Committee Reports > List of Committees > Dáil > 1996 > Committee of Public Accounts > Third Interim Report - Appropriation Accounts 1994

DÁIL ÉIREANN

COMMITTEE OF PUBLIC ACCOUNTS

THIRD INTERIM REPORT ON THE APPROPRIATION ACCOUNTS 1994

DÁIL ÉIREANN

COMMITTEE OF PUBLIC ACCOUNTS

THIRD INTERIM REPORT ON THE APPROPRIATION ACCOUNTS 1994

Pn. No. 2485.

TABLE OF CONTENTS

MINUTES OF EVIDENCE

List of Appendices

COMMITTEE OF PUBLIC ACCOUNTS

ORDERS OF REFERENCE

3 March 1993

ORDERED

“That, in pursuance of Standing Order No. 130* of the Standing Orders relative to Public Business, the Committee of Public Accounts be appointed”.

11 March 1993

Committee appointed consisting of Deputies Jim Mitchell (Chairman), Michael Ahern, Tommy Broughan, Hugh Byrne, Martin Cullen, Seán Doherty, Bernard J. Durkan, Denis Foley, Pádraic McCormack, James McDaid, Pat Rabbitte and Pat Upton.

29 April 1993

Deputy Batt O’Keeffe appointed in place of Deputy Michael Ahern.

30 November 1993

Deputy Desmond O’Malley appointed in place of Deputy Martin Cullen.

24 January 1995

All Committee members discharged by Order of the Dáil.

9 March 1995

Committee appointed consisting of Deputies Tommy Broughan, Eric Byrne, Seán Doherty, John Ellis, Michael Finucane, Denis Foley, Phil Hogan, Pádraic McCormack, Batt O’Keeffe, Ned O’Keeffe, Desmond J. O’Malley and Pat Upton.

14 March 1995

Deputy Denis Foley was elected as Chairman of the Committee.

STANDING ORDER 131 AS AMENDED BY RESOLUTION OF DÁIL ÉIREANN OF 3 MARCH 1994

131. (1)Chomh luath agus is féidir i ndiaidh ationól na Dála tar éis Olltoghcháin ceapfar Roghchoiste, dá ngairfear an Coiste um Chuntais Phoiblí, chun scrúdú a dhéanamh agus tuarascáil a thabhairt don Dáil:

(a)ar na cuntais ina dtaispeánfar leithreasú na suimeanna a bheidh deonaithe ag an Dáil le haghaidh an chaiteachais phoiblí agus cibé cuntais eile is cuí leo (nach cuntais daoine a áirítear sa Dara Sceideal d’Acht an Ard-Reachtaire Cuntas agus Ciste (Leasú), 1993) a bheidh iniúchta ag an Ard-Reachtaire Cuntas agus Ciste agus tíolactha don Dáil, maille le haon tuarascálacha ón Ard-Reachtaire Cuntas agus Ciste orthu:

Ar choinníoll, maidir le cuntais seachas Cuntais Leithreasa, nach scrúdóidh an Coiste ach cuntais do bhliain airgeadais dar tús tráth nach luaithe ná 1 Eanáir, 1994:

(b)ar thuarascálacha an Ard-Reachtaire Cuntas agus Ciste maidir lena chuid scrúduithe ar bharainneacht, eifeachtacht, córais mheasúnaithe eifeachtúlachta, nósanna imeachta agus cleachtais; agus

(c)ar thuarascálacha eile a dhéanfaidh an tArd-Reachtaire Cuntas agus Ciste faoin Acht.

Thairis sin, molfaidh an Coiste athruithe agus feabhsúcháin ar leagan amach na Meastachán a chuirfear faoi bhráid na Dála.

131. (1)As soon as may be following the reassembly of the Dáil subsequent to a General Election there shall be appointed a Select Committee, to be known as the Committee of Public Accounts to examine and report to the Dáil upon:

(a)the accounts showing the appropriation of the sums granted by the Dáil to meet the public expenditure and such other accounts as they see fit (not being accounts of persons included in the Second Schedule of the Comptroller and Auditor General (Amendment) Act, 1993) which are audited by the Comptroller and Auditor General and presented to the Dáil, together with any reports by the Comptroller and Auditor General thereon:

Provided that in relation toaccounts other than Appropriation Accounts, only accounts for a financial year beginning not earlier than 1 January, 1994, shall be examined by the Committee:

(b)the Comptroller and Auditor General’s reports on his examinations of economy, efficiency, effectiveness evaluation systems, procedures and practices; and

(c)other reports carried out by the Comptroller and Auditor General under the Act.

The Committee shall also suggest alterations and improvements in the form of the Estimates submitted to the Dáil.

(2)Féadfaidh an Coiste dul ar aghaidh lena scrúdú ar chuntas nó ar thuarascáil ón Ard-Reachtaire Cuntas agus Ciste am ar bith tar éis don chuntas nó don tuarascáil sin a bheith tíolactha do Dháil Éireann agus

(a)beidh an chumhacht ag an gCoiste fios a chur ar dhaoine, ar pháipéir agus ar thaifid;

(b)déanfar gach tuarascáil a bheartóidh an Coiste a thabhairt, arna glacadh ag an gCoiste, a leagan faoi bhráid na Dála láithreach agus as a aithle sin beidh ar chumas an Choiste an tuarascáil sin, mar aon le cibé doiciméid ghaolmhara is cuí leis, a chlóbhualadh agus a fhoilsiú agus

(c)déanfaidh an Coiste tuarascáil bhliantúil ar dhul chun cinn maidir lena chuid gníomhaíochtaí agus pleananna a thíolacadh do Dháil Éireann.

(3)Staonfaidh an Coiste ó fhaisnéis rúnda i ndáil le gníomhaíochtaí agus pleananna roinne nó oifige Rialtais, nó comhlachta a bheidh faoi réir iniúchta, scrúdaithe nó cigireachta ag an Ard-Reachtaire Cuntas agus Ciste, a fhiosrú i seisiún poiblí nó a fhoilsiú más rud é go n-iarrfaidh comhalta den Rialtas nó an comhlacht a bheidh i gceist air déanamh amhlaidh. Staonfaidh an Coiste freisin ó fhiosrú a dhéanamh maidir leis na fiúntais a ghabhann le beartas nó beartais de chuid an Rialtais nó Aire Rialtais nó maidir leis na fiúntais a ghabhann le cuspóirí na mbeartas sin.

(4)Gan dochar do neamhspleáchas an Ard-Reachtaire Cuntas agus Ciste maidir le cinneadh na hoibre a bheidh le cur

(2)The Committee may proceed with its examination of an account or a report of the Comptroller and Auditor General at any time after that account or report is presented to Dáil Éireann and

(a)the Committee shall have the power to send for persons, papers and records;

(b)every report which the Committee proposes to make shall, on adoption by the Committee, be laid before the Dáil forthwith whereupon the Committee shall be empowered to print and publish such report together with such related documents as it thinks fit; and

(c)the Committee shall present an annual progress report to Dáil Éireann on its activities and plans.

(3)The Committee shall refrain from enquiring into in public session, or publishing, confidential information regarding the activities and plans of a Government department or office, or of a body which is subject to audit, examination or inspection by the Comptroller and Auditor General, if so requested either by a member of the Government, or the body concerned. The Committee shall also refrain from enquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

(4)The Committee may, without prejudice to the independence of the Comptroller and Auditor General in determining the

PART I - GENERAL OBSERVATIONS

MINUTE OF THE MINISTER FOR FINANCE ON THE FIRST INTERIM REPORT OF THE COMMITTEE OF PUBLIC ACCOUNTS ON THE APPROPRIATION ACCOUNTS 1994

Excess Vote for Valuation and Ordnance Survey

The Minister notes that the Committee has no objection to the Dáil voting funds to meet the excess incurred on this Vote.

Given under the Official Seal of the Minister for Finance this 12th day of February 1996

P.H. Mullarkey

Secretary

Department of Finance

PART II - PARTICULAR ACCOUNTS

COMMITTEE OF PUBLIC ACCOUNTS

THIRD INTERIM REPORT ON THE APPROPRIATION ACCOUNTS 1994

PARTICULAR ACCOUNTS

SOCIAL WELFARE

1. Overpayments of Social Insurance and Social Assistance

The Committee noted that total overpayments of Social Insurance and Social Assistance, detected in 1994 amounted to £16 million. The Department attributed 60 per cent of all social insurance overpayments and 77 per cent of all social assistance overpayments to fraud or suspected fraud. The statistics also showed that fraud levels had increased from just over £12 million in 1993, but this was apparently due to better detection by the Department rather than to an increase in the number and value of overpayments. While recoveries had increased from £4 million in 1993 to £5.5 million in 1994, accumulated outstanding overpayments at the end of 1994 stood at £32 million. The pattern of previous years also continued in regard to the categories of benefit and assistance which were most susceptible to fraud.

In evidence, the Accounting Officer drew attention to the fact that there was an increase each year in the level of social welfare payments, and that some increase in overpayments was inevitable. He stated, however, that the Department now had a consistent programme of control and he also stressed the fact that, when the amount of Social Welfare transactions were taken into account, the amount of overpayments, at £16 million, is still an insignificant proportion of total Social Welfare payments during that year. The Committee was informed that the level of recoupment following overpayment is approximately 30-35 per cent.

He went on to state that the £5 million overpayment of social insurance and assistance, which was not attributable to fraud, had arisen through errors and misunderstandings and he outlined the ways in which they can be dealt with i.e. by better training of staff and better information and education of the public, both of which were being dealt with on an ongoing basis.

The Committee welcomes the action being taken by the Department to deal with the level of overpayments, but is concerned that such a high percentage was as a result of fraud. It will continue to keep the matter under review.

2. Unemployment Assistance and Unemployment Benefit

Over £1 billion is paid out each year by the Department of Social Welfare in unemployment payments through its network of local exchanges and offices, which are computerised.

In the course of audit at a local office in 1994, the Comptroller and Auditor General (C&AG) noted that control deficiencies, referred to in his 1992 Report, still existed. These deficiencies could facilitate the perpetration of internal fraud and attention was drawn to the fact that an irregularity had arisen at another office, which had been facilitated by the failure to carry out prescribed checking procedures. The matter was of some concern to the C&AG as it was not clear whether this irregularity was an isolated incident or whether deficiencies were widespread.

The Committee was informed by the Accounting Officer that a number of measures had been taken to address the problem particularly in relation to improvements in the computer system. In addition, regional managers had been requested to place more emphasis on ensuring that the staff in local offices know and implement the relevant instructions, as a matter of course. He also informed the Committee that almost all the instructions to local offices had been reviewed and rewritten in a form which would make them more easily understood and implemented by the local office staff.

While the Committee welcomes the actions now taken by the Department, it cannot emphasise enough the importance of management ensuring that the control procedures laid down are implemented in full by all staff. The Committee wants to be reassured that satisfactory controls are in place and that these are reviewed and revised constantly.

OFFICE OF PUBLIC WORKS

3. Sale of Merrion Street Houses

The report of the C&AG outlines in detail the circumstances surrounding the sale of 13 house properties at numbers 21£33 Merrion Street Dublin, which the Government decided to dispose of in July 1989 but for which acceptable offers were not made until late 1991.

The sale of the houses was dealt with in three lots, two of which, comprising eight of the houses, were sold with relative ease. The remaining lot posed a number of difficulties for the Office of Public Works (OPW). A contract for the sale of this lot was signed in December 1991 with a property development company. The agreed sale price was £821,000 and a deposit of £41,000 (5 per cent of the sale price) was paid.

Prior to the completion of the contract, the company was refused planning permission for its proposed development and instituted legal proceedings against OPW in respect of the terms of the contract. OPW, acting on legal advice, commenced an action for specific performance. In November 1993 the Supreme Court found in favour of OPW and as a result taxed costs of £37,800 were awarded. The following year OPW was successful in its action for specific performance. The company was unable to complete the purchase and the net result was the forfeiture of the deposit and a further bill for £66,000 in costs. The property was put on the market again and was sold for £621,000.

It emerged that normal tendering procedures were not applied in the appointment of the agents for the sale and that the advice given by the agents was incorrect in some instances, specifically in relation to the valuation of the property, which was valued by the agents at £400,000 whereas the OPW thought it should be at least £600,000, which was closer to the price actually received. In addition, it appeared that the original purchaser’s offer seemed to be, in their minds, conditional on the receipt of planning permission, an unusual condition by any standards which would not have been contemplated by the purchaser if the vendor had been a private sector organisation.

In evidence, the Accounting Officer agreed that the original purchaser appeared to be trying to treat the Office of Public Works in an uncommercial manner. He went on to state that the property section of the Office of Public Works had recently been strengthened considerably and had been operating in a fully commercial manner for a number of years. The Office had started and would continue to meet whatever commercial strengths set against it with equal strengths.

The Committee welcomes the OPW’s new commercial outlook and stresses that this should be encouraged. However, it is surprised at the method of the appointment of estate agents by the OPW and is concerned that the advice given by the agent was incorrect in this instance.

The Committee suggests that, in future, usual tendering procedures should apply in the appointment of estate agents and while the OPW did not appear to have been responsible for the delays and problems which arose, the sale of the buildings had turned into a long protracted process which was unfortunate from the taxpayers’ point of view. Situations such as this should be avoided as much as possible in the future.

FOREIGN AFFAIRS

4. Misappropriation of Visa Application Fees

In September 1994, misappropriations amounting to £685 were detected at the Passport Office in Dublin. In admitting to the offences, a member of staff also revealed that he had misappropriated visa application fees (amounting to some £7,000) on a number of occasions between 1989 and 1994. It transpired that this irregularity would not have been detected if the staff member had not admitted to it. The member of staff was suspended and subsequently resigned.

The Accounting Officer accepted that there had been an inadequacy in the Department’s control systems and stated that a review of all money handling procedures in the Consular section had taken place.

In evidence, the Accounting Officer explained that some of the money owing to the Department had been deducted from the employee’s salary during the time of his suspension. The official in question has since obtained employment and a schedule for the repayment of the money is being drawn up. In view of his personal problems it was decided that no prosecution would be made in relation to this matter.

In relation to financial controls in the Department, a new computer system has been put in place and new financial procedures have been introduced to ensure that the misappropriation cannot occur again. On being referred to a report from the Committee in 1991, expressing concern about passport controls in his Department, the Accounting Officer stated that the small Passport Office fraud would never have been detected if the revised controls in the Passport Office had not drawn attention to the irregularity.

The Committee accepts the assurances of the Accounting Officer but hopes that all proper controls are now in place in the Department. It wonders, however, if deducting pay, while the officer was suspended, was, in fact, a recovery and would like to be informed of the actual amount recouped.

ENTERPRISE AND EMPLOYMENT

5. Purchase of equipment and EU aid for the Metrology Services

The re-organisation of the weights and measures service, including the construction of regional offices and the acquisition of new equipment was expected to cost about £3.5 million, 75 per cent of which was to be provided in aid from the European Regional Development Fund.

As a result of delays in completing buildings and difficulties in reaching agreements with the various staff interests, the original deadline for expenditure to qualify for aid was extended on two occasions by the EU on application by the Department. The project had still not been completed at the time of the Committee’s examination and a further time extension had been sought by the Department (on which a decision had not yet been given). The C&AG stated that the EU Commission’s conditions for granting an extension were unlikely to be met and this could result in the loss of about £200,000 in European moneys, a claim that was disputed by the Accounting Officer who stated that the loss of £200,000 in this instance was due to eligibility conditions and not delays.

Nevertheless, the delay in completing the project had also caused delays in the payment of the final tranche of EU funds, which is conditional on the lodgment of a report on the PRISMA operational programme as a whole.

The management of the project was of considerable concern to the Committee due to the fact that £1 million of equipment and vehicles had been purchased long before they were needed. The Accounting Officer explained that the money had to be spent before it was needed in order to meet time deadlines laid down by the EU and to ensure that the grants would be obtained. He stated that the delays had been caused by events outside the control of the Department and it was expected that the project would be completed by the end of 1995 or in early 1996 (an optimistic expectation, as the Committee heard that new metrology legislation had to be enacted before the equipment could be commissioned).

In evidence, the Committee was told that although the machinery purchased was a few years old it was in no way obsolete, although there would be some depreciation in its value. The Accounting Officer did, however, agree that the delays were unacceptable and should not have taken place. He went on to state that every effort had been made to bring the matter to a conclusion. He was confident that the application to the EU would be submitted in January 1996, that the money would be drawn down in March 1996 and that approximately £1.2 million would be obtained. The delay in enacting the legislation was due to other legislative commitments of the Department and delays in the Parliamentary Draftsman’s Office.

The Committee is unhappy at the way in which the project was managed from the start. It would have expected that the staff matter would have been given priority at the outset and while it acknowledges that the need for EU aid is important, the Committee is concerned that so much equipment was purchased before it was needed.

Finally, while the Committee was assured that the equipment will not deteriorate, it hopes that no EU aid is lost and it wishes to be kept informed as to the progress in bringing this project to a satisfactory conclusion.

AGRICULTURE AND FOOD

6. Export Refunds

The Report of the C&AG drew attention to a problem that had arisen in relation to the Export Refund scheme. During audit by the C&AG, it was noted that in two cases, duplicate advance payments, amounting to £238,442 had been made to an exporter on foot of endorsed SAD forms, received from Customs and Excise, showing that the same goods had been exported, although from two different ports. The Department was made aware of the overpayments by the exporter in question. This was a matter of some concern to the C&AG as it indicated that control procedures may have been lacking in some way. However the Accounting Officer assured the Committee that the error would have been detected by the checking procedures in the Department of Agriculture.

Although in both cases the money was returned and a 15% penalty was paid, the Committee shared the C&AG’s concern in relation to this matter even though the Accounting Officer assured the Committee that this was an isolated incident. Notwithstanding that reassurance the Committee hopes that an administrative failure such as that outlined will not recur.

7. Headage and Premia Schemes

The Report of the C&AG outlines the results of an analytical review and examination of the headage and premium schemes administered by the Department of Agriculture Food and Forestry. Headage payments are part financed by the EU while premium payments are fully funded from that source. The schemes accounted for expenditure of £528 million in 1994.

The examination by the C&AG drew attention to the Department’s failure to carry out inspections in respect of all new applicants in contravention of its own guidelines. In addition, there were delays in entering details of disqualifications on the computer records, which resulted in payments to herd owners to which they were not entitled. There was also duplication of ear tag numbers which led to double payments for certain animals. Weaknesses in the checking of computer reports (which were required to detect the making of unauthorised or incorrect payments) were also identified.

In evidence, the Accounting Officer outlined in detail the position in relation to overpayments. Since 1989 the total overpayments in relation to headage payments amounted £3.9 million and the total recoveries were £3.3 million, leaving £600,000 still to be recovered. On the other schemes referred to by the C&AG the total overpayment of premia since 1992 was £1.4 million of which about £900,000 had been recovered with £500,000 in the process of being recovered by offsetting current amounts due against the overpayment. There were also overpayments on the ewe premium in 1992 of £795,000 of which there was an outstanding balance of £400,000. Information in relation to overpayments made in 1993 was not available at the time of the examination.

The Accounting Officer stated that, in order to put the position into perspective, it should be pointed out that the total amount of overpayments over all of the expenditure on those schemes over the years represented less than 0.5 per cent. Recovery of those overpayments had been sought in an ad hoc way over the last three or four years and substantial amounts had been repaid. He went on to state that the majority of those cases were not as a result of fraud and that most of the overpayments had occurred as a result of gaps in the computer systems which had not been properly tested in advance. The Accounting Officer assured the Committee that a large proportion of the overpayments which resulted from the problem had been dealt with and that the new system was adequate.

The Committee is alarmed that large overpayments have occurred over a number of years and stresses the importance of having adequate controls and inspection levels in operation from day one so that the various aid schemes operate efficiently and effectively. The Committee was surprised that the Department did not have a system in place which would ensure that no additional payments would be made to those who had already received overpayments until appropriate deduction from that current payment had been made by the Department to offset the overpayment.

The Committee notes the Accounting Officer’s assertion that the 1995 scheme was being correctly operated and hopes that the problems over the last few years do not recur. The Committee wishes to be kept informed in relation to the recoveries made.

8. Area Aid Applications

An EU Regulation, which was introduced in 1993, required farmers to supply details of forage areas on their farms so that any necessary adjustments to headage and premium payments could be made to take account of stock densities. The EU stipulated that payments were not to be made where the area aid applications containing this information were late or not received. During audit it became evident that, in a number of cases, headage payments had been made where area aid applications had been received late or not at all and that the Department’s procedures for dealing with the 1994 applications were unsatisfactory.

In evidence, the Accounting Officer explained that during the first year of the scheme the Department did not have sufficient staff in local offices to deal with the volume of applications which amounted to 134,000. In order to deal with the applications a separate unit was established in Dublin, but not in sufficient time to allow the applications to be submitted directly to it. Some applications went to Castlebar where they were placed in bags and were subsequently sent to the Department of Agriculture Food and Forestry in Dublin before transmission to the special unit. As a result, it was difficult to be certain that applications which appeared to have been received late had, in fact, been late. There was also a possibility that some applications and maps had been misplaced within the Department. In view of this fact, the Department decided to allow one year’s flexibility whereby it accepted certificates of postage, affidavits and evidence of map purchase from the Ordnance Survey Office to justify claims that applications had been sent on time. Approximately 1,100 cases were facilitated under those special arrangements. Another 1,650 could not fulfil the criteria and were refused.

It was also discovered that, contrary to EU requirements, the size of the farms had not been inspected in 1994. However the Accounting Officer stated that this was no longer a problem as a full inspection had been carried out since the date of the audit report.

While the Committee notes that correct procedures were put in place in 1995 and that the problems were as a result of work volumes and operational difficulties, it must express dissatisfaction at the Department’s lack of organisational preparation for the scheme, particularly as it should be well used to putting various EU schemes into operation on an annual basis. The Committee wants to be assured that the 1995 scheme operated satisfactorily.

9. FEOGA Guarantee Expenditure - Disallowance by EU

In its 1993 Report, the Committee referred in detail to the possible disallowances of £110 million by the EU. As indicated in that report, the matter is being kept under constant review by the Committee and will be considered further by the Committee.

ENVIRONMENT

10. Irregularity in payment of Exchequer Extra Receipts

The Report of the C&AG referred to a misappropriation of funds which was discovered when the year end audit work on the Appropriation Accounts was being carried out by his staff in June 1995. It was noted that a payable order for £25,944 had been issued by the Department of the Environment to the Department of Finance in March 1994 but that it was not recorded as having been received in the Department of Finance. Further inquiries revealed that the payable order had, in fact, been cashed by a third party in a Cork Credit Union and had afterwards been presented through the clearing system. The amount has since been recovered from the Credit Union.

The Committee was particularly concerned that the Department of Finance was not aware that the Department of the Environment had forwarded the payable order in question because, in accordance with the usual practice, the notification explaining the purpose of the transaction was contained in the same envelope as the payable order. It was also surprised that the irregularity had not come to light during the operation of either Department’s internal controls.

The C&AG told the Committee that he had already expressed misgivings to the Department of the Environment about the absence of a review of outstanding payable orders, although he accepted that the Department had taken precautions which were thought to be sufficient at the time.

In evidence, the Accounting Officer stated that the matter was being investigated by the Garda Síochána, who would in turn report to the Director of Public Prosecutions. He agreed that the problem had been exacerbated by the fact that the letter explaining the purpose and nature of the transfer was in the same envelope as the payment.

He stated that, in advance of any changes the Department of Finance may introduce, in order to prevent a recurrence of the problem, his Department had changed their system to ensure that when payable orders such as this were being sent by post, a letter explaining the payment would in future be sent under separate cover.

The representative from the Department of Finance stated in evidence, that the Department would advise all Departments to use the credit transfer system in future to prevent a similar problem arising again. He went on to explain that if the credit union or the clearing bank had observed standard banking procedures, the irregularity would not have occurred. The notation on the payable order to the effect that the payee’s endorsement was required, that it was payable through a bank, that any query should have been sent to the issuing Department and the fact that the cheque was crossed, were ignored.

The Committee is surprised and concerned that an irregularity such as this one could occur. It wonders how the financial institution could have accepted a payable order for such a large amount, particularly when the order had been made payable to the Department of Finance. One of the lessons to be learned by Departments is that the use of payable orders for transactions between Departments is now outdated and should be replaced, to the greatest extent possible by credit transfers, or similar systems. The Accounting Officer of the Department of Finance has indicated that he will be issuing instructions in this regard in the near future and the Committee looks forward to receiving a copy of these in due course.

The Committee would like to impress on all Accounting Officers the need to review and revise controls particularly where receipts are concerned and stresses that in this regard the role of internal audit is of paramount importance.

Finally, the Committee wishes to be informed in due course of the outcome of the Garda investigation into this case.

ACCOUNTS NOTED

11. Account Noted

The Account in respect of International Co-operation was also noted and the Minutes of Evidence are published herewith.

DENIS FOLEY T.D.

Chairman

14 March 1996

IMEACHTAÍ AN CHOISTE

PROCEEDINGS OF THE COMMITTEE

DÉARDAOIN 19 DEIREADH FÓMHAIR 1995

THURSDAY 19 OCTOBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), Ó Bracháin, E.Ó Broin, Ó Dochartaigh, Mac Cormaic, P. Ó Caoimh, É. Ó Caoimh, Ó Máille, Upton.

3.Breithniú na gCuntas Leithreasa 1994.

Tosaíodh ar bhreithniúna Cuntas Leithreasa don bhliain 1994.Críochnaíodh an Cuntas seo a leanas:-

Leas Sóisialach.

4.Finnéithe a Ceistíodh:-

E. Mac Cumascaigh (Rúnaí, An Roinn Leasa Shóisialaigh), an tArd-Reachtaure Cuntas agus Ciste.

5.Athlá.

Chuaigh an Coiste ar athló ar 1.50pm go dtí 11 am Déardaoin 26 Deireadh Fómhair 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), Broughan, E. Byrne, Doherty, Mc Cormack, B. O’Keeffe, N. O’Keeffe, O’Malley, Upton.

3.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was begun. The following Account was disposed of:-

Social Welfare.

4.Witnesses Examined:-

Mr. E. Mc Cumiskey (Secretary, Department of Social Welfare), the Comptroller and Auditor General.

5.Adjournment.

The Committee adjourned at 1.50pm until 11 am on Thursday 26 October 1995.

DÉ hAOINE 10 SAMHAIN 1995

FRIDAY 10 NOVEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D .Ó Foghlú (i gCeannas), Ó Bracháin, E. Ó Broin, Ó Dochartaigh, Mac Allais, Ó Finnúcáin, P. Ó Caoimh, E. Ó Caoimh, Ó Máille.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Cuireadh na Cuntais seo a leanas ar athló:-

Talmhaíocht agus Bia, Foraoiseacht.

5.Finnéithe a Ceistíodh:-

M. Ó Dúnlaing (Rúnai, An Roinn Talmhaíochta, Bia agus Foraoiseachta), an tArd-Reachtaire Cuntas agus Ciste.

6.Athlá.

Chuaigh an Coiste ar athló ar 2.06pm go dtí 11am Déardaoin 16 Samhain 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D.Foley (in the Chair), Broughan, E. Byrne, Doherty, Ellis, Finucane, B. O’Keeffe, N. O’Keeffe, O’Malley.

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

3.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Accounts were adjourned:-

Agriculture and Food, Forestry.

5.Witnesses Examined:-

Mr. M. Dowling (Secretary, Department of Agriculture, Food and Forestry), the Comptroller and Auditor General.

6.Adjournment.

The Committee adjourned at 2.06pm until 11am on Thursday 16 November 1995.

DÉARDAOIN 16 SAMHAIN 1995

THURSDAY 16 NOVEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), Ó Bracháin, E. Ó Broin, Ó Dochartaigh, Ó Finnúcáin, Mac Cormaic, P. Ó Caoimh, É. Ó Caoimh.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Críochnaíodh an Cuntas seo a leanas:-

Oifig na nOibreacha Poiblí.

5.Finnéithe a Ceistíodh:-

B. Ó Murchú (Cathaoirleach, Oifig na nOibreacha Poiblí), an tArd-Reachtaire Cuntas agus Ciste.

6.Athlá.

Chuaigh an Coiste ar athló ar 12.57pm go dtí 11am Déardaoin 23 Samhain 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), Broughan, E. Byrne, Doherty, Finucane, Mc Cormack, B. O’Keeffe, N. O’Keeffe.

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Account was disposed of:-

Office of Public Works.

5.Witnesses Examined:-

Mr. B. Murphy (Chairman, Office of Public Works), the Comptroller and Auditor General.

6.Adjournment.

The Committee adjourned at 12.57pm until 11am on Thursday 23 November 1995.

DÉARDAOIN 23 SAMHAIN 1995

THURSDAY 23 NOVEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), Ó Bracháin, E.Ó Broin, Ó Dochartaigh, Mac Allais, Ó Finnúcáin, Mac Cormaic, P. Ó Caoimh, É. Ó Caoimh, Ó Máille.

3.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Críochnaíodh na Cuntais seo a leanas:-

Gnóthaí Eachtracha, Comhar Idirnáisiúnta.

4.Finnéithe a Ceistíodh:-

P. Mac Kernan (Rúnaí, An Roinn Gnóthaí Eachtracha), S. Meade (Stiúrthóir Iniúchta, Oifig an Ard-Reachtaire Cuntas agus Ciste).

5.Athlá.

Chuaigh an Coiste ar athló ar 1.21pm go dtí 11am Déardaoin 30 Samhain 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), Broughan E.Byrne, Doherty, Ellis, Finucane, McCormack, B. O’Keeffe, N. O’Keeffe. O’Malley.

3.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Accounts were disposed of:-

Foreign Affairs, International Co-Operation.

4.Witnesses Examined:-

Mr. P. Mc Kernan (Secretary, Department of Foreign Affairs), Mr. J. Meade (Director of Audit, Office of the Comptroller and Auditor General).

5.Adjournment.

The Committee adjourned at 1.21pm until 11am on Thursday 30 November 1995.

DÉARDAOIN 7 NOLLAIG 1995

THURSDAY 7 DECEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), Ó Bracháin, E. Ó Broin, Ó Dochartaigh, Mac Allais, P. Ó Caoimh, Ó Máille.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Críochnaíodh an Cuntas seo a leanas:-

Fiontar agus Fostaíocht.

5.Finnéithe a Ceistíodh:-

C. Mac Cnáimhsigh (Rúnaí, An Roinn Fiontar agus Fostaíochta), an tArd-Reachtaire Cuntas agus Ciste.

6.Athlá.

Chuaigh an Coiste ar athló ar 12.49pm go dtí 11am Déardaoin 14 Nollaig 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), Broughan, E. Byrne, Doherty, Ellis, B. O’Keeffe, O’Malley.

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Account was disposed of:-

Enterprise and Employment.

5.Witnesses Examined:-

Mr. K. Bonner (Secretary, Department of Enterprise and Employment), the Comptroller and Auditor General.

6.Adjournment.

The Committee adjourned at 12.49pm until 11am on Thursday 14 December 1995.

DÉARDAOIN 14 NOLLAIG 1995

THURSDAY 14 DECEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), Ó Bracháin, E. Ó Broin, Mac Allais, Ó Finnúcáin, Ó hÓgáin, É, Ó Caoimh, Ó Máille, Upton.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Críochnaíodh na Cuntais seo a leanas:-

Talmhaíocht agus Bia, Foraoiseacht.

5.Finnéithe a Ceistíodh:-

M. Ó Dúnlaing (Rúnaí, An Roinn Talmhaíochta, Bia agus Foraoiseachta), S. Thompson (An Roinn Airgeadais), an tArd-Reachtaire Cuntas agus Ciste.

6.Athlá.

Chuaigh an Coiste ar athló ar 2.05pm go dtí 11am Dé Céadaoin 20 Nollaig 1995.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), Broughan, E. Byrne, Ellis, Finucane, Hogan, N. O’Keeffe, O’Malley, Upton.

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Accounts were disposed of:-

Agriculture and Food, Forestry.

5.Witnesses Examined:-

Mr. M. Dowling (Secretary, Department of Agriculture, Food and Forestry), Mr. J. Thompson (Department of Finance), the Comptroller and Auditor General.

6.Adjournment.

The Committee adjourned at 2.05pm until 11am on Wednesday 20 December 1995.

DÉ CÉADAOIN 20 NOLLAIG 1995

WEDNESDAY 20 DECEMBER 1995

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i láthair:-

Na Teachtaí D. ÓFoghlú (i gCeannas), E. Ó Broin, Mac Allais, Mac Cormaic, É. Ó Caoimh, Ó Máille.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú na gCuntas Leithreasa 1994.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1994. Críochnaíodh an Cuntas seo a leanas:-

Comhshaol.

5.Finéithe a Ceistíodh:-

B. Ó Donnchú (Rúnaí, An Roinn Comhshaoil), an tArd-Reachtaire Cuntas agus Ciste.

6.Athlá.

Chuaigh an Coiste ar athló ar 12.54pm go dtí 11am Dé Máirt 9 Eanáir 1996.

1.The Committee mer at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), E. Byrne, Ellis, Mc Cormack, N. O’Keeffe, O’Malley.

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1994.

Consideration of Appropriation Accounts for the year 1994 was resumed. The following Account was disposed of:-

Environment.

5.Witnesses Examined:-

Mr. B. O’Donoghue (Secretary, Department of the Environment), the Comptroller and Auditor General.

6.Adjournment.

The Committee adjourned at 12.54pm until 11am on Tuesday 9 January 1995.

DÉARDAOIN 14 MÁRTA 1996

THURSDAY 14 MARCH 1996

1.Chruinnigh an Coiste ar 11.00am.

2.Comhaltaí i Láthair:-

Na Teachtaí D. Ó Foghlú (i gCeannas), E. Ó Broin, Ó Dochartaigh, Mac Allais, Ó Finnúcáin, P. Ó Caoimh, Ó Máille.

3.Chuaigh an Coiste i suí príobháideach.

4.An Dréacht den Tríú Tuarascáil Eatramhach ón gCoiste um Chuntais Phoiblí ar na Cuntais Leithreasa 1994.

Chuir an Cathaoirleach an Dréacht Tríú Tuarascáil Eatramhach faoi bhráid an Choiste lena breithniú.

Aontaíodh an Dréacht den Tríú Tuarascáil Eatramhach.

Ordaíodh: Tuairisciú don Dáil dá réir sin.

1.The Committee met at 11.00am.

2.Members Present:-

Deputies D. Foley (in the Chair), E. Byrne, Doherty, Ellis, Finucane, B. O’Keeffe, O’Malley.

3.The Committee went into private session.

4.Draft Third Interim Report of the Committee of Public Accounts on the Appropriation Accounts 1994.

The Chairman brought forward the Draft Third Interim Report for consideration.

Draft Third Interim Report agreed to.

Ordered: To report to the Dáil accordingly.

MIONTUAIRISC NA FIANAISE

MINUTES OF EVIDENCE

AN COISTE UM CHUNTAIS PHOIBLÍ

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 19 Deireadh Fómhair 1995

Thursday 19 October 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. John Purcell (Comptroller and Auditor General) called and examined.

Mr. Joe Mooney, Mr. Paul Molloy and Mr. Robert Bradshaw, Dept. of Finance representatives, in attendance.

APPROPRIATION ACCOUNTS 1994

VOTE 40 - SOCIAL WELFARE

Mr. Edward McCumiskey, Secretary, Dept. of Social Welfare, called and examined.

Chairman: We are now in public session.

Deputy O’Malley: I wish to give notice that, on 9 November, when the Accounting Officer for the Department of Agriculture is here, I would like to raise, in addition to the matters I referred to the last day, the matter that is in today’s papers about the guarantees for export refunds being called in. We are to get a report on the other matters; perhaps we could get some note on this as well before 9 November, if that is possible.

Chairman: I welcome Mr. McCumiskey before the Committee and ask him to introduce his officials.

Mr. McCumiskey: With me are Mr. Rice, our financial controller, Mr. Sullivan, the director of operations and programmes in the Department, Ms. Ann Tynan, our accountant, and Mr. Declan Breen, who also works in our accounts branch.

Chairman: Paragraph 51 of the Report of the Comptroller and Auditor General reads:

Overpayments of Social Insurance and Social Assistance

51.I have been furnished with the following information regarding overpayments and recovery of Social Insurance and Social Assistance in 1994.

Social Insurance

Overpayments of Social Insurance in 1994

- Cumulative Position at 31 December 1994

Court proceedings against 29 persons, who had been prosecuted for obtaining Social Insurance payments fraudulently, were finalised furing the year. All of the prosecutions were successful. These cases involved a total overpayment value of 371,230.

Social Assistance

Overpayments of Social Assitance in 1994

-Cumulative Position at 31 December 1994

Court proceedings against 20 persons, who had been prosecuted for obtaining Social Assistance payments fraudulently, were finalised during the year. All of the prosecutions were successful. These cases involved a total overpayment value of £61,250.

Aged Analysis of Unrecovered Overpayments

Mr. Purcell: I include this information in my report each year, to give an overall view on the extent of social insurance and social assistance overpayments recorded by the Department in the year of account. I pay particular attention to those which are attributable to fraud or suspected fraud. Total overpayments detected in 1994 amounted to £16 million. A breakdown of this figure shows that 60 per cent of all social insurance overpayments and 77 per cent of all social assistance overpayments were attributed by the Department to fraud or suspected fraud. What is not clear from the paragraph is that total overpayments went up from just over £12 million in the previous year. This is a significant increase, but the indications are that it was due to better detection by the Department rather than to an increase in the number and value of overpayments - that is the positive side. It should also be noted that recoveries were up from £4 million to £5.5 million in that year. That said, accumulated outstanding overpayments at the end of 1994 stood at £32 million and that is after taking account of amounts written off as being irrecoverable.

The pattern of previous years also continued in regard to the categories of benefit and assistance which were most susceptible to fraud. Of particular concern was the amount of detected overpayments on the Lone Parents’ Unmarried Allowance scheme, where they represented nearly 1.5 per cent of all payments made under that scheme. In all of this, it is impossible to know to what extent the level of overpayments detected is indicative of the real overpayments figure and whether we are dealing with the tip or a more substantial part of the iceberg.

Chairman: Overpayments attributable to fraud or suspected fraud rose to £11.461 million in 1994 from £9.098 million in 1993. What are the reasons for this rise and how does the Department propose to combat it?

Mr. McCumiskey: The reasons for the increase are twofold. One, mentioned by the Comptroller and Auditor General, is that we have a consistent programme of control - basically of chasing fraud. Secondly, there is a continual increase each year in the level of social welfare payments, which basically means there is an inflation element automatically built in.

The first factor is by far the most important. As I reported to the Committee in previous appearances here over the years, we have centralised our control function to a certain extent, computerised the way in which we are doing it and have tried to introduce, with the Comptroller and Auditor General’s help, more scientific criteria in choosing cases to be pursued. This inevitably means more successes and higher amounts of overpayments. I would stress the fact that, nonetheless, the amount of overpayments, at £16 million, is still an insignificant proportion of our total payments during that year.

Chairman: There has been a substantial increase in overpayments since 1993. What are the reasons for this? What measures have been taken to reverse this trend?

Mr. McCumiskey: The measures which the Department has taken are many and varied. Generally speaking, as I mentioned, we are putting a lot more effort into how we choose cases to be pursued and for checking purposes. The fact of the matter is that any organisation of the Department’s size can only devote a certain amount of its resources to fraud control and we have to make the best possible use of it. Nowadays, learning from the lessons of the past, we concentrate more heavily on what we would call the categories most at risk. We will be discussing some of these issues later when we come to the particular paragraphs.

I could never promise to the Committee that the level of overpayments in the future is likely to reduce. If one looks at the very small percentages, less than half of 1 per cent of our total expenditure involved, I think it is inevitable that there will always be a certain level of overpayments. Our efforts, of course, are designed to keep it as low as possible and to recover as much of them as we can.

Chairman: The only point which I would like to make there, Mr. McCumiskey, is that the overpayments which I have mentioned are the ones which have been detected. Are you seriously concerned with regard to the increase in overpayments in 1994?

Mr. McCumiskey: I have to be concerned with any level of overpayments and, of course, with the increase. However, on the other side of the coin, a lot of our effort is put into preventing overpayments arising. This is generally done by making sure, at the claim processing stage, that people do not become entitled to benefit to which they are not entitled and also that we get those who are claiming benefit who should not be to cease claiming benefit, particularly in schemes where there is any element of voluntary claiming involved. Here I would be thinking, particularly, of the sickness benefits and, perhaps to a certain extent, the unemployment benefit schemes. I think we have achieved some considerable success in our control efforts in that regard.

The Comptroller and Auditor General referred to the question of whether or not this is the tip of the iceberg. I don’t believe it is. We have something like 570 of our staff devoted exclusively to claims control, investigations, employer inspections and things of that nature. It is a huge resource. It is not limitless but it is a significant proportion of the staff of the Department.

I have no reason to believe from what I have seen, and the increase between ’93 and ’94, that any new significant areas of fraud have come to light. What we have been doing, mainly, is concentrating on the areas which, through our efforts, we have discovered over the years.

Chairman: With regard to my first question, I said the fraud in 1994 was approximately £11.461 million as against £9.098 million in 1993. That, again, was the detected fraud. Is there any hope of recoupment there?

Mr. McCumiskey: Recoupment is clearly a very important function. In fact, in modern parlance it would be regarded as a type of debt management. The figures show the overall level of recoupment which we make is something in the nature of between 30-35 per cent. On the one hand, this seems low but, on the other hand, I suppose it must be taken into account that many of the people with whom we deal simply do not have the means to recoup overpayments. We achieve recoupment by having money given back to us in lump sums where we can get it. We get a considerable amount of the recovery in that way but the bulk of it is still taken by ongoing deductions from people’s entitlements, where they have them. That, in fact, is more often than not the common situation.

For example, we might find an unemployed person had been working for some particular period of time. An overpayment is struck up but the person is at present unemployed. Really, the only realistic thing the Department can do is levy their unemployment payment with an amount towards the overpayment. The problem there is that if we reduce peoples’ ongoing entitlements below the level of the Supplementary Welfare Allowance, they have the right under the law as it stands to go to the community welfare officer and get it back. As a result, we are careful not to reduce their entitlements below these minimum amounts. Even on social grounds, there is a case for approaching it in that way.

Deputy O’Malley: The accounts show that in 1994, between the two divisions of social insurance and assistance, the Department took 49 prosecutions, all of which were successful. Considering that the Department has well over one million recipients of social welfare benefits of one kind or another, and since there is such widespread overpayments, wrong payments and so on, does that not seem like a very small proportion?

Mr. McCumiskey: It is small in relation to the number of our claimants. That is true and the Deputy is correct in saying that we have over one million claimants on our books during any one year. The figures are a reflection of two things: first, the policy which we have in relation to prosecutions; and, second, the actual processes once they hit the courts.

Our policy is that we consider all fraudulent cases for prosecution. First, there must be fraud. If there isn’t fraud, they simply are not relevant. Within that, we tend to prosecute cases which are blatant. These are cases where there has been more than one offence, a recurring offence and/or where the money is large and no effort is being made to repay it.

Even having decided on cases which we wish to prosecute, the level of evidence required is quite high. This brings me to the second point. The processing of prosecutions is somewhat difficult. It requires huge overheads of staff resources. We must have the very best and immediate evidence, and quite naturally so, otherwise we will not get the case accepted by the Chief State Solicitor’s Office. At any one time, there is probably twice the number of cases which the Deputy sees here with the Chief State Solicitor’s Office in the course of being processed.

I would also mention that the result of the amnesty, which occurred in the middle of ’93 and continued some time into ’94, is reflected in those figures. This was an amnesty against prosecution. Basically, it reduced considerably the number of prosecutions which we had taken. I think there is a certain element of it there.

I have said before to the Committee, and I think it is true, that I could never see very large numbers of prosecutions unless there is a very big change in policy. I think we could do more than we are doing, perhaps, but I could never see there being very large numbers for the reasons which I have mentioned.

Deputy O’Malley: If, for example, somebody was in receipt of Invalidity Pension for a period of five months and he was working for the whole of that five month period, would he automatically be prosecuted?

Mr. McCumiskey: We would approach that case in the way in which I mentioned. First, we would determine if there was a breach of the regulations. Second, if we determined it was a fraudulent breach, the case would be considered for prosecution. Within that we would look at the nature of the person; if this was a first offence or not; if any attempt had been made to repay the money or not; and the level of evidence we would have which would be suitable for prosecution. I take it this is a hypothetical case.

Deputy O’Malley: Do I deduce from the reply that first offenders are never prosecuted?

Mr. McCumiskey: No, I am sure some first offenders have been prosecuted. What I meant to convey was that we look at a number of criteria, among which the fact that a person had offended again would be important. We have had cases where people have repaid the money but because the offence was not the first we have prosecuted. We look at the mixture of the factors I mentioned, including the condition of the person, his or her age or mental condition and matters of that nature. We form a view within that as to whether the case would be suitable for prosecution or unlikely to succeed.

Deputy O’Malley: There is a high success rate of 100 per cent, which must be the envy of the DPP.

Mr. McCumiskey: The cases are carefully chosen, they are small in number and we select them according to the criteria I mentioned. The Office of the DPP will have a view on whether there is enough evidence on these cases before they can go to court. As I mentioned the process is long and thorough. I would have expected a high success rate in these cases.

Deputy O’Malley: These are criminal prosecutions. Does the Department take civil proceedings also?

Mr. McCumiskey: Very rarely. We find generally they are simply not appropriate. The people involved are not a good mark. Once we find there is an overpayment we put a lot of pressure on people to repay the money and we go into their personal circumstances with them. We rarely find cases where civil proceedings are justified on cost grounds.

Deputy Doherty: Mr. McCumiskey said a number of factors are taken into account in trying to collect overpayments. How many outstanding cases of overpayments are there at present in which the factors as to whether a prosecution should be brought have not been fully decided? How many cases have not been processed where the Department is aware of overpayment?

Mr. McCumiskey: The consideration of whether a prosecution takes place is generally done at the same time or around the time at which the overpayment is struck. To recap, we get evidence and the case is given to a Deciding Officer in the Department — these people and no one else have the authority under the legislation to decide cases. This officer must decide first, whether benefit should continue and second, if it is a question of something which happened in the past as to whether there was an overpayment. Most overpayments are struck in circumstances where and because fraud was involved.

If there was no fraud we can still strike up an overpayment. It is not done with the same frequency as though there were fraud but it is done. Under the legislation the Deciding Officer has pretty wide discretion to do that and the criteria are in the Act.

If and only if a decision is taken that there has been fraud on an overpayment struck, the case is looked at to see if it is suitable for prosecution. That process can continue for some time — many cases are initially considered for prosecution but they fall along the line for a number of reasons. Perhaps further investigation of the circumstances prevents it or we cannot get enough evidence to prove it. In cases of working and signing on, we have to have the original documentation that people signed on the days they signed and we must have the officers available who noted they signed. The levels of proof can be quite high in particular cases.

There is an ongoing process and it is clear from the figures we have here that if one compares the number of overpayments with the number of prosecutions, few cases find their way through that process.

Deputy Doherty: Am I right in interpreting an overpayment as a payment in excess of the amount of money which might normally be the entitlement of the individual?

Mr. McCumiskey: That is exactly what it is; more benefit was paid than the legislation provided for.

Deputy Doherty: There would be a marked distinction between that and a payment where the person knowingly claimed, or did not meet the criteria and was paid? How would Mr. McCumiskey describe that?

Mr. McCumiskey: That is also an overpayment exactly within the terms the Deputy mentioned.

Deputy Doherty: If a person was receiving invalidity or disability benefit while working, would that be an overpayment or a case where the person obtained money to which he or she was not entitled?

Mr. McCumiskey: They can all be held to be overpayments. A Deciding Officer must look at the case and decide whether benefit should have been paid during that period and, if so, if there is an overpayment due to the State. There are cases in which Deciding Officers will look at the position and say the money should not have been paid, strictly speaking, but the person unknowingly did something or there was no fault involved. The Deciding Officer will then not create an overpayment; within the terms of the legislation he has that type of discretion.

Having decided there is an overpayment, the officer will have to consider whether fraud is involved, because this is important. It is also a factor used in determining whether there is an overpayment in the first place. Having decided there is fraud, a number of things follow automatically — the overpayment is struck, the money is due back, recovery mechanisms apply and the case is considered as to whether it is suitable for prosecution. That requires another set of judgments and information gathering.

Deputy Doherty: There is a celebrated case at present which has received much publicity-----

Chairman: Excuse me, Deputy, we are dealing with the 1994 Accounts.

Deputy Doherty: Yes, but in the context of what we are discussing, is that case being investigated?

Chairman: We are dealing with the 1994 Accounts.

Deputy Doherty: Yes but the public perception of what is going on is entitled to be addressed too and I do not think there is any objection by the Accounting Officer to responding to my question, which is quite reasonable.

Mr. McCumiskey: I cannot answer on individual cases, for a number of reasons. One is that as a matter of principle, and under the law, we do not give information on individual cases except with the consent of the person concerned. There is also a question of privilege in talking about a case which the Deputy has identified. I can say however-----

Deputy Doherty: Mr. McCumiskey knows what I am talking about, obviously.

Chairman: Deputy, you are pursuing a line.

Deputy Doherty: No, I am not.

Chairman: I am sorry but I have to rule you out of order. We are sticking with the 1994 Accounts and your questions must be related to that.

Deputy Doherty: I will remain silent and allow the Accounting Officer to answer the questions.

Mr. McCumiskey: I will reiterate the principles we use in determining cases where overpayments have arisen. I emphasise the fact that Deciding Officers make decisions in relation to overpayments. If fraud is involved in cases, it is an integral part of the decision they have to make; that is under the legislation. If they determine fraud was involved, all those cases are looked at with a view to prosecution. As the Deputy can see from the figures, very few go through that process. That is the practice in the Department.

Deputy Doherty: There are 570 staff engaged in the investigation of fraud and various other types of circumstances. What is the cost of the 570 staff to the Department?

Mr. McCumiskey: I am not sure offhand. However, on a proportionate basis, there are over 4,000 staff in the Department so we are talking about 15 per cent of our total administration costs, which are about 5 per cent of our total expenditure. I am sorry but I do not have the exact figures. Salaries and wages for the Department amount to approximately £70 million so it is probably 15 per cent of that or £10 million.

The people we are talking about in this instance include inspection branches, of which there are several, Medical Referees and internal audit and control sections. I used the word “control” and by that I mean the prevention and pursuit of overpayments.

Deputy Doherty: In the case where the Department of Social Welfare makes payments and rent arrears occur on Local Authority houses, has it ever been considered that these arrears are often the result of the misuse of funds paid out? The County Council can be left at a loss. An arrangement could be made between Local Authorities and the Department of Social Welfare where, in circumstances where there are abuses, rent could be deducted and paid directly to the Local Authority. Social welfare payments take account of the necessities of living, including housing, and such situations with regard to Local Authority housing can involve considerable arrears because money is spent on things other than rent.

Mr. McCumiskey: We have a limited facility, which we call the household budgeting facility, whereby people getting payments from us in certain circumstances can direct that money towards such things as the ESB, gas and Local Authority rent. It can only be used so far in cases where people are paid under the more advanced aspects, which we are expanding rapidly, of our computer system. It cannot be used, for example, by people who are being paid by pension order books because they are simply too inflexible for that.

That system was introduced a couple of years ago. Its introduction was slow in some of the Local Authorities due to, I understand, some industrial relations issues. By and large, I understand most Local Authorities are availing of it now. It is mainly related to people on unemployment at present. The next group we have in mind to extend this facility to is lone parents.

Deputy Byrne: It is interesting that the Deciding Officers are very independent in the exercise of their powers. Are you happy that they have this degree of independence, given that in 1994, for example, 590 cases of invalidity overpayments attributable to fraud or suspected fraud were detected? Since the scheme was initiated I understand a prosecution has never been pursued against a person fraudulently claiming invalidity payments. Do the Deciding Officers use their powers in a more sympathetic way when it comes to people on Invalidity Pensions than people who are responsible for fraud on unemployment assistance?

Mr. McCumiskey: I have no evidence of that. The principle of Deciding Officers having freedom to make their decisions in accordance with the law has been in the social security system since it was set up. I think it is a very good system. It is there for the protection of the client. Part of the original thinking was to distance these decisions from the political process to a certain extent since we are a Government Department. People have entitlements under the law and they should be regulated precisely in accordance with the law.

The problem, if any, which has arisen over the years in relation to Deciding Officers is their, perhaps, being too tough in relation to claimants rather than the other way around. I make this point because there has been discussion at this Committee on this issue in the past in relation to the judgments which are made. If one thinks about it, it is very easy to strike up an overpayment. It might be too easy to strike it up and attribute fraud to people, particularly in cases where that person may not have been interviewed or interviewed at any proper length. This is why the appeals system exists. We have put much effort into that in recent years.

At present, we are drawing up a code of conduct for Deciding Officers. A provision to draw up guidelines for Deciding Officers was included in legislation in 1993. We are in the process of doing this at present and I hope the guidelines will be in play sometime next year. It will be our intention to publicise these guidelines so that what they are doing will be more transparent.

In relation to invalidity pensions, the number of prosecutions is quite small. I admitted that and it can be seen here. Invalidity pension is rarely a pension on which overpayments arise in any event. All the people on invalidity pension have gone through our Medical Referee system more than once and have been classified by the Medical Referees as people who will be incapable of work for quite some time.

Nonetheless, we exercise controls in relation to that scheme. However, as the Deputy will appreciate; the number of cases we call for examination would be far less, for example, than the number of cases of short term disability benefit for the obvious reason that they have gone through the process. In relation to why there were no prosecutions for invalidity pension, it is just a feature of the small numbers which arose.

Deputy Byrne: Do you agree the figures for 1993-4 show a substantial increase in overpayments attributable to fraud or suspected fraud? It jumped from 283 in 1993 to 590 in 1994. Why was there such a big jump?

Mr. McCumiskey: The problem is that the number involved is still very small in comparison to the number of claimants. As I mentioned earlier, we have been increasing our controls in recent years. We change them all the time. Our responsibility is to keep ahead of the game in this and to pursue fraud where we see it. We are now at a situation with our fraud control procedures where they are centralised. We monitor what is going on right across the country. We have teams in each of the regions doing a range of things including interviewing claimants as they sign, interviewing employers and visiting building sites. We are increasing the level of data in the area. At one level, I would be disappointed if we were not discovering more, given that nobody can be sure just how much fraud there is. I believe we have a good handle on it but I expect that as we improve our procedures we are bound to get better results.

Deputy Byrne: It strikes me that “improving procedures” is a rather bland and general statement. There are a number of cases attributable to fraud or suspected fraud. It is possible that of that vast number of cases the majority may be non-fraudulent. Would you agree that in terms of statistical analysis it might be better not to include the innocent with the guilty in that broad category? Out of 1149 cases involving Unemployment Benefit, only 49 after full analysis were adjudged to be fraudulent cases.

Chairman: I will ask the Comptroller and Auditor General to explain that point because there is a discrepancy.

Mr. Purcell: Here we are talking in terms of thousands of pounds. That figure represents £1,149,000. The number of individuals will be different. The same point might relate to invalidity pension where £590,000 has been deemed by the Department to be attributable to fraud or suspected fraud.

Deputy Byrne: I misread those figures. The same argument could apply to the clinical accountancy figures. It is stated that there was over £1 million in overpayments in Unemployment Benefit in 1994. Would you agree it possibly is not the best way to present figures?

Mr. McCumiskey: It goes back to the original question about overpayments. Overpayments are moneys paid out which, if things had been otherwise, would not have been paid. They must be recorded in this type of exercise which looks at money that has been misspent. Within that exercise, the distinction between fraudulent and non-fraudulent is not relevant. It is relevant in relation to the individuals concerned and most particularly in relation to the type of action I will take in the Department afterwards. However, here we are looking at total expenditure and the amount of money spent in that period which should not have been spent for a variety of reasons.

Deputy Byrne: I find the figures under equal treatment interesting. There was £14,000 and £42,000 in overpayments while £2,000 has been attributed to fraud or suspected fraud. My understanding of the equality of treatment payments is that the applicant had to rely absolutely and totally on the figures provided by the Department of Social Welfare. The payments were made to the women on foot of the statistics available to them from the Department of Social Welfare. Can you explain how you could be alleging fraud in this case?

Mr. McCumiskey: I do not have any information on those particular cases. The equal treatment cases have been going on for quite some time. We do not have all the information and we never had. You will have seen us advertising in the papers for people to come forward. When they came forward we had to rely on them to confirm, for example, how many dependants they had and whether their husband was working at the time. It is perfectly feasible for people in those circumstances to give us misleading information and I presume that something of that nature happened. The problem with equal treatment cases was that they were going back over a period of time which was many years ago. We did not have full records otherwise we would not have had to advertise for information.

Deputy Byrne: I cannot find the numbers involved in 1994. The figures given for cases prosecuted are 29 and 20. Is there a figure for the total number of persons who would have been liable to prosecution?

Mr. McCumiskey: No, not that I know of. They are the number of cases that were actually prosecuted during the year. Many of those would have related to cases that would have been put to the Chief State Solicitor’s Office in the previous year because of the length of time taken. At any one time there is probably twice that number of cases with the Chief State’s Solicitor’s Office and it varies tremendously. There are many more in the Department going through the various process and being prepared. As I explained earlier, only a certain number actually stay the course and get right through.

Deputy B. O’Keeffe: It appears to me that fraud pays within the social welfare code. In 1992 the write-off was £7.3 million; in 1993, it was £8.3 million and in 1994, it was £13 million. The level of recovery is 35 per cent, therefore, 65 per cent of over-payment is never recovered. You said that we are getting a handle on it. The figures speak for themselves and it would seem to me that instead of getting a handle on it, the matter is spiralling out of control.

Mr. McCumiskey: The overpayment levels, while significant in their own right, must be put in the context of overall expenditure. The overpayments represent less than half of 1 per cent of the amount of money we spend. In any operation of this size there is bound to be slippage of this nature. The question is whether our control procedures are effective. One could put the case that as the overpayments are such a small proportion of what we spend, they are successful. If these control procedures were withdrawn or diminished in any way the level of overpayments would be many multiples of this figure. Some 0.45 of 1 per cent is a very small fraction. One must also consider the fact that our payments are not paid out in large amounts. We do not spend £0.5 million here and £0.5 million there; we spend it in very small amounts, mainly by weekly or monthly payments. One would imagine that the margin for error would produce results worse than this.

The Deputy mentioned that the amounts outstanding are increasing year by year. This is a feature of the increase in our control activity; we are finding more fraud. However, I still maintain that the overall level is still very low. Each year the benefit rates increase so fraud today costs much more than it did ten years ago. There is an in-built inflation factor to a certain extent.

Deputy B. O’Keeffe: This is the over expenditure we have detected. Nobody can quantify the amount of overpayments which have yet to be detected. An individual looking at the statistics will say they have two thirds of a chance that they will not have to pay back the overpayment and if I do, it will certainly be in the long term. It seems, through an analysis of these figures, an incentive to defraud the system exists because of the 35 per cent payback rate. It seems a staggeringly low figure.

Mr. McCumiskey: I could put it the other way, Deputy. With the amount of overpayments involved, the chances of people applying for benefit getting away with it are very slim. Most of our control activity involves the prevention of fraud and persuading people who are claiming who should not be claiming - or where a discretionary element is required - to cease doing so. People claim sickness benefit on foot of certificates provided by their doctors, for example. A certain amount of discretion is involved, on the part of the claimant, with regard to how they themselves feel at the end of a certified illness. We monitor and control that process by calling people for examination by Medical Referees. We consider the illness from which a person is suffering and if they have claimed benefit for longer than they should, they are called before a Medical Referee. There is a fair degree of pressure on claimants.

The Department is involved with visiting small businesses, building sites and employers to ensure that their books are in order. Large numbers of unemployed people are being interviewed and requisite numbers of people claiming invalidity and sickness benefit are being called before Medical Referees. This control process is being carried out all around the country. A person who thinks they can claim without the Department being aware of what is happening stands a very slim chance of getting away with it.

Deputy B. O’Keeffe: In relation to the co-ordination of activities, I recently had a discussion with a housing inspector. It seems that a mine of information exists between housing inspectors and community welfare and social welfare officers. However, there seems to be no co-ordination between the Department of Social Welfare and the other two units. Whether Mr. McCumiskey likes it or not, the perception exists that fraud is rife within the system. The difficulty being faced, by married people with one or two children, is that they believe it is costing them to be married. If they were cohabiting, however, the possibility would exist for them to claim two single allowances plus children’s allowance. This is causing great aggravation in our society.

Mr. McCumiskey: The question of co-ordination is an important one. The Supplementary Welfare Allowance scheme is operated by community welfare officers who are employed by the Health Boards. They are one remove from the Department as a result.

Deputy B. O’Keeffe: The same piper is paying the cost, in the long run.

Mr. McCumiskey: Exactly. The money is paid out of the Department’s Vote. It is also a fact that housing is the responsibility of the Department of the Environment. There is a dichotomy insofar as three Government Departments are ultimately responsible for housing inspectors and community welfare - through the Department of Health - and social welfare officers. The present programme for Government suggests that housing supports should be linked in a closer way to the Local Authorities. That is being seriously considered at the moment. The issues involved are, on the one hand, the provision of housing - which is one way to support housing needs - as against income support - which is provided by the Department. We are considering how these can be brought closer together. The mere fact that this is included in the programme supports what the Deputy has suggested, namely that there could be better co-ordination between the two.

The Department of Social Welfare is engaged in ongoing discussions and meetings with community welfare officers and the Health Boards to ensure that our criteria are adhered to. They are encouraged to co-ordinate with others on the ground as best they can. Community welfare officers often act as the central source of information - supported by voluntary organisations - with regard to people’s real needs. The system is not perfect but it should be remembered that Supplementary Welfare Allowance is a scheme of last resort and must be exercised in a discretionary way. The other schemes are not operated in this way. There will always be a certain amount of flexibility in the way it is operated. We anticipate movement in relation to the promise in the programme for Government to bring the housing needs together in a more concerted fashion.

Deputy O’Keeffe: The housing inspector I spoke to was certain, from his visits to housing applicants, that fraud is rife within the social welfare system. If that is applied throughout the country it appears that a serious problem exists which is not being addressed. It is all very well to have a promise in the Programme for Government but £13 million has been written off this year. Surely it behoves Mr. Cumiskey, as Secretary of the Department, to make immediate contact with the Department of the Environment to ensure that a proper cross-structure is immediately put in place.

Mr. McCumiskey: Point taken. This matter is being studied by a specific working group set up for that purpose. The group has been given a mandate and asked to produce results reasonably quickly so that I, and my opposite number in the Department of the Environment, can arrive at a more co-ordinated approach to this issue.

The Deputy’s comments with regard to fraud being rife have been made for many years. I wish the people who actually say this would actually report instances of fraud to the Department. We do receive many reports on individual cases which are followed up. Many people are concerned at the thought that fraud of this nature exists and they provide the Department with much information. Some of this can be a misunderstanding on their part. They might see someone signing on and working but the person involved is a part-time worker. These cases are followed up, however, and the Department is glad of any information which helps in controlling fraud.

Deputy B. O’Keeffe: Mr. McCumiskey should speak to his local housing officer.

Deputy McCormack: With regard to overpayments in relation to invalidity benefit, people may be overpaid as a result of fraud, error, genuine misunderstanding or believing they are following correct procedures. There have been cases of people on invalidity benefit have been advised by their doctors that their recovery might be aided by occupational therapy. The person might engage in such therapy for two days per week, for example, as a result of that advice. Suddenly after four to six months he finds he is being deducted for overpayment. How do we cater for such a situation? That person is going on the professional advice of a doctor and by engaging in this occupational therapy or work for a period of time it may get him back to full health a lot more quickly than if he did not take the advice of his doctor.

Mr. McCumiskey: The answer to that is strāightforward. There are provisions in the scheme to allow people undertake occupational therapy and the pension book should carry information of that nature. However, we require that we are told about it before it starts so that we can judge whether it is what it is claimed to be and not just employment. I have not come across cases of our refusing to allow people to engage in therapy of that nature.

If one thinks of what the Department would like to see happening in relation to invalidity pensioners, clearly it would like to see them getting better and in a situation in which they can support themselves. Occupational therapy is designed towards that end. Ever since the scheme was set up there has been that provision, both in that scheme and in the disability benefits scheme, that people may engage in therapy. There are what we call rules of behaviour. It is mentioned in the literature that would be given to invalidity pensioners and as far as I know they are also displayed on the invalidity pension payable order book.

There are, of course certain restrictions on the therapy involved. We would be mainly concerned that it is not highly remunerative but that it is actually therapy.

Deputy McCormack: How do you differentiate between therapy, work and the pay for either?

Mr. McCumiskey: Generally we would leave it to our medical advisers to inform us.

Deputy McCormack: In the cases I come across the people have already been advised by their own medical adviser or, sometimes, the Health Board’s medical adviser that some work might be the right thing to do.

Mr. McCumiskey: Perhaps that may be right in the circumstance. However, before that work is undertaken we have to be told by the pensioner. It is not a secret requirement but is written into the literature and there will be a reference to the rules of behaviour on the pension order book. All we are asking is that we are told about it so that we can make an assessment, which is only fair. There might be the possibility of it being abused. I have not come across cases or had complaints of our having been restrictive when approached on this matter.

Deputy McCormack: I have heard lots of complaints about people who have not reported their therapy work and are discovered six months later and perceived overpayment is deducted by your Department from their now valid pension.

Mr. McCumiskey: We discussed earlier how we go about striking up overpayments. If we come across someone who is in breach of the regulations, the case is given to a Deciding Officer and a judgement is made as to the circumstances. From what you have said there must have been cases in which a judgement was made that it was not reasonable behaviour on the pensioner’s part, that money was overpaid and that overpayment was struck up.

Deputy McCormack: The result of that is that the person goes back on Invalidity Pension and says “to hell with the therapy” and the whole purpose of getting the person fit for work again is defeated.

Mr. McCumiskey: I still maintain it is reasonable that before people on pension engage in activity of this nature we require them to tell the Department so it can exercise some control over the situation.

Deputy McCormack: Is that clearly indicated in the book?

Mr. McCumiskey: There are rules of behaviour of which all pensioners are notified and which are drawn to their attention on the book. For example, the book carries instructions to that effect which the person has to sign. Each time they sign the order they are indicating that they have read and understood the various rules. In addition, it is displayed on the book that the claimant must obtain written permission from the Department before starting courses. I can understand that people do not look at their books too often but we are also in the situation of how best to inform people. We tell them when the claim is made and we write instructions in the books; it might be taken as a form of harassment if we were continually informing people.

In 1994 we visited over 1,000 invalidity pensioners personally and they were interviewed just to see what their circumstances were, if they were still invalided and what they were interested in doing. We do what we can but it is impossible to keep in touch with each claimant, each week.

Deputy Broughan: Deputy Batt O’Keeffe’s comments should not go unnoticed as the old cliché we have heard over the years, presumably about some unnamed housing official in south Cork. In reality, many Deputies see a lot of people on social welfare in fairly dire poverty. With an increase of 2.5 per cent this year - barely in line with inflation - that may leave a parent and two children living on £85 a week. It is not a situation in which we should encourage the old trite comments. We should be trying to alleviate poverty in our society.

Would you feel the discretion given to community welfare officers in relation to assisting families with supplementary payments is too wide and arbitrary? Deputies would have experience of genuine people being turned down repeatedly when in desperate need of a winter coat or shoes. I know it is a policy matter but would the best solution be that the Minister, Proinsias De Rossa, should be responsible for that area?

Mr. McCumiskey: On principle I would not be happy with reducing the discretion too much, precisely because it is a scheme of last resort. It is the one area in which there has to be discretion; payments have to be made quickly very often. It is a fact that the basic legislation gives this discretion; it puts an obligation on the community welfare officer to meet the needs and a discretion to judge them.

The scheme operates whereby we speak with the Health Boards and discuss with them how the scheme should be operated in general terms. In recent times, we have also been producing guidelines for them. The guidelines are just that; they do not and cannot remove the responsibility on the Health Board as that is part of the law. We are producing guides on exceptional needs payments, an area that causes particular problems. If the guidelines are well known to claimants and to their public representatives that itself will exercise a measure of discipline or control on the system.

There are many pros and cons in relation to the wider point of whether the scheme should come under the Department of Social Welfare. The fact is that the community welfare officers also perform other duties. They are meshed in with the community care teams of the Health Boards and it would be a problem to extricate them. They also operate out of premises which are used for other purposes. I am certain that there would be difficulties there.

There is no intrinsic reason why, in the way that post offices pay many of our payments and the Revenue Commissioners collect our contributions, community welfare officers cannot administer one of our schemes. That is not an argument as such. The question is whether they are linked in closely with the philosophy of our Department and exercise the same criteria.

Deputy Broughan: Sometimes, a person goes to a community welfare officer in one area and gets some assistance and is then rehoused by the Local Authority in another area where they receive little or no assistance. There are such discrepancies in the system. You made the point that it is 0.5 per cent of the total budget. Do you track that figure? Since it is an expanding budget, do you keep tabs on how that is moving in relation to overpayments or suspected fraud?

Mr. McCumiskey: We do, because it is reported each year by the Comptroller and Auditor General. We also have to keep an eye on the level of recovery of overpayment, which we are gradually improving on. We are putting a great deal of effort into that. It is crucial that we make every effort to get the money back in cases of overpayment.

Deputy Broughan: Can the overpayment of £5 million of social insurance and assistance which was not attributable to fraud be reduced by your officials?

Mr. McCumiskey: This is an area where it clearly can be reduced. These overpayments arise through errors and misunderstandings. There are two ways to deal with that: better training of staff and better information and education of the public. We put a great deal of effort into both of those. We are trying to get more leaflets and information to the public so that they know what they are entitled to. We are strengthening the information systems in our local offices and we have a huge ongoing investment in the training of our staff, so that they will be skilled not just in the particular scheme they are dealing with but also in other schemes. People often come to us with multiple needs which it is difficult for them to sort out and that is how mistakes can happen. For example, the interlink between a husband and wife’s entitlements can lead to non fraud overpayments.

Deputy Byrne: We should have corresponding figures for the number of people involved beside the estimated total of money drawn in overpayments. I would argue that the paragraph is minus a very important statistic, although I do not know whose responsibility that is.

Mr. Purcell: We depend greatly on the Department for these figures and if the Department can produce them we have no problem with including them in this paragraph.

Chairman: The Committee notes paragraph 51 but must express its concern at the rise in the level of overpayments attributable to fraud and suspected fraud. Is that agreed? AGREED.

Paragraph 52 of the Report of the Comptroller and Auditor General reads:

Social Welfare

Amnesty

52.In paragraph 71 of the 1993 Report reference was made to an amnesty announced by the Minister for Social Welfare in June 1993 which exempted from prosecution persons who admitted to having received social welfare payments improperly or fraudulently, but did not waive the Minister’s right to recover any amounts overpaid. The terms of the amnesty were applied in 596 cases.

By the end of March 1995:

(a)352 cases had assessed overpayments of £759,714 — £165,589 had been recovered;

(b)97 other cases had been terminated although no overpayment had been assessed. The resultant savings were estimated at £1,403,935;

(c)reductions had been applied in 144 cases although no overpayment had been assessed. The resultant savings were estimated at £151,015;

(d)decisions had not been made in 3 cases.

In the course of audit it was noted that Departmental records indicated that only in 132 cases was the amnesty applied on the basis of an enquiry by the social welfare recipient. The remaining 464 comprised cases which were already known or had become known to the Department as a result of its investigative work. In these cases, although no formal application to avail of the amnesty had been made, nevertheless, the terms of the amnesty were offered. A test check by my staff indicated that most of the cases had come to the attention of the Department following a mailshot carried out in July/August 1993 which covered 9,608 claimants under five schemes. Among the cases brought to light by the mailshot were those of claimants who were in receipt of pensions and other income in excess of the means recorded by the Department.

I asked the Accounting Officer why overpayments had not been assessed in all cases and, where cases had already been assessed, when it was expected that the outstanding amounts would be recovered. I also asked about any measures being taken by the Department to regularly review the means of claimants who have income other than social welfare assistance.

The Accounting Officer informed me that Deciding Officers, who are independent in the exercise of their power, had, under Section 249 of the Social Welfare (Consolidated) Act 1993, made revised decisions on entitlement in the 241 cases in question. These did not have retrospective effect and, consequently, no overpayment was created. The view would have been taken that there was no fraud or wilful concealment of increased means and, as a general rule, a decision is not made to have retrospective effect where an item of means, already known to the Department, increases. He stated that a Deciding Officer takes into account all the circumstances surrounding the non-disclosure of the increase in means, the age of the person and other relevant facts before determining the effective date of the entitlement decision.

In regard to the recovery of overpayments he informed me that decisions had now been made in the outstanding 3 cases and that the final assessed total overpayment amounted to £761,407 and that a total of £173,533 or 23% of this had been recovered at 31 May 1995. As the outstanding overpayments were being recovered on an on-going basis by deduction from social welfare payments (the average weekly deduction is of the order of £5) or by direct refund to the Department it would take some years to recover the outstanding overpayments.

Regarding a regular review and revision mechanism I was informed that the Department has, since 1991, re-organised its structures to allow a more co-ordinated and focused approach to control and review activities. It is the policy to review as many cases as possible within the limitation of the available resources and the priority which must be given to the processing of claims and the desire not to unduly harass clients many of whom are elderly and in receipt of their proper entitlement. In addition to these reviews, other control work is also carried out by targeting a wide range of specific groups, for example, by using information obtained from the British Department of Social Security to review the entitlement of pensioners who are in receipt of a British retirement pension and an Irish non-contributory old age pension.

Mr. Purcell: This paragraph is a follow up to one in the 1993 report. It outlines the results of our detailed examination of the 596 cases to which the social welfare amnesty was applied. I was surprised to find that most of these cases - 464 - had not actually applied to avail of the amnesty and had largely come to notice as a result of a mail shot by the Department. I was concerned that overpayments had not been assessed in 241 cases where claimants had been in receipt of a social welfare payment to which they were not entitled or at a rate in excess of that justified by their means. In this connection, it appeared that the overpayments had occurred as a result of the Department not carrying out a regular review of cases where it was known that the claimant had a variable source of means as well as the social welfare payment.

It can be seen from the paragraph that the Accounting Officer pointed out that the power to make a revised decision in regard to entitlement is invested in Deciding Officers. This was mentioned when we were discussing the overpayments. In the 241 cases, decisions had been taken not to make the revisions retrospective. This was in line with a general policy not to apply retrospection where an item of means already known to the Department increases. In effect, no overpayments were recorded in these cases.

As regards my concern about the level and frequency of review of the claimants in receipt of means based payments, the Accounting Officer referred to a number of improvements introduced in this area in recent years, including a more effective tie up with the British Department of Social Security and greater targeting of particular groups whose circumstances are likely to be subject to change.

Chairman: How much of the £761,407 in overpayments has now been recovered and what amount do you, Mr. Cumiskey, estimate will be recovered each year over the next few years and how much will eventually be struck off?

Mr. McCumiskey: The amount recovered is £186,000 up to the end of August. Clearly, the recovery will be quite slow. As we discovered in our earlier discussions, in general our success in recovering overpayments is 30 to 35 per cent. I would expect that it would be higher in these cases because they were given particular notice. However, I understand that the actual repayments in some cases are quite small. It will be quite some time before we get all that money back, if at all.

Chairman: Has your Department learned any lessons from the 591 cases which will be of benefit in the prevention and detection of other cases of fraudulent or improper payments?

Mr. Cumiskey: The point made by the Comptroller and Auditor General in relation to reviews is a lesson for us to learn. We knew about cases of people receiving benefit from another country because all those cases are recorded. However, we did not do anything to review those cases. We have now formulated arrangements with our opposite numbers in the UK to allow a better flow of information.

It is true that, generally speaking, there is a responsibility on the claimant to tell us about changes in their means. However, certain amounts increase automatically which would mean, in practice, that they would have to tell us very frequently, which would clog up the system. That would explain why we do not strike up an overpayment if there has been a small increase. The main lesson to be learned is that we have to be clever and more precise about the cases we nominate for review.

Deputy Broughan: How many social welfare amnesties have we had to date?

Mr. McCumiskey: I am not sure. This is the second one. There was one in 1991 and again in 1993.

Deputy Broughan: How has the success of this amnesty, which appears to be very small, compared with the 1991 amnesty?

Mr. McCumiskey: I do not have information on this; I would only be going on memory. I believe it was roughly the same. The social welfare amnesties tend to follow on more general Revenue amnesties. The Revenue amnesty tends automatically to bring in an amnesty for PRSI, because it is collected through the same system. The view is that if there is an amnesty for taxpayers, why should it not be given to social welfare recipients also?

However, it has nothing like the same effect on social welfare recipients as it has in tax cases, for obvious reasons. In the first instance, their means are far lower than the type of taxpayer that tends to be caught in the tax amnesty. Secondly, our controls are reasonably good. We keep many more people in the field, dealing with our customers, than the tax officials are able to do.

Deputy Broughan: Would it be fair to say that social welfare amnesties are some kind of PR exercise with regard to the tax amnesty, to give it some kind of gloss, given that the amounts outstanding or the amounts recovered are so small?

Mr. McCumiskey: No. There is a matter of equity here. It is a fact that we follow and pursue people who have wrongfully been claiming social welfare payments. We impose penalties on them. The most stringent penalty we can impose is to get them off our books, then we can strike overpayments and prosecute. At their basis, these amnesties are amnesties against prosecution. There is, therefore, an argument in equity that they should be extended.

Chairman: Perhaps the C&AG may be able to give the information you seek, Deputy.

Mr. Purcell: I see from my notes that 523 social welfare recipients were offered the 1991 amnesty. The amount of overpayments that were established from these was £943,000, and, according to my figures here, £46,000 of that was recovered.

Deputy Broughan: The most interesting aspect of the paragraph on this is that the vast bulk of those who applied for the amnesty were people you had been chasing and that you put forward for an amnesty. The other astonishing thing is that the bulk of them came from the investigative mailshot you undertook in July and August 1993. It covered 9,600 claims under five schemes. Presumably, from those claims, 464 people were processed to the amnesty stage. Were you concerned at the impact of that mailshot, and if so, why do you not do more of them?

Mr. McCumiskey: We were concerned, and we have undertaken more of them. This was one of a number of initiatives we have taken over the last number of years. We asked each scheme manager to have a hard look at their claim load and to think of the ways in which they could use their limited resources to tackle it best. A number of them came up with this idea.

It could be said that a mailshot is so passive that it is not worth doing. In fact, our experience was to the contrary and in that sense it was somewhat surprising. What is not surprising, is that we offered them the amnesty. It was an amnesty against prosecution and it would have been untenable to have not offered it to them, having discovered information, or if they had come forward with some information, which led us to believe that something was wrong and overpayment was due. If we then attempted to prosecute those cases, one of the first things we would have been asked was if we had offered them the amnesty. It would have clearly been unfair not to.

The value of offering them the amnesty also was that it encouraged them to come forward and to declare that their means had increased or whatever. As a result, we were able to readjust their entitlements. In most cases the savings that arose from this were not from the overpayments, but from the adjustment of ongoing entitlements. That is where we get our big payback from things of this nature. However, mailshots are still used quite frequently.

Deputy Broughan: How often? What numbers are involved? How expensive are they? What is the benefit if we recover money from them?

Mr. McCumiskey: We have done them on most of the major schemes - invalidity, most of the pensions, some of the unemployment payment schemes. It is passive.

Deputy Broughan: Is it totally random, or would you be hitting people that you suspected were not fully entitled to their benefits?

Mr. McCumiskey: Generally speaking, we target them. I do not wish to elaborate on the targets, but perhaps in some schemes we tend to look at the younger people rather than the older, in other schemes the older people rather than the younger. It would depend on the scheme under consideration. There is a certain amount of random selection also, but nowadays we find that it must be targeted. There is a cost factor involved in any of these exercises, and the cost in a mailshot is not just the cost of preparing the mail, it is also in dealing with the replies and the non replies. All these cases would have to be recorded and we would have to figure out why a reply was not made if there was none. For example, we get back cases where there has been a change of address. Each of them must be laboriously followed up. There is, therefore, an overhead involved in this and we must figure out if it is worth it.

Deputy Broughan: With regard to the amnesty, were you amazed that, out of hundreds of thousands of claimants, a tiny number of people, only 132, volunteered for the amnesty, or were you pleased?

Mr. McCumiskey: Our experience is that in any control exercise we take, we will always come across some cases where there is something wrong. The proportion is always very small. Looking at the number of claimants we have, circumstances change over time, people do not tell us immediately if their means have gone up, or if their spouses are working and so on. One is bound to get this.

At one level we were not surprised. I cannot say if we were pleased or displeased. Our job is to take these control measures over and over again. We change them and adapt them. All the time we are trying to come across the cases that have gone off the rails and to prevent others from doing so.

Deputy Byrne: I find myself disagreeing with the sense of enthusiasm expressed by Mr. McCumiskey regarding the amnesties, especially when he speaks in terms of equity. There is no equity in granting tax amnesties, as has been done on two occasions, to thieves who refuse to pay their taxes. The missing link in the equation in the matter of equity is that you are drawing comparisons between two fraudulent forces, one in social welfare and the other in taxation, when those left out of the equation are the compliant taxpayers, the PAYE sector in the main, which is crucified by taxes. I disagree with your implication that amnesties are worth having in the interests of equity.

It was a political disaster to have ever, in the first instance, declared tax amnesties. What happened in social welfare was a gimmick by the Ministers involved as an attempt to present to the public the idea that they were treating the rich robber barons fairly by granting them a tax amnesty while they were going to be nice to the poor, who are on social welfare and fiddling the books, by giving them the same treatment as the Goodmans of this world.

Some 132 people presented themselves for an amnesty. The figures were artificially jacked up by an additional 464 people. I suggest this was a policy decision, that the embarrassment created by the hype around the amnesty for social welfare resulted in 132 people volunteering. The Minister must have been embarrassed and decided that, by hook or by crook, he would have the figures artificially increased. If 132 people present themselves for an amnesty, why are 464, who are already on the books and being investigated by the Department of Social Welfare, offered the same terms? Why did we not pursue the 464 independent of the amnesty? They did not present themselves.

Mr. McCumiskey: It was an amnesty against prosecution. These were cases in which we had not completed our work in relation to prosecution. They were not cases before the courts or anything of that nature. They were cases that were just beginning the process I mentioned earlier whereby we would have to decide whether there was an overpayment, if it was fraudulent and, if it was fraudulent, whether the work should be done to compile a case for prosecution. It was felt that it would be only right to offer these people this amnesty as an encouragement as a minimum to come clean.

Secondly, there was a feeling that it would have been untenable to prosecute in those circumstances when it was well known that there was an amnesty against prosecution at that stage. That was the judgment that was taken.

Deputy Byrne: Is it not rather gimmicky for a Department official or Minister for Social Welfare to suggest that an amnesty against prosecution for those engaging in social welfare fraud will bring forward hundreds of thousands of people? We have seen that 132 cases came forward. The actual numbers that end up before the courts, even in the absence of amnesties, are infinitesimal. They are so small we can hardly see them in the statistics. It was a gimmick from start to finish. They were never going to be brought to court in any case, given the statistics presented to us this morning. We heard that £1 million in invalidity pensions has allegedly been stolen from the taxpayer and since the scheme was initiated not one person was brought to court. Would you agree that amnesties such as we have had in the past are no substitute for scheme management proposals that should be in operation in-house?

Mr. McCumiskey: Of course they are no substitute for scheme management. They only occur rarely. They have given rise to much debate, the nature of which you have mentioned. I have to avoid that because it gets too much into policy. Given that there was an amnesty for taxpayers, I felt it might have been regarded as discriminatory not to have applied something similar to social welfare cases. However, that is my view. The fact of the matter was that a decision was taken to operate the amnesty.

I do not agree with the thesis that because the chances of prosecution were slim this decision was not going to have any effect. It loosened up the situation. People were more free to tell us what they had done and what they had not done. There was no amnesty on the amount of overpayment due - once we determined it was due, it was due. We did not touch that at all. It was simply an amnesty from prosecution. Admittedly, it affected the figures. It meant that our prosecution levels took a dip. You can have different views on that. The mailshot had come out of our own control procedures, so clearly amnesties are no substitute for on-going control procedures.

Deputy Byrne: Would you agree that it is not in-house policy to advocate amnesties for social welfare fraud?

Mr. McCumiskey: I have no comment on what I would advocate.

Mr. Purcell: With regard to the point made by the Deputy, it is even more startling to go back to the 1991 amnesty. About 523 social welfare recipients were offered the amnesty and in only 13 cases did the people come forward. The Department had already detected the other cases. Perhaps that reinforces the point made by the Deputy.

Deputy Byrne: I cannot let it go at this point given the additional information. The Department knew that only 13 people had volunteered to come forward in seeking an amnesty against prosecution in 1991. I suppose if you compare the 13 in 1991 to the 132 in 1993 you might consider the second one a far more successful exercise. However, it reinforces my point that both schemes were a bloody farce. Thirteen people came forward. The chances are none of the 13 was going to be prosecuted, on the figures we have been discussing.

Chairman: We note Paragraph 52.

On behalf of the Committee, I welcome the Auditor General of Finland, Mr. Tapio Leskinen and his colleague Mr. Esa Tammelin. They are here to see how our system of public accountability works as I understand that changes are being contemplated in Finland. Some of the members of the last Committee had the opportunity to learn how the State audit office works during a fact finding visit to Finland last year. It is nice to see that our interest has been reciprocated. Our visitors are very welcome.

Chairman: Paragraph 53 of the Report of the Comptroller and Auditor General reads:

Long Term Disability Benefit

53.Disability Benefit (DB) is a payment made to insured persons who are unfit for work due to illness. Payment is normally made by weekly cheque. It is a short term scheme and recipients are not generally considered to be permanently incapacitated.

When a claim is made for DB, medical certificates of incapacity to work must be furnished weekly. This requirement is changed to monthly when a claimant has been in receipt of DB for a period of six months.

A claimant who has been in receipt of DB for more than one year — long term DB — is automatically transferred to the personalised payable order (PPO) method of payment. This method of payment involves the issue to the beneficiary of a book of PPOs which may be cashed weekly at a post office nominated in advance by the payee and regular medical certification is not sought thereafter.

In reply to my inquiry regarding the overall strategy of the Department in relation to medical certification and examination the Accounting Officer informed me that the relaxation of regular medical certification for those claimants paid by PPO is not a suggestion of permanent incapacity. It is the Department’s view that these claimants had previously been subject to significant medical control prior to transfer to book payment. Experience shows that, for people who are on DB for a lengthy period, the value of medical certification as a means of control is reduced studies had shown that there was/is an inverse relationship between duration on DB and the likelihood of being found capable of work at a medical referee examination.

Capable findings in 1994 averaged as follows:

The Department has decided to put greater emphasis on referring short term claimants for examination earlier and more frequently than previously and as only a certain number of examinations can be conducted in a year it has therefore been decided that the medical referral of long term cases should be better targeted to ensure the optimum use of the available resources. One effect of this approach has been that cases maturing towards PPO eligibility have been thoroughly vetted by that stage.

This new approach has been supplemented with a variety of selective controls. The overall approach is:

-to target extensively

-to audit a percentage of those not targeted

-to vary the strategy as appropriate

A number of targeting exercises have been carried out by the Department recently.

In March 1994, 2,164 long term DB PPO claimants in the 20-40 age group were referred for medical examination. This target group was chosen for their high risk potential as it was more likely that those in the lower age range would be found capable of work. This exercise resulted in a capable finding of 15.5%.

In April 1994, it was decided that, in order to examine the value of certification, a control group would be monitored by requesting them to submit an up to date certificate of incapacity and to subsequently monitor them through to medical referral examination stage and outcome. The result of this confirmed the view of scheme management that global medical certification as a control instrument in long term DB cases was wasteful of scarce resources and did not represent value for money.

The rates of capable findings in these two groups, notwithstanding the fact that they were targeted as vulnerable categories, were, on average, significantly lower than the annual average capable rate of approximately 19% overall. This change in policy towards greater activity on short term claims is regarded as a factor in the reduction in the overall number of DB claims from approximately 47,600 in January 1993 to 43,700 in December 1993 and to 42,250 in December 1994. There has also been a marked reduction in the average duration of short term DB claims, from 5.5 weeks in March 1993 to 4.1 weeks in June 1994 and to 3.2 weeks in the first quarter of 1995. There has also been an increase in the number of final certificates submitted when notification of medical referee examination is issued — numbers have grown from 4,745 in 1992 to 7,580 in 1993 and to 8,756 in 1994.

These favourable results are viewed in the Department as evidence that the current deployment of medical referee resources has struck the right balance.

Mr. Purcell: Paragraph 53 gives an outline of the Department’s overall strategy in relation to the medical certification of incapacity for work. I raised the matter with the Accounting Officer as a result of an audit of long-term Disability Benefit which brought to light that the Department had dispensed with the requirement for regular medical certification once the claimant had been tranferred to the system of weekly book payment at post offices. This method of payment for long-term claimants uses a computer system which has no facility for the processing of medical certificates and therefore a new administrative approach had to be taken to cover the situation.

On the basis of research undertaken by the Department there was a bank of data which showed that the value of medical certification as a means of control was very much reduced for those on Disability Benefit for an extended period. Furthermore, recent targeted exercises on the referral of long-term claimants for medical examination showed a below average level of capability for work among those so referred. It was decided, therefore, that maximum benefit would be gained by concentrating medical referee resources on short term claimants. One effect of this was that those transferring to long-term status would have been thoroughly vetted by that stage. Selective referral is seen as a more appropriate way of controlling long-term claimants. Towards the end of the paragraph the Accounting Officer gives some statistics which support the view that the Department’s approach to claim control is proving successful.

I suppose this is a change from the normal criticism. I think I am complimenting the Department in this paragraph.

Chairman: In December, 1994 the overall number of Disability Benefit claims was 42,250. What is the latest figure available and how many of these refer to long-term cases? Are you satisfied with the procedures you have installed for long-term Disability Benefit? How many medical examinations were conducted last year and what is the target for this year?

Mr. McCumiskey: The latest figures I have are for September. The number of disability claims and payments in September of this year is 43,420. Of those, the long-term figure is 21,000 which is about 50 per cent. Those figures have remained reasonably constant for quite some time. There are always minor fluctuations, particularly in the short-term figures due to flu and illnesses of that nature. That is the order of it.

In relation to the question about the level of medical referee examinations, I am not sure offhand what the target is but the emphasis is and has been for the last year or so on targeting the shorter term sickness benefits. We have found, as the Comptroller and Auditor General reported, that this pays far higher dividends, given that we have a limited number of medical referees, than calling the long-term sickness benefit recipients, although of course we do both. The experience with sickness benefit in this country and in others has been that the way to tackle the problem, if there is one, is to call for examination or to look closely at people as soon as possible to the point at which they became sick rather than later. It can happen that if they are missed at that point in time they may simply continue on claiming longer than they should. That will have long-term effects in relation to the people on long-term sickness benefit and invalidity pension which is the payment they go onto after that.

Chairman: Can you provide up to date figures for the average duration of short-term Disability Benefit payments?

Mr. McCumiskey: The figures I have here show quite a variation. The average duration of short term disability payments at the moment is in the region of 4.5 weeks.

Deputy Byrne: This is very encouraging. The Disability Benefit statistics as you show them here in your use of scheme management has resulted in startling successes. There has been an increase in the number of final certificates submitted when notification of medical referee examinations are being issued. The numbers have grown from 4,700 in 1992 to a massive jump of 7,500 in 1993 and it increased again to 8,794. Obviously the GPs who are attending these social welfare Disability Benefit applicants seem to be taking more seriously than ever the fact that their patients are being called in for independent examination.

If that is the case, what about the GPs who appear to be providing certificates willy nilly? Could you explain why the miraculous recoveries seem to occur in the minds of the GPs as soon as you issue your notification of intent to bring the recipient before the medical referee? Are you happy that GPs are being as diligent and as honest in certifying the state of health of their patients as they should be and how can it be that so many cases are reversed by your referees if they are being diligent?

Mr. McCumiskey: I am reasonably happy in relation to the work done by GPs. A special study was done for this Committee about three years ago in relation to people on Disability Benefit which was started by the previous Comptroller and Auditor General and we added to it. One of the features that became clear from it is that in a lot of illnesses, particularly short-term illnesses, it is as much the person concerned who determines how long they will be ill as the doctor. This may sound a bit strange but for many illnesses such as ’flu, the doctor is, I presume, very much at the mercy of the patient as to how the patient says the patient says the patient feels or whether the patient is ready to go back to work or not.

One of the reasons the number of notifications of final certificates has increased is precisely because of the way in which we have been exercising our control. As I said, we have been emphasising examinations of people on short-term payments as against the generality of disability payments when calling them in for medical referee examination. We set up a computer system. Once the claimant is on our books the illness is put in and if the illness lasts beyond a certain duration the case is automatically churned out and processed for medical referee examination. It is inevitable that the closer we get to the expected duration, the more likely we are to cut across people who would have gone back in any event. If, for example, you call in people with a ’flu within three weeks, a certain number of them would have gone back. It would be an indication to us that perhaps we are calling some people too soon. We will have to watch this situation. Once you enquire closely into claims, there will always be a certain number of claimants who have the discretion who will say they will go back to work, that they are feeling a bit better and to not want to subject themselves to a medical referee examination. That is a feature of our control activity.

In relation to the doctors, we have no evidence to show that doctors are not applying these schemes diligently. Differences of opinion arise. Clearly, if a medical referee finds somebody capable, and they do so in about 19 per cent of cases, there is on the face of it an apparent conflict of medical view between the GP and the medical referee. However, our medical referee is determining whether a person is capable of work or not. The doctor is treating the person as their own patient and may have other considerations in relation to making them fully better.

Deputy Byrne: In the interests of fairness to the recipient, I applaud the great successes that you have had, but I detect a sense of fear on the part of recipients of these benefits that you may be running an austere medical referee regime. Could that be quashed?

Mr. McCumiskey: Austere in the sense of being too tough?

Deputy Byrne: Yes, particularly given that the person before your medical referees has already been seen by their own GP and reassured by him or her that they are still sick and should still be out of work. Then they go before your medical referees who reverse the GP’s medical opinion.

Mr. McCumiskey: I am aware of the impression and I have listened over the years at this Committee and other places to views of that nature. It is difficult in the sense that the medical referees are there as a form of control. They are not there to make the people better, they are not their doctors. They are all very well qualified doctors, but they are there to pass a judgement as to whether the person is capable of work within the meaning of the schemes. Clearly when a person is sent to a medical referee it is done for that explicit purpose. They know why, we are not pulling the wool over their eyes and saying that we are going to give them medical treatment. It is simply a control mechanism so the Department can be sure that the people are genuinely incapable of work.

Remember, in 81 per cent of cases the medical referee agrees with the recipient’s doctor. The problems arise with the 19 per cent of cases where the medical referee does not agree with the GP. If a recipient is found capable of work and a Deciding Officer agrees with that judgement and the benefit is stopped, if they appeal they will be asked immediately to go before a medical referee again and we always make sure they go to another medical referee. People may or may not like that but it is the only way we have of satisfying the criteria.

Deputy Byrne: As regards the 19 or 20 per cent of GPs whose medical opinion you have overturned, surely that must be an indictment of the prescribing or the opinion of the family GP. Do you agree that some GPs might just give somebody a certificate because they believe Department of Social Welfare is a soft touch? Do you keep any tags on or monitor the 20 per cent of GPs whose decisions you reversed in case there are rogue GPs who will issue certificates at the drop of a hat?

Mr. McCumiskey: It is not 19 per cent of GPs. It is 19 per cent of the people who go forward for medical referee examination and it is spread all over the country. Presumably there are GPs some of whose patients fail or do not succeed. We monitor the situation and our medical referees do so also. It is evident if doctors are prescribing cases which are continually failing -----

Deputy Byrne: Have you had call to complain to the IMO if it becomes obvious and if there is a trend?

Mr. McCumiskey: Very rarely. Over the years we have had to take action. Generally, we take up the matter with the doctor concerned. There are a range of things we can do. We can fine them, but the need for that has not arisen in the past few years - not since 1991. I do not think a situation has arisen in recent years where we have had to complain to the IMO.

Doctors often say they are under a certain amount pressure from their patients and it is not unknown for them to communicate directly with our medical referees. Our medical referees try to form relationships - mainly over the telephone - with doctors in the areas in which they are holding their examinations. In cases of difficulty it is not unusual for the two to communicate to sort out what is happening.

We are talking about matters of medical judgment. It is bound to happen that a medical referee who judges a person as being capable of work within our scheme, which has a very broad definition, may differ from the local doctor who believes the person cannot go back to work immediately.

Deputy Broughan: You said your new vetting arrangements are a factor in the decline of disability claims. Would another factor be the taxation of Disability Benefit? Is there a policy decision that in effect since the spouse would provide, through their reduced tax relief, a significant portion of the benefit, it perhaps discourages people from being on benefit and if they feel better they will want to go back to work?

Mr. McCumiskey: I do not think so. The diminution in the number claiming Disability Benefit has been taking place since long before taxation was introduced. The taxation of Disability Benefit has only been taking place for less than two years.

Deputy Broughan: Previously, when we looked at the report on Disability Benefit claimants, the majority of long-term claimants were women. We felt there were special factors, including pregnancies, etc,.

Mr. McCumiskey: All I can say is that the numbers on Disability Benefit at present are almost the same as they were in December 1993. Taxation was introduced two years ago and it took some time to take effect because of the way it is being done. It may well be that we will see this phenomenon which you mentioned, but so far we have not noticed it.

Chairman: We note this paragraph.

Paragraph 54 of the Report of the Comptroller and Auditor General reads:

Unemployment Assistance and Unemployment Benefit

54.The Department of Social Welfare administers Unemployment Benefit and Unemployment Assistance through a nationwide network of local offices and branch offices.

Reference was made in the 1992 Report to weaknesses in the control procedures which could facilitate the perpetration of internal fraud. The main weaknesses reported were:

-inappropriate access to computer

-retention of a facility to bypass controls

-lack of segregation of duties

-failure to check listings of transactions input

-no random examination of payments

It was noted in the course of audit at a local office in 1994 that some of these deficiencies still existed and that checking instructions issued by the Department were not being complied with. It was also noted that an internal irregularity had come to light at another local office in December 1994. This involved the unauthorised re-opening of a number of lapsed or closed claims, the alteration of computer masterfile records relating to these claims and the generation of spurious payments. It appeared that the perpetration of this fraud was facilitated by the following factors:

(a)the retention on the computer system of full records and information on lapsed claims for a period of thirteen weeks after closure

(b)the facility to generate payments in such cases without the need for re-authorisation

(c)the use of a communal password and the lack of a personal password system for access to computer data files.

In all, seventeen cheques amounting to £5,506 were generated and five of these to a total value of £1,403 were cashed.

As the perpetration of the fraud appeared to be facilitated by, inter alia, some of the control weaknesses already reported and having regard to the audit findings, I sought the views of the Accounting Officer. He informed me that a review of all internal control procedures had been undertaken and that this had resulted in the reiteration of various control requirements for local offices and the introduction of new ones where appropriate. He also referred to the work recently undertaken in reviewing and updating existing internal control circulars to take account of the new operating environment which is developing in the Department’s nationwide network of offices. The Department accepted that a contributory factor in the perpetration of the internal irregularity was that transaction listings checking was not carried out in the prescribed manner in all cases. The main reason for this was a lack of awareness by staff of the importance of this work.

In addition, he informed me that a new computer system, currently being installed in local offices, addresses many of the concerns raised by me.

Mr. Purcell: Over £1 billion is paid out each year by the Department in unemployment payments through its network of local exchanges and offices. The system is highly computerised and this has contributed to the better service that is being provided to claimants. However, it also means that the systems and procedures must be designed and operated to a high standard of control if the risk of incorrect or irregular payments is to be minimised. In the 1992 report we drew attention to certain control weaknesses which we felt could contribute to the perpetration of internal fraud in local offices. At that stage the Accounting Officer gave an assurance that the identified loopholes were being closed.

Paragraph 54 refers to the perpetration of internal fraud in a local office. Although the amount involved was modest and the sum in question was recovered very quickly by the Department, I was concerned that this happened bearing in mind our previous findings in this area. The fact that my staff had already found that control deficiencies still existed in another local office was an indication that the problem might not be an isolated one. The Accounting Officer accepted that the system needed further tightening up and he outlined a number of measures being undertaken by the Department in this regard, including the introduction of a new computer system which would address many of the concerns I raised.

Chairman: Mr. McCumiskey, what methods do you use to convey directions and instructions to your local officers and branch officers? What powers do you have to ensure they are complied with? Are you concerned that your instructions were not adhered to in this case? What steps will you take to ensure local officers implement instructions in future?

Mr. McCumiskey: The general method of conveying instructions is through the training process and specific written instructions to local managers from their local regional headquarters. It must always be a concern for management if instructions are not followed. We have staff at approximately 200 locations throughout the country and ensuring that they follow the many guidelines is an ongoing task of local management. It is not a particularly easy task.

As regards this particular sequence of events, the Comptroller and Auditor General mentioned that we are introducing more modern computer systems into our local offices. It has been designed in a way to meet some of the shortfalls he discovered in 1992, which were studied intensely. The Department’s internal audit people were part of the management team responsible for this new computer system. In so far as was possible, we built into it ways of seeing these things are done automatically. In the old system, claims would be left open and could only be reopened in certain circumstances. A lot of this would be automated to try to obviate the need to rely on the human factor.

On the question the human factor - I know it is not an excuse, but it is relevant - our local offices have been under tremendous pressure in recent years because of the high level of unemployed. Their first priority is make payments. When under pressure it is often difficult for them to appreciate the full significance of the controls they are meant to exercise. It is hard to impress on staff the need to check these transactions listings. It is tedious work and they printed out in long sheets off the machines and staff needed to man the hatches. I am not underestimating their importance and we continually emphasise that in our instructions to them. We are putting greater responsibility on management to ensure that these things are done properly. It is an ongoing effort to comply with these requirements.

Chairman: What new internal control procedures were deemed essential as a result of the review and have these been successfully implemented?

Mr. McCumiskey: There were two. The first is the one I mentioned: that we are building a number of these features into our system in an automatic way. Secondly, in recent years we have put a lot more pressure on our regional managers to ensure that the staff in a local office know what these instructions are, what they mean and what their significance is. Practically all the instructions to local offices have been reviewed and rewritten in a form which we hope will make them more easily understood by them and more easily implemented. We gave the Comptroller and Auditor General details of the type of rewritten instructions we have done. We have also put a huge effort into our training of local staff to bring home to them the significance of the need for controls.

Deputy Broughan: In the case of this particular fraud, the obvious question that occurs to us is whether there were any criminal proceedings in relation to it.

Mr. McCumiskey: My information is that the officer resigned from the Service, the matter was handed over to the Garda and the money was repaid. I have no further knowledge of it. He is no longer a member of the organisation and the papers were handed to the Garda.

Deputy Broughan: Does the Secretary know if there will be criminal proceedings? Where did the fraud occur?

Mr. McCumiskey: Do I have to say? It happened in one of our local offices outside of Dublin and it was one of those most unfortunate circumstances of someone who had seen a weakness along the lines the Comptroller and Auditor General mentioned and had availed of it. It was found pretty quickly, both at the local post office where the encashments were made and internally.

Deputy Broughan: So we may see the case appear in the local court?

Mr. McCumiskey: It is possible; it is entirely a matter for the gardaí as to whether they have enough evidence. There have been few cases of this nature over the years, but practically all of them have gone to court.

Deputy Broughan: The Secretary mentioned the new management structures and attempts to get management to exercise the supervisory role of, for example, checking transactions, inputs and so on. Was the manager in question disciplined in any way or did the Department hold him or her culpable for what happened?

Mr. McCumiskey: Not to my knowledge. Our displeasure was conveyed strongly and forcibly. There was a full investigation of the circumstances and everybody involved was thoroughly grilled as to how this was allowed happen. Our purpose was to clearly find out exactly where the weaknesses were and to close them down immediately. If anything like this happens in a local office, it is a source of extreme displeasure from senior management in the local office, but I have no knowledge that there was any specific disciplinary action either.

Deputy Broughan: Does the Secretary feel that the Comptroller and Auditor General’s criticism of the existing controls is justified and that he therefore cannot attach blame to an individual manager? Would he expect that, having remedied some of these faults with the new computer system and so on, that, if it did occur again, he would expect the line management to take responsibility.

Mr. McCumiskey: The line management are responsible and I accept the points made by the Comptroller and Auditor General that there were weaknesses in the way the controls were implemented. The controls are often determined by headquarters - they are agreed centrally - but it is the responsibility of the local management to see that the staff implement them. One has to be reasonable; there will be circumstances in which members of staff may connive with others to deliberately breach these. One then has to ask if the manager could have reasonably foreseen this or had he or she let the controls go lax. Judgments of that nature are made all the time, but it is clearly the responsibility of management to ensure that controls are implemented.

Deputy Broughan: Since the Department did not carry out random examination of payments at local offices, how does the Secretary know that this did not occur in other areas?

Mr. McCumiskey: We do have examination of payments right through the country and this case was picked up at two levels. One was outside of our Department in the local post office, where postmistresses, as part of the arrangement we have with An Post, are expected to get to know the clients and to let us know of cases they are worried about. We got a report on this case, where somebody was cashing something and it did not seem right. We also came across aspects of this in our normal checking, unfortunately not in time to prevent money being lost, which is the whole purpose of these controls. I can assure the Deputy that we do exercise controls right throughout the whole country.

Chairman: We note this paragraph. While noting the paragraph, the Committee must treat with the utmost seriousness the failure of the Department to take the essential remedial action to correct control weaknesses highlighted by the Comptroller and Auditor General in his 1992 report and the concerns expressed by the Committee, especially in light of warnings at the time these deficiencies could facilitate fraud.

Paragraph 55 of the Report of the Comptroller and Auditor General reads:

Subhead H. - Pre-Retirement Allowance

55.Pre-Retirement Allowance is payable to those aged 55 years or over who are in receipt of long term Unemployment Assistance and who opt to retire from the labour market. The allowance is paid weekly by way of personalised payable order in lieu of Unemployment Assistance.

Administration of the scheme was transferred in February 1994 to a newly decentralised office in Longford. During the course of an audit by my staff at this office in July 1994 a number of control deficiencies were noted, principally:

-lack of supporting documentation for the award of the allowance,

-no means review at take-on stage, no checking for benefit or assistance in payment to spouses,

-shortcomings in the checking of listings of transactions input.

The audit detected that these deficiencies had resulted in overpayments in some cases and these were brought to the attention of the Department.

The Accounting Officer informed me that when the scheme was introduced in 1990, in order to facilitate bulk take-on of claims, local offices were not instructed to forward full documentation in respect of cases to the Pension Services Office which had been assigned responsibility for administering the scheme. Subsequent internal control circulars did not provide for any change in this approach because of continuing take-on pressures arising from the extension of the scheme and subsequent decentralisation to Longford. However, recommendations made by my staff as a result of the audit have since been adopted by the Department.

He also informed me that a systematic monitoring mechanism for processing and reviewing cases had been implemented and that the shortcomings in the checking of transaction listings had been corrected.

The Accounting Officer acknowledged the necessity to make comprehensive searches in respect of other Social Welfare claims being paid to spouses. He explained that a combination of factors relating to the maintenance of an expanding claimload and inexperience in the use of the computer enquiry function were contributory factors in the failure to conduct such searches as noted during the audit.

Mr. Purcell: Paragraph 55 points to a number of serious concerns I had regarding the administration of the pre-retirement allowance scheme. These concerns centred on a failure to check new claims to ensure that other social welfare benefits or assistance in payment to claimants’ spouses were being taken into account and also on the lack of a systematic review of claimants’ means.

The Accounting Officer put the deficiencies mainly down to problems with inexperienced staff consequent on the transfer of the section to a newly decentralised office in Longford and to the expanding claimload, which put much pressure on the system. I also refer here to what he said earlier about pressure on local offices and decentralised offices. The Department has taken my recommendations on board in regard to strengthening controls and has introduced a systematic means review policy for this scheme.

Chairman: For a Department accustomed to implementing such schemes, can the Secretary explain how a relatively new scheme could be administered with such basic control deficiencies? Would he consider it advisable to carry out a general review of controls for schemes within his Department to ensure that the risk of overpayments is minimised?

Mr. McCumiskey: Yes. The Comptroller and Auditor General has given a fairly good picture of what happened. In addition to that and in relation to the points the Chairman raised, it is a new scheme but these people were already in payment; they were not new claimants who had come into us. If they had been new claimants, there would clearly have been an investigation of their means and all the checks and balances that we do. These were people who were being changed from one method of payment to another. They were getting exactly the same money. The question raised here is why we did not review these cases when we changed the method of payment. The intention was that we should have, but the scheme itself was done more quickly than we had originally anticipated and the office was decentralised at the same time.

Looking back on the decentralisation process - and we have decentralised other offices - whereas it has been successful, nonetheless it did expose certain weaknesses in our system, for a number of reasons. One is that staff were not used to the schemes and many of them were new to our Department. I accept the point that controls for the whole Department need to be continually looked at and checked; I have no problem with that. I do not think that this itself is a lesson about schemes in other parts of the Department. We have implemented the recommendations of the Comptroller and Auditor General on this issue and I am hopeful that we have eliminated whatever weaknesses were there.

Deputy Byrne: What was the amount involved in the overpayments which the Comptroller discovered and has that money been recovered? The report points out difficulties with the computers. What is the implication of this? Does it highlight shortcomings in the computer training procedures? To highlight such shortcomings in the computer training procedures, are the staff trained in-house or is there a contract charge for training?

Mr. McCumiskey: There are certain features missing from that computer system. It is one of our oldest systems and deals with pensions. We have completed a modernisation of our computer system for short term schemes. We have integrated Disability Benefit, Unemployment Benefit and Assistance and Supplementary Welfare Allowance into one system. This modernised system has been introduced in our local offices.

The next major job we have to do with regard to information technology relates to pensions. Our pensions system is good but has been there for many years. It does not have all the features we would like it to have. We would like a system to automatically tell us when something is wrong and when there is an overlap and an underlap. When the pensions system was set up it did not have these features. This is not unusual for computer systems. They never begin the way people ultimately want them to be. The pensions system is the next big item on our computer development programme.

There were seven overpayments. The average overpayment was about £5,000. Thus there were total overpayments of about £35,000. Most of the overpayments are being recovered on a week to week basis because those who were overpaid receive payments which are means tested.

Deputy Broughan: Was it because of Deputy Albert Reynolds that this office was decentralised to Longford? Have many of the problems arisen because of decentralisation? With every decentralisation we seem to end up with new staff and other staff being moved around offices in Dublin. Do you ever estimate the costs to the Department of decentralisation?

Mr. McCumiskey: Costings have been done centrally on this because I have seen Parliamentary Questions on it. The replies to these questions would have contained figures relating to the Department of Social Welfare. I do not have this information at the moment. Decentralisation was implemented to give a boost to the regions. How can such a boost be valued? When we sent 350 staff to Sligo, there was a huge addition to the local economy and payroll. Decentralisation gave rise to some problems but I have always said that it has been a big plus, certainly for my Department. It meant that we were able to look again at the administration of the schemes concerned. It is true that we recruited new staff for these schemes but in any event there is a huge movement of staff within the Civil Service.

Deputy Broughan: Could you have ended up with more staff than you needed because of decentralisation? Speaking as a Dublin Deputy, my concern is that Dublin lost these jobs and there is a growing unhappiness in the capital about this and a feeling that the line should be drawn. I would like to know the real costs of decentralisation so that we can evaluate any further movements.

Mr. McCumiskey: Being from Dublin I have empathy with this view. A representative from the Department of Finance is here so I cannot admit I have too many staff. We use the opportunity of decentralisation to change the method by which we operate schemes. Our pensions schemes were operated in three buildings in Dublin and this was silly. We did not have a building in Dublin which was large enough. Pensioners are a discrete group. When we administered the pensions in one building in Sligo we achieved economies of operation and many other schemes, such as new benefits, were added. Staff numbers increased but nowhere near the extent to which they would have increased if they had been kept in the same premises in Dublin.

Deputy Broughan: There were downsides in the sense that a third of the population could easily have visited the centres in Dublin but that is clearly not the case anymore. People could argue that decentralisation should mean decentralising the services and retaining the central administration.

I know this is moving into the policy area but people often say the pre-retirement scheme was an attempt to get people off the live register. Would it be more honest to have them receive long term assistance until they reach pensionable age? The budget for this scheme is huge; it amounted to about £60 million in the year with which we are dealing.

Mr. McCumiskey: Only about half of the people aged 55 or over on Unemployment Assistance have volunteered to go on this payment.

Deputy Broughan: Of what monetary benefit is it to them?

Mr. McCumiskey: It is not more beneficial. They receive exactly the same payment but are paid through a book. By volunteering to receive this payment they are openly saying they are not looking for work. Therefore it can be seen as a reasonable reclassification of people on the live register. However, this is not a motivation for the Department; we deal only with social security. Considering the circumstances of these people, we offered them a much easier way of being paid, which can be argued for on social grounds.

Chairman: We note this paragraph and trust that every effort will be made to tighten up internal controls in all areas.

VOTE 40 - SOCIAL WELFARE

Mr McCumiskey further examined.

Deputy Byrne: The Department has means test criteria for applicants for Unemployment Assistance, Lone Parent’s Allowance and other schemes. We are all conscious of the increase in crime and of the profits made by drug pushers and dealers. The so-called General used to sign on for Unemployment Benefit in his local exchange. Does the Department have the resources and personnel to assess the incomes of these people? I know that a member of the Department’s staff had a particularly bad experience. Has central Government given the Department the wherewithal to enable its staff to confront people who have obviously acquired wealth from dubious means?

Mr. McCumiskey: Yes. With regard to the case you mentioned, we successfully confronted a person. I have not come across cases of our inspectors complaining that they felt they were out of their depth and could not cope with cases. If this happens, it does not arise in the type of cases to which the Deputy referred. It arises more in ordinary cases where people are being obdurate.

Deputy Byrne: Do you agree that many people of dubious character apply for social welfare payments? Cross checking with the Garda Síochána would indicate that income accruing to them may not be from legitimate sources. I am conscious of difficulties the Department’s staff might have in trying to assess the income and means of these people. Staff presumably have to visit their homes. They can be rather unsavoury characters. In the interests of your staff, do you see the need for greater co-operation between the Garda, the Department of Finance and the Department of Social Welfare in targeting those who flaunt their wealth but also claim benefit from your Department? It is not a hidden secret that there is a location in a deprived area of the city where £10,000 changes hands on a daily basis. Many of the people in whose hands this money is changed are recipients of social welfare. I am anxious that the Department is happy that the personnel at its disposal is adequately trained and resourced to confront these individuals, particularly when applying means tests.

Mr. McCumiskey: By and large they are. They are trained thoroughly for what they do. On the question of the transfer of information between the Department, the Garda and any other body, there are restrictions on us arising from the requirements of the legislation under which we operate. Normally we communicate with the Garda when we feel we have evidence of criminal activity but this does not often arise. We cannot and do not have an automatic exchange of information with any other organisation. We are prohibited from passing on the information we receive. This is a difficult area but it has not surfaced for us to any great extent, perhaps because we deal with the bottom end of the market.

Deputy Byrne: We all know that Department of Social Welfare inquiry officers are provided, anonymously from concerned citizens, with information that people are displaying wealth or have access to it. What is the response of the Department to this information? Do the individuals about whom information is given have to account for their wealth to the Department before their payments are stopped?

Mr. McCumiskey: Yes, they must. We receive a great deal of information, as the Deputy mentioned. Much of this is anonymous and we try to follow it up as best we can. We do not have the right to disqualify people from benefit on the basis of anonymous complaints and we have instructions not to do so. We need additional information.

Our normal method of dealing with this situation is to confront the person involved. Situations arise where people fail to satisfy social welfare officers in relation to matters such as how they can afford two cars. In these cases we use the formula that they failed to meet the means test. In this way we put the onus firmly on claimants to show their means are below a certain level. We do not have to disprove what they say. By and large in dealing with the public we take people at their word. This is the way it has to be in a welfare system. This is our first approach but if there is blatant evidence of the type you mentioned, or if people give us such evidence, we will use it and demand explanations. If we do not receive explanations we will not award benefit.

Deputy Broughan: We have had this discussion with the Revenue Commissioners. Do you think there may be a necessity at times for direct police involvement in some social welfare investigations? One of my Dáil colleagues was delivering literature in a block of flats on the south side of Dublin. A rumour went around that he was from “the labour” and extensive hostility was displayed towards him. When he made clear he was from the Labour Party the hostility reduced significantly. If somebody from “the labour” rather than the Labour Party was sent there he or she could be in possible danger.

Deputy Byrne is clearly thinking of cases of which you are probably aware where there are rumours that people are earning substantial sums of money but are on social welfare, which is their visible means of support. There are apparently one or two outstanding cases where people are living in houses worth £200,000 or £300,000 and are still on social welfare.

Deputies were frustrated by the responses of the Revenue Commissioners on this matter. I feel that a tough co-ordinated approach is necessary from the Revenue Commissioners and the Department of Social Welfare to deal with what the Minister for Health has said is the greatest social crisis facing the country. Is there a need for a unit, made up perhaps of gardaí, to carry out investigations so that we would not have instances such as the famous one which is detailed in the book on the General?

Mr. McCumiskey: Over the years we have always maintained a core of highly specialised inspectors, who are at the spearhead of difficult cases. Many of them work directly with the Revenue Commissioners in what we call joint investigation units. This is specifically to meet the problem of people who can dodge both the Revenue Commissioners and the Department. A few years ago we put in place formal arrangements and we have small teams throughout the country.

The Garda Síochána is not involved because it performs a very different function. I do not know what its view on this is but we are always glad of its support. The Garda provides the facility of signing centres and things of that nature. I have no intrinsic problem with dealing with the Garda. However this would evolve, we would clearly have to be careful. At the end of the day social welfare inspectors can enter places gardaí cannot enter because they are called in to support people and we would not want to lose that facility. It is only when we want to disallow people benefits that the situation turns the other way. In most cases the people we deal with, even difficult people, want to put their case to our inspectors.

Even at the time of the events of the case which Deputy Byrne mentioned, when we interviewed the person concerned gardaí did not participate but waited outside. No benefit was paid as a result of this interview. I am not dismissing the suggestion of Garda involvement. If the situation becomes more difficult we will have to use whatever means are necessary. So far, I have not received any complaints from our inspectors that they are being frustrated in this nature. If they do, we will have to look at the situation.

Deputy Broughan: There may well be a role for the information the Department has in the prosecution of people and the Garda may need your input.

Mr. McCumiskey: When the Garda has prosecuted cases it has never found us to be unhelpful.

Deputy Broughan: The administration costs of administering the budget of £2 billion amount to £100 million. Why does the Department need to spend so much on consultancy and why did it spend more than it was allocated by the Dáil? I would like to know about the payments for agency services. Are these more consultancy services? Why do we need to spend this large amount of money out of the £100 million administration costs?

Mr. McCumiskey: The agency costs consist of the money we pay to An Post for paying pensions at post offices and to the Revenue Commissioners for collecting contributions. More than 90 per cent of the consultancy services relate to technical consultancies in relation to computer developments. We use these services because we do not have these skills in our organisation. A large number of people develop computer systems for us. The integrated system for short term benefits costs several million pounds and involves the very latest technology. This is as big a system as one would find anywhere. Very few countries operate a completely centralised social security system as we do. Most countries spread the operation of their systems around small institutions whereas our system is wholly centralised with the result that the size and complexity of what we are doing is, even in international terms, quite big. It would not pay an organisation like ours to keep on board the most up to date knowledge necessary for this type of computer operation. As a result we go to tender and this money is paid to consulting and computer firms which specialise in this type of operation. A number of firms are helping us; we do not have the expertise ourselves.

Deputy Broughan: With regard to the money spent on Supplementary Welfare Allowances, is this money which is administered by Health Boards but is included in the Department’s Vote? Is this what we were talking about earlier?

Mr. McCumiskey: Exactly.

Deputy Broughan: Is this the only instance where a chunk of your budget is decided by another Department?

Mr. McCumiskey: It also happens with the Disabled Person’s Maintenance Allowance but we are in the process of taking this over. Many of our payments are made through local post offices and the production of the pension books is done by a commercial firm. We do not have hang ups about this and I do not think we should.

Deputy Broughan: Is Supplementary Welfare Allowance the only case where your clients are decided by another organisation?

Mr. McCumiskey: Yes.

Deputy Broughan: With regard to the fraud involving £6,359 at the pensions office, the Comptroller and Auditor General says this occurred as a result of false claims for retirement pensions and an investigation is continuing to identify the perpetrator. Has it been found out yet who is the perpetrator?

Mr. McCumiskey: We know who is responsible but the person has left the country.

Deputy Broughan: There was another fraud involving a smaller amount of money. Is the Department reluctant to prosecute officials?

Mr. McCumiskey: No. The opposite is the case. The general sequence of events is that when officials are found to be defrauding they are dismissed unless they resign and the papers are always sent to the Garda. As soon as we know of a case the Garda is called in almost immediately.

Deputy Broughan: Do you have a line to the Director of Public Prosecutions to encourage him? We have been talking about fraud by clientele but the position of trust held by those who guard the guardians is so important that fraud by officials should result in severe punishment.

Mr. McCumiskey: It has been our practice for as long as I can remember that people in the organisation who cheat are fired. We do not normally think of anything less than this. A number of them have resigned beforehand and we normally accept this but the Garda is always involved. If there is evidence such officials are prosecuted. I cannot remember a case which has not been prosecuted. The number of cases over the last 15 years has not amounted to more than about 15. Clearly an organisation cannot be run unless the strictest line is taken on a matter of this nature.

Deputy Broughan: Are you happy with the guidelines and formulations on National Lottery grants?

Mr. McCumiskey: As I mentioned the last time I appeared before the Committee, we have been working a great deal on these.

Deputy Broughan: In the case of this Vote have there been any applications for National Lottery grants on the back of cigarette boxes or at dinner?

Mr. McCumiskey: I am certain there has not. Two things were done with regard to grants. We weaned out the respite care grants, which were more appropriate to the Department of Health. We have devolved down to our regions the evaluation of these grants. All applications for grants come to regional officers who can inquire locally what is wanted and why it is wanted. As a result there is a much more thorough examination than there was in the past.

Chairman: We can note the Vote.

The Witness withdrew.

THE COMMITTEE ADJOURNED.

AN COISTE UM CHUNTAIS PHOIBLí

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 10 Samhain 1995

Thursday 10 November 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. John Purcell (Comptroller and Auditor General) called and examined.

Mr. Colm Gallagher and Mr. John Thompson, Dept. of Finance representatives, called and examined.

APPROPRIATION ACCOUNTS 1994

VOTE 31 - AGRICULTURE & FOOD - VOTE 32 - FORESTRY

Mr. Michael Dowling, Secretary, Dept. of Agriculture, Food & Forestry, called and examined.

Chairman: We are now in public session. I refer to correspondence from the Department of Defence regarding flights within Ireland carried out by the Air Corps in the period 1993-94.

Deputy Ellis: Arising from the reply by the Department, I note that on a number of occasions the Government jet became the Kerry Taxi, and has been used to take the Tánaiste to Kerry for weekends. As the Secretary to the Department of Foreign Affairs will be attending the Committee in a few weeks, we may, perhaps, get a list of the passengers on board for each trip organised by the Department of Foreign Affairs. I note that on some occasions large numbers of people travelled and I take it the log is available. We were told for some time that we could not get any details and now they are coming out in dribs and drabs. I suggest that the Committee write to the Secretary of the Department of Foreign Affairs requesting that he have this information with him for the next meeting.

Chairman: We will do that.

Deputy Finucane: I am disturbed at the over-emphasis on the Tánaiste in the assertions that have been made over a period of time. Last Sunday, the Sunday Business Post carried an article by Mark O’Connell which contained an assertion about the number of trips. I remind the Deputy that there were 83 trips for the Minister for Defence and the Marine. One would imagine he had it parked in the driveway of his house. There is no point in trying to make political mileage from the Tánaiste’s trips back and forth to Farranfore. He has a busy portfolio. He travels internationally and I am sure he puts in long hours. His colleague here would also defend him on that basis. I resent the consistent sniping that is going on in the Committee; it is totally unnecessary. I would like to see balance.

Deputy Broughan: Deputy Ellis’s continuous intervention on this issue is a good example of gobshite politics. You are the last person who should raise issues of propriety. The Minister in question is the Minister for Foreign Affairs. Does the Deputy expect him to spend six or eight hours day in, day out travelling up and down to Kerry? Or does the Deputy want an efficient State administration? It is about time we recognised that we are living in 1995 and focused on important issues. There were serious issues, for example, a few weeks ago in the Office of Public Works in which a civil servant totally disagreed with the decisions that had been made by a Fianna Fáil Minister. If the Deputy wishes to go down that road we are quite prepared to go that way too.

If we are going to have an efficient State administration and a Minister to carry out his tasks as Minister for Foreign Affairs - which the Tánaiste has done with great distinction in two Governments - we should let him and the other Ministers get on with their jobs. We should concentrate on the real issues involving waste of money and get away from this type of gobshite or Daily Star politics. The hole the Deputy is digging for himself is pointless and stupid and drags politics into the mire.

Deputy Ellis: We have the right to investigate and know where the Government jet, which costs £4,000 an hour to fly, flies. The Minister concerned, as is the case with other Ministers, has a State car and I am sure it travels to Kerry to pick him up at the airport. What annoys me about this is the fact that I have constituents who cannot get the roads to their houses fixed because there is not enough money yet they see Government Ministers - and this is not new - flying around the world in the Government jet and using it as a taxi. Deputy Broughan’s party was one of those who severely criticised the purchase of the Government jet some years ago.

Deputy Byrne: I have no intention of getting involved in this debate. However, I remind the Chairman, the Comptroller and Auditor General and my colleagues that we were to visit Mullaghmore on one occasion some time ago. It entailed a journey of 180 miles there and the same distance back and would have cost me an overnight stay. I am not as busy as the Tánaiste but I refused to go because I did not have the time to drive 180 miles to Mullaghmore, spend a number of hours on site and travel all the way back. We are all busy people. I did not have the time to go to the project. If I could have travelled there in an hour and back in an hour and continued to represent my constituents in Dublin I would have had second thoughts.

It would be interesting to compare the cost for the Committee of travelling to a place such as Mullaghmore and staying overnight and the costs involved in the use of aircraft or helicopters. Did it cost this Committee more to go to Mullaghmore travelling individually by car and claiming overnight allowances and so forth? Would it not have been cheaper if we had travelled there by helicopter, did our work there and returned to our work in Dublin?

Chairman: We will take that matter up with the Department of Foreign Affairs. The second letter is from Kieran Coughlan, Clerk of the Dáil. It is a clarification of his evidence. The next letter is from the Office of the Revenue Commissioners regarding information requested by the Committee at the meeting of 5 October.

Deputy Finucane: There are two points I wish to raise and the Comptroller and Auditor General might wish to respond. In two cases it says that due to error a judgment obtained by Revenue against a taxpayer was registered in the High Court and was subsequently published in Stubbs Gazette and the Irish Trade Protection Association journal. All tax liabilities had been discharged by the taxpayer and the sum of £32,500 was paid in compensation to the taxpayer. There is a further example that involves the sum of £30,000. In both cases, obviously, errors were made in the Department and compensation was paid. That eventuality is something that could happen because we all know that the newspapers, even the Sunday newspapers, publish the story when the Comptroller and Auditor General takes action against a person and publishes the details and we know the embarrassment it can cause. What mechanisms have been put in place to ensure this eventuality does not happen within the Department? There are two cases outlined here. Is there a foolproof mechanism in place to ensure that this type of eventuality would not happen again?

Mr. Purcell: The Deputy mentioned that the C&AG takes action against people and it is published in the Sunday newspapers. That is not true.

Deputy Finucane: I do not mean that. Would you be aware if the Department has put a mechanism in place to ensure that the Committee of Public Accounts will not be looking at similar instances next year of the Department giving large compensation as an apology for an action it should not have taken?

Mr. Purcell: These were two cases. I do not want to do the Accounting Officer’s job here. Any case is serious and when it costs the State money it is a source of worry both to the Committee and to myself. The sum of £62,500 in the context of the volume of judgments secured by the Revenue Commissioners is not bad. One can never totally eliminate risk. One tries to minimise it and spend as much money as is justifiable in minimising it. That is my opinion and if that explanation was put forward by the Chairman of the Revenue Commissioners I would consider it reasonable. There is accountability for it here and we know it is not, for example, £300,000. Perhaps we should keep our fingers crossed that it is not that and more. It is a sign of a basically good administration in my view.

Deputy O’Malley: I wish to comment on the two cases mentioned. I think I know one of the cases concerned because somebody approached me about it. If it is that case it is more serious than just marking a judgment. Revenue put the Sheriff into this man’s business and he seized a large amount of goods from a shop in the centre of a town. It was carried out with great publicity and a large number of people watched it taking place. This was in spite of protestations by the man concerned that he did not owe any tax, which he did not. He was held up to public odium in the provincial town concerned. It is much worse when it happens in a place like that than if it happens in Dublin. The Sheriff concerned was told that there was no money due but he apparently, going back to the Revenue for instructions, was told to carry on and seize the goods. Now, all the goods subsequently had to be returned over a period but it totally messed up that man’s business and I am sure many people in that area still believe that that seizure which they saw was lawful and valid and proper. I was surprised myself that the man settled for as relatively little compensation as he did. I would have thought much more damage was caused to him than £30,000. This Committee should express some view about those kind of episodes happening.

Deputy Ellis: Under point (vi), seizure of a motor vehicle and cattle was repaid in compensation to the owner on foot of legal advice. Is that a case where a wrongful seizure is made? Could we have that clarified? Also in regard to 3 (i), following advice from the Revenue Solicitor’s Office, £24,868 was paid in compensation following an accident when a vehicle seized by Customs and driven by a Customs officer was crashed and overturned. In that case again, was it a case that the vehicle had been validly seized?

Chairman: We will now move on to item 4, Report of the Comptroller and Auditor General in regard to an investigation on a financial settlement by the State with a journalist.

Deputy B. O’Keeffe: Can the Comptroller and Auditor General indicate to us how long this claim was in gestation, when was the money paid and if that payment had cabinet approval.

Mr. Purcell: When I undertook to carry out this duty on behalf of the Committee I said I was doing it under particular conditions. I know that is not particularly satisfactory either for the Committee or for myself in many ways but I am bound by the law and convention in this matter and I can say that the settlement did conform to all the normal rules and regulations and was properly authorised. Over and above that I cannot comment because it would breach the basis on which I undertook to carry out the examination.

Deputy B. O’Keeffe: Was that a Cabinet decision that gave it the approval?

Mr. Purcell: I would not like to comment, I do not feel I can comment, to be quite honest, Chairman. I know you will be having the Accounting Officer of the Department of Justice in next month and I respectfully say that perhaps that question is more appropriate to him rather than to myself. However, I am satisfied and I can assure the Committee that the payment was in accordance with all of the relevant rules and regulations and so on.

Deputy B. O’Keeffe: I do not wish the Comptroller and Auditor General to breach any confidences as such. Could he tell me if in cases like this it would be usual for the Cabinet to take a final decision on the amount to be paid. What is the general rule of thumb relating to such matters?

Mr. Purcell: As I said at an earlier meeting, it is not so unusual to make a settlement on foot of court proceedings which may be taken against the State. It certainly is my experience, not necessarily in relation to journalists or anybody else but in cases involving the Office of Public Works, the Department of Agriculture - the kind of things that are often noted in the Appropriation Accounts - it would be unusual for those decisions in settlement cases to go to Cabinet.

Deputy Byrne: Very briefly on that same point, we have seen a huge list of settlements and compensations and all the rest before us today. We got a detailed breakdown, some of which have been referred to already. Do you feel there would be any grounds to object to a question being asked when the Department of Justice comes in as to a breakdown of out of court settlements that have been made on behalf of the State through the Department of Justice and what grounds do you think there might be to refuse it?

Mr. Purcell: There is no real barrier to the Committee asking that question. In this particular case, as has been fairly clearly indicated, the terms of the settlement were confidential and that was part of the deal if you want to call it that. That is a fact. We cannot change that fact. The whole question of whether it is appropriate for the State to enter confidential deals is a broader question and one which was addressed at one stage by this Committee. I referred to it before although it is not on all fours with the case at issue here. It related to the sale of the State shareholding in Tara Mines. Again it was confidential at the time. The Committee made a special report to the House about the inadvisability of invoking confidentiality clauses in such cases, and the resultant minute of the Minister for Finance stated - and again I will not be word perfect on - that they would take on board what the Committee had said and would, where possible, try to ensure that confidentiality provisions were not written into agreements entered into on behalf of the State where it might cut across the process of public accountability. That is the broad question.

Deputy B. O’Keeffe: Was there a confidentiality clause in this settlement?

Mr. Purcell: Confidentiality was part of the settlement deal, if you like.

Deputy B. O’Keeffe: In spite of what the Department of Finance indicated to this Committee, a settlement was made on a confidential basis, in spite of some guarantees given to us.

Mr. Purcell: They were not guarantees and as I said I cannot speak verbatim but I think the words used were “in exceptional circumstances” or “where possible”. I can say that this payment was properly authorised which would mean that it would have the sanction of the Department of Finance. When I say that the transaction conformed with the authority that governed it in my note to the Committee it means that the Department of Finance would have sanctioned it.

Chairman: We asked the Comptroller and Auditor General to investigate and report on a financial settlement by the State with a journalist. He has come forward with his statement today and I propose we accept that.

Deputy O’Malley: Before you do, I wish to make one brief observation on it. In principal, in general, it is wrong that the State should compromise claims against it by individuals privately and secretly. If they do and if this becomes the accepted practice then all kinds of things can go on behind the scenes and it should only be in the most unusual and exceptional circumstances that anything like this should be secret or confidential. I assume that although the Comptroller and Auditor General is very coy about it all, I assume that the reason is that because the State is being sued by a former Minister for having settled the case - and that is why they do not want to say anything about it and that they may be caught again a second time - but even if that is so I do not quite follow the reasoning in not publicising the fact much more clearly than it has up to now. If this is accepted as a precedent, there could be grave dangers in the future.

Chairman: The next item on the agenda is correspondence from the Department of Agriculture, Food and Forestry. We will deal with this when the Accounting Officer from that Department comes in.

Chairman: Mr. Dowling, you are welcome. Could you please introduce your officials?

Mr. Dowling: I am accompanied by Mr. Andy McGarrigle, Mr. Richard Healy, Mr. Michael Sheridan, Mr. Denis Byrne, Dr. Paddy Power, Ms Marian Byrne, all of whom are from my Department, and Mr. John Thompson and Mr. Colm Gallagher from the Department of Finance.

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

FEOGA Guarantee Expenditure

Disallowance by EU

38.Previous Reports have referred to the financing of the Common Agricultural Policy (CAP) by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (FEOGA) and the fact that expenditure by FEOGA is separate from the Vote transactions shown in the Appropriation Account. Each year an account is compiled by the Department setting out all FEOGA expenditure for the FEOGA financial year ending 15 October. The reported expenditure is subsequently audited by the Commission of the European Union and should amounts claimed from FEOGA be disallowed or adjusted, they are made good from Subhead M.5. of the Vote.

Where there is disagreement between the Commission and the Member State on certain proposed disallowances, the matter may be referred to the new Conciliation Body which was set up in 1994 as part of a package of procedural changes aimed at streamlining the clearance of FEOGA Accounts procedures. The Conciliation Body holds a hearing on any case referred to it and meets the Commission and the Member State separately as part of the process. It subsequently issues a recommendation, which is not binding on either the Commission or Member State. The Commission subsequently takes a decision whether or not to finance the expenditure in question but the Member State has the right to appeal the Commission decision to the Court of Justice of the European Union.

Under the new format of the Appropriation Account, liabilities under each subhead in the Vote must be shown in the Account. At the year end, disallowances amounting to £109,925,140 had been notified to the Department by the Commission Services but had not yet been paid to FEOGA and thus are reflected as liabilities under Subhead M.5. in the Account. These liabilities are as follows:

(*) reflects doubling in 1995 of 5% correction proposed in 1994

The Department has referred the disallowances in respect of the Intervention Beef and Beef Tendering Procedures to the Conciliation Body. The Department has been informed by the Commission Services that, having considered the provisional conclusions of the Conciliation Body on the issue of the Beef Tendering Procedures, it cannot agree to reduce the penalty at this stage. The hearing in respect of the intervention Beef disallowance has not yet taken place.

Mr. Purcell: Paragraph 38 draws attention to disallowances proposed by the EU Commission in respect of the operation by the Department of the European Agricultural Guarantee and Guidance Fund. The total amount involved is nearly £110 million and the breakdown is shown in the paragraph. By far the biggest amount is £74 million in respect of intervention beef. This represents 10 per cent of expenditure on beef intervention in 1990 and 1991 and arises from an inquiry by the Commission which concluded that meat yields given up on deboning did not accord with the requirements of the regulations, that the permanent presence nature of the Department’s controls at the time were inadequate and that the quality of meat did not comply with the regulations. The Department strongly contests these findings and has appealed the disallowance to the conciliation body set up in 1994 to consider FEOGA related problems such as this during the clearance of accounts.

The next biggest proposed disallowance is £18.475 million. This is based on 2 per cent of all beef intervention expenditure for 1991 and 1992 on the grounds that the tendering system was manipulated by firms setting up separate legal companies to put in bids. Again the Department contests this disallowance and the matter was referred to the conciliation body whose draft conclusions have been considered by the agricultural directorate of the Commission. It is my understanding that the directorate is not willing to reduce the disallowance.

In these and the other cases comprising the total disallowed, it should be borne in mind that they are not yet final charges on the Vote. It may well be that the Department will be successful in having the disallowances reduced or set aside by the time the whole process is completed. Even in the event of the Department being unsuccessful, there would be the option of recovering part or all of the amounts from the industry in one form or another.

Chairman: Mr. Dowling, have there been any further developments on the disallowances referred to the conciliation body?

Mr. Dowling: The principal disallowances, referred to by the Comptroller and Auditor General and one or two others, are not yet proposals of the Commission but are recommendations from its Services. The two biggest disallowances are subject to the conciliation procedure and all of them are subject to a proposal put by the Commission Services to the FEOGA Committee and, subsequent to this, to the Commission itself. At that stage a decision will be made by the Commissioners. It is not likely that there will be a decision on the main disallowance before early spring next year. The others, with one exception, are likely to be cleared this year.

The exception is the valuation of beef stocks for which £9 million is claimed and which results from the fire in Ballaghaderreen. This arises because, in our view, the Commission has retrospectively applied a correction to the value of the stocks which was not part of EC regulatory provisions at the time of the fire but has subsequently become part of them. The Commission has agreed that because the issue is subject to litigation involving insurance companies, the broker and the Department, it will be put aside until this litigation is concluded. This will take considerable time. After a number of years the cases have only advanced to the point of the discovery of documents.

The conciliation on the £74 million has taken place and there are preliminary conclusions from the Conciliation Body to the Commission Services which they are now considering before they decide what to do. The conciliation body has concluded its procedures with regard to beef tendering arrangements and has submitted conclusions. The Commission Services, which are DG VI and DG XX in this case, that is the agriculture and financial control services, are not as of now disposed to changing their proposal but this has yet to go to the FEOGA Committee and the Commissioners themselves. The views of the Conciliation Body will be available to the FEOGA Committee and the Commissioners when these bodies are reaching their decisions. We do not know what the outcome will be in these two cases, which account for the largest amount. The issue of the valuation of beef stocks has been left aside for what appears to be a number of years.

Chairman: Can you see the Department referring the cases to the EU Court of Justice in the event of the Conciliation Body not recommending a reduction in the penalties?

Mr. Dowling: The Conciliation Body’s procedure involves hearing both sides and in the case of the major disallowance it hears both sides separately with the Commission present in a trilateral arrangement. It does not make a recommendation on a specific amount but it reaches its conclusions and makes recommendations which it feels would be helpful in pointing in the direction of an agreed settlement between the two sides. In many ways the procedure is like the conciliation which takes place in the industrial relations context in Ireland.

At the end of the day it is not the decision of this body but the decision which will be taken by the Commissioners between now and next Spring which is important. They will have regard to the recommendations of their Services, our views, the views of other Member States involved in both cases and the conclusions which were reached by the Conciliation Body. If the final Commission decision is not significantly different from the present proposal - at this stage we do not know whether it will be different but we are reasonably hopeful it will be more favourable - it will be up to the Government to go to the European Court of Justice. This is a matter solely for the Government. I do not know what its decision will be but I suspect that it will decide to go to the court if there is not a significant change.

Chairman: Is it proposed to refer any of the other disallowances to the Conciliation Body?

Mr. Dowling: The clearance of the 1991 Accounts predates the Conciliation Body and we are concentrating on the two main issues.

Deputy O’Malley: With regard to the tendering procedures, for which there is a penalty of £18.475 million, the Conciliation Body seems to have recommended against any change.

Mr. Dowling: As I understand it, the recommendations of the Conciliation Body are confidential until such time as they have been considered by the Commission Services and the Commission. However, it would not be true to say that it recommended against any change. Having considered the views of the Conciliation Body, the Commission Services have decided not to recommend the change to the FEOGA Committee. However, it would not be true to say that the Conciliation Body did not recommend any change.

Deputy O’Malley: Is that not immaterial if the Body over them does not recommend a change?

Mr. Dowling: It is not immaterial because it is not the Body over them. The Conciliation Body is set up to be independent of the Commission and to make conclusions on the submissions from both sides and recommendations as to how it thinks the issue would be more suitably settled if it believes it should be. It has made such recommendations, but the Commission Services are not disposed to accept them. The FEOGA Committee and the Commission must consider the view of the Commission Services and that of the Conciliation Body before reaching a conclusion.

Deputy O’Malley: As it stands at present, a fine of £18.5 million has been imposed on Ireland in respect of activities from which neither the State nor the taxpayer could have benefitted, but from which only a limited number of meat processors could have benefitted. Is that correct?

Mr. Dowling: It is not correct that a fine has been imposed.

Deputy O’Malley: It is proposed to impose it.

Mr. Dowling: Yes, in respect of activities which did not benefit the taxpayer, the Exchequer or - we have argued this point - the trade. It is also a fact that similar arrangements are subject to similar proposed penalties in respect of Denmark, the United Kingdom and France. This is not just an Irish issue.

Deputy O’Malley: Is it not a bit much if we have to pay £18.5 million, or whatever lesser sum might finally be settled, on for something from which the State could never have benefitted and from which only a limited group of people could have benefitted?

Mr. Dowling: There is an argument as to whether anyone benefitted in any monetary way from it. The question of how whatever penalty will eventually be applied in respect of the two bigger issues, has yet to be decided. The Government must make a decision based on advice on whether some or all of it is recoverable. I should also add that the original Commission proposal would have resulted in approximately £2 million or £3 million. It was subsequently adjusted upwards to £18 million following inter-Services discussion in the Commission.

Deputy O’Malley: You suggest that nobody benefitted from this. Why did the companies concerned, with the consent of the Department, breach the regulations by putting in what were called multi-layered tenders and by forming, as you described it earlier, new companies for the purpose of putting in additional bids?

Mr. Dowling: We do not accept that the companies breached regulations. That is one of the principal arguments between us and the Commission. We have legal advice that the beef tendering operation was in accordance with the regulations at the time. The Commission is arguing that, even if it was in accordance with the letter of the regulations, it was not in accordance with its spirit. We are arguing that it was legal and, therefore, we were not in a position to stop it. It was known by the Commission throughout the period concerned that multiple tenders were being put forward in Ireland, Denmark, France and the United Kingdom. The Commission did not indicate at the time that it regarded it as illegal. Subsequently, it amended the regulations to prohibit the possibility of multiple tenders and we complied with that regulation. However, we do not agree that the earlier arrangement was in breach of the regulation. We have advice to the effect that it was not and, therefore, it was not within our power to stop it.

Deputy O’Malley: Did you get the Commission’s approval or authority for what was going on over a period of years?

Mr. Dowling: We submit the tenders that come to us to the Commission on a fortnightly or three weekly basis. It was obvious to the Commission that there were multiple tenders and the Commission did not at any stage up to the auditing of the accounts indicate to us that what was happening was outside the law. That is borne out by the fact that when the Commission wanted to stop it, it put through a new regulation to prevent it.

Deputy O’Malley: It is obvious the Commission does not take that view. It would not seek to impose a fine of £18.5 million if, as you say, it considered it to be legal.

Mr. Dowling: The Service of the Commission, which was responsible for approving the monthly or fortnightly tenders through the Management Committee, was aware that multiple tendering was taking place. It did not at any stage in the Management Committee, when considering the tenders, indicate that the tendering procedures were not in accordance with the regulations. Subsequently, it adjusted the regulations to prevent multiple tendering. It was on audit by the Audit Service of the Commission that it came to the conclusion that what was happening was, in its view, outside the regulations or outside the spirit of the regulations.

Deputy O’Malley: Would you not agree that it was outside the spirit of the regulations to put in these false bids?

Mr. Dowling: They were not false bids; they were put in by separate legal entities. Subsidiary companies, etc. put in valid bids which were accompanied by suitable securities which met the conditions of the regulations. Our advice was that we were not entitled to exclude them.

Deputy O’Malley: The same person does not put in several different bids or offers unless he has some good financial reason from his point of view for doing so. Surely the European Union FEOGA funds must be a loser if this process is allowed to continue?

Mr. Dowling: There is no evidence that there was any significant loss to FEOGA funds. Throughout most of this period we were operating in safety net intervention where all the beef to be offered at the tenders had to be accepted into intervention. Traders, who, according to the legal advice available to us, put in individual bids in respect of a number of separate companies they owned, felt they had a better chance of getting a share of what was going than they would have had if they did not do that. The total amount on offer was going to be accepted anyway, so there was no significant loss to FEOGA funds.

Deputy O’Malley: It was going to be accepted, but at different prices.

Mr. Dowling: One thing which took place in the course of discussions on the conciliation arrangements was that the Commission accepted that there was no significant loss to FEOGA funds.

Chairman: I remind the Deputy that we also have a letter from Mr. Dowling about a query on 18 October. The letter is in relation to this paragraph. Your time is almost up.

Deputy O’Malley: Unfortunately, this is a wide ranging matter and it is difficult to deal with it in a few minutes.

Mr. Dowling wrote a letter to the Clerk of the Committee on 6 November saying he was taking proceedings in respect of one plant for £1.8 million. Have these proceedings been issued or was it just decided to issue them?

Mr. Dowling: Legal proceedings are being prepared.

Deputy O’Malley: The company against whom they are being prepared issued a statement on 4 April saying that if there was any wrongdoing, it would pay for it. Has the company gone back on that promise?

Mr. Dowling: The sequence of events since then is that before we took the legal route, we wrote to the company indicating the conclusions which the Chairman of the Beef Tribunal had reached in respect of the issues in Rathkeale. There are two issues involving the two plants; the cannery and the boning hall. We wrote demanding money back. The solicitors acting on behalf of the company rejected the demand. Subsequent to that, we put the issue in the hands of the Chief State Solicitor for processing through the courts. The company indicated in separate and non-legal discussions since that it is disputing the amount to be repaid rather than saying it would not pay anything.

We believe the amount is correct. Obviously, if the company or anyone else can show the amount has been wrongly calculated, we will have to look at it again. However, as of now, we believe it is correct. In one case, the amount was calculated by the Tribunal and is set out in its report. In the other case, the quantity involved was calculated by the Tribunal. We are not in disagreement with it because it is partly based on our figures. We used that quantity to define the financial cost.

As of now, we believe we are entitled to the full amount and the proceedings to achieve that through the courts are being put in place.

Deputy O’Malley: The last sentence of that letter says that “No losses in respect of intervention beef have accrued to the State at any other meat plant in this company’s ownership”. That company has 15 or more plants throughout the country. How does Mr. Dowling know so categorically that no losses have arisen? What happened in Rathkeale took place because the head office of the company told them to do it; that came out in the criminal proceedings. If it told the Rathkeale plant, is it not likely that it also told each of its other plants and that similar losses arose there as well? Is is not true the only reason Rathkeale came to light is because an employee there, in the course of the Beef Tribunal, told it what was going on there and the Department was then forced to intervene?

Mr. Dowling: No losses in respect of intervention beef have accrued to the State at any other meat plant in this company’s ownership. We can make this statement on the basis that we have not been forced to pay a disallowance in respect of intervention beef at any of their other plants. Therefore, there has been no loss to the State.

The Tribunal did not find that the practices in Rathkeale were prevalent throughout the company - it found the opposite was the case - and that is stated in the conclusions of the Tribunal. We have the basis of the Tribunal Report for believing the practices in Rathkeale were not common throughout the company.

The judge made an obiter dictum in the first Rathkeale case saying that it seemed unlikely the individuals concerned would have performed these acts without the approval or encouragement of senior people in the company. We do not know of evidence to that effect. That issue has been specifically drawn to the attention of the Director of Public Prosecutions and the legal services of the State. The view remains that there is still no evidence to that effect and we cannot act without evidence. This matter could only be decided in law and on the basis of evidence.

Deputy O’Malley: Mr. Dowling said that no disallowances had taken place in respect of other plants and therefore, no losses have accrued to the State as a result. However, he said earlier in this letter that there has not yet been a disallowance in respect of Rathkeale but there is still a loss nonetheless. Would it not have been more accurate for him to say in the last sentence of his letter that he was not aware of losses having accrued rather than make the categoric statement that they had not accrued?

Mr. Dowling: No. It is a historical statement that up to now, no losses have accrued by way of disallowances on the closing of accounts in respect of intervention beef in factories within the control of that company or that overall group; that is a fact. It is possible that losses could accrue in the future; we do not know that. There is no intervention at present and it is unlikely that there will be in any sizeable way for the foreseeable future, so it is unlikely.

We understood the question was whether losses had occurred in the past. That is a fact. Losses have not occurred, specifically with intervention beef, at any of the company’s plants other than Rathkeale, which we are pursuing through the courts.

Deputy O’Malley: Is Mr. Dowling satisfied that what went on in Rathkeale was atypical and practices like it did not go on in other plants?

Mr. Dowling: The Tribunal dealt with a number of issues of apparent abuse of regulations. It did not find evidence of systematic abuse throughout the industry. Most of the specific issues the Tribunal dealt with had come to light through the Department’s controls and were being, or had been, dealt with by the Department at the time of the Tribunal. The Rathkeale issue came to light in the early stages of evidence becoming available to the Tribunal and was extensively investigated by the Department’s control staff and the Garda authorities. It has reached the stage that the Tribunal has accepted there were substantial abuses and we are pursuing legal redress in those cases.

We conducted a similar exercise with the Garda and Department control staff in most of the other plants owned by the company and we did not find evidence of similar activity to what happened in Rathkeale. There is not much we can do without evidence. For me to conjecture whether it is likely these practices took place in other plants is not either useful or fair.

Deputy Byrne: Can Mr. Dowling explain the multiple tendering procedure? Were Irish companies in competition with other European companies for these contracts or did it just involve Irish companies in competition with each other?

Mr. Dowling: They would all have been Irish companies. There would have been no foreign companies involved.

Deputy Byrne: It was not Irish national companies vying for business with European competitors. It was all very much in house and Irish cartels being established. If there was no international competition involved, would Mr. Dowling agree that what was effectively taking place was an insider cartel in operation deliberately trying to squeeze out its Irish competitors?

Mr. Dowling: There were no foreign companies. What was involved was a series of companies, which would in fact have been all the Irish beef processing companies, submitting tenders in respect of parent company and subsidiary companies. They were competing with one another for shares of what would be bought into intervention. Whether one calls that “a cartel” or not I do not know - the competition was between the different companies so it was hardly a cartel. There was competition.

Deputy Byrne: Would your figures from that period show which company came out best in the bidding?

Mr. Dowling: I do not have figures to hand but some time ago I saw figures for the share of intervention which different companies have. The share which individual companies have is not significantly different from the share they would have of total processing. By far the biggest intervention seller would have been the Goodman Group which had roughly, at various times, between 30 and 40 per cent of the slaughtering capacity in the State and would probably have had something between 25 and 30 per cent of intervention. Some other companies which would have had about 10 per cent of slaughtering had about 10 or 11 per cent of intervention. There was not a significant difference in the weighting in intervention of the companies from their weighting in the total activity in the beef sector.

Deputy Byrne: However, the artificial competition that existed effectively means the Irish taxpayers potentially face a bill of £18.5 million. What was the Department’s role in monitoring and supervising the tendering process?

Mr. Dowling: All the tenders would be received before a particular time on a particular day by the Department . They would be examined in the Department to ensure they were valid and were accompanied by suitable securities, and a summary of the tenders and prices would be transmitted to Brussels. An adjudication is made at the following Management Committee, which involves all the Member States. Our job was to ensure the tenders were valid and were submitted to Brussels in time for the Community-wide adjudication.

We have legal advice that they were not just valid in terms of having the suitable securities etc. and being technically valid at the time, but that within the law at the time they were also valid in the companies they came from.

Deputy Byrne: Deputy O’Malley said the multiple tendering procedures had the consent of your Department. If the Commission discovered retrospectively the multiple tendering procedure was not above board, were you not in a position to advise as to potential flaws in the tendering procedure, given you are a public servant and given the taxpayers are likely to have to meet a bill of nearly £18.5 million? Where does culpability stop? We are talking about competing private companies and multiple tendering. They were playing a game in the market which has come unstuck.

You are Secretary of the Department of Agriculture, Food and Forestry and, presumably you have the ear of the Commission which has decided the multiple tendering system was a farce and now there is a potential liability of £18.5 million? How do you explain that?

Mr. Dowling: As far as we were concerned the multiple tendering procedure was not contrary to the law. Therefore, we had no way of knowing it was likely to lead to any disallowance on the State.

Deputy Byrne: If it does, how do you feel about the bill?

Mr. Dowling: I would think it unfair. We are making that argument strongly to the Commission. It was fully aware of the multiple tendering procedures which were taking place in the Member States principally involved in intervention - the UK, France, Ireland and Denmark. The Commission was aware multiple tendering was taking place over a number of years and raised no objection to it. We had no way of knowing that on an audit a different group of Commission officials were going to take a view that it was objectionable.

The fact that it was not ruled out by the law at the time is borne out by the fact that subsequently the Commission, in an amendment to the regulation, made it clear that multiple tendering was not acceptable. Had the Commission been convinced it was unacceptable from the beginning one would have expected it to bring it to our attention when it became aware of it, which was a number of years before the issue arose at audit, and there would have been no need for it to change the law.

Deputy Byrne: There is a larger bill of £74 million which the taxpayer is likely to have to pay. We know from correspondence from you that the Rathkeale plant, which is a Goodman company, has been before the courts and legal proceedings are being initiated on the matter of a sum of £933,000 approximately in another company. Judge Michael Moriarty made his view clear that someone at a more senior level in the Goodman organisation was the instigator of the frauds in the Rathkeale plant. Would you accept that?

Mr. Dowling: You said the £933,000 was in another company; it is another Goodman company. The judge made that remark. The file has been with the Garda and the DPP in advance of the trial, and since the trial, to try to find evidence that people other than those charged were responsible within the company for the irregularities and fraud. That evidence has not been forthcoming. While one can say, on the balance of probability, that it is likely that something was approved at a higher level, to do something about it requires evidence. The evidence is not there as of now. My understanding is the view the legal authorities have taken. They are still seeking evidence but it is not there for action to go beyond the action being taken at present.

The second case is to come before the courts on 13 November and the result of that is not a foregone conclusion at this stage. On the basis of the first case, which has been concluded, the files, having been extensively examined prior to the first prosecution being taken, have been looked at again.

Deputy Byrne: Of the £74 million likely to be disallowed or adjusted, £900,000 was involved in that case in which two senior managers of one of the Rathkeale plants got six years for defrauding the State. That case only concerned fraud of £900,000. Can the witness say whether the remaining £73 million defrauded was also related to the intervention beef sector and whether it was exclusively related to the Goodman plants?

Mr. Dowling: No, that money is not exclusively Goodman plant related. Under a procedure introduced some years ago the Commission has the power, where it feels there is widespread risk of irregularity, to impose generalised penalties of 2 per cent, 5 per cent or 10 per cent. In this case it decided, partly on the basis of investigations it conducted itself, and partly on the basis of the Beef Tribunal, that a number of issues in the Irish intervention operations justified imposing a penalty — in particular, the question of whether companies were able to retain yields higher than 68 per cent in the de-boning operations; whether certain classifications of animal carcasses were admitted to intervention which should have been excluded; and some other matters. It is an industry-wide issue rather than one related to Goodman.

The facts of the case are in substantial dispute between ourselves and the Commission, especially on the yields issue, where I think we have shown conclusively, both in our experiments and in independent exercises, that the yields returned by Irish meat factories are in line with the yields one gets from a normal mix of Irish carcasses de-boned for intervention.

Deputy Byrne: Does the witness agree that it must be embarrassing for him and his Department that the EU would consider there was widespread risk of irregularities by Irish companies involved in intervention beef? This will be my final question as I know others wish to contribute. I am mystified by what was happening in a Department as large, well-financed and concerned with serious business such as the witness’ Department. What were all the inspectors doing in these plants, especially the Rathkeale plant, the events at which have been proved in a court of law? I understand that once the meat reaches the boning hall it is the taxpayers’ property. What has the Department and the inspectorate been doing that has left the Irish taxpayer with a potential bill of £110 million? While I hope Mr. Dowling’s optimism is fulfilled and the figure is reduced, the stark reality evident from the comments of the Commission Services — that it cannot agree to reduce the penalty at this stage, etc. — does not augur well for the Irish taxpayer.

Mr. Dowling: First, the control system was extensively examined in the course of the Beef Tribunal, which did not find there was a routine or systematic failure of control. Second, the issues which the Commission has raised in regard to these penalties are issues it believes it found in all the Member States principally involved in intervention — Ireland, Italy, France and the United Kingdom; penalties of varying sizes are being proposed for each of these countries.

We have a fair amount of staff. The question of what happened in Rathkeale is, I agree, very worrying and is subject to an intensive investigation at the moment. The generality of what the Tribunal found was that there was no routine failure of control. It did find we did not have sufficient staff in some plants, and I think that is true — we did not have sufficient staff in plants for the system we were operating at the time, which was trying to control everything by a permanent presence, a permanent coterie of staff at each plant. We have almost completely revised the control system, beginning in 1990 and concluding at the end of 1993. In the new arrangements we place much more reliance upon random inspections from staff outside the factories. We believe the controls are now very significantly better than they were then.

One must also look at the fact that in the years when these problems arose, between 1989 and 1991, for a variety of factors — including the closing down of virtually all our export markets due to BSE; a substantial reduction in consumption in our main market, the UK, due to BSE; the closing off of middle eastern markets due to the Gulf war; and other issues — we were faced virtually overnight with a jump in intervention quantities from some tens of thousands tonnes to a quarter of a million tonnes a year for three years in a row. We had no increase in resources to meet that sort of experience. No one could have anticipated it even 12 months before it happened. I do not think it is reasonable to say that all of this can be laid at the door of staff.

Even allowing for that, in our view what the Commission has proposed and the evidence it has adduced for what it has proposed is seriously flawed. That remains our case and we believe that, in the end, acceptance of that will lead at least to some significant reduction in what is proposed — I may be wrong but that is what we believe.

Deputy Finucane: As a person who lives only six miles from Rathkeale and represents the area I wish to make a few observations, following from what Deputy O’Malley said. I realise this issue may be too delicate for Mr. Dowling to be able to respond to it — as he said earlier, unless he has proof, what can he do? It was widely perceived in the area that within the Goodman operations there was an efficient administration system whereby effectively people within the companies were producing information on a daily basis, having different meat plants around the company. As Deputy O’Malley said, in the Rathkeale situation it was probably a vigilant employee or ex-employee who blew the whistle on the company, which led to the thorough investigations being done. Having said that, it is also true that the employees worked for companies which were highly successful. No one in the area believes these people were acting on their own initiative and were not inspired by higher echelons within the Goodman organisation. I do not condone what happened but, as the Justice said in the recent case, if one is dependent on a job like that, one is operating under duress — that is a significant point. The employees have totally carried the can whereas people at a higher level have got away.

The saga goes back some time. Mr. Dowling said it happened between 1989 and 1991. As Deputy Byrne said, it goes back four years, the Department is carrying out an internal investigation and it should indicate when it feels the investigation will be concluded. The final paragraph of the letter states that no losses in respect of intervention beef have accrued to the State at any other meat plant in this company’s ownership; as the witness rightly said he has no proof of that. However, would the company operate a unique system in one plant? I find that hard to reconcile — that there would not be something happening in other plants — but we cannot prove that.

I wish to return to the main theme which is the intervention beef and the tendering procedures involving £92 million, to look positively for the State for the future. In that context, with regard to the preliminary conclusions a provisional decision has been made. The witness is probably bargaining and may not be able to respond to me on this point but can he indicate, based on the provisional conclusions, that the penalty of £92 million will be reduced? Have you any indication, or could you give a ball park figure, of the estimated cost of this £92 million to the State? Could you give some reassurance or hope that the taxpayer will ultimately be exonerated from paying this large bill of £92 million?

Mr. Dowling: I am certain that there will be some penalty as I do not see the penalty being reduced to zero. I believe there will be a reasonably significant reduction in respect of the £92 million - I do not know what figure it will come down to, although I would like to know. We do not wish to speculate on the figure on the basis that it is partly an argument on fact and law and partly an argument on negotiation. We do not want to indicate to the people with whom we are negotiating what sort of figure we would regard as reasonably acceptable. We are looking for the figure to be as low as zero but it is certain it will not be zero. However, I do not know what the figure will be and it would not be particularly helpful to indicate at this stage what sort of figure might emerge. It is very unlikely that the process will be completed before Christmas; the most likely date is early to late spring of next year. It will be close to that time before we know the precise figure.

Whether the cost falls to the State or is recovered in some way from the industry is a matter to be decided by the Government on the basis of advice which it will have well in advance of the finalisation of the figures in Brussels. At that stage, the Government will also have to decide whether it wishes to appeal the Commission’s final decision to the European Court.

Deputy Finucane: I appreciate that you cannot give a definitive figure. However, I am reassured that while you say it will not be zero you expect a significant reduction. We will have to wait until the spring to see your achievements in that direction. You stated earlier that it did not benefit the trade, as such, with regard to tendering and intervention beef. If it did not benefit the trade, who did it benefit?

Mr. Dowling: With regard to tendering, throughout most of the period we were in safety net intervention, which meant that, after the price had gone below a certain point, the beef which was offered had to be accepted in total. The price range around which we were accepting was always going to be a very limited range. Therefore, a significant benefit did not arise for the industry from tendering. If it had not been accepted into intervention there would have been a very substantial loss because it would have had to be disposed of outside of intervention at considerably lower prices. However, the loss would not be borne by the industry but by the cattle producers. Ultimately, the industry passes back losses - it may not always pass back profits but it certainly always passes back losses.

Our view is that there was not a significant loss. My advice is that, in the correspondence and discussions between us and the Commission, the Commission has now accepted that there was not a significant loss to FEOGA funds, either in regard to the tendering operation in Ireland or in the other three Member States where similar practices operated.

Deputy Finucane: When will the internal investigations within the Department of Agriculture, Forestry and Food be concluded? While I accept what you said to regard to the expansion of the work load and not having sufficient staff, in order to put this chapter effectively to bed and to see about your procedures and controls and the efficiency of the unit, it would be helpful if you indicated when your investigation will be concluded. I presume that you will implement certain action following that investigation.

Mr. Dowling: There are two separate points in that question. First, the procedures, controls and so on have been substantially revised for the period from 1990 onwards, particularly from 1991 to 1993. That process is largely concluded and we have, to a very considerable extent, a different and much improved system of control in regard to intervention - if we ever have it again - and the export refund arrangements.

The specific Rathkeale issue is different because we are not just looking at the control operation - in the sense of whether it was the right type of control - but at the operations of individuals. We are reasonably well advanced on that and a court case is beginning on 13 November on the cannery irregularity or fraud in Rathkeale. A large number of our staff are witnesses, subpoenaed or otherwise, in that case. We cannot conclude the investigation until that is finished. Assuming that that case does not last a dramatic length of time, we hope to conclude fairly soon after that. I think that we will conclude this year.

Deputy Finucane: We welcome the controls and procedures. You say that we will never see another beef tribunal or the type of situation which existed in the past.

Mr. Dowling: I hope so.

Deputy B. O’Keeffe: In the light of the court case and the indication that a diktat was issued to operate in such a way, would it have been appropriate for the Department of Agriculture, Food and Forestry to immediately send in the fraud squad to investigate the other plants, on the basis that if the diktat had been issued to one plant it was likely that it had been issued to others? Would it be very unfair for one to conclude that the Rathkeale issue was embarrassing enough for the Department and, rather than stirring up a hornet’s nest, it went easy in terms of investigating other plants?

Mr. Dowling: The same type of investigation which took place in Rathkeale took place in all of the other major Goodman plants at roughly the same time. Quite a number of the plants were raided - if you want to use that word - by our staff and the Garda authorities on the same morning. There was a very substantial investigation into the other plants, involving an investigation of what was happening on the ground and the removal of a large amount of documentation for examination by us and the Garda authorities. We did not find evidence similar to that found in Rathkeale and, therefore, it was not possible to take the same action in respect of the other plants. All of the evidence which emerged from those investigations of the other plants was available to the Beef Tribunal, as well as the evidence obtained in Rathkeale. It was all available to the Garda authorities and the legal services which did not so far find evidence to bring cases, other than the two cases in Rathkeale.

Deputy B. O’Keeffe: With regard to Vote 31, did your Department have any doubts about the legality of the multiple tendering system? Did the Department seek legal advice on whether this came within the remit?

Mr. Dowling: We did not have doubts because the practice of multiple tendering was, in our view, well known throughout the Commission and Member States with regard to selling beef into intervention. Other activities related to intervention had never been challenged by the Commission. It never even hinted it had a problem with it until it was challenged by FEOGA auditors some years after the event. We had no reason to doubt it. We took legal advice when we were challenged. The legal advice we got was that what had been the practice was legal under the regulations as they stood. As I said earlier, the regulation was subsequently changed, at least in regard to selling into intervention, to preclude more than one bid from a group of companies under the control of the parent company.

Deputy B. O’Keeffe: Is any written documentation available which would substantiate your claim that the Commission was well aware of the operation of multiple tendering in terms of stating your case to FEOGA?

Mr. Dowling: There is no written documentation but everybody attending the Management Committee, for instance, who were present on the adjudicating of tenders, would have known the Commission was aware. As I said, the proceedings of the Conciliation Body are confidential until the decision is eventually taken by the Commission but it will be clear from the proceedings of the Conciliation Body that they accepted the Commission was aware the practice was taking place.

Deputy B. O’Keeffe: I take it there would be minutes of meetings to suggest that knowledge of multiple tendering was well known to the Commission.

Mr. Dowling: The Management Committee minutes record virtually nothing but decisions. There would not be minutes as such but there will be a Conciliation Body report eventually which will indicate that.

Deputy B. O’Keeffe: Given that you are satisfied the Commission knew and, as you suggest, the documentation which will be submitted by the Conciliation Body, does it not stand to reason the Commission would be seen to be supporting the Irish case to the FEOGA audit? In other words, would it not have been part and parcel of the operation that was in place and allowed to take place? Is there a supportive argument from the Commission relative to the Irish case?

Mr. Dowling: The position is that the market side of the Commission deals with the tendering arrangements. The issue which has arisen with regard to the propriety or otherwise of multiple tendering has been raised by the audit side of the Commission - indeed, originally by the audit side of the agricultural directorate in the Commission. It has also involved the financial control side of the Commission in the discussions. They believe that what was done was wrong obviously or they would not have proposed the penalties. We are certain the operational side of the Commission, who were responsible for adjudicating on the tenders, were fully aware of the multiple tendering procedure. That is borne out, in our view, by the fact that when they wanted it to stop, they changed the law and, therefore, that, up to then, they did not see anything wrong with it. There is no doubt in our mind and in the minds of the people who dealt directly with the Commission Services in the Management Committee in the adjudication of tenders that the multiple tendering system as practised in a number of Member States was fully known to the Commission.

Deputy B. O’Keeffe: While you were dealing with the marketing side of it, in relation to the Irish case, does it suggest therefore to the FEOGA audit that if there is culpability, it lies with the EC marketing division who accepted the multiple practices?

Mr. Dowling: Whether you call it culpability or not, our view is that they knew and accepted it up to the time that they decided to stop, when they changed the law. They would have put through the change in the regulation that excluded multiple tendering. That was, I gather, done following the audit investigation and on foot of advice from the audit side that they should change the regulation to excluded multiple tendering. That was, I gather, done following the audit investigation and on foot of advice from the audit side that they should change the regulation to exclude the possibility of multiple tendering. Whether you call that culpability or not, I would not wish to call it that. I have other reasons for not wishing to say that.

Deputy B. O’Keeffe: In terms of other countries who were involved with Ireland in having levies placed against them, which countries did not have levies imposed on them? To your knowledge, is it a fact that they did not operate the multiple tendering system?

Mr. Dowling: As far as we know, yes.

Deputy B. O’Keeffe: Is there any particular reason for that?

Mr. Dowling: It was not a great practice in those countries and intervention is much less important in those countries than it was in France, the UK and Ireland.

Deputy B. O’Keeffe: Will the countries facing these levies take a common approach to the audit?

Mr. Dowling: There is a common approach up to now in that the same arguments effectively have been put forward by the countries concerned. They have all been involved in the conciliation process. As I understand it, the same discussions took place, although it took place separately with each of the countries, in the conciliation, bilateral and trilaterals between the Commission Services and the Member States. The same approach will be taken at the FEOGA Committee. We cannot speak for individual Commissioners when it comes to the Commission but one would assume that the Commissioners are likely to take a similar position. However, that is a matter for them rather than us.

Deputy Broughan: The conclusion in the last line of this short paragraph is still that the taxpayers are facing an almighty bill. Even the sanitised report of the Beef Tribunal or otherwise does not take away from the point that Larry Goodman’s greed and wrongdoing have been responsible for this massive bill which is still faced by the taxpayer. It will, effectively, seriously impinge on all our spending programmes next year in relation to health, education and social welfare, etc. I do not share Deputy Finucane’s confidence and I do not share the Secretary’s confidence. I note your comments about intervention but are you telling the Committee and are you convinced regarding the montage, the chapter after chapter of bad behaviour, which, however one reads it, comes out of the Goodman Tribunal Report, that the procedures are now in place to prevent that happening again? I am not convinced.

Mr. Dowling: I am convinced that the procedures which have been put in place over the last four to five years, or six to seven years, have very substantially improved the control arrangements, both in regard to intervention and export refund, which is now the principal activity in the business since intervention is to some extent a dead letter. Furthermore, the Tribunal itself accepted in, I think, the end of chapter 25 that the controls now in place, if rigorously applied and with sufficient staff, would prevent a reoccurrence of most of the irregularities with which the Tribunal dealt. That is also our view. They would and do.

Obviously one cannot say that there will never be a case in which an irregularity occurs. It is impossible to imagine that. However, significant abuse of the system is, in our view, very greatly - if not completely - diminished by the controls in place. No control is perfect, but we believe that the controls are the best available and are at least as good as anything which exists in any other Member State.

Deputy Broughan: The Tribunal Report indicated the Goodman organisation engaged in significant taxation fraud. Does Mr. Dowling’s Department now co-operate closely with the Revenue Commissioners in relation to the payment and taxation matters affecting these plants?

Mr. Dowling: We were not involved in the taxation controls. The Department would provide any information requested by the Revenue Commissioners which would be helpful to them in dealing with tax matters regarding that company or any other. However, taxation is principally a matter for the Revenue Commissioners. They have not routinely sought our assistance.

Deputy Broughan: To date, therefore, the Department has not co-operated with the Revenue Commissioners in relation to some recoveries of public moneys from this disastrous imbroglio?

Mr. Dowling: I am not clear what the Deputy means. The Revenue Commissioners have pursued a separate arrangement for the recovery of tax monies which were not paid - or insufficiently paid - to the State. I do not know the exact position on that but I understand that that procedure has been pursued and is now concluded. The question of recovery of all or some of whatever fines emerge out of the issue I mentioned on paragraph 38 is not a matter for the Revenue Commissioners, it is a matter for ourselves and the Government. A group is in place to advise ourselves and the Government on what it will be possible to do to ensure recoverability. Until such time as we know the extent of the penalties, a decision cannot be taken on that.

Regular co-operation exists between ourselves and the Revenue Commissioners in the operation of the controls of factories where we both have a clear involvement. For example, with regard to export refunds, the Revenue Commissioners and ourselves operate the controls jointly; they operate one part of them and we operate the other. Where issues require investigation, we co-operate closely. In most cases the investigations are joint ventures. We have a committee between both sides which reviews and decides on the unannounced inspections system. The Revenue Commissioners are represented on that committee and participate closely in the inspections. Very close co-operation exists in the areas where we are both directly involved. With regard to taxation issues, we are not involved. In so far as is possible, if we are asked to co-operate we will then do so.

Deputy Broughan: Is it Mr. Dowling’s opinion that, at present, the Goodman companies have returned to certain old ways of behaviour?

Mr. Dowling: I would repeat one point only. The penalties specified there do not relate only to the Goodman Group. Obviously they relate to a wider section of the industry as a whole. There is no evidence, from the control results we have obtained from unannounced inspections by ourselves or Revenue, that any irregularity is taking place within the Goodman organisation, at present.

Deputy Broughan: One of the allegations made in this House - it was also made at the Tribunal, I believe - was that workers were “bussed in” from another jurisdiction to various Goodman plants. Is Mr. Dowling aware that this year, in my constituency, allegations were made by workers that a similar situation has occurred? Is he aware that workers from another jurisdiction have been“bussed” 60 or 70 miles to a plant in my constituency? Is he concerned by such allegations, given what has taken place in the past?

Mr. Dowling: I would be concerned if there was any evidence that the “bussing in” of workers was for the purpose of fraudulent activity. To be clear about it, there is not any intervention occurring at the moment. There has not been any intervention since late 1993 or early 1994. If the Goodman organisation or anyone else employs workers from another jurisdiction, we cannot stop them. The method and extent of control particularly on the export refund side - which is now the principle activity in the meat factories, other than activity related to the domestic European market - has been very substantially upgraded. We do not have any evidence, nor indeed do Customs and Excise have any evidence, of significant irregularities.

Deputy Broughan: If workers are being “bussed in” for an evening or night shift, would Mr. Dowling be concerned with regard to the standards and work practices carried out by such a shift? Are controls in place to ensure that irregularities do not occur at present, for example, in the case of a shift operating at 11 p.m., 12 midnight or later?

Mr. Dowling: If it relates to activities which are the subject of EU subsidies - which presently is almost exclusively product going for export to third countries - then we insist that officers of the Department are present, even if the activity takes place outside office hours. I am not personally aware of the example given by the Deputy. I accept that if he said it happened then it did.

The Department has a very limited role in relation to people involved with processing, or assisting in the processing, of meat designed for the commercial market in Europe. Our role is largely a public health one. Quality control on that meat is exercised by the customers. If, for example, meat is being de-boned or cut up for British multiples, it is they who insist on quality and reject the product if it is not of sufficient quality. That is a matter between the companies concerned and the British multiples. The Department’s only function in that regard is a public health one. It is our responsibility to ensure that the practices in the factory conform with public health requirements and that the physical aspects of the factory are such that any risk of public health problems can be ruled out.

Deputy Broughan: Does Mr. Dowling feel that unusual work practices or structure - for example, with workers from another jurisdiction working the late shift in an area where massive unemployment exists - are a matter of regularity? Given the massive costs to this State in relation to the Beef Tribunal - and the figures currently before the Committee - does Mr. Dowling feel that such matters should be brought immediately to the attention of the Revenue Commissioners?

Mr. Dowling: Yes. If that practice is taking place then Revenue should be aware of it in any event and we will bring it to their attention. I will ensure that we look again at the operation of the plants to which you referred. If you have further details you wish to give, without necessarily giving them in public, we will be glad to have them.

If it is an issue which related to preparing meat for export refund purposes the Customs side of the Revenue Commissioners should be aware as well as us anyway. We will look again at that practice if it is clear they are routinely bringing people in from another jurisdiction.

Deputy Ellis: When do you expect the European dimension of this saga will come to a conclusion?

Mr. Dowling: Assuming there were no court case, the European end of the saga should conclude by the spring of next year.

Deputy Ellis: What provision will you make in the Estimates for 1996 in this regard?

Mr. Dowling: As of now we are not making any provision other than a token on the basis that the long practice has been that we tokenise that provision until we know precisely what has to go into it.

Deputy Ellis: What is the prospect of recovering any of the fine from the companies concerned?

Mr. Dowling: If the EU finds against us on the major issues, as it is only the major issues which are involved, we will go to Government on the basis of independent and interdepartmental advice on the question of recoverability. I do not know the extent to which we will be able to recover. If we were to recover, specific legal authority might well be required. It is an issue on which we are awaiting formal advice and we will be ready to go to Government when the issue is resolved. However, I do not know the extent to which whatever fine is imposed will be recovered.

Deputy Ellis: Will you be taking your advice from the Attorney General’s Office or from an outside source?

Mr. Dowling: The committee looking at this matter is interdepartmental in that it involves my Department and the Department of Finance, an official of the Attorney General’s Office and has attached to it an independent senior counsel who is providing advice for the committee.

Deputy Ellis: Do you think that can be independent in view of the fact that an official from the Attorney General’s Office is also on the committee? I wish no reflection on the Attorney General as I consider him one of the finest legal brains in the country, but he advised the Goodman group in the course of the Beef Tribunal. Is it in the best public interest that an official from his Office should be part of the committee reviewing the situation? I am aware there is independent advice but there is an official from the Attorney General’s Office who is there to report to the Attorney General.

Deputy Broughan: The Attorney General already told the House-----

Deputy Ellis: I have no problem with the Attorney General but I have a problem with an official playing for both sides.

Mr. Dowling: My understanding is that the Attorney General is not involved personally in any way with this issue or other related issues. The Attorney General’s Office is the source of legal advice to all Departments, under the Constitution. A senior official from that Office is a member of the committee, but an independent senior counsel who has been involved in advising on a number of issues relating to the beef industry over the last couple of years and, indeed, is advising us on the approach we are taking in the Brussels negotiations also, is a permanent member of the committee and is providing independent legal advice to it. I do not see there is anything wrong or improper in that arrangement.

Deputy Ellis: I am not suggesting there is anything wrong or improper in what I am asking as the Secretary tried to imply. The Attorney General’s Office should not be represented on that committee in this case. There is a senior counsel on the committee; has he had any involvement with any side in the Beef Tribunal?

Mr. Dowling: The senior counsel is not a “he” but a “she”, Ms Mary Finlay. As far as I know she was not involved with any side in the Beef Tribunal. She was involved as a senior counsel for us in a case in which companies challenged our right to forfeit some securities some years ago, non-Goodman companies. She acted on our behalf in that case, she is acting on our behalf in advising us on the approach we are taking to Brussels with regard to the negotiations on this and she is advising the independent group. I am fairly certain, without being categorically so, that she was not in any way associated with any of the teams in the Beef Tribunal.

Deputy Ellis: How much of this amount is recoverable? It would appear that no matter what fine is imposed it will not be recovered.

Mr. Dowling: I cannot say that. There is a group looking at the matter and it is to advise us and the Government on the actions which can be taken to recover. It has not reported and will not until we know the scale of what has to be dealt with. I cannot say none of it is recoverable.

Chairman: While noting the paragraph, the Committee trusts that every effort will be made to minimise disallowances. It will await developments with interest.

Deputy O’Malley: I have one or two other points on this paragraph. The main fine for malpractices or irregularities or non-supervision in intervention beef was doubled on 17 March last, from £37 million to £74 million. On 20 September I asked the Minister for Agriculture, Food and Forestry why this was done and he replied that the reasons for the adjustment of the penalty were not outlined by the Commission Services. If someone fined a company £37 million and increased the fine to £74 million would you not think the chief executive of the company would find out why it was doubled and would not rest until he had found out?

Mr. Dowling: The position is that the fines in regard to intervention beef and the tendering procedures were increased. On the tendering procedures the initial fine would have worked out at £2 million: it was to be 2 per cent of the technical costs of intervention. It was subsequently changed to be 2 per cent of the total costs of intervention for the years in question. In the case of the intervention beef a 5 per cent penalty was to be imposed on the total costs of intervention for the years concerned and that was increased to 10 per cent. A letter was sent either to me or to the Permanent Representative in Brussels, I am not sure which, from the Commission Services indicating it had decided on a penalty of 5 per cent. After a period a letter came from the same Commission Services saying it had decided on a penalty of 10 per cent. Nothing in the letters indicated why it had been changed. Our understanding of why it was changed is that the initial indication came from the FEOGA audit service. In discussions between the FEOGA audit service and DGXX, which is financial control within the Commission, a decision was taken - I believe under pressure from the financial control service - that it should be increased from 5 per cent to 10 per cent. A similar change was made in the case of other countries where there was an increase from 2 per cent to 5 per cent or from 5 per cent to 10 per cent, depending on the country. No discussion we have had with either service since has elicited a clear answer as to why they did that or why they were entitled to do so. Although we do not know why they did that, we know the procedure by which the increase was made.

Deputy O’Malley: Although they increased the fine by £34 million on beef intervention and by £16 million on beef tendering, from £2 million to £18.5 million, you do not know why. If you do not know why you have been fined these additional amounts, I do not know how you can defend yourself successfully. If you are not prepared to find out why, do you think it would be a good idea if this Committee got in touch with the Commission Services?

We are concerned about this. Paragraph 38 refers to £109 million which the taxpayer must pay if a change is not made. The taxpayer could never have benefitted from this and the only possible beneficiaries were meat companies. You do not seem optimistic about getting the £109 million back from them. If we could save even 1 per cent of this, it would be over £1 million. Do you think it would be a good idea if the Committee tried to find out why?

Mr. Dowling: I am not sure why you said I was not very optimistic of getting any of it back. I said on three occasions today that I believed it would be reduced.

Deputy O’Malley: I meant getting it back from the companies.

Mr. Dowling: I apologise; I misunderstood the point. I explained the circumstances in which the changes took place. All I can say beyond that is that no new facts or evidence became available after the FEOGA audit unit took the decision to impose a 5 per cent penalty or 2 per cent of the technical costs of intervention. No facts which were available then had been increased, changed or added to when the joint directorates subsequently decided to make the change. It was a negotiation within the Commission that the other service wished to go for a higher figure. The service which initially made the determination accepted the pressure from the other one. It is not that some additional facts were available. In the case of all Member States in relation to beef tendering and intervention beef, the penalties were adjusted upwards by inter-service negotiation in the Commission. We strongly contested this at conciliation and so too did the other Member States.

Deputy O’Malley: If it transpires that under the heading of export refunds, there was substantial overpayment to Irish meat companies due, for example, to their claiming refunds appropriate to fresh or chilled exports when they were exporting out of intervention beef that had been frozen for two or three years and that a substantial amount of money will need to be repaid under that heading, will you be able to get it back in view of the fact that you are not optimistic about getting it back in respect of the intervention and the beef tendering matters?

Mr. Dowling: I am not sure I understand the question. There is no evidence of frozen beef being exported and claimed at the fresh rate.

Deputy O’Malley: What about the beef that went to Iraq which was certified as having been killed within 100 days of delivery but which turned out to be four years old?

Mr. Dowling: That has nothing to do with the export refund arrangements. Export refunds are paid on beef which meets certain standards. There was no requirement on beef that it had to be sold within 90 days to meet the export refund requirements.

Mr. O’Malley: Although that was the contract.

Mr. Dowling: The export refund is based on an arrangement between the exporter, the Department and the Customs services. The exporter produces a product that meets the export refund regulatory requirements, puts it under Customs control and exports it within a particular period and imports it into a third country within a particular period. Once he meets all those conditions he is entitled to get his export refund. If the exporter gets it in advance, he or she is entitled to have the security released. If he has a contractual arrangement with a commercial person to produce beef of a certain quality or age, that is outside the export refund arrangements. It is a matter of commercial contract between the exporter from Ireland and the purchaser in the third country. Commercial contracts are not required to be produced for purposes of payment of export refunds.

Deputy O’Malley: Is it not the case that the export refund paid on, for example, fresh meat or recently chilled meat on a given cut is higher than it would be on a sale of beef from intervention which had been frozen for a number of years?

Mr. Dowling: Yes, it is true. Refunds are differentiated in many ways. There is a differentiation between fresh and chilled and between particular cuts and zone destinations in that you get a higher refund going to some zones than to others. You get the fresh refund by exporting fresh beef. There is a special arrangement in respect of male hindquarter beef where you get a higher refund by putting it in fresh under a Customs warehousing procedure. You have up to six months to export it. In that case, it would be in frozen form.

We check those arrangements at the point of entry to Customs control and at the point of export and they are subject to proof of arrival for free circulation or for home consumption in the countries concerned. There is no evidence to suggest - nor is it reasonably possible to do so - that the fresh refund is being claimed on a product which is exported frozen. That is, except in the case of the male hindquarter boneless arrangement, under which an especially high refund, equal to the fresh refund, is legitimately paid under a special EU regulation for a product which enters a Customs warehousing procedure fresh and is subsequently exported within six months or six months plus 60 days in frozen form.

Deputy O’Malley: You told us - I think last April - that the Department had paid a premium to an insurance broker in respect of this beef in Ballaghaderreen and that the Department understood the beef was insured. The fire took place approximately four years ago yet the Department has not been paid. I know there is a court case, but it is unsatisfactory that after a straightforward fire four years ago - I assume there was no ulterior motive - not one penny has been paid to the insured although they paid the premium. What is the Department going to do about that? The loss to the taxpayer is running at close to £30 million and has been for four years.

Mr. Dowling: The loss is £20 million. The potential loss is £30 million.

Deputy O’Malley: Yes. Add on the £9 million.

Mr. Dowling: It is £20 million plus the £9 million if the £9 million stands. The Commission has set aside the £9 million until they see the outcome of the court case. The Department had a valid insurance policy in our view. Premia had been paid up to date. The companies involved are contesting the claim and had contested it from an early date. It was put in the hands of the legal services of the State at a very early stage. I understand it is a very complex case. The services are progressing but they are only at the stage of discovery of documents so it will be some considerable time before it will be heard. We have done all that can reasonably be done to try to have it dealt with as quickly as possible but it is a matter for the legal services. We can’t force a court procedure through more quickly than the services are able to do it.

Deputy O’Malley: If Mr. Dowling’s house or mine had been burnt down four years ago, we had an insurance policy and had paid the premium, would we not be pretty aggrieved if we had not been paid after four years?

Mr. Dowling: Yes. We would but if one had given it to one’s solicitor and he had instructed senior counsel and they had done whatever was necessary to get court cases going where the company was contesting it, I don’t see what else he or she could do beyond encouraging their solicitor to be a little quicker about it. We are encouraging our services to go as quickly as possible. They say they have progressed it as rapidly as possible.

Chairman: I take it we can move on. While noting this paragraph, the Committee trusts every effort will be made to minimise disallowances. We will await developments with interest.

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

Export Refunds

39.Export refunds are paid by the Department of Agriculture, Food and Forestry on behalf of the EU FEOGA guarantee fund. They are payable on the export from EU countries to non-EU countries of Common Agricultural Policy (CAP) goods and represent the difference between the world price level and the EU price level as determined monthly by the EU and notified by means of EU Regulation. In order to export relevant goods, an exporter must obtain a licence from the Department which allows exports, up to a stated quantity, within a specified time. A bank guarantee, or cash deposit for portion of the value of this quantity, must be supplied by the exporter. The licence must be returned to the Department within 6 months of its last day of validity, at which point the bank guarantee or cash deposit will be released.

The values of export refunds paid in 1994 were:

Physical control and verification procedures relating to the export of the goods from Ireland are administered by the Customs and Excise Branch of the Revenue Commissioners. The exporter prepares a Single Administrative Document (SAD) which declares the types and quantities of goods to be exported. Customs and Excise procedures are designed to give assurance that the goods exported are as declared and that they have been transported from this country.

The Department receives endorsed copies of the SADs from Customs and Excise as evidence verifying the export of goods. On receipt of these documents the Department may make advance payment of the export refund. In order to avail of advance payment, the exporter must provide security in the form of bank guarantee for 115% of the value of the refund. However, the Department will require further documentation depending on where and how goods are exported. When all requirements have been met, payment will be made or the security will be released where advance payment was made.

In the course of an audit of export refunds paid for dairy produce, it was noted that in two cases, duplicate advance payments, amounting to £238,442, had been made to an exporter on foot of endorsed SADs received from Customs and Excise showing that the same goods had been exported, although from two different ports. In both cases the Department was made aware of the overpayments by the exporter.

It was also noted that the Department had separately identified a number of smaller cases of duplicate SADs which had been detected by vigilant staff.

In relation to my concern regarding the control procedures operated by his Department and the Revenue Commissioners, the Accounting Officer pointed out that had the duplicate advance payments not been brought to attention by the exporter, they would have been detected on examination of shipping documentation which is required to be submitted to the Department by the exporter. When this documentation has been examined, advance payments are regularised and the security amounting to 115% of the value of the export refund is released or forfeited as appropriate. In both cases of duplicate payment the additional security of 15% has been forfeited.

He informed me that, following computerisation of the registration of SADs from September 1994, any duplicate SAD numbers submitted for advance payment by the Revenue Commissioners to the Department would be detected and thus the possibility of duplicate payments in the circumstances applying to one of the instances of duplicate payment has been eliminated. He also stated that further enhancements to the export refund computer system were currently being considered to identify cases where the same consignment is included on SADs with different numbers. He pointed out that, in addition to the existing 15% penalty, with effect from 1 April 1995, the submission of duplicate SADs can attract penalties of 50% to 200% of the value of the export refund in addition to the recovery of the export refund paid.

In relation to Customs and Excise procedures, the Revenue Commissioners indicated to the Department that these were isolated though very regrettable instances and that the duplicates arose because procedures for checking that containers had been received into the compound, before processing export documents for submission to the Department for payment, were not followed at one Customs station. Normal procedures also require that a check be carried out to ensure that containers are loaded on board the export vessel. However, this check was not carried out at this Customs station, because of the volumes involved, physical difficulties and danger to staff but a post-export check of shipping manifests was carried out on a spot check basis only. After the errors came to light, revised procedures were put in place at this Customs station for checking that CAP goods in respect of which export documents are presented are actually exported from that station. Moreover, a full post-export verification check is now carried out against ships’ manifests to ensure that all containers of CAP goods eligible for export refunds are accounted for and have been exported. In addition, the Revenue Commissioners, being conscious of the need to ensure that effective control arrangements are in place to govern CAP exports, have set up a special CAP audit function in 1994 to monitor the adequacy of the control system and to ensure that controls are being properly implemented.

Mr. Purcell: This paragraph deals with two duplicate payments of advances of export refunds on milk products. The total amount involved was £238,000. In both cases, Customs officials at one particular export station certified the export of goods which were never physically present at that station. These duplicate payments were brought to the Department’s attention by the exporter and while the Accounting Officer assured me that final clearance procedures operated by his Department would have detected the overpayments, I was nevertheless concerned at the implications of the failure of the Customs procedures.

According to the Revenue Commissioners, these were isolated instances which occurred because normal procedures were not followed at the particular Customs station. Controls at the station have since been tightened up and the Department has enhanced its computer system to detect duplicate claims before the advance payments are made. The Accounting Officer is confident that compliance with the revised procedures will prevent a recurrence.

Chairman: What was the total amount of duplicates discovered? Have any further submissions of SADs been discovered? Have the new penalties been applied in any case?

Mr. Dowling: The total amount of duplicate payments was £238,000. The trader who drew our attention to the fact reimbursed the security for the total amount plus 15 per cent. We have no evidence that it was other than an isolated incident. Obviously, it should not have taken place; but it did.

I would like to clarify why we say that it would have been picked up. For clearance of the payment or release of the security, where payment has been paid in advance, as well as submitting customs evidence of export on these SAD documents, and, in some cases, proof of import into a third country, the exporter must also submit the shipping manifest or transport document. There could only have been one shipping manifest in each case. Therefore, when full documentation had been submitted it would immediately have been obvious that there was a duplicate payment.

The trader who initially made the error drew it to our attention. The documents were made out in duplicate or with an original and copy by the trader concerned and he realised when he received payment that he had made an error.

We have a new computerised system which will scan for duplicates before making payments in future. We are looking at ways to pick up where there is a double submission in the odd case where a double submission would occur. We also have indicated to traders that penalties for duplicate applications in future will result in penalties of between 50 and 200 per cent in addition to the Community repayment requirement of 15 per cent so we do not think there is any great likelihood of duplicates arising.

In this case, it was the result of an error on behalf of the company which was not picked up by the Customs Services in the first instance but the company were quite clearly innocent in that they immediately drew the attention of the authorities to the fact once they realised they had received a double payment.

Deputy Broughan: Why did the Department apply the 15 per cent forfeit to them given the fact that they had been so good as to inform the Department of the problem?

Mr. Dowling: For good or ill, it is a requirement in Community law that the security must be made forfeit, plus 15 per cent. In this case, I think it was harsh justice since it seems to have been a genuine error but there is no flexibility which allows the Department not to apply it.

Deputy Broughan: How does the Department know that these are isolated cases?

Mr. Dowling: Firstly, Revenue has assured us that they were isolated cases. Secondly, the control involving the transport document should pick it up in all cases because in the final claim the company would have to submit a transport document for the consignment. They couldn’t have two transport documents for the same consignment because they could not go out from different ports on different ships.

Deputy Broughan: In relation to the new 50 to 200 per cent penalties which have been in force since 1 April this year, have they been applied yet?

Mr. Dowling: As far as I know, there have been no similar cases.

Deputy Broughan: According to the Comptroller and Auditor General, normal procedures require that a check be carried out to ensure containers are loaded on board the export vessels. The check was not carried out at this Customs station because the volumes involved physical difficulties and danger to staff. I know that this relates to the Revenue Commissioners but what could that mean?

Mr. Dowling: I don’t know. I think it means physical danger. I don’t think it means danger in terms of the staff being afraid of being attacked. It has something to do with the physical arrangements for inspection.

Deputy Broughan: You mean that if they got on board a ship and started counting or looking at boxes, this would be the problem.

Deputy Byrne: Does Mr. Dowling agree that duplicate payments, to the extent that they were claimed or paid, were accidental where the same exporter was supposedly sending out the same shipment through two different ports and on two different ships? Are we being asked to believe that an exporter could get the names of the ship and port wrong accidentally and received a cheque for £238,000? Can Mr. Dowling explain in greater detail how that might happen?

Mr. Dowling: As I understand it, the company’s agent filled out the document for export through one port. Subsequently, the export arrangements were changed in order to export it out of a second port. The first document had been allowed stand and a new document was drawn up. The Customs officer in the first port had inadvertently certified that the product had been cleared for export when it had been diverted to a second port to meet a different boat. The Customs officer in the second port cleared it when it went on board. The same thing happened in the second case but the changes were within a port rather than between ports. It was originally going from the South Bank port in Dublin and was diverted to the British Rail terminal at Alexandra Basin. Again, the Customs officer in South Bank inadvertently cleared it in the expectation that it was leaving. When it was diverted to the other port, the second Customs officer cleared it validly there. That was the cause of the double payment in both cases.

Deputy Byrne: I accept the explanation but the fact that this could occur indicates a fascinatingly pathetic example of Customs lack of control. I am not sure why we are quizzing you on this if it is a Customs and Excise area. In which Customs station is it proving so difficult for Customs officials to check out the departure of the goods?

Mr. Dowling: I do not know because the explanation about the difficulty was given to the Comptroller and Auditor General. I do not know the nature of the physical problem in the port.

Deputy Byrne: Which port was it? It is obviously a big port if it was very busy and involved huge volumes.

Mr. Dowling: The first case was a diversion from Dublin to Waterford and the second case was, as I said, a diversion within Dublin port between the South Bank and Alexandra Basin. I am not sure where the physical problem was but Customs are adamant that it was an isolated case. There was substantial pressure for clearance of documentation on the days in question. In any event we believe it would be picked up in the normal course once the transport documents appeared.

Deputy Byrne: We are dealing with export refunds and in that particular case duplicate advance payments amounted to £238,000. We are aware of the history of and crookedness in the meat industry. These figures relate to dairy produce but we are talking about the agricultural industry and not just the meat industry. Has it sent up any signals that yet again the masters of fraud were somehow attempting something on this occasion?

Mr. Dowling: If it were other than an isolated incident, one would be concerned. The controls we are implementing on the beef side are also being implemented on the dairy side. They involve a fair degree of permanent control at the processing point where most dairy products are loaded or prepared for export as well as regular unannounced inspections of the operation of our staff and of the companies concerned. These are joint investigations between Customs and ourselves. There is a large range of controls in operation which we believe adequately monitor the operations in the dairy sector. There is no evidence that this was other than an isolated case.

Deputy Byrne: On page 39 there is mention of an audit of export refunds paid for dairy produce? Was that an audit by the Comptroller and Auditor General?

Mr. Purcell: Yes. That was our audit.

Deputy Byrne: The value of export refunds for dairy produce was £74 million which is a phenomenal sum of money. It is put in the shade when compared with beef and veal which is valued at £443 million. Does that mean that the beef and veal sectors had been audited and no discrepancies found or was this a once off audit of the dairy produce sector? If it happened in the dairy sector in two cases, are there any other examples of similar happenings in the beef and veal sector which is far more valuable?

Mr. Purcell: During that year we would not have come across any of those. Over the years we would have had reason to mention in our reports matters relating to export refund controls on the beef side. It just happens that in this year we did not. If the Deputy looks at our work over the years, he will see that we have from time to time brought to the attention of the Committee instances where we felt controls could be improved in the export refunds area as they related to beef.

Deputy Byrne: That particular section deals with export refunds and we spoke in great depth about intervention beef and beef tendering procedures earlier. It is reported that the Goodman group will have between£6 million and £13 million of export refunds withheld. There have been newspaper reports to the effect that the Government has decided to refuse to pay £7 million to the Irish Food Processors company and we understand there is about £30 million in Goodman securities available. Could you confirm that the Department has decided to withhold £6 million and possibly an additional £7 million from the Goodman group in securities and that it is claiming this from his bankers who provided the security?

Mr. Dowling: We deal with about £500 million in export refunds per year. About £350 million to £400 million of that is in the beef and livestock area which means that we are paying and clearing securities up to that amount as a matter of routine. In the late 1980s and early 1990s there was a huge increase in the volume of export refund activity for a number of reasons. Our resources to clear the securities were stretched beyond the point where we could clear them all in time so a backlog built up involving a number of companies. Three years ago we decided that dealing with that backlog was preventing us keeping current business up to date so we set up a separate unit to systematically work through the backlog. That work is now complete.

A number of companies had all their securities released in one way or another. The Goodman companies were the last to be cleared and there were about £30 million in securities processed over the last few months which involved checking and collating documentation to ascertain whether the company had met all its obligations and so on. As a result, it is proposed that about £7 million of securities would not be released. In the course of an audit, the Commission decided to look further at documentation relating to another £6 million, or thereabouts. It will shortly be reverting to us with conclusions, so we can jointly decide what is, or is not to be released.

It is not that payments are not being made; the payments were made in advance. It is that the securities on foot of the payments would not be released. The procedure involved is that the company is given the option, if it wishes, to pay up the money, in which case the banks’ securities are released. If the company does not pay the money within a set period, which I understand is 30 days, the banks are then obliged to make good their commitment under the guarantees.

This is what has taken place in this instance. The reason it was exceptional is that it resulted from a backlog, but this type of activity, in terms of releasing securities on foot of the clearance of payments which have been made in advance, is taking place on a day to day basis. However, this current issue arises out of a backlog, and the processing of this backlog justifies the repayment of £7 million, which includes a 15 per cent penalty, or the forfeiting of the securities equal to that amount.

The reasons for the forfeiture are either that export did not take place, in the case of approximately £2 million, due to the inability of the companies to get into the market they originally intended to put them into, or, that export has taken place, but either outside of the time limit, or not to the zones that were originally intended when the refunds were being paid.

Deputy Byrne: You said that part of the reason they were going to forfeit £7 million was because exports did not take place to the tune of £2 million, yet we are talking about the export refunds. Could you, therefore, explain if the export of £2 million worth of beef, or whatever it was, did not take place, how did he get his refunds?

Mr. Dowling: The system operates as follows, across the EU and not just in Ireland: An exporter makes a declaration to Customs that he intends to export a given amount of product. Customs send us a document indicating it has taken this under control for eventual export. At that stage, the trader has the option of applying for the refund in advance, subject to providing a security guaranteeing the amount, plus 15 per cent. When he eventually exports, and, if it is a refund which is differentiated by destination, which all the refunds in the beef sector are, he proves that it has been imported into the destination it was intended for, then the security is released with no penalty.

Where he has not exported - in this case he broke the bonds because he was not able to get the product to the export market he intended and presumably he sold it on the community market - he must repay the amount plus 15 per cent, or the bank pays it on his behalf. All refunds in the beef sector, most refunds in the cattle sector, and, I believe, all refunds in the dairy sector are paid in advance on that basis, and subject to the securities.

Deputy Byrne: Of the intervention beef figure - approximately £74 million - all we know that is being clawed back under the export refunds from the Goodman Group is £7 million. Is that correct?

Mr. Dowling: The two issues are not related. There is no element of the £74 million which relates to these activities. If there were, the securities would not be released. These are separate issues, where the Goodman Group entered into arrangements with regard to export refunds, supported by guarantees by the banks and because they did not, in our view, fulfil all the obligations, the amount has to be forfeited. Where they did, we have no option but to release.

The contract guaranteeing the fulfilling of the obligations is between the Department and a bank, not the company. The bank has no obligation to make good irregularities which may have occurred in other operations, other than the ones they have guaranteed.

Chairman: While noting this paragraph, it is of great concern to the Committee that administrative failures in two separate Government Departments occurred in this instance.

Paragraph 40 of the report of the Comptroller and Auditor General reads:

Arable Aid Scheme

40.The Arable Aid scheme began in Ireland in 1993 under EU regulations. The purpose of the scheme is to compensate tillage farmers for the loss of revenue from selling their produce on the open market, while encouraging them to reduce crop output by engaging in set-aside. The scheme targets both small and large arable farms. The small farm scheme is designated the Simplified Scheme while the large farm scheme is designated the General Scheme. Grants paid under the scheme are fully funded by the EU. A total of £65m was paid out in 1994 which comprised £19m for the Simplified Scheme and £46m for the General Scheme.

An audit carried out by my staff on 1994 expenditure under the scheme gave rise to the following observations:

Overpayments

(a)The Simplified Scheme entitles the applicant to a maximum grant of £3,144. The audit detected fifty applicants who had been paid in excess of this maximum resulting in overpayments of £15,247.

(b)Applicants are prohibited from splitting their holdings to improve the value of the grants paid. The Department identified a number of breaches of regulations which resulted in overpayments of £16,541 for 1993. The audit identified three of these applicants as having been paid subsequent grants amounting to £6,354 without deduction.

(c)A condition of the scheme is that applicants may be subject to administrative checks or on-farm inspections to ensure compliance with the rules and conditions of the scheme. It was noted that inspection results which would have disqualified nine applicants from the scheme were not taken into account, resulting in overpayments of £8,949.

(d)For the 1993 scheme, there were overpayments of £18,746 due to computer programming errors and £9,086 due to duplicate applications, which had not been recovered at the time of audit.

The Accounting Officer replied as follows:

The Department was writing to all applicants identified as having been overpaid and is requesting refund of the overpayments. If the sums involved are not refunded the Department will deduct them from future payments due to the people involved under the arable aid and livestock schemes.

With regard to the problems with the computer program, an incorrect alteration in 1994 had permitted the overpayments to occur but this had been corrected.

Inspections

The relevant regulation requires that inspections be the subject of a report setting out in particular, the reasons for a visit, the areas measured and the methodology used. It was noted that a formal reporting system had not been implemented by the Department and that written reports were prepared only in exceptional cases. One consequence of this was the type of overpayment referred to at (c) above. It also appeared that the inspection programme was not sufficiently targeted to minimise the risk of ineligible payments.

The Accounting Officer replied as follows:

A separate inspection report was used in 1993. However, this involved transcription of all data from the application form to the report. This raised the possibility of errors in transcription. In 1994, a different approach was taken in that the application form provided spaces for reporting by just ticking or entering corrected areas as appropriate. It has been decided to revert to the idea of a separate report again in 1995.

The Department believes that the level of inspections carried out is satisfactory and in accordance with the relevant regulations. It is obliged to carry out inspections on at least 5% of applications. In 1993 and 1994, it carried out inspections on 14% and 12% respectively - some of these were by remote sensing with subsequent on the spot inspections. In addition, the Department concentrated inspections on those cases attracting the higher subsidy rates. Files where difficulties were noted in 1993 were inspected again in 1994.

The regulation stipulates that files be selected on the basis of risk - such as amount of aid, number of parcels of land, changes from the previous year, findings of checks in previous years etc. However, there is no agreed system of risk weighting in place yet. Effectively, there is no way of assessing the appropriateness of the selection system other than by trial and error over a number of years. The Commission admits that the risk analysis system is imperfect and has indicated that an appropriate study will be undertaken when time permits.

Tax Clearance

It is a Department of Finance requirement that all grants are paid subject to tax clearance procedures. These procedures require that for grants between £500 and £5,000, the paying Department is required to receive the applicant’s tax reference number. For grants of £5,000 or greater, the paying Department must receive a tax clearance certificate from the Revenue Commissioners. In 1994, there were 10,982 cases where grants were between £500 and £5,000 and 3,075 cases where grants were greater than £5,000. This requirement was not, however, invoked by the Department as a condition of the scheme for either 1993 or 1994.

The Accounting Officer replied as follows:

The Department understands from the Department of Finance that tax clearance procedures apply only to payments from EU Guidance Fund and do not apply to payments from the FEOGA Guarantee Fund from which the Arable Aid Scheme is financed. The EU Commission has made it clear that it will not accept these procedures applying to premium and aid schemes which are fully financed from the EU.

Computer Controls

An examination of the computerised certification system for the arable aid schemes brought to light that there was inadequate separation of the functions of setting up a grant record and the authorisation of payments and that summary data for calculating payments in respect of 350 cases had been inadvertently deleted from the computer masterfile.

The Accounting Officer replied as follows:

The existing controls provide for a payment schedule to be supplied when a payment run has been requested and this schedule must be cleared by Cereals Division before payable orders are printed. However, arrangements are being made to have the separation of functions in relation to inputs and payments authorisation in place for payments under the 1995 scheme.

The loss of data was due to a programming error which had since been corrected. The data that had been overwritten is still available from the application forms and a program will be written to allow the Division to re-enter the data. The existing system prohibits the amendment of an application once a payment has been made on that application.

Notwithstanding the fact that the Department is satisfied that all systems, including programs, data and equipment are secure from unauthorised use, a consultancy study on computer security will soon be tendered for.

Remote sensing

Remote sensing using satellite imaging is used as an inspection mechanism to determine qualifying acreage under the Arable Aid scheme. The Department adopted a system of remote sensing in addition to inspections carried out by its own staff. The cost of using this system was £323,412 in 1993 and £200,000 in 1994 and was borne in full by the EU Commission. The EU propose to fund 50% of the cost for the period 1995 to 1998.

An examination of the results achieved by remote sensing methods indicated that the system, as an inspection device, may not yet be fully effective. For example, in 1994, a sample of 1,016 cases were examined by remote sensing. Of these, 74 cases were indicated to be excluded from the scheme. The Department is required to inspect all rejections reported by remote sensing. A review by the Department revealed that only 11 of the rejected cases should have been excluded. The Department was also required to complete a 7% check on the applicants accepted by this system, but only 3% were inspected.

The Accounting Officer replied as follows:

With regard to remote sensing as a tool for verifying the eligibility of claims, research and development is ongoing and the methodology is improving all the time. On the question of accuracy, both the Department and the Commission are aware of the current limitations of remote sensing. Accordingly, no application can be rejected on the basis of remote sensing alone and must be followed up by an on-the-ground inspection. The Department is satisfied with the quality of the results for the following reasons:

-it is a deterrent,

-it is unobtrusive,

-it provides an overview of an entire holding,

-it can offer reference period control particularly for the 1 year set-aside rule, the 5 year eligibility rule and rotational set-aside.

With regard to the level of checking, it is important to have rejected applications inspected while the crop or its stubble is still in the ground. Once the ground has been ploughed an inspection is not feasible. Due to time constraints as a result of a problem with satellite image correction in 1994, only 3% of accepted applications were checked and the Department’s effort was concentrated on checking all rejected applications and a sample of doubtful ones. The Department proposes to review the operation of the remote sensing control later this year when the 1995 contract is completed. For 1995, the Commission has dropped its recommendation to inspect a sample of applicants accepted by this system. All of the Commission’s other recommendations have been implemented by the Department and every effort will be made to continue to do so.

Mr. Purcell: This paragraph is quite long, but I could summarise it quite briefly by saying that it gives the results of an audit of expenditure under the arable aid scheme which is fully financed by the EU. The results are set out under a number of headings in the paragraph, and the Committee will see that we discovered some overpayments. In addition, there were some problems with the inspection system and there was some tightening up needed on computer controls.

Since this is a relatively new scheme, I thought it would be worth while to report our findings to the Committee. The Committee may also wish to note that the EU Commission does not permit the application of tax clearance rules to grant payments which are fully financed from the EU.

Chairman: There were overpayments due to the exceeding of the maximum grants, splitting of holdings and the failure to take account of inspection results. How did this scheme come about to be wrong in such a disorganised manner, lacking basic controls and checking procedures?

Mr. Dowling: The overpayments were due to some computer errors and some duplicate payments. There was also a problem with split holdings. It was a new scheme and had to be got off the ground fairly quickly. Inevitably, there were teething problems. We believe we have overcome the teething problems. The overpayments amounted to approximately £55,000 in total. We have recovered all but £1,800 of this, which will be recouped when the next payments are made.

We have since improved the computerisation. We now have a proper computer to run it, which we did not have at the outset, and we could not have, because this, in common with a number of other schemes which emerged out of the CAP reform arrangements, had to be introduced at very short notice. We already had an underdeveloped computer system in the Department which resulted from under resourcing for approximately ten years, for which I am not blaming anybody specifically, but it was a fact.

We were attempting to bring our existing computer system up to scratch, and had imposed upon it huge demands from many new schemes. The system was not up to it in the initial stages. We believe we now have the computerisation system more or less right, and, in this scheme at least, these kind of problems should not occur.

The issue of tax clearance is mentioned in the paragraph. The EU Commission, rightly or wrongly, prevent us from having tax clearance arrangements in regard to fully finance FEOGA schemes.

Chairman: How were the overpayments due to computer programming errors discovered, and why did checking procedures fail to detect them before payable orders were issued? Have any further overpayments been discovered since the report?

Mr. Dowling: The main reason that the checking procedures did not pick them up was because there were errors in the programme. With regard to this scheme, there have not been further overpayments as far as I am aware.

Deputy Broughan: This is an interesting new programme. Is it the case that one of your major tools is provided by satellite imaging to track whether farmers are growing cereals, other products or other crops? If that is the case, why is it necessary not just to use remote sensing as the basis alone for determining whether or not these grants will take place?

Mr. Dowling: We would hope that this will be the case. The present extent of technology on remote sensing is not sufficient to guarantee that it is sufficiently accurate to allow the rejection of claims. Where the remote sensing appears to throw up data which would justify the rejection of claims - either where the amount of cereals declared is not planted or the degree of set aside which should take place has not taken place - we do a physical inspection to validate what the remote sensing has shown. We are accepting the remote sensing with regard to allowing the payments, subject to a random check. However, in discussions with the Commission we have come to the conclusion that it would be unsafe to reject solely on remote sensing. We have been allowing acceptances subject to a 7 per cent check of files. If the remote sensing clears you, you are clear but there will be a 7 per cent random check. If the remote sensing says you have done something wrong we will, in all cases, physically check.

I agree with you. We hope that the remote sensing will develop to the extent that further checking will not be required. The Commission has suggested to us that there is not, in their view, a need to check accepted files any more but that we should still continue to inspect files which are being rejected solely on the basis of remote sensing.

Deputy Broughan: Your officials simply have a picture of a farm or a group of farms on their desks and they can say such and such a field is planted or has not been set aside. Is that the basis?

Mr. Dowling: Yes.

Deputy Broughan: Is that costly?

Mr. Dowling: Costs up to now have been £200,000 per year for putting in the system. The Commission has paid it in full for 1993 and 1994. The cost will be much the same, although it may fall slightly, over the years 1995 to 1998 and the Commission will pay 50 per cent of the cost for those years. After that we will carry the cost ourselves.

Deputy Broughan: One of the astonishing aspects of this paragraph is the information we have been given about tax clearance. Effectively, you have not invoked the requirement for tax clearance procedures. Applicants for grants of between £500 and £5,000 must submit their tax reference numbers and applicants for amounts greater than that must submit tax clearance certificates. In 1994 we had 10,982 cases and 3,775 for grants greater than £5,000. Why were tax clearance procedures not implemented?

Mr. Dowling: We implemented fairly full tax clearance procedures on headage in the less favoured areas where the national Member State is paying 40 per cent of the cost and the Community is paying 60 per cent. Even in that case the Commission has told us that we are not entitled to refuse payment in respect of tax clearance but that we can refuse payment if an applicant does not give us his RSI number.

The Commission has repeatedly told us that, in its view, it is illegal to apply tax clearance procedures in regard to schemes which are totally financed by the Community because the Community rules do not provide for such supplementary conditions. We do not agree with that but were we to apply them and the Commission disagreed there would be an arbitrary decision that the taxpayer would be forced to pay up where we had refused on tax clearance grounds.

However, Denmark, which had similar arguments with the Commission, is bringing a case to the Court of Justice to ask the court to decided that they are entitled to write off debts against payments due under various Community schemes. The Government has recently authorised an intervention in this case on the side of Denmark against the Commission. If that case is won we will be able to invoke a fairly wide tax clearance procedure on these schemes, including a right not just to have a proof of tax clearance but to offset tax debts against the payments. We raised our right to do that with the Commission. Initially we thought it had accepted our point of view - I think there is perhaps some degree of disagreement within the Commission Services on this - but the Commission subsequently wrote formally to us confining our rights in the tax clearance area only to headage which is partly financed by the Exchequer and only to the right to demand RSI numbers as a condition of payment.

We can ask for tax clearance assurance but we cannot refuse payment on foot of failure to produce it. We do not agree with that, Revenue do not agree and the Attorney General does not agree. We have intervened in the Danish case and, if Denmark wins the case, we will have much wider rights of tax clearance procedures than we have at present.

Deputy Broughan: The basic point is that one third of the enormous funding that underlies CAP and other programmes is provided by the Irish taxpayer. Is that not the case? Some people in rural communities appear to have the idea that this money is like manna from Brussels. However, it is money from our VAT receipts as our Department officials in Europe know well. It is money to which we directly contribute if one looks at our total EU contribution.

Mr. Dowling: If one looks at our total EU contribution it would not be as high as one third. The total contribution is between 1 and 2 per cent of Community expenditure. Looking at what we get back, all the expenditure which relates to export refunds and intervention is funded by the Commission. Some of the technical costs of intervention fall upon ourselves. The Commission pays standard rates for storage, financial charges and so forth and we usually have a charge that is slightly above that.

In the case of direct payments, headage, which last year amounted to £135 million, is 40 per cent financed by the Exchequer and 60 per cent by the Community. Livestock premia, such as the suckler cow and ewe premia and so forth and which last year was about £400 million, are fully financed by the Community. Of the newer schemes, the environmental scheme, REPS, and the farm retirement scheme - which over time will be substantial gainers of funds - are 25 per cent financed by the Exchequer and 75 per cent by the European Union. It is a mix - some things are fully financed, some are not. However, the taxpayers pay something towards it through either direct payment at home or through VAT.

Deputy Broughan: Fourteen thousand people gained under the set aside scheme. We have no idea whether those people had tax arrears or whether they owed the State significant amounts of money in other areas, yet we have just gone ahead and paid them.

Mr. Dowling: Yes. Legally we had no option but to pay them. That is a legal requirement. We were precluded from working a tax clearance arrangement with them by the Commission’s interpretation of Community law. It remains to be seen whether that interpretation will stand up. The only way one can overturn them, without further risk to the taxpayer of disallowances if we ignore the Commission, is to get it adjudicated on in the court. Denmark initiated a case and we have intervened with legal argument in support of Denmark on the advice of, among others, the Attorney General.

Deputy Byrne: I represent an urban constituency. Each time Mr. Dowling attends the Committee I cannot help looking at the audits and figures through the eyes of my constituents. When one considers that the Goodman Group and the meat industry have left the taxpayers to hold the baby, which cost £110 million, when we see that farmers are getting paid £65 million for doing nothing with their land, when we see that the EU does not want us to check the tax certificates of the farmers getting this money, if these meetings were to be broadcast over the airwaves, which will be soon, the poor PAYE worker will get an insight as to what this so-called free market is all about. The agricultural community and the farmers are doing well out of it at the expense of the tax payers. It is outrageous to think that the Irish taxpayers are footing so many bills on behalf of an industry that is cleaning up, which has been proven to be dishonest in the courts. There seems to be some compliance in Europe with the European Commission which does not even want our Department to check the tax status of those who are receiving £65 million for doing nothing with their land.

I cannot for the life of me figure out any logic behind the European Commissioner or the Department of Agriculture not insisting or having us insist to Europe that we should seek tax clearance certificates before payments are made. Not only have Irish taxpayers been left out to dry, European taxpayers have also. I am not sure what the political philosophy is behind that. Perhaps you can tell me.

I remember the last time we had the Department of Agriculture in here Deputy N. O’Keeffe was explaining that you were sending out so many cheques to the farmers and he was explaining away the reason the farmers did not know they were getting double payments was they were getting so many cheques that they would not know that the cheques were double payments. We were dealing with livestock headage grants at that stage. We have 50 applicants and more people being overpaid under this scheme. Twice the report indicates that computer programme difficulties and programming errors lead to these over payments. Is there a fundamental problem with your IT section in the Department of Agriculture? Each time you come before us we have it explained that farmers are getting second and third cheques or are being overpaid or are not paying money that they owe back to the Department because of computer difficulties?

Mr. Dowling: I will take the last questions first. Our computer system was less developed than it should have been over a long number of years. There is no question but that our computer system entering this decade was way below the capability of the computer system that operated in say, Revenue or Social Welfare. It had been under resourced in terms of capital equipment and people for many years. We have, with the agreement of the Department of Finance and with increasing resources being provided through the administrative budget over the last four or five years for computerisation been gradually getting it up to scratch and it is about getting there now. All of our local offices are now on-line so they link up with one another and with the central computer in Dublin.

You also have to look at the reason why some of the programming errors occurred. All of these schemes came in virtually overnight. Some of them changed dramatically from the proposals that were being made and changed even in the last hours of the negotiations in Brussels. They had to be brought in within a very short number of weeks in some cases and of months in others. We did not have enough time, frankly, to develop programmes, run them and test them in advance of having to apply them live.

You also have to look at the pressure we were under. Not just because of the volume but when people were not being paid, as they thought, quickly enough, enormous political and public pressure was brought to bear to have more payments made quickly. There were days when we had 70 and 100 parliamentary questions which asked about individual cases or groups of cases as to why people were not being paid more quickly so all the pressure was on to get the system right in terms of making payments and not enough time was spent on getting every other bit of it right.

We have every time corrected errors that have been made and in most cases we are getting back the overpayments which were made and for the future the system should be more or less right. We had a major problem, and this applies to the headage and premium area as well, in that so as to get payments made within the year we were making advance payments. We are obliged to make advance payment in any event on some of the premia under Community rules but, under our own rules as well, we were making advance payments when files were partly processed or not processed at all, with the expectation that everything could be cleared up when the final advance was made. In some cases it is not possible to do that because the final advance is not enough. We have decided as from this year that no payment will be made, whether it is an advance payment or a full payment unless the file is fully processed. That should eliminate many of the problems.

In regard to the tax clearance, I agree with you. We put in a tax clearance procedure, again with the agreement and the direction of the Department of Finance. We would have liked to go further. We have no problem about a system whereby debts due would be deducted but we have formal European Commission letters telling us that we cannot proceed on the basis we were doing without risk of disallowance and court action, so we did not go ahead with it. We modified it to the extent that we are now only talking about RSI numbers and a request for farmers to tell us that their affairs are in order but we cannot refuse to pay them if their affairs are not in order. As I say, we took the first opportunity we had of getting involved in court action on it. We and Denmark believe that we will win but we do not know that. If we win, we then can have an extensive tax clearance system. All of us on this side are PAYE people as well. We agree with those remarks. What prevented us from acting on it was what the Commission says is the law of the European Community, that we cannot introduce special arrangements in regard to fully financed Community schemes which are not provided for specifically in Community rules.

Deputy Byrne: I have two brief questions. I presume the remote sensing satellite is at work. It has cost £323,000 in 1993, this was borne in full by the EU Commission, now I see another burden that has to be carried by the taxpayer on behalf of the farming community. The EU propose to fund 50 per cent of the cost. The EU contribution is reduced and presumably the taxpayer will have to pick up the other 50 per cent. There can be no moral logic attaching to the PAYE sector and the taxpayer in general now adding an additional subvention to monitoring the arable or setaside for farmers. Who can I blame for this?

Mr. Dowling: I am not sure you can blame anyone. Europe has traditionally helped out in introducing new technology where it is relevant but has always pulled out after a period on the basis that the control arrangements are the responsibility of Member States. They make a very minor contribution towards the cost. Remote sensing is a very minor part of the cost of control. We have in the region of 600 or 700 people involved in one way or another in controls in the areas of livestock premia at the peak part of the year. They are all paid by the Exchequer and none of that is coming back from Brussels. There is a very substantial cost to the Exchequer. On the other hand, most of the money which is going on these schemes is coming in from outside Ireland and is an economic benefit. We get in all payments, roughly speaking, taking market supports as well, of about £1.25 billion from Brussels plus additional money which comes in on the intervention activities. We get a minimum of £1.25 billion which is spent in the Irish economy. It goes to the benefit of either farmers or food processors but it is spent in the Irish economy and it is a benefit to the economy and to the Exchequer. ESRI figures show that if £100 is spent, about £20 to £25 returns to the Exchequer in a variety of taxes. The spending of £1.25 billion benefits the Exchequer as well as the economy. We cannot look at only one part.

We would much prefer if the total cost of control was carried by Brussels. It would be much easier and many of the difficulties we have in obtaining resources to better improve controls would be lessened if the cost was carried elsewhere. But it is not; it is carried here.

Deputy Byrne: I understand that farmers were not supposed to split their holdings in order to improve their value for grants to be paid under the arable aid scheme. You have identified a number of breaches of the regulations resulting in overpayments of £16,500 in 1993. An audit identified three of these applicants who split their holdings as having been paid subsequent grants amounting to £6,354 without deductions. Why were deductions not made from these subsequent grants?

Mr. Dowling: Deductions should have been made. The arrangements that were directed to be put in place were that no payment should have been made without the overpayments being deducted. In these cases this was overlooked and the full payments were made. We have recouped all but £1,900 of the total amount referred to in the paragraph. The balance will be recouped from payments made this year.

Deputy Broughan: With regard to set aside, how many farmers applied for the small farm scheme and how many applied for the large farm scheme?

Mr. Dowling: A total of 15,500 applied. I do not have a breakdown of those who applied for the small farm and large farm schemes. I think the majority are small farmers but I am not certain of this. I will get the exact figures for the Committee.

Deputy Broughan: Would these farmers comprise the majority of farmers in the arable business?

Mr. Dowling: They would be the majority of farmers but their production would constitute a minority of the total production. A relatively small number of arable farmers contribute the bulk of production.

Deputy Broughan: What is the maximum grant which can be obtained under the large farm scheme?

Mr. Dowling: There is no maximum.

Deputy Broughan: Some £46 million was paid to big farmers. What was the average payment? Is it correct that small farmers received a maximum of £3,144?

Mr. Dowling: The average payment was £5,000 but some payments were very much higher than this.

Deputy Broughan: What was the highest payment which was made to a large farmer?

Mr. Dowling: I do not know but I can find this out. There were certainly payments in excess of£50,000 for some large farmers. The reason there is no limit is because the system was introduced partly to encourage a reduction in cereal prices. Cereal support prices were reduced by over 30 per cent over three years. In compensation for this farmers were given an area payment based on the amount of their holdings devoted to cereals in a representative period multiplied by an average yield and an amount per tonne.

To enter the full scheme, as distinct from the simplified one, they had to set aside an amount decided annually which this year will be 10 per cent but which previously has been as high as 15 per cent. They receive payments for the set aside. If a farmer has 500 acres and sets aside 10 per cent of this, he will receive arable aid on the remaining 450 acres and this would be a substantial payment. In return the price of cereals has substantially fallen, although not as much as initially envisaged. Therefore, such a farmer would lose on price but would gain on aid. In current market circumstances he would have gained more than he lost. However, market circumstances could go the other way and he would lose more than he would gain. This year and last year there would have been a bigger gain than a loss.

Chairman: While noting paragraph 40 we are concerned that overpayments arose and every effort should be made by the Department to ensure that its controls are satisfactory.

Paragraph 41 of the Report of the Comptroller and Auditor General reads:

Subhead H.2. - Rationalisation of the Staffing situation of the Dublin and Cork District Milk Boards

Dissolution of District Milk Boards

41.The Dublin and Cork District Milk Boards were established in 1936 and 1937 respectively, under the Milk (Regulation of Supply and Price) Act 1936 to regulate the supply of milk for liquid consumption in their respective areas. Over the years the Boards also developed ancillary business outside their statutory remit, in the areas of artificial insemination of cattle, milk recording and mastitis control and in this connection had acquired several properties.

In April 1986 the Commission of the European Communities found that the activities of the Boards were not compatible with the provisions of Article 30 of the Treaty of Rome. After consultation with the EU Commission about how best to ensure regularity in supplies of drinking milk for Irish consumers, the Government decided in July 1988 to wind up the Boards and replace them with a National Milk Agency and to sell their ancillarybusinesses to private sector interests. A Bill to dissolve the Boards was initiated in the Dáil in 1991 and enacted in October 1994.

Following the enactment of the Milk (Regulation of Supply) Act 1994 an Interim Board was established by Ministerial Order on 5 December 1994 with the power to carry on any business activities carried on by a Milk Board, discharge liabilities and sell as a going concern any business of those Boards. The two Milk Boards were dissolved on 30 December 1994 and the National Milk Agency was established on that date also. At dissolution, 138 staff were in the employment of the Boards.

A voluntary early retirement scheme with terms analogous to those applied to the Public Service Early Retirement Scheme in 1987-88 was offered to the staff of the former Milk Boards. 52 former staff have availed of the scheme and have received nearly £1m in lump sum payments from Subhead H.2. Ongoing pension payments amounting to approximately £300,000 per year are also payable from the Vote. A staff contributory pension scheme was operated by the Boards and contributions were paid into managed superannuation funds. These funds (£4.5m approximately) will be transferred to the Exchequer.

81 staff moved to the private sector businesses which have taken over the former ancillary services of the Boards. The accumulated superannuation entitlements of 69 of these former staff have been preserved and they have been given guarantees of opting for re-employment in the public sector in the event of their being made redundant as a result of further rationalisation or business failure on the part of their new employers. 5 staff transferred to the National Milk Agency.

The assets of the Dublin and Cork District Milk Boards were sold by tender in April and May 1995 respectively, realising in excess of £3.95m. Assets with an estimated value of £0.25m remain to be sold. £1.5m has been paid to the Exchequer with the remaining moneys being held until all liabilities have been met. Costs in excess of £70,000, mainly for legal and consultancy costs, were incurred by the Department of Agriculture, Food and Forestry in connection with the dissolution up to June 1995. In addition, similar costs in excess of £30,000 were met by the Interim Board.

Mr. Purcell: This paragraph is for the information of the Committee and summarises the financial provisions and the staffing arrangements made consequent on the dissolution of the Dublin and Cork District Milk Boards in accordance with the wishes of the then EC Commission. Some 52 of the staff took voluntary early retirement at a lump sum cost of £1 million to the State with an ongoing liability of between £300,000 and £350,000 per annum in pension payments. However, the vast majority of the staff -81 in all - moved to the private sector businesses which took over the ancillary services of the Boards. Some 69 of them preserved their pension entitlements and were given guarantees of re-employment in the public sector if things go wrong in their new employment. The remaining five transferred to the new National Milk Agency.

On the plus side for the State, the sale of the Boards’ assets realised nearly £4 million. Although liabilities have to be met from this figure, something will accrue to the Exchequer. The superannuation fund, which is worth £4.5 million, will also be transferred to the Exchequer.

Chairman: Thank you, Mr. Dowling.

The Witness withdrew.

THE COMMITTEE ADJOURNED.

AN COISTE UM CHUNTAIS PHOIBLÍ

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 16 Samhain 1995

Thursday 16 November 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. John Purcell (Comptroller and Auditor General) called and examined.

Mr. Stephen O’Neill and Mr. Robert Bradshaw, Dept. of Finance representatives, called and examined.

APPROPRIATION ACCOUNTS 1994

VOTE 10 - OFFICE OF PUBLIC WORKS

Mr. Brain Murphy, Chairman, Office of Public Works, called and examined.

Chairman: I welcome Mr. Murphy. I understand this is your first time here as Accounting Officer and I wish you the best of luck. I ask you to introduce your officials.

Mr. Murphy: Mr. Fergus Gilmore is in charge of the property branch; Mr. Pearse Pigott is Director of Engineering Services; and Mr. Michael O’Doherty is Principal Architect.

Chairman: Paragraph 27 of the Report of the Comptroller and Auditor General reads:

Exchequer Extra Receipts

Sale of Merrion Street Houses

27.The Office of Public Works (OPW) is the principal management agency of State property and its functions include the disposal of property which has become surplus to requirements.

In July 1989, the Government decided to dispose of 13 house properties at numbers 21 - 33 Merrion Street, Dublin through sale by auction and to appoint a firm of estate agents to handle the sale. In March 1990 a further Government decision excluded number 24 from the sale. The auction was held in October 1990, but the highest bid for the entire property was £1.2m and the property was withdrawn. The agents continued to seek offers on the property but the highest offer was one of £3.5m which the Government considered to be too low to be accepted.

In July 1991, on foot of instructions from the Minister for Finance, OPW requested the agents to proceed with a sale of all 13 houses, including number 24, by private treaty with a reserve price of £4.5m.

The agents placed the property for sale in three lots. Lot 1 comprised house numbers 21 - 24; Lot 2 comprised numbers 25 - 29 and Lot 3 comprised numbers 30 - 33. The highest offer for Lot 1, received in October 1991, was £3,010,000 and for Lot 3, also in October 1991, was £500,000. The agents recommended acceptance, subject to proof being provided by the firm making the offer for Lot 1 that it had funds to complete the purchase. The highest offer for Lot 2 was for £851,000 but because the offer was made through an agent who had refused to disclose the identity of the client, the estate agents recommended that this offer be passed over in favour of the second highest offer which was for £821,000. Background enquiries led the agents to conclude that the proposed purchaser of Lot 3 could successfully complete the contract. The Government decided to accept the offers on 31 October 1991.

In the case of Lot 1, the sale was abandoned following the failure of the prospective purchasers to produce documentation sought by OPW from their bankers indicating their ability to complete. In addition, an attempt was made by the prospective purchasers’ solicitors to introduce new and unacceptable amendments to their offer and the property was again placed on the market. This resulted in an offer of £3,210,000 which was approved for acceptance by the Government in February 1992. While the agents had no doubt about the ability of the new prospective purchasers to complete the transaction and were happy to recommend acceptance, OPW in the light of the previous. difficulties with the sale of this Lot and the fact that the purchase price was proportionately high in relation to the offers for Lots 2 and 3 instructed the agents to seek from the purchaser a letter from an independent financial institution confirming availability of finance and this was provided. The company with the second highest bid for Lot 2 was also asked to submit proof of its ability to complete. However, no such proof was provided by the company as it considered that signing the contract and payment of a deposit of £41,050 representing 5% of the purchase price was adequate security. The estate agents who on the basis of their investigations, had established the company’s successful track record in a number of substantial undertakings, recommended acceptance of the offer and a contract of sale was signed in December 1991 with a completion date of 4 June 1992.

The sale of Lot 1 was completed in April 1992 and the proceeds were paid over to the Exchequer in May 1992. The sale of Lot 3 was completed in January 1992 and the £500,000 was paid over to the Exchequer in February 1992.

Before the contract of sale for Lot 2 was completed, planning permission for the proposed development of the property was refused and the company instituted legal proceedings against OPW in respect of the contract. Following legal advice OPW, in turn, commenced legal action for specific performance of the sale contract. Further legal advice was also obtained by OPW to the effect that OPW continued to be liable for any deterioration in the condition of the buildings pending completion of the sale. OPW spent £124,053 in maintaining the property in the same condition as that at the time of signing the contract and because of the poor condition of the property, additional insurance cover had to be provided at a cost of £10,016.

In November 1992 the High Court found in favour of and awarded costs to OPW. The company appealed the decision to the Supreme Court which found in favour of and awarded taxed costs of £37,800 to OPW in November 1993.

An order for specific performance of the contract was awarded to OPW, with costs, by the High Court in June 1994 which was served on the company compelling it to complete the purchase of the property. The company failed to defend the action in Court and later claimed through its solicitors that it was financially unable to complete the purchase. On a recommendation by its legal advisers, OPW engaged a firm of financial consultants to carry out an assessment of the company. OPW brought proceedings in the High Court in October 1994 whereby the contract was rescinded and the Court ordered forfeiture of the deposit. Taxed costs of £66,614 were awarded to OPW.

Meanwhile consultations recommenced with the estate agents with a view to re-sale of the property. In June 1994 the estate agents revised the market valuation of the property downward to the region of £400,000 but OPW rejected this valuation and instructed the agents to seek £800,000.

In December 1994, OPW accepted an offer of £620,000 for the property. A contract was signed on 21 December 1994 and a deposit of £124,000 was lodged. The balance of £496,000 was received by OPW in February 1995 and paid over to the Exchequer in March 1995.

Expenditure incurred by OPW in relation to the sale of all of the property in Merrion Street totalled £484,327 which can be analysed as follows:-

I asked the Accounting Officer for information on the steps taken prior to entering into the contract for the sale of Lot 2 to establish the company’s ability to complete the purchase, particularly when the requirement to produce proof of such ability from the company’s bankers had been waived. I also asked for information on any action taken or proposed to recover the costs awarded to OPW by the Courts from the company.

The Accounting Officer replied as follows:

On the general question of property sales it is the practice of OPW to take reasonable steps to ensure that the purchaser will have the ability to complete the sale, particularly where a substantial sale price is involved. It should be borne in mind, however, that a sale at auction precludes the carrying out of the necessary enquiries or the seeking of financial assurances. In any event, assurances that a putative purchaser has or will have the financial capacity to complete are no more than that; they are no guarantee that the purchaser will complete or, indeed, will wish to complete the contract. It is therefore of paramount importance that a vendor, where feasible in substantial sales, examines the track record of the prospective purchaser with a view to making a judgment as to whether or not the party in question will, in fact, complete his contract. Where the property for sale is one for development, the background of the purchaser as a developer or one with access to or experience of the necessary skills, is relevant, but again, not conclusive. Selling property is a commercial undertaking and, as with most commercial activities, an element of risk cannot be entirely excluded.

OPW asked their agents to check on the ability of the proposed purchasers of the three Lots to successfully complete the purchases. In response to the agents’ request for evidence that they had the ability to complete a purchase, the purchaser of Lot 2 stated that they had not yet decided which financial institution they would be borrowing from and that this decision would be made only during the period of signing the contract and closing of sale. They informed the agents that they considered signing the contract (which procedure included payment of a deposit of £41,050) to be adequate security. The agents, having investigated the prospective purchaser’s track record in property investment and development, had established that the firm had been successfully involved in a number of substantial undertakings and advised OPW that, on the basis of this information, they did not see any reason to suggest that the purchasers would not complete the transaction.

In light of all the circumstances, particularly the state of the market for this type of property and the fact that no other acceptable offer had been received for Lot 2 despite prolonged and widespread advertisement of its sale, OPW, in pursuance of the Government decision of 31 October 1991 accepted the recommendation of the agents.

It is the considered view of the agents, shared by OPW that, had the planning permission sought by the company been granted, the requisite funds would have been forthcoming and the absence of a prior guarantee that funds would be available would have been irrelevant.

If, with the benefit of hindsight, there are lessons to be learned from the handling of the earlier aborted sale of Lot 2, it is suggested that OPW should have sought a larger deposit. A more substantial deposit, while not guaranteeing completion of the sale, would have made it that much more difficult for the purchaser to walk away. It should, however, be remembered that no other acceptable offer was to hand and that OPW and its agents were not acting from a position of strength. It will be noted that the terms of the later sale of this Lot included the making of a substantial (20%) deposit.

Following consultations with its legal advisers at which a number of options were discussed and considered, OPW decided that the best way to proceed in respect of the costs awarded was to apply to the Court for an order which could be sent to the Sheriff for execution by him at any business premises of the company. Serving by the Sheriff of a six days warning notice would enable seizure of goods or collection of moneys to the value of the order. It was also decided that, in tandem with this process, a judgment mortgage in the amount of the costs awarded would be registered in the High Court and would also be registered by way of affidavit in the Land Registry. On completion of registration in the Registry, it would be open to OPW, if it so chooses, to institute proceedings against the company so as to compel a sale of its property with the resultant proceeds being used to meet the costs awarded to OPW. The registration processes in the High Court and Land Registry in respect of the costs of the High Court proceedings and subsequent Supreme Court appeal by the company were effected and these processes are in train in respect of the costs arising from the subsequent High Court proceedings for specific performance taken by OPW.

The Court order referred to the Sheriff was returned by him in January 1995 marked to the effect that there were no distrainable goods to be seized. OPW, in consultation with its legal advisers, intend to pursue the company vigorously for recovery of the costs, subject to ensuring that any further Exchequer expenditure incurred in so doing is reasonable and necessary in the circumstances.

Mr. Purcell: This is a long paragraph which outlines the background to and the circumstances surrounding the sale of 13 houses situated opposite Government Buildings in Merrion Street. Although the Government decided to sell the houses as far back as July 1989, it was not until late 1991 that what were considered acceptable offers were forthcoming.

The sale of the houses was handled in three lots. The completion of the sale of two of the lots, comprising eight of the houses, was relatively trouble free but the remaining lot posed a number of difficulties for OPW. A contract for the sale of this lot was signed in December 1991 with a property development company. The agreed sale price was £821,000 and a deposit of £41,000 - 5 per cent of the sale price - was paid.

Before completion of the contract the company was refused planning permission for its proposed development and then instituted legal proceedings against OPW in respect of the terms of the contract. OPW, acting on legal advice, commenced an action for specific performance. In November 1993 the Supreme Court found in favour of OPW and as a result taxed costs of £37,800 were awarded. The following year OPW was successful in its action for specific performance. The company was unable to complete the purchase and the net result was the forfeiture of the deposit and a further bill for £66,000 in costs. The property was put on the market again and soon after was sold for £620,000.

I tend to agree with the Accounting Officer that with the benefit of hindsight a more substantial deposit might have been sought, which might have made it more difficult for the purchaser to walk away from the deal. Be that as it may, over £200,000 was spent by OPW on maintenance, security and insurance outgoings on the property as a result of the delay. The legal costs of £104,000 have not yet been recovered, to the best of my knowledge.

Deputy Broughan: I welcome Mr. Murphy and the other officials. The sale of the 13 houses turned out to be a remarkable debacle for the State. They were eventually sold for £4,330,000 but that cost us almost £500,000, which means over 12 per cent of the money realised went towards the cost. We are still chasing what looks like a defunct company for a large sum of money. Does Mr. Murphy agree that the Comptroller and Auditor General has outlined a remarkable and fundamentally disorganised piece of work by OPW?

Mr. Murphy: I do not agree that it is as the Deputy has put it. Getting money for these premises was the commercial point of putting them up for sale, but the Government had other reasons for taking the route it did. It was not a sale in fee simple - this was a sale that the Government asked to be structured in such a way that the buildings or their main features would be preserved. The Government asked the OPW to do something quite difficult, to devise a legal structure through which the future of these buildings could be made absolutely safe; this is called a fee farm grant. When one devises a fee farm grant and has conditions attaching to buildings in a sale like this, it has an effect on the sale price and on the interest of people in the property. We had to sell this legal instrument and apart from the March Properties matter- which was a commercial venture with risks, and to some extent we lost out - we succeeded in selling the premises with all the conditions attached. We have been involved in close supervision of the architects and companies who bought the houses so that the objective of preservation is followed up and met, as the Government wished.

Deputy Broughan: I accept the basic point - the buildings are in a key position, close to the offices of An Taoiseach and the Minister for Finance. Nonetheless the saga outlined by the Comptroller and Auditor General is remarkable. When the OPW eventually decided to proceed with the second bidder for lot 2 - which was the problematic lot - why did it not get some independent financial advice and security, which it did in relation to the other lots? Why did the OPW not immediately establish that this developer would be a problem?

Mr. Murphy: We did get advice. We went to our selling agents- we were using HOK as our agents and they gave us advice on the parties bidding.

Deputy Broughan: How did the OPW establish who the estate agents would be? Who was the troubled purchaser of lot 2?

Mr. Murphy: The selling agents were HOK. We choose agents like that -

Deputy Broughan: What does that stand for?

Mr. Murphy: Hamilton Osborne King; I do not think they use the full names now, they go under the HOK title.

Deputy Broughan: They were selected after tender?

Mr. Murphy: They were selected from a rota we have. The company, March Properties, at that stage had

Deputy Broughan: Mr. Murphy mentioned a rota; I understood estate agents were selected by public tender, so I would like to know more about how we came to use Hamilton Osborne King in this instance. Was the OPW totally dependent on the estate agents for its opinion of the track record of the company? Unlike the other lots, did the OPW did not bother at that date, June 1992, to get independent financial advice about the developers of lot 2?

Mr. Murphy: When we have agents for this kind of job I prefer to work through the agents; I do not think a solo run on our part is needed. We went to them and as with the other two lots we went through the process of assessing the company. In the absence of a financial statement from its bank, we had to look at the other evidence. The other evidence we had about this company was that it had put down a non refundable deposit which it ultimately lost, and which was an earnest indication of its intentions. Secondly, it had a very good track record in the development of various properties. It built the Carlow shopping centre and various industrial units.

Deputy Broughan: Had it any track record in development in Dublin?

Mr. Murphy: I cannot name one in the city centre but I think that it had more property on its books at that stage than it has now. The Dublin one was Unit 3 in Ballymount Industrial Estate.

Deputy Broughan: There is a big difference between Unit 3 in Ballymount Industrial Estate and one of the most important streetscapes in this city.

Mr. Murphy: Mr. McElligott was from Sisks and would have had plenty of experience of doing work around town.

Deputy Broughan: Their movement into development of these four houses seemed to totally depend, in their mind, on planning permission. Was there any sense of collusion between either the estate agents, Hamilton Osborne King, or your own officials and these failed developers in relation to securing planning permission?

Mr. Murphy: Collusion between whom?

Deputy Broughan: In the sense that these people apparently were only prepared to go forward on the basis that planning permission would be granted by, I presume, Dublin Corporation and An Board Pleanála.

Mr. Murphy: That was certainly not a feature. We did not discuss planning permission. The instruction to our agents was that we were not going to deal with people on the basis of planning permission. We have not so far sold on the basis of the purchaser getting or not getting planning permission.

Deputy Broughan: Is there not an indication in the Comptroller and Auditor General’s report that the case of this company, March Properties, would have had to have been on the basis of planning permission? You said that this was a particularly sensitive property which would have to be developed under certain conditions. Was there not some sort of understanding, therefore, that it would be developed along certain lines and that planning permission might have been forthcoming?

Mr. Murphy: We had no such understanding. We put in on the market on a particular basis and it was for March Properties to buy it on that basis. There were no qualifications whatsoever to that. Privilege comes into this so I have to be careful about what I say to the Committee on this. What you are saying implies that the court cases which followed were not genuine. I cannot possibly say that.

Deputy Broughan: The key criticism made by the Comptroller and Auditor General of the whole deal is that you did not require a significant deposit for lot 2. Was that not a big mistake?

Mr. Murphy: I honestly do not think that, given the company’s record since then, a £90,000 deposit would have precluded them from doing what they did. I am quite sure that that would not have changed the picture; they would have done what they did in any event. From the commercial end, this is the business which the OPW is in and there are commercial judgments which have to be made. We could have decided to resell the property. However, we had no other possible purchaser at that time and the market for these buildings was falling. The £620,000 we got was 50 per cent higher than the actual reserve and the advised price we were given. In the event, we managed-

Deputy Broughan: It was 25 per cent lower than the first offer you got.

Mr. Murphy: That is quite right but we were not paid the first offer.

Chairman: In June 1994 the estate agents revised the market value of lot 2 to £400,000 but in the end it realised £620,000. Why was their revised valuation so low and how would you assess how they dealt with the sales throughout?

Mr. Murphy: Their valuation was so low because this kind of house has tended to be very low priced, although there has been a change in recent months. New fire regulations and various other aspects brought the price of Georgian houses down. It is very difficult to convert Georgian houses to office use. The change which has taken place is that Georgian houses in the city are now being thought of as residential units and a hotel is being built in the block which we sold further up the street. On the question of how HOK dealt with the entire sale process, we were reasonably happy with them.

Chairman: They are experts in their field and they set a valuation of £400,000. Why did they give such a low valuation when they must have had an idea of the market value? It made £620,000.

Mr. Murphy: It is possible to give a valuation in the light of what is happening, which is what they did. However, one does not know the true value until a property goes to market and interest is shown in it.

Chairman: I accept that but they are still experts in their field.

Mr. Murphy: They are.

Chairman: You would have accepted £450,000 for it but it realised £620,000.

Mr. Murphy: While we do not do a solo run, we deal with the expert advice we get in the light of our own experience. When they told us that the property was worth £400,000 we did not believe that and we sent them back to get more.

Chairman: What value did they then put on it?

Mr. Murphy: We put £600,000 on it and we got more than that.

Chairman: And they put £400,000 on it.

Mr. Murphy: That is right.

Chairