflict of interest’ was openly discussed between the parties and Mr. Donlon and the Board of the Abbey did not consider that a conflict of interest existed.

Financing of Tours

In regard to the issue of touring to the provinces by the Abbey, Mr. Munnelly, Director of the Arts Council informed the Committee that the annual grant paid to the Abbey Theatre was paid on the basis of an application and part of the application included moneys for touring purposes. The Arts Council took the line that the Abbey should endeavour to tour but this was not insisted upon as the Council concedes that the grant of £2m is not sufficient to provide for extensive touring and the running of two theatres.

Report by the Accounting Officer, Department of the Taoiseach

In a report subsequently submitted to the Committee by the Accounting Officer, Department of the Taoiseach, the following points were made:

1. A representative of the Arts Council attends all meetings of the Board of Directors of the Abbey Theatre.

2. The Chairman of the Board of the Abbey has been one of the key promoters of touring abroad by the Abbey at no cost to the taxpayer. The current production on Broadway is expected to yield very good financial results for the Abbey.

3. The Arts Council are satisfied that the appointment of Mr. Pearson as paid Artistic Director while continuing as Chairman, was a necessary interim emergency measure and involved no impropriety.

Conclusions

1. The Committee accepts the evidence furnished by the Arts Council that arrangements between the Abbey Theatre and Mr. Pearson were conducted in an open, professional manner and the interests of the Theatre were adequately protected at all times.

2. The Committee accepts the evidence of the Arts Council that payment of a salary to Mr. Pearson while he was temporarily filling the post of Artistic Director was an interim measure which ceased upon the appointment of Ms. Garry Hynes with effect from 1 January 1991.

3. The legality of appointing Mr. Pearson as paid Artistic Director while being a member of the Board is open to question. Although the two legal opinions differ in their conclusions, both point to the ambiguity of the relevant clause in the Memorandum and this appears to be the kernel of the problem. In order to avoid any uncertainty which might arise in similar circumstances in the future the Committee recommends that the clause be suitably amended at the earliest opportunity.

4. The Committee would like to see greater efforts on the part of the Abbey to take commercially successful productions on tour within Ireland.

FINANCE

Business Expansion Scheme - Project Audit Report

The main thrust of this Report by the Comptroller and Auditor General was that there was a failure by the Department of Finance and the Revenue Commissioners to put in place procedures which would provide feedback on the extent to which the Business Expansion Scheme was achieving its objectives and at what cost. The B.E.S. was introduced as a means of helping smaller businesses to raise capital for expansion. It was argued that this would in turn help the economy by creating additional employment. However, these objectives were not translated into quantifiable targets and no hard information was gathered which could be used to measure the effectiveness of the scheme. Furthermore, the scheme was apparently used in many cases as a tax avoidance measure and in a way which eliminated the element of risk which was supposed to have been a factor of investments made under the scheme.

The Accounting Officer for the Department of Finance stated that it is difficult to monitor job-creation results of a scheme like this. Increases in employment can be created by numerous factors such as an up-turn in the economy here or in foreign markets, other Government measures apart from the B.E.S., or a change in the manufacturing or marketing strategies within the company concerned. Although the Department had not set job-creation targets for the scheme, it has been monitoring its operations and has modified the operation of the scheme to prevent the scheme being used merely as a tax avoidance mechanism.

The Accounting Officer for the Revenue Commissioners gave details of the extent to which the scheme has been availed of. Up to 11 March 1990, a total of £183.4 million had been invested in 712 enterprises under the scheme. As a consequence, tax totalling £92.6 million had been foregone by the Exchequer.

The Accounting Officers for the Department of Finance and the Revenue Commissioners both expressed the view that the B.E.S. had been a successful scheme in that a significant level of investment had taken place. Although there were no hard facts as to whether this increased investment had been translated into extra jobs, they were nevertheless confident that a significant level of employment had been generated.

The Committee are concerned however that the B.E.S. has been a very limited success. Among the schemes which were approved were a number which received very large tax exemptions and provided extremely limited employment. In one particular leasing company £13 million of tax was foregone, resulting in the creation of only seven jobs. Given that the overall cost to the Exchequer of the B.E.S. was £92.6 million up to March 1990, the Committee cannot accept that the level of monitoring was adequate. If the Department of Finance had given £92.6 million to another Department to run a job creation scheme, they would clearly not consider it acceptable if that Department failed to monitor the effectiveness of the scheme in reaching its job creation targets. The Committee feel that any similar scheme in the future must incorporate mechanisms through which meaningful targets can be established and which measure the success or otherwise of the scheme in meeting those targets.

