Committee Reports > List of Committees > Dáil > 1994 > Committee of Public Accounts > Interim Report No. 02 - Appropriation Accounts 1993

MIONTUAIRISC NA FIANAISE

MINUTES OF EVIDENCE

AN COISTE UM CHUNTAIS PHOIBLÍ

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 27 Deireadh Fómhair 1994

Thursday 27 October 1994

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY JIM MITCHELL IN THE CHAIR

Mr. P. L. McDonnell (An tArd Reachtaire Cuntas agus Ciste) called and examined.

Mr. Niall McSweeney and Mr. Jim O’Farrell, Dept. of Finance representatives, in attendance.

APPROPRIATION ACCOUNTS 1993

VOTE 38 - FOREIGN AFFAIRS

VOTE 39 - INTERNATIONAL CO-OPERATION

Mr. Noel Dorr, Secretary, Department of Foreign Affairs, called and examined.

Chairman: I welcome Mr. Dorr and invite him to introduce the officials who are accompanying him.

Mr. Dorr: Thank you. I am accompanied by Anne Anderson, Assistant Secretary in charge of administration in the Department; Ronan Murphy, Assistant Secretary in charge of development aid and Joyce Duffy of the Development Aid Division. I am also accompanied by other colleagues who are behind me.

Chairman: The Comptroller and Auditor General is still in the House for the debate on the nomination of his successor which I hope will conclude soon. We have very serious notes from the C&AG in relation to your Vote which the Committee views very gravely. We have decided to proceed first with some questions on the nuts and bolts of the Vote. We hope that by the time those questions are answered the C&AG will be here.

With regard to the Foreign Affairs Vote, under subhead A.5 the budget was exceeded by £951,000. Could you explain how so much more than was budgeted for was spent on office machinery and other supplies?

Mr. Dorr: The amount shown as an excess under the subhead was £951,000. I understand that the actual excess was £197,000. Four payable orders totalling £753,532 were sent by the accounts branch for payment to the Commissioners of Public Works in December 1993. The new computer system issued one payable order for the total which is not what was needed. Consequently, further payable orders had to be produced. The error in the system was not cancelled until the start of the new financial year. That part is a bookkeeping transaction, in effect, which shows a total of £753,532. It was corrected between the end of December and the beginning of January but, of course, the end of the financial year had intervened.

The actual excess of £197,000 was incurred on the purchase of additional passport booklets, printing, stationery and office equipment. We have moved, as you probably know, to a computerised system in the Passport Office with machine readable passports and we found that we needed additional passport booklets. There was also a small excess on printing, stationery and other matters.

Chairman: I refer you to the next page of your accounts which gives explanations for divergences from the budget. It states that expenditure under subhead A.5 “was greater than anticipated and the excess was offset by savings on subheads A.1 and A.6 with the approval of the Department of Finance”. Why was the explanation which you have just given not given in the accounts?

Mr. Dorr: It is included. Perhaps it might have been spelled out in more detail, but it is included under the heading that it was greater than anticipated. It was, as I said, consistent-----

Chairman: With due respect, Secretary, you will come in for severe criticism for your accounts soon. Regarding your notes on your accounts, you state that expenditure under subhead A.1 proved less than anticipated. We know that, it is obvious, but why was it less than anticipated? There are no explanations here. In respect of subhead A.5, you are now able to give us an explanation which you do not give here.

Mr. Dorr: I accept that, Chairman. I am giving the detailed explanation now. I accept your point that perhaps it should have been in detail in the account. To summarise the detail, the total in bookkeeping terms is £951,000 excess. The actual excess in real expenditure was £197,000. The remaining £753,532 was accounted for by an error in the computer system, which spilled over from the end of December until early January. The correction took place in the following financial year. However, I accept your point.

Chairman: What you are telling us should have been included in your subhead A.5 note. All your notes are meaningless. As Accounting Officer you stand severely criticised for these wholly obvious comments, which do not tell us why these expenditures were less or greater than the sum provided.

Mr. Dorr: I take your point in that regard. The standard formula was used in this context. It was not the practice to go into great detail in these notes but I take your point. You are correct in saying perhaps that the full detail should have been given. It has not been the practice in these particular notes to give the detail.

Chairman: Are you aware of a direction from the Department of Finance in relation to these explanations?

Mr. Dorr: Yes, Chairman.

Chairman: It says that these explanations should be meaningful and that they should not specifically say expenditure is less or more than anticipated. These are shabby accounts and they reflect very badly on your Department and on you as Accounting Officer. As we will see in a moment, this is one of the worst reports to come before the Committee this year.

I will now ask the Comptroller and Auditor General to introduce the Vote. We will discuss all three paragraphs together, the excess Vote, the Vote of your Department and the Vote on Overseas Development Aid. We will make a decision on them separately at the end.

Deputy Byrne: Are we moving from that specific point, Chairman, or will we return to it? There are other questions.

Chairman: We will return to it.

Paragraphs 2, 66 and 67 of the 1993 Report of the Comptroller and Auditor General read:

Excess Vote

2. An excess vote will be required in the case of Vote 30 - International Co-operation. Expenditure in excess of the provision made by the Oireachtas amounted to £1,803,859 (See also paragraph 67 of this Report).

Late Submission of Accounts and Material Errors in Account

66.The statutory date for the submission of the 1993 Appropriation Accounts was 30 April 1994. The Appropriation Accounts for Vote 38, Foreign Affairs and Vote 39, International Co-operation were not submitted until 30 June 1994 due, in part, to transitional difficulties involved in changing to a new computer system in 1993.

It was clear from an examination of the Accounts as presented that there were deficiencies in the Department’s procedures for recording and documenting the transactions underpinning the Accounts.

In particular, in relation to the Appropriation Account for Vote 38, there was a failure to reconcile the accounting entries with the cash transactions; there were unsubstantiated adjustments to trial balance figures to bring them into line with the final account figures and there was a failure to provide an analysis of the Miscellaneous Suspense Account, with this account effectively being used to balance the final account.

I brought the deficiencies to the attention of the Accounting Officer and I asked whether the apparent deficiencies in the Department’s internal accounting procedures and controls were being addressed. I also sought his views on the adequacy of the planning and implementation of the transition to the new computer system.

The Accounting Officer indicated that he believed that the transition to the new computer system was planned, managed and controlled in the best manner possible, consistent with the relatively short time scale within which the Department had to operate and the various design adaptations which had to be made arising from the particular requirements of the Department.

While regretting the deficiencies which affected the preparation and submission of the 1993 Appropriation Accounts, the Accounting Officer stated that the very great amount of staff attention which had to be devoted to resolving the various problems with the new computerised accounting system had reduced considerably the time which, in normal circumstances, would have been devoted to checking procedures. Following my inquiries, the documentation required to substantiate individual adjustments had since been identified and made available and, with regard to the failure to reconcile the cash transactions, the Accounting Officer indicated that the remaining difference had since been eliminated. In relation to the failure to provide an analysis of the Miscellaneous Suspense Account, he indicated that a detailed analysis of suspense accounts would be provided as part of future Appropriation Accounts.

He assured me that, now that the new financial management system is operational, it is intended to give priority to the production by October 1994, of a comprehensive manual and revised accounting instructions covering each area of the Accounts Branch and that, in addition, immediate steps are being taken to ensure that Accounts Branch staff have further training in all aspects of Government Accounting procedures.

Subhead C. - Payment to Grant-in-Aid Fund for Bilateral and other Aid Contributions for Developing Countries (Grant-in-Aid)

Excess Vote £1,803,859

67.Public financial procedures allow certain services to be provided for by way of grant-in-aid. The main distinguishing features of grants-in-aid are that they are exempt from the normal rules, that balances unspent at the end of year must be surrendered to the Exchequer and that no excess may be incurred on a grant-in-aid subhead.

During the course of audit of the Bilateral and Other Aid Fund (Grant-in-Aid) Account, which is funded from Subhead C of the International Co-operation Vote, it was noted that expenditure for 1993 totalled £17,542,630, although only £15,738,771 was available for disbursement viz. the opening balance of £438,771 plus the 1993 subhead provision of £15,300,000. As this constituted a breach of public financial procedures through incurring expenditure of £1,803,859 in excess of the amount provided by Dáil Éireann, I enquired as to the circumstances in which this had occurred.

The Accounting Officer informed me that, as of 31 December 1993, a total of £1,359,000 of the excess charge to the Vote, still remained under the control of the Department in Development Co-operation Office and Bilateral Aid Project Accounts; transfers had been made from headquarters in the context of the Department’s concern (against the background of a greatly expanded aid programme) that there should be sufficient funds on hands in the overseas accounts at year end to maintain the continuity of the aid programmes at the start of 1994.

Nevertheless, he accepted that proper financial procedures had inadvertently not been followed in the Development Co-operation Division which had responsibility for administering the Bilateral Aid programme and this, coupled with problems encountered with the new computerised accounting system, led inadvertently to the issue of moneys in excess of what was provided. He assured me that the Department was taking immediate steps to ensure greater control on expenditure from the Development Co-operation Division, that an internal auditor had been recruited with a brief to undertake a full review of procedures and controls both at headquarters and in Aid Offices abroad and that, on the basis of the internal auditor’s preliminary recommendations pending this full review, interim measures were being introduced with immediate effect to ensure improved financial management and accountability within the Division.

The effect of the overexpenditure from the grant-in-aid fund was that an excess issue had to be made from Subhead C which will require the approval of Dáil Éireann by Excess Vote (See also paragraph 2 of this Report).

Mr. McDonnell: I apologise for being late. This was due to events in other places. On the Vote itself, the expenditure is set out in the normal format. My comments in relation to our audit of this Vote are included in paragraphs 66 and 67. Paragraph 66 deals with the late submission of the two accounts for which the Accounting Officer is responsible, that is Foreign Affairs and International Co-operation. We are referring there to the lateness of the submission and the level of errors in one of the accounts as submitted. The Accounting Officer attributed this to difficulties in producing the accounts. He attributed this difficulty to problems that the Department was having in transferring from one computer system to another before the year end. However, he was of the view that the changeover had been planned and managed in the best possible manner in the circumstances which prevailed at the time.

In regard to the high level of error in the account, he said that this was a consequence of having to divert staff from checking duties to resolving problems with the new system. While I would not take issue with the substance of the reasons put forward by the Accounting Officer, I would have to say that in this situation, there was perhaps an element of an accident waiting to happen. For some years, we had been concerned about, and pointing out at working level, some deficiencies in the accounting procedures in the Department. It seemed to stem from a certain lack of the requisite expertise. If that type of situation prevails, it inevitably will lead at the end of the day to the type of problems which have emerged. The introduction of a new computer system in those circumstances sometimes accentuates the problem. In any event, the unsatisfactory situation which we had is a result of all of that.

To give the Committee an idea of the scale of this problem, it took nearly two months of the combined efforts of my staff and the Department’s staff to reach a point where we were happy with the accounts in this case. In fairness to the Accounting Officer, one will note at the end of paragraph 66 that he has taken steps to upgrade the accounting knowledge in the Department within the accounts branch and to provide clear instructions now as to how to use the computerised system. I hope, as I am sure the Committee hopes, that this will resolve the problem and that it is now behind us. Naturally, we will be keeping this under review. In our future and ongoing audits of the Department we will be concerned that the efforts the Accounting Officer is genuinely making to improve the situation will have this end result. That is in relation to paragraph 66, Chairman. I am not sure if you want to deal with the excess Vote at the same time.

Chairman: We will deal with all aspects together.

Mr. McDonnell: The excess Vote amounted to approximately to £1.8 million on the International Co-operation Vote. Bilateral aid to third world countries is funded by Dáil Éireann by way of a grant-in-aid. This means that the grant-in-aid can be fully issued from the Vote to a separate account which is managed by the Department’s Development Co-operation Division. This allows balances in that account at the year end to be made available for expenditure in the following year. In other words, they do not have to be surrendered.

In 1993, that account in the Development Co-operation Division had a balance of just under £0.5 million. That brought forward, with the £15.3 million provided in the sub-head, meant that £15.75 million was available in the account managed by the Development Co-operation Division. In fact, £17.5 million was issued in 1993. The Accounting Officer attributed the excess expenditure to a desire on the Department’s part to ensure that there should be sufficient funds on hand at the year end in the overseas accounts to secure the continuity of the aid programme at the start of 1994. This was being done without an awareness that proper Government financial procedures were being contravened.

It is clear from our audit that the procedures and the records in both the Development Co-operation Division and the accounts branch were not of a standard that would have enabled proper control to be exercised over issues from the grant-in-aid account, which was managed separately in a division of the Department. The Accounting Officer essentially accepts that view and assures me that it will not happen again and that corrective action is being taken.

On the technical point of excess Votes, the sanction of the Oireachtas will be required for the amount of the excess at some stage. It will have to be regularised by the taking of a Vote for the excess of £1.8 million on that subhead. Those are the two essential issues which arise on these two Votes.

Chairman: Mr. Dorr, will you explain to the Committee the organisational arrangements in your Department in relation to the accounts in general. Who looks after the accounts? Who do they report to and how do they proceed?

Mr. Dorr: I would add, if I may, a sentence or two on the point the Chairman raised earlier and to which he took exception. There was nothing misstated, but it is true that we did not give all the detail which, as the Chairman has rightly pointed out, should have been given. I take that point: but there was nothing misstated, it was simply that it was given in general terms and there is more detail which I have now given.

The accounts branch is in one of our premises in St. Stephen’s Green. The head of the accounts branch - the accountant - is at assistant principal level, reporting through a counsellor, which is principal officer level, to the head of administration at assistant secretary level, and, of course, I am ultimately responsible as Accounting Officer. If the Committee so wishes I would like at some point an opportunity to comment on the points mentioned by the Comptroller and Auditor General.

Chairman: The accountant in the Department is at assistant principal officer level, who reports to a principal officer who reports to an assistant secretary who reports to you - the accountant is four degrees removed from you? Is that the importance attached to the accounts in your Department?

Mr. Dorr: Not at all. I am the Accounting Officer and I take full responsibility. There are about 25 staff in the accounts branch. The office is headed at assistant principal level, who reports to a finance officer - we created the special post of finance officer within the past year or two - and that is at principal officer or counsellor level. The whole operation comes within the responsibility of the administration division which is headed at assistant secretary level. It is not at all a case of not taking responsibility; it is a case of the normal Civil Service structure to deal with the details. I accept, as Accounting Officer, ultimate responsibility.

Chairman: It is rare that the Comptroller and Auditor General has such outright criticism of arrangements in a Department as he has had on this occasion. He said that: “There was a lack of requisite expertise in the Department of Foreign Affairs” in relation to these matters.

This Committee wrote to you last year and asked you to outline for it the financial controls operating in your Department - this was before we were alerted to the fact that there were problems on the scale that appears. You wrote back to me on 26 October 1993 and you said: “You may wish to have a copy of my letter to your predecessor, Mr. Gay Mitchell TD … in which I outlined the rigorous accounting procedures in operation in this Department …”. As it transpired they are not so rigorous and we end up with a situation where the Department could not produce accounts, as required by law, until two months after the deadline set by law, and only then with the assistance of the Comptroller and Auditor General’s office. Furthermore, your Department spent £1.8 million more than was authorised by Parliament.

Can you explain how you could write that there are rigorous accounting procedures in your Department when such a mess was happening at the time you wrote that?

Mr. Dorr: Without wishing to avoid your basic question, may I be permitted, Chairman, to comment on the particular criticisms made? There are two Votes and there are criticisms as the Comptroller and Auditor General said in paragraphs 66 and 67 of his report.

In paragraph 66 the following, I think, are the key criticisms: the Appropriation Account was late - it was submitted in June rather than April; the Comptroller and Auditor General has pointed out that there were certain supporting documents, reconciliations and analyses which were not with the account. He drew that to our attention and these supporting documents have since been submitted to his satisfaction, I believe. There was a delay and there was a failure to back up with substantiating documents, but there was not an error, as I understand it, in the accounts.

I should also make the point that in November 1993 we introduced the new financial management system, which is a comprehensive computerisation of accounts. It is a system that has been widely adopted in Government Departments at present and it needed special adaptation for the Department of Foreign Affairs as we have a large number of foreign currency accounts and other distinctive differences from other Government Departments.

We had some difficulties in introducing that system towards the end of a financial year in November. My simple explanation of what happened is that staff in the accounts branch were wrestling with and helping to introduce this system. It is now up and running and on line; the initial bugs have been sorted out and it is quite an impressive system which should ensure that this does not happen again. I regret what happened and I accept the criticism. I repeat that there was a failure to supply documentation and the Appropriation Account was late, but, I believe, all the documentation required has now been supplied.

Furthermore, insofar as the Comptroller and Auditor General has criticised, as he sees it, the inattention, we have taken that to heart. We have produced comprehensive manuals for the new system. We are ensuring training at the most basic level for everybody involved and we have already had some courses of that kind. We are, of course, in close touch with the Comptroller and Auditor General on the FMS system which is, since November 1993, up and running.

On the international co-operation side, where the excess Vote is necessary as the £1.8 million excess occurred, I would set out under four headings: what happened, how and why it happened, what the consequences are and what we have done to ensure that it will not happen again. It may take a few minutes but it may be helpful to the Committee and the Chairman.

What happened is that within the Vote for International Co-operation there is subhead C which relates to bilateral aid, which, as the Comptroller and Auditor General said, is treated as a grant-in-aid. The rules for a grant-in-aid are that one may carry forward a surplus from one year to the next but one may not exceed the total available for the grant-in-aid. The bilateral aid programme is administered by our Development Aid Division in Harcourt Street and it issues instructions for payment to our accounts branch in St. Stephen’s Green. The usual types of payment might be salaries, moneys transferred abroad to our development offices in Africa or elsewhere, or it could be some direct purchases made in Dublin for the bilateral aid programme.

The total available for spending in that year, that is to say, the grant-in-aid was £15.7 million - I am rounding the figures. This was made up of two elements: one was about £400,000 carried forward from the previous year in accordance with the rules for grant-in-aid, and the other was £15.3 million voted by the Dáil, giving a total of roughly £15.7 million. The total of instructions issued for payment to the accounts branch from the Development Aid Division was greater at £17.5 million - it exceeded the amount that should have been issued by £1.8 million.

Within that £1.8 million excess, however - I simply make the point in passing - about £1.3 million was on hand abroad in bank accounts of our development offices. It was under the control of the Department in bank accounts abroad for projects etc., but under the rules of grant-in-aid it was treated as already spent once it issued from the Department to the development offices. There was a further £400,000 which makes up the total of £1.8 million which cannot be accounted for in that way.

The third point is how and why that happened. I regret that it took place - it was wrong and should not have happened. The main reason was that the Development Aid Division at desk level in Dublin was anxious at the end of the year to keep the accounts of our development offices abroad replenished so that the projects could continue. In retrospect, now that we have checked it out, the procedures were not watertight in ensuring that they would not go over the total by the end of the financial year.

There were two ways in which that might have been checked out: one is within the Development Co-operation Division itself, where a running total should have been kept. It was supposed to be kept but it was kept by a co-ordination section and, with change of staff, not everybody kept the co-ordination section fully informed.

The second way was the safety net, if one could say that, of the Accounts branch which could have warned that the limit was being breached towards the end of December. They were preoccupied with introducing the financial management system in November and they did not at that point check the total spending of the Development Aid Division. The result is an excess at the end of the year of £1.8 million more than was available for spending in that year. However, it spilled over into the next year, 1994, spending for which will be correspondingly reduced and the consequence will be that total development aid spending under bilateral aid for both years taken together will be exactly the amount voted. However, that does not excuse the financial procedures error. I accept that it was wrong. It meant that more money was transferred out before the end of the financial year than should have been. The net consequence, taking both years together, will be that the total spend will not exceed what will have been voted for the two years by the Dáil.

What have we done about this? First, we employed a chartered accountant as an internal auditor in the Development Aid Division from 4 July last. He has comprehensive terms of reference and his immediate mandate is to study all our accounting procedures and make recommendations. We have taken some interim steps before he makes his recommendations. One step is to place the co-ordination section as a narrow channel between the Development Aid Division and the Accounts branch. No instruction for payment may issue from the Development Aid Division to the accounts branch without passing through and being stamped by that channel. A full total is therefore kept in advance of payment. Secondly, no instruction for payment may be issued without two signatures. Thirdly, we have looked at the levels at which signatures are authorised and we have introduced new rules in that regard. Fourthly, we have issued comprehensive instructions, pending the report of the internal auditor, to all the staff concerned. The foregoing applies to the Development Aid Division.

With regard to the Accounts branch we have the new computer system which is the FMS I described. It has been up and running since November and at the touch of a button it gives the running total. The Accounts branch can now, within 30 seconds, give the total that has been spent on development aid. Furthermore, we are working on extending that within the next six months or a year so that the line managers, including those in the Development Aid Division, will have a readout of what they have spent available on their own computers.

In summary, total spending for 1993 exceeded the amount available by £1.8 million. Of that sum, £1.3 million was still in our control abroad but that makes no difference because it came from a grant-in-aid and should not have been transferred. A sum of £400,000 was completely excess. We have introduced new procedures. The net outcome will be that the total for both years, irrespective of the excess Vote which is needed to regularise the situation, will not exceed what was voted for those years.

With regard to the point made about the accounts branch I, as Accounting Officer, take full responsibility. Obviously, however, that must be carried out in detail down the line by people who should be, and I believed were, fully aware of the procedures. It has become clear that there were failures there and our concern at this stage is to ensure that everybody is fully aware of the situation. We will be greatly helped by the new financial management system which with the touch of a button gives us a readout.

My final point on the development aid excess is that it is a salutary lesson. It reminds us that, concerned as we are to increase spending in order to increase our percentage of development aid, it is absolutely vital that proper financial procedures be observed. Those procedures are now in place.

Deputy Durkan: What is the system for transmitting funds to overseas development branches? How are they physically sent to those locations? The system could have a bearing on the worries raised by some people working in development aid about the availability of funds toward the end of the year and particularly during the holiday period. Has the system been improved aside from the manner which you have described within the service?

I accept that procedures have changed for the better in the Accounts branch. Surely, however, it should have been possible towards the end of 1993 for the Accounts branch to alert the Accounting Officer to the overspend? I would have thought that using even the most rudimentary accounting systems they should have been alert to it and should have alerted the Accounting Officer.

Mr. Dorr: On the first point the difficulty is that we are dealing with underdeveloped countries, where the banking system, the currency and the inflation problem is rather different from here. The unit of currency in Zambia is the Kwacha; in the latter part of 1993, which is the period under discussion, it was first devalued by 60 per cent and then revalued upwards by 100 per cent within months. We are trying to help these countries through our projects but if one is dealing with a country where the currency fluctuates so wildly in such a short time, one is in a difficult position, especially if the banking system is not well developed.

We have been trying to wrestle with this problem and we considered whether we should change the money into Kwachas in Dublin before transferring it, or if we should change it in Zambia. We kept in mind how best to benefit the country from these currency fluctuations. I am subject to correction but I understand we have managed to open a hard currency account in Zambia to handle the money. However the banking rules in some countries are much more restrictive than here, the banking system is less developed, and the currencies are fluctuating, all of which is an indication of the poverty in these countries.

We are trying to help on the ground through our development aid and bilateral aid programme but there are problems of this kind which would not apply in a developed country. The hyper-inflation in Zambia may account in part for some of this end of year difficulty. Our Zambian development office asked in September for a transfer of money to top up its account, yet because of the sudden fluctuations in currency it did not spend much of that money until the following year.

Our concern in Dublin is to keep projects going; it would be a pity to tell people involved in the projects that there would be no more money until the next financial year. This is not an excuse for a failure in procedure, I am answering the question about what we are trying to cope with and to what extent one can apply the most rigorous time scales which I agree are desirable. I am told the Zambian inflation rate for 1993 averaged 190 per cent.

Secondly, I was asked why a running total of what had been spent was not available as we approached the end of the year. I acknowledged that that was not adequately watched; it is the safety net which should have prevented difficulties. The Development Aid Division originated the spending and if it was not fully aware of its spending up to the end of the financial year -- how much was left or how much it was likely to over spend -- then the Accounts branch should have been.

As I said earlier we introduced a financial management system and computerised this area in November 1993 and this happened in December. This should have been done and it was not. Now it can be done at the touch of a button. I sat at a computer yesterday and someone showed me what the total development aid spending was at that moment. I am sure this is possible now; it was not adequately done last December and I regret that.

Deputy Durkan: Given the need to ensure various development projects did not flounder through lack of finances at the end of the year, if the touch of a button shows there is a shortage, what happens?

Mr. Dorr: I hope that through the year, the money will be managed well enough for us to come safely into harbour at the end of the financial year. We must do so; that is the rule and we must observe it. We inadvertently did not do so last year but we now have systems which will keep us informed month by month. It will be a matter of ensuring, first that we spend all that was voted, and second that we do not exceed what was voted plus whatever was carried forward.

Deputy Durkan: How will that be transmitted to the officers in the field and the various agencies in receipt of and with access to such funds? Is this regularly communicated to them to ensure we do not have the peaks and valleys mentioned and do not run into difficulties at the end of the year?

Mr. Dorr: Yes. I am told the new FMS or financial management system, as the new computerised system is called, along with further work being done at present, will allow people to obtain the running total on their own computers. They can key into the system and check exactly what the position is; not alone can the Accounts branch do that but the people dealing with the details can also.

We have issued strong instructions to everyone concerned with spending, following what has happened. As I said earlier, we have a chartered accountant on a two to three year contract since 4 July. He is an internal auditor whose first mandate is to report fully on our systems and ensure any further tightening will be done. We believe we have tightened spending procedures but he will cast an expert eye over the matter.

We considered whether we should also seek to recruit a full professional accountant for the Accounts branch. At present it is staffed from the general service grade but in the light of these events we have considered recruiting a chartered accountant to run the system. There would be differences between Government accounting and that in the private sector but we will consider that point.

Deputy Durkan: Would any costs involved not be justified as a safety measure? It might avert problems such as arose on this occasion, or some similar problem we have not identified but which might arise in the future.

Mr. Dorr: That is what we are considering. It does not necessarily follow that a qualified accountant recruited from outside would have more expertise in Government accounting systems than someone who has worked in those systems for a number of years and is a general Civil Service officer. However we are considering whether the additional skills, abilities and qualifications such a person would bring are desirable. Some people within the system have accounting qualifications but I am considering recruiting a full time professional person for that post.

There was a third question.

Deputy Durkan: Yes; the witness said the exact amount voted would be spent in the two years 1993 and 1994. Could that not become a self-fulfilling prophecy if applied to other Departments? It could lead to many difficulties.

Mr. Dorr: I am not using it as a justification. The money for 1994 has already been voted. We are in touch with the Department of Finance and will ensure the expenditure for 1994 will be reduced by the amount of the excess from last year. In other words, we will not spend more than was voted for the two years taken together.

I am not using this as a justification in advance, nor am I saying it is desirable. I am simply saying that as a matter of fact, because we spilled over at the end of the last financial year and spent £1.8 million more than we should have, we will ensure that that money will be taken from this year’s money. Thus the figure for the two years taken together will be the same amount as voted by the Dáil.

Deputy Durkan: You could ask if any particular projects lost or gained as a result of this.

Mr. Dorr: The exact amount of money voted by the Dáil for the two years together will be spent.

Deputy Byrne: I do not think we can over-emphasise the difficulties we have with the procedures adopted. I wish to refer to Vote 38 later. I now want to ask, maybe in a different way to Deputy Durkan, why the £1.359 million which was held over was not spent. There are so many aid programmes to which we were anxious to give support. In that year many of those who were anticipating support were short-changed. I also want to establish how the Department could stash away this amount of money without this being noticed by the Department of Finance, which is generally on the ball. If this happened in the private sector, it is possible that the person responsible would be held personally responsible for this. Sloppy accounting is the most polite phrase I can use to describe it.

Mr. Dorr: There was no money stashed away. There is a continuing transfer of funds every month or two, when it is needed, to our development offices abroad to allow them to keep the projects going on the ground. The end of the 1993 financial year intervened and in the circumstances I have described the total transferred for the year at that point exceeded what should have been transferred. In real terms on the ground this is a continuing operation. It is not correct to say the money was not spent, it is being transferred at regular intervals and is being spent.

Mr. Byrne: This could be said of any Department.

Mr. Dorr: I am simply trying to explain that there are a series of “branch offices” on the ground in Zambia, Tanzania and elsewhere which have project accounts. There are projects involving such things as water pumps and the building of schools. They need money every so often to pay for these and money is transferred at their request every couple of months of so, granted the difficulties in the banking system about which I talked. This is a continuous process. Of course, according to proper financial procedures, at the end of the financial year we must be sure that the amount already transferred out has not exceeded what should have been sent out. Although there is the constraint of having to take account of financial years, it is a continuing process. The money is not stashed away but is transferred out and spent on the ground. When more money is needed it is transferred out. But one has to make sure under the financial procedures that by 31 December each year, since it is a grant-in-aid vote, that one has not inadvertently transferred out more than was available for the year.

This may complicate matters if I say this but in our other Vote, the Foreign Affairs one, we are also in a similar position of transferring money regularly to embassies abroad to pay for their costs on the ground. In this case the money transferred to them and held in their bank accounts and not yet spent counts as cash on hand but not as money spent. There is a difference here because we are dealing with a grant-in-aid. The rules are clear that the moment the money is transferred from Dublin to the “branch office” in, say, Zambia, it is counted as spent, even though the “branch office” still has it in its bank account and it could be returned if we wanted this.

Chairman: These lengthy explanations do not hide the fact that you did not know the state of your accounts for up to six months after the close of the financial year. This is retrospective. You could not abide by the laws laid down by the Oireachtas to report and hand over your papers to the Comptroller and Auditor General by 30 April. On that date you did not know what your accounts were. It took an effort on the part of the Comptroller and Auditor General’s office to help you to resolve your accounts two months late. This is very serious. You said that no money was stashed away and that there was no error. It is the mercy of God that there was no error. You were not in control of your accounts.

Mr. Dorr: As Accounting Officer I take responsibility. I acknowledge and accept the Appropriation Account was two months late. I think it was available in June, I am subject to correction on this. It still required some supporting details which have since been supplied.

Chairman: Your Department, even after the elapse of four months, when it was due to report to the Comptroller and Auditor General, was still not able to produce proper accounts. It took six months to do this with the assistance of the Comptroller and Auditor General’s office. We should not under-estimate the seriousness of this. Deputy Byrne has raised this question. Does anybody in our public service accept personal responsibility and the consequences of this?

Mr. Dorr: I have said that I am the Accounting Officer and accept personal responsibility.

Chairman: What penalty will be imposed for this failure to abide by the financial procedures laid down and the law of the land?

Mr. Dorr: I cannot easily answer that question but I accept responsibility in the circumstances I have described, that is, that the Appropriation Account was two months late and that there were certain substantiating documents which were required, which were not immediately available but have since been supplied. I also accept responsibility for the overspill - the excess. I am sorry if I have gone on at some length but I have tried to explain the circumstances to clarify the issue. The introduction of a new comprehensive computerisation system in November 1993 is a partial explanation - but not an extenuation - because people in the Department were wrestling with this.

Chairman: My own discipline is computers and I know very well that one does not introduce a new system without a prolonged parallel running of it with the old one until all the bugs are ironed out of it. It is very clear that this did not happen in the Department. Is this correct?

Mr. Dorr: We were under certain time constraints. In December 1993 the central computer in Kilmainham was to be closed down and the old system which was about ten years old depended on this. We had to await the testing of the new system in another Department where it was introduced on a pilot basis in the latter half of 1991. There was a certain constraint on either side. We engaged a consultant in early 1992 to assist us and we had a project team working on it. I am not saying that this accounts for everything. I am accepting responsibility but am saying that in parallel with these events the Accounts branch was wrestling with a new system. Even with the best will in the world, there are things to be straightened out in any new system.

Chairman: For how long are you Accounting Officer?

Mr. Dorr: Since 1987.

Chairman: Are you familiar with the same problem which arose in the United Kingdom Foreign Office in 1989 or 1990?

Mr. Dorr: I am aware that a problem arose and do not think it was the same one. I have not said that there is anything wrong. I have said that the people dealing with these accounts were wrestling with getting a new system on line a month before the end of the financial year. In the UK there was complete confusion in the computerisation system and they had a difficult time with their Public Accounts Committee but I do not think it was the same problem.

Chairman: Paragraph one of the report of the British Comptroller and Auditor General states that:

In essence the problems associated with the introduction of a new computerised accounting system had resulted in considerable imbalances which the Department were unable to resolve before the statutory deadline for submitting their annual accounts to me.

It is precisely the same problem. I am surprised that your Department did not recognise the problems the UK Foreign Office had in precisely the same situation and learned from them. To repeat those mistakes virtually in toto adds greatly to the egg on your face.

Mr. Dorr: The point I was making was that in their case, as I understand it and I am subject to correction, the new system gave them wrong results or caused problems for them. We should have done the things which were required, but the people who would normally have done those things adequately were at the same time wrestling with the new system. I am not saying the new system caused the mistakes, but the people were preoccupied in parallel with trying to introduce a new system. I accept responsibility and I am only explaining the circumstances behind it.

Chairman: Has anyone in your Department been criticised, penalised, demoted or otherwise for this fiasco?

Mr. Dorr: No, but I acknowledge that I, as Accounting Officer, am responsible.

Chairman: You are now in an embarrassing situation due to the failure of your accounting and financial organisation and procedures. Given this highly critical report of the Comptroller and Auditor General, I am greatly surprised that no steps have been taken. Does the fact that nobody is held to account not show what is wrong with the public service? There is no sanction for poor performance.

Mr. Dorr: I do not see it as a matter which can be pinned on one individual. I accept that the system has not adequately followed the procedures required. I am responsible for that system and I have done everything possible since then to ensure that it will not happen again and that the systems are now improved. However, it would not have helped to pick one person at junior level and say they were responsible for what happened.

Chairman: I did not suggest someone at junior level. I said that nobody had been censured or criticised for this fiasco. That seems extraordinary.

Mr. Dorr: I did not wish to refer to staff changes and illnesses, but if you are focusing on the fact that someone should be punished, I must tell you that last year the Assistant Principal, who was running the accounts branch, had a long-term illness. He had to be replaced and it took a long time before the change was made. I deliberately did not wish to adduce that as it might appear like an excuse. My judgment as the officer responsible - and I have gone into it in great detail - is that one or two people cannot be blamed as the people responsible. There have been inadequacies in our system, which have not led to fraud, but to a breach of procedures and I accept full responsibility for that. However, I share your general concern that people should take responsibility. This is not a case where I could point to one or two people as being responsible and blame them in some way. I take responsibility for this.

Chairman: Since I became Chairman of this Committee, nobody has ever been held responsible in the public service. It is one of the weaknesses of our public service that no matter what inefficiency exists, there is no penalty. We must try to change this, otherwise we will not get performance. Is it correct that there is a management committee which consists of yourself and six Assistant Secretaries?

Mr. Dorr: Yes.

Chairman: Did the management committee oversee the introduction of the new financial system? Did it discuss it?

Mr. Dorr: Yes, we had a report on its introduction in advance, but the management committee did not go into it in great detail because each Assistant Secretary is dealing with a particular area and this would have been primarily a matter for the administration division, in consultation with the suppliers, the Department of Finance and the other Departments where the system was being tried out. The system required considerable modification to meet our needs because our Department has offices abroad working in foreign currencies. The management committee saw a general report, but it was not discussed and could not be discussed in great detail.

Chairman: What is the meaning of a management committee which does not address the finances? One of the problems which comes across in the UK report and here is that your Department is so bound up in diplomacy and politics, which are important matters, for example, Northern Ireland and the EU, that other important issues, such as financial controls, are not treated as important by your management committee. You must correct this situation.

Mr. Dorr: The management committee consists of the six heads of divisions, under my chairmanship. Each division has its own area of responsibility, economic, political, Anglo-Irish and so on. One of these people is the head of the administration division and she is here with me. That division is responsible for administration and accounting. On the basis of a preliminary report from her, the management committee discussed what was happening and the introduction of a new system. I do not believe that a detailed discussion by the management committee of how this would work, as distinct from a discussion with the Secretary, the head of the administration division and down the line, would have added to the situation. However, the management committee discussed it and we exchanged views on the different issues which arise in the different divisions. We co-ordinate positions, talk about them, exchange views and so on. The line of command goes from me to the Assistant Secretary concerned and down through the division to the people dealing with the issue. The management committee discussed it, but I am not sure that a full and more thorough discussion by people who are not experts in the area and who are dealing with other matters, would have added greatly to it.

Deputy Byrne: The message is not getting through that we are concerned about the procedures adopted by this Department. It is implicit in replies we have heard that the Department believes it has immunity from proper procedures. We are not talking about pocket money, but about £1.359 million, which is an enormous sum of money. Someone, if not Mr. Dorr, is responsible for this. Did Mr. Dorr carry out an investigation in the Department when he discovered this faux pas?

Mr. Dorr: As you can imagine, it is not only the Committee which is concerned about this issue, I am also concerned about it. As far as I know, this is the first time this has ever happened in the Department. It is many years since there was a question about excess Votes. I am deeply concerned to put it right. Perhaps I am talking too much about this money, but it was not misspent. It was spent on a continuing basis.

Chairman: It is only a blessing because you did not know that. It was only the luck of God that it was not misspent because you did not have control over it.

Deputy Byrne: I asked if an investigation was carried out in the Department to find out where this started to go wrong.

Mr. Dorr: An investigation did take place.

Deputy Byrne: What was the result of the investigation?

Mr. Dorr: I tried to explain the result.

Deputy Byrne: I want a simple answer, not a five minute speech because I heard and I accept all you said. What was the result of the investigation you carried out?

Mr. Dorr: Do you mean what are we doing for the future or what happened in the past?

Deputy Byrne: I want to know what happened as a result of your investigation. That is a simple question.

Mr. Dorr: The cumulative total of the instructions the desk officers issued to the accounts branch for payment in the different areas was greater than it should have been at 31 December. When we investigated that we found that some of them were not adequately aware of the need to keep a co-ordination section fully informed of each instruction so that a running total could be kept. In order to change that, we put the co-ordination section in the direct line so that no one can now issue an instruction unless it goes through that section. I hope I am not giving too much detail.

Deputy Byrne: You are being very much under detailed.

Mr. Dorr: With great respect, my dilemma is that I can either go into detail in which case it becomes a bit long or I can give a very brief answer. I am willing to do either.

Chairman: I appreciate that and the fact that you are being helpful to the Committee. The Committee is highly incensed with this report. I, for one, am not at all satisfied with the explanations given or the performance of the Department. I am extremely concerned about it and take a very serious view of it.

Deputy Byrne: I asked a question earlier which should be answered before we go any further. The sum of £1.359 million was obviously intended for some aid programmes. It is now suggested that it was spent in the following year. Were the programmes for which this was intended in the first instance supported?

Mr. Dorr: The programmes are continuous and they are being supported. There has been no failure to support any programme. The money has been transferred out and the programmes have been supported. Under the rules and financial procedures the total transferred out at the end of the year should not have been as great as it was because it was a grant-in-aid.

The reality of the transfers and the work being done on the ground is that it is a continuous process. There is no failure there and no gap or holding back on projects or money. Please do not think that I am excusing it; I am saying that it was wrong and I am taking responsibility. The financial accounting rules required that we should have been careful that the total transferred out at the end of the year was not more than what was available for that year. There was no gap on the ground in the actual transfer. That was and still is a continuous process.

Deputy Byrne: How many people are working in the accounts branch in total?

Mr. Dorr: I have already given the approximate figure of 25 staff headed by an assistant principal as accountant. He reports to a finance officer who is at principal officer level and ultimately to the head of the administration division.

Deputy Byrne: This seems an enormous mistake to have been made with such a large staff. I will make no further comment on that. Office machinery and other supplies amounted to £3 million. I understand that is a computer system. A sum of £3 million for a computer system to a lay person such as myself or an ordinary taxpayer would seem excessive. This is combined with the employment of a chartered accountant.

I have never heard of a computer system costing anywhere near this amount. Why did it cost so much? Did you install a system which was not functional and which had to be replaced? Why was there such an overrun?

Mr. Dorr: I am subject to correction but the total amount was not spent simply on a computer system. Under subhead A5, office machinery and other supplies, the expenditure was £2.9 million. Approximately 24 per cent of that was spent on computer and telecommunications equipment in 1993 and 67 per cent was spent on printing, binding, stationery services, photocopying and other office machinery.

We have introduced a comprehensive computerised system for financial management. We are glad that it is up and running, subject to a few bugs which have to be sorted out. It will ensure that the problems we encountered do not happen again. It is not the case that we spent £3 million on a computer system. Out of the £3 million only 24 per cent went on computer and telecommunications equipment. I am sure the Deputy will understand that the Department of Foreign Affairs depends very heavily on information and information exchange.

Deputy Byrne: You are talking about a computer costing approximately £0.8 million.

Mr. Dorr: I will check but that is probably right.

Deputy O’Malley: I have one question for Mr. Dorr. I compliment him on taking responsibility for this matter and not wheeling out an Assistant Secretary to take the blame as seems to be the fashion these days. There is an excess in this Vote of £1,803,859. I understand from what I heard of Mr. Dorr’s evidence that this was transferred abroad to various offices, presumably mainly in Africa because of its nature.

How did Mr. Dorr have the money to transfer this excess amount abroad? Had the money been obtained from the Department of Finance? If there was only a set amount of money in the grant-in-aid in addition to what could be carried forward from the previous year, how did the Department succeed in transferring more than £1.8 million? Had it been drawn down from the Department of Finance or the Exchequer?

Mr. Dorr: We are not talking about physical money; we are talking about accounting. We discovered that the total of our payment requests exceeded what should have been transferred under that heading because it was a grant-in-aid. That was a subhead within a much wider Vote. The cumulative total of the requests for transfers exceeded the amount that the grant-in-aid rules would have permitted. However, it was not actually a physical transfer of money. I think that is the answer.

Chairman: Are you sure that is the answer?

Mr. Dorr: May I consult for a moment?

Chairman: The Comptroller and Auditor General wishes to make a statement.

Mr. McDonnell: I may be able to help the Accounting Officer with an explanation for Deputy O’Malley. The Paymaster General is the banker for all the Departments. Within his balance, if the Department draws a cheque for £1.8 million, it will be honoured by the Paymaster General. They would not have had the right to do that because their allocation from the Exchequer would not have covered it but nonetheless the payable order would have been drawn by the Department to transfer the funds. That is how an excess Vote can occur.

One can ask how can one spend money one does not have. Departments do so on an ongoing basis and are issuing payable orders which are drawn on the Paymaster General’s account. The Paymaster General’s account, in terms of the amount allocated to the Department of Foreign Affairs, would be overdrawn but others would be under drawn and therefore the total balance would not be overdrawn.

Deputy O’Malley: It is just the mechanics of the thing. I understood that Iveagh House drew down the amount of their grant-in-aid and dispersed it from Iveagh House but it does not physically go into an Iveagh House account. They simply write the cheques on the Paymaster General. I presume all the cheques were honoured even though there was an excess.

Mr. McDonnell: Yes, because when Departments draw from the Exchequer, it is transferred from the Exchequer account to the Paymaster General’s account and various Departments draw on that in the amount that has been voted for them. The Paymaster General’s account for supply services is one account. It has a number of component parts but it is one account in the Central Bank.

Chairman: Mr. Dorr, would you like to revise your statement that it does not mean that money was transferred to the accounts abroad?

Mr. Dorr: Perhaps it was an inadequate answer and I accept that. This may be a dangerous analogy but I see it as roughly analogous to a private person writing cheques on a bank account and not keeping a full record of cheques stubs to know exactly where they stand but the bank nevertheless honouring the cheques. I do not know whether that is a poor analogy or a dangerous analogy but that is how I see it. It is, if you like, a matter of the bank honouring the cheque, as the Comptroller and Auditor General said. What has been revealed is that our effort to keep the cheques’ stubs total correct was inadequate and the amounts transferred spilled over because the rules allowed us to draw only a certain amount to the end of the financial year even though by taking one year with another, we will ensure that we do not go beyond the amount provided. The answer is that they nevertheless honoured our cheques.

Chairman: I will summarise this matter now. There are two problems as I see it. First, your Department exceeded the amounts permitted by the Dáil and, second, it was not able to reach a reasonable explanation for this for at least six months. I have a statement which I propose to the Committee. It reads:

The incurring of excess expenditure over and above that provided by Dáil Éireann strikes at the root of Parliamentary control of finance and therefore must be regarded as a grave contravention of one of the most basic principles underlying the financial administrative structure of the State.

Excess Votes are rare enough but some have come before this Committee in the past, although in the main they have been more in the nature of unavoidable technical excesses. This is clearly not so in this case which arose because of the failure to have in place a proper system which would have alerted the Department about its accumulating expenditure and would have put it in a position to do something about it before it was too late. This is totally unacceptable to the Committee and reflects very badly on the Accounting Officer’s stewardship. The fact that the stable door is being locked after the horse has bolted does little to mitigate culpability.

In normal circumstances this Committee makes a report on the excess in which it states that it sees no objection to the sum being provided by Dáil Éireann by way of an excess Vote, but I do not see how the Committee could take such a view in this case. Obviously the matter has to be regularised in some way and with this in mind I think the Committee must have an assurance from the Accounting Officer that the system is changed in such a way that something like this can never happen again. In my opinion it is only on receipt of this assurance that the Committee could see its way, and then only with the greatest reluctance, to recommending the provision of an excess Vote to Dáil Éireann.

Accordingly, I propose that the Committee request the Comptroller and Auditor General to undertake an immediate inspection of the accounts of the Department of Foreign Affairs to see if those accounts have been brought up to date in the manner suggested by the Accounting Officer, if they are now in an acceptable condition and to report back to this Committee if possible by 30 November so that the Committee can take decisions in relation to an Interim Report to the Dáil in the current financial year. I would like to ask the Comptroller and Audit General if that request is acceptable or feasible and I will then put the proposal to the Committee.

Mr. McDonnell: I think it would be feasible. We will endeavour to meet the timetable which has been set. We will have to assign somebody to do this, but we will make every effort in this regard.

Chairman: Is that agreed?

AGREED.

Deputy O’Malley: Are we in danger of making a meal of this? There is a serious breach of procedure, but there is no suggestion that any of this money went astray in the sense that it was misappropriated - I would be more concerned about that. If it can be adjusted over a two year period, I do not know whether in the long term harm has been done, although I agree that what happened in 1993 was undesirable. What will happen if we do not recommend, for example, an excess Vote to the Dáil?

Chairman: That is a good question.

Deputy O’Malley: I see the Chairman’s reluctance to do this, but if we do not do it what will happen?

Chairman: That is something which we would have to consider. It is a serious hypothetical question. The fact that it could arise reflects on the seriousness of this issue. The Committee must take cognisance of the fact that not only are we addressing the question of mismanagement in the Department of Foreign Affairs, but we are sending out a message to other Accounting Officers that they must be more on top of the financial control of their Departments than is evident in this case. This Committee is here to hold them to account.

I do not believe that we could propose to the Dáil that the situation be regularised unless we are satisfied that the accounting procedures within the Department of Foreign Affairs are in an acceptable state. That is a reasonable request. If it is acceptable to the Committee, we will consider this matter further at the first meeting in December at which we will go into greater detail on the Votes on Overseas Development Aid and, indeed, the Department of Foreign Affairs. This section is now adjourned and I would like to thank Mr. Dorr. We have adjourned items 4, 5 and 6 until that date and we will now return to item 2 on the agenda, the nomination by Dáil Éireann of a new Comptroller and Auditor General for appointment by the President.

The Witness withdrew.