On a more general level the Committee recommends that mechanisms should be put in place which systematically measure and record the cost of schemes financed by tax expenditures and which evaluate the economy, efficiency and effectiveness of such expenditures for reporting to Dáil Eireann.

TOURISM AND TRANSPORT

Aer Linqus Holidays

In January 1990 the Chairman of Aer Lingus informed the Department of Tourism and Transport that major unreported losses had been incurred in the Aer Lingus subsidiary company, Aer Lingus Holidays. These losses, amounting to £7m, arose mainly from internal irregularities perpetrated over a number of years. It was also reported that the value of the subsidiary company’s apartment properties was also being written down by some £3 million. An investigation into the reported financial irregularities was carried out be a firm of accountants and based on their findings the Garda Fraud Squad were subsequently asked to conduct a full investigation.

In May 1990 the Minister for Tourism and Transport instructed the Board of Aer Lingus to:

i) Furnish him with a detailed report of the measures which had been taken to improve the internal systems of financial control within the Aer Lingus Group;

ii) In particular, satisfy him that the irregularities which had taken place could not be repeated.

iii) Take disciplinary action where appropriate and advise him of the outcome.

iv) Take civil action where appropriate and advise him of the outcome.

v) Make arrangements for phased and orderly withdrawal by Aer Lingus Holidays from the tour operating business at the end of the 1991 season.

In evidence the Accounting Officer outlined the response which Aer Lingus had made to the Minster’s instruction. The finance and internal audit functions within the Aer Lingus Group had been completely reorganised and additional accounting personnel had been recruited to ensure that the level of financial control is appropriate to a company of the size and status of Aer Lingus. Civil proceedings for damages had been initiated against the former auditors of Aer Lingus Holidays. The assets of Aer Lingus Holidays were sold off for an amount slightly in excess of £600,000, with the potential for a further £680,000 being realised subject to the profitability in future years of one of the purchasers.

For legal reasons it was not possible for the Accounting Officer to make any comment in regard to disciplinary or criminal proceedings being taken.

The Committee reluctantly accepted the fact that the Accounting Officer was unable to give a full explanation. The Committee expects to be supplied with details of these disciplinary and criminal proceedings at the earliest possible opportunity. The Committee also wishes to be advised of the final price obtained for the sale of the assets of Aer Lingus Holidays.

The Committee are extremely concerned at the extent of financial irregularities coming to light in semi-state companies. The Committee believes that the level of public disquiet in this regard demands urgent action. The Committee expects that the forthcoming legislation to up-date the powers of the Comptroller and Auditor General and the Committee of Public Accounts, will contain significant provisions to strengthen the powers of the Comptroller and Auditor General, particularly in regard to examining the accounts of Semi-State agencies.

OFFICE OF CHARITABLE DONATIONS AND BEQUESTS

It is tentatively estimated that monies are left to charities in about 2,000 wills each year. Of these, about 200 to 250 are brought to the attention of the Charity Commissioners by solicitors. Of the remainder most are properly dealt with by the executors. There is a statutory requirement that the Probate Office notify the Commissioner of Charitable Donations and Bequests of all charitable bequests in wills entered for probate. However, because of the volume of work required this practice has fallen into disuse and while this may not lead to any abuse in the case of the majority of wills because they are properly executed, it does mean that where a will is not properly executed there is at present no mechanism for the Office of Charitable Donations and Bequests or the relevant charity to be made aware of this fact.

The Committee is concerned that this failure by a State Institution to carry out its statutory responsibility might leave the State exposed to claims for compensation in the event of such failure facilitating abuse by an executor of a will involving loss to a legatee.

The Organisation Division of the Department of Justice was in the process of producing a report on the operations of the Office of Charitable Donations and Bequests at the time that the matter was discussed. The Committee wishes to be informed of the findings of that report. The Committee also recommend that the Department of Justice make provision for the Probate Office to notify charities directly where they are beneficiaries in a will. This appears to be the most efficient and cost-effective way of ensuring that monies left to charities are properly accounted for.

OFFICE OF PUBLIC WORKS

Security in the Central Furniture Stores, Rialto

Between September 1988 and February 1990 21 items of antique furniture were stolen from the Central Furniture Stores in a number of separate thefts. The total value of these items was about £38,000. In one incident access was gained through the roof of the premises during the night. In a second incident furniture was stolen during working hours, while in a third incident furniture was stolen by a person with access to keys to the premises, most probably at night.

The Committee are concerned with the ease with which successive thefts and break-ins occurred.

The Accounting Officer outlined a number of steps which have been taken to ensure that there is no recurrence of this problem:

(i) More valuable items of antique furniture have been transferred to some of the prestigious buildings managed by the Office of Public Works where more elaborate security is in operation. The value of antique furniture held in Rialto was reduced from £140,000 in 1989 to £30,000 in January 1991.

(ii) Antique furniture remaining in Rialto has been placed in a secure vault to which only one storekeeper has access.

(iii) The security firm which was employed in the premises in Rialto has been replaced.

The Committee trusts that the remedial action will have the effect of preventing further security lapses at the stores.

Purchase of Dragline Excavators for Arterial Drainage

In the period 1977-1980 45 dragline excavators were purchased by the Office of Public Works at a cost of £1.9 million. These were to be used to widen and deepen waterways and land drains as part of the Arterial Drainage Programme. The Comptroller and Auditor General reported that 29 excavators had been inactive for periods of up to six years and that the operational records showed that the forty-five machines had been used for periods ranging between 2,500 and 13,000 hours while the normal working life of these machines is in the region of 30,000 hours.

The Accounting Officer pointed out that at the time that the machines were purchased (pre-1980) there were extensive drainage schemes under way and it was expected that further schemes would be initiated. However, because of the growing burden of national debt, these policies changed around 1982 when further drainage schemes were postponed and the cost of existing schemes was curtailed giving rise to a reduction in the activity levels. This led to an extension of the timescale for completion of projects and a sharp reduction in the use of the dragline excavators.

While the Committee accept that the changing circumstances outlined impacted on the potential use of the excavators it is noted that some of the machines purchased in 1980 were not used for 5 years or more, even at a time when the drainage programme was at its peak. This leads to the firm conclusion that the Office of Public Works purchased too many machines in the first place. The Committee also note that some of the excess machinery has since been sold. The average purchase price of these excavators was £42,000. Having been used for only one-third of their lifespan they were sold for £8,000 each although their replacement cost would be of the order of £165,000 each. It is the Committee’s view that the taxpayer got very poor value for money from these transactions. The Committee also find that the Office of Public Works did not exercise an acceptable standard of prudence and efficiency in the purchase of these machines. The Committee insists that arrangements to purchase machinery should be revised so that this type of inefficient use of capital investment does not occur again.

MARINE

Purchase of Lifting Equipment at Killybegs.

The Comptroller and Auditor General noted in his report that in 1973 £36,000 was spent on syncro-lift equipment for Killybegs Harbour but this equipment has never been used.

The Accounting Officer explained that the equipment was found to be unsuitable for Killybegs because the size of the fleet there had grown to the extent that the equipment could not be used. The equipment is now being retained to provide spare parts for similar equipment in Castletownbere and Dunmore East.

The Committee finds that the original decision to purchase this equipment was ill-advised. It should have been obvious from the outset that this equipment was unsuitable for the purpose for which it was purchased. The Committee seeks confirmation that this type of purchasing practice will not be repeated.

The Liquidation of Irish Shipping.

The final cost to the State of the liquidation of Irish Shipping Ltd., was £89.4 million.

The major element of that cost was attributable to meeting the stipulated loss value of the charterhire contract of the Irish Spruce - £51.83m. As a result of meeting that commitment the State became owners of the vessel and incurred maintenance costs of £2.89 until it was sold. The sale realised only £3.62m. If expenditure prior to the liquidation of Irish Shipping Ltd. is taken into account the State lost £60m altogether on the Irish Spruce.

The Committee trust that lessons have been learned from this financial debacle and that arrangements have been put in place to ensure that the appropriate Departments have full knowledge of expenditure proposals in State sponsored bodies when they are being underwritten by the State. The Committee seeks confirmation that these arrangements are now in place.

JUSTICE

Garda Radio Network

The 1989 Report of the Comptroller and Auditor General included a Project Audit Report which records the results of an audit examination of a major capital project undertaken by the Department of Justice for the provision of a national radio network for the Garda Síochána.

Work on planning the network started in 1978 and a technical committee, the Radio Advisory Committee, was set up to advise the Department in relation to the project and ultimately supervised its implementation. It was decided to design a system which would be tailor-made to meet the needs of the Garda Siochana rather than go for an off-the-shelf system which might be modified to meet Garda needs. The original cost indication for the project was £3m - £5m although there was no evidence to show what this was intended to cover. At that time it was envisaged that the network would be largely operational by mid-1981. In the event the new radio network became operational outside Dublin in 1985 and in the Dublin Metropolitan Area in 1989. The cost of the project to the end of 1989 was £24,692,000 though this included extra facilities which were outside the original parameters of the project. There is still one element of the network not put in place - a microwave radio link which would provide for communications between all Divisions and to Garda HQ. This element has been put on ice pending a Government decision on how it should be done. The total cost of the completed project is expected to be in the region of £30m.

Essentially the Report of the Comptroller and Auditor General was critical of -

- the failure to follow well established ground rules which were designed to ensure that when a project was being given the go-ahead there would be a reasonably good indication of expected final costs, completion date etc. (due allowance being made for inflation and other factors) and that the price was acceptable in relation to the end product. The application of this discipline would help to avoid cost over-runs and underpin the proper financial control, planning and management of major capital projects.

- there was no meaningful review of what the project was costing until 1987 when it became clear that it was heading for £30m.

- the estimated completion cost went from £20m to £30m in an eighteen month period and during that time, the projected completion date was extended by a further two years.

The Department of Justice did not accept the report’s criticisms. The Department claimed that

- there could not be a complete appreciation of what the Garda communications needs were at the outset and this precluded accurate estimation of cost.

- the uniqueness of the organisation of the Garda Siochana dictated the choice of a customised system.

- an accurate timescale was impossible to set because of the complexity of the system and funding constraints.

- comparing like with like the cost was in line with the original estimate.

The Comptroller and Auditor General in evidence to the Committee stated that it was an essential element of prudent management to know the full extent of a project and the associated costs before decisions to proceed are taken. He pointed to well established ways of planning, costing and controlling complex major capital projects that are geared towards delivery on time and within budget. He was not satisfied that management of the Garda Network project was in accordance with best practice and considered that it did not meet the criteria laid down by the Department of Finance for large scale public capital projects.

In evidence to the Committee the Accounting Officer disagreed with the suggestion that the project had not been properly managed or evaluated at the planning stage. He stated that the Department, when faced with this undertaking, had established a Radio Advisory Committee which included the appropriate level of scientific and technical expertise to advise on the project. That Committee also included high level representatives of the Departments of Justice and Finance who were fully au fait with every detail of the project. The Accounting Officer stated that the Advisory Committee closely scrutinised and evaluated the project at every stage and made every effort to secure value for money at each stage of the project. The Accounting Officer accepted that a further project management tier could have been put in place though he had doubts that it would have made a practical difference to the result.

The Accounting Officer also stated that the estimated final cost of £30m included expenditure on telephone and fax transmission facilities which were not encompassed by the original estimates. He did accept, however, that there was also an element of underestimation in the initial cost estimates.

The Accounting Officer reiterated his disagreement with the view that the Department could simply have gone out and purchased an “off-the-shelf” system similar to those operated in other jurisdictions. He pointed out that a number of systems operated by regional police forces in the UK were evaluated but were found to be unsuitable for a national police force which needed more extensive territorial coverage from its radio network. The Accounting Officer was unable to say if the radio network operated by the RUC was one of those evaluated. The Department had, at the initial stages, invited tenders for a complete “off-the-shelf” system but the suppliers concerned were unable to provide a system which would fulfil all of the requirements of a national radio network.

Having heard the Accounting Officer’s evidence, the Committee did not accept that the planning and management of this project was adequate. In particular, the original decisions to proceed with the project were based on false assumptions regarding the ultimate cost, and the full range of options for developing a radio network were not properly evaluated and costed. The Department of Justice assert that “Once contracts were placed there was constant monitoring to ensure that projects were completed to specification, on time and within budget”. While it may well be that separate contracts for the component parts of the system were to some degree monitored as they proceeded, the cost of such component parts was not related to an overall cost plan for the project as a whole because there simply was no such overall cost plan. In such circumstances the component costs were emerging as the project developed and the overall cost estimates developed piecemeal. Furthermore the quality of monitoring the separate contracts alluded to by the Department of Justice must be to some extent suspect when it is considered that between April 1986 and September 1987 the Department of Justice revised the estimated completion costs from £20m to £30m and extended the project completion date by two years. The Committee is not convinced by the argument that the Garda Síochána is a uniquely organised national police force and therefore their radio communications requirements differ dramatically from other police forces. The evidence given to the Committee suggests that the communications systems of comparable police forces were not properly evaluated and no effort was made to compare the £30m costs of the Garda radio network with the cost of alternative systems operated by these other comparable police forces.

After consideration of this matter the Committee passed the following motion:

“In the case of major capital projects such as this the Committee could not tolerate a pay-as-you-go approach which makes attempts at overall cost control meaningless. The Committee must insist that in all future projects and without exception, a structured project management system is put in place so that -

1. The scope of the project is clearly defined and fully meets the needs envisaged.

2. An accurate and realistic time frame and cost budget is set and sanctioned at the planning stage.

3. The most cost effective method of implementation commensurate with quality is chosen.

4. The project or programme is rigidly monitored and controlled throughout the implementation stages so that it is satisfactorily completed within cost budget and on time.”

Having given careful consideration in the interim to the Committee’s concern the Accounting Officer at a resumed examination informed the Committee that for the balance of the project he was setting up, in consultation with the Department of Finance, a new two-tier project management structure which would meet the Committee’s requirements. In subsequent correspondence the Accounting Officer informed the Committee that future developments both in communications and computer facilities in the Garda Síochána would be overseen by a Finance Committee and a Technical Committee in line with the Committee’s recommendations on the control of capital projects. The Committee is gratified to learn of these initiatives and it trusts that the lessons to be learned from this case will be applied in the case of all major capital projects throughout the public sector. It requests therefore that the terms of the motion adopted by the Committee be brought to the attention of all Accounting Officers.

While the Committee were in the course of investigating this matter details of a Report commissioned by the Department concerning the Operation of the Garda Síochána Command and Control System in the Dublin Metropolitan Area were reported in the press. The Committee felt that this Report would be very relevant to its enquiries and therefore requested a copy for its information. The Committee were supplied with a copy of the report, having insisted on seeing it.

The Report on the Command and Control System for the Dublin Metropolitan Area referred to a number of specific problems:

- The low level of acceptance of the system among Gardaí

- The high incidence of false alarms (97%) relating to domestic and industrial burglar alarms

- The lack of progress in phasing out outdated manual systems with the introduction of the automated command and control system.

In subsequent correspondence the Accounting Officer informed the Committee that the Garda Commissioner had set up a Working Party consisting of representatives of Garda management, the Garda Representative Associations and the users to examine all aspects of the system. In line with the recommendations of that Working Party the Commissioner had introduced numerous changes designed to improve the acceptability and usage of the command and control system. These included improving working conditions and training for Gardaí using the system, engaging consultants to evaluate the requirements of patrol car crews and phasing out those manual records which were being duplicated.

In regard to the specific problems relating to the high incidence of false alarms from intruder alarms, the Gardaí have modified their policy so that they will no longer respond to certain alarm activations from premises where false alarms occur persistently. Owners of these premises will be notified accordingly.

The Committee accepts that progress in dealing with the matters raised is being achieved and will continue to keep these matters under review.

Prison Buildings

In May-October 1983 the Department of Justice purchased a number of second hand prefabricated building units having a total floor area of 27,642 square feet at a cost of £34,000, with a view to meeting accommodation needs temporarily at various prisons, pending funding becoming available for the construction of permanent buildings. The cost of dismantling and transporting these buildings to storage pending their subsequent use amounted to £49,493. Between March 1984 and February 1985 units with a floor area of 8,448 square feet were erected at Limerick Prison, Loughan House and St. Patrick’s Institution at a cost of re-erection totalling £383,640. In addition, the total costs of storage and insurance of the units up to April 1990 was £110,505.

Given the very high costs associated with storing and re-erecting these units which were now reaching the end of their useful life, the Comptroller and Auditor General had asked the Accounting Officer if consideration had been given to disposing of the units and providing permanent buildings in their place.

In evidence to the Committee the Accounting Officer stated that the unused prefab units had since been sold for £5,000. The decision that he had had to make was whether these units should be retained, thereby incurring further insurance and storage costs or whether the Department should cut its losses and sell to the highest bidder, which it did.

The Committee accept that the decision to dispose of the units was the correct one although they would seriously question the original decision to purchase.

The Committee are concerned at the level of false economy involved in such purchases of prefab buildings. In this case, buildings purchased at an apparent bargain price of £34,000 cost a further £543,638 in storage, insurance and re-erection costs. The Committee are of the view that this sum would have been more effectively used to fund permanent buildings, particularly given that 60% of the prefab units were never used.

The Committee recommends that in future temporary prefab structures should not be purchased where there is a short term need for facilities. Where longer term requirements for buildings exist these should be met through the construction of permanent buildings.

____________________________

GAY MITCHELL T.D.

CHAIRMAN

8th July 1992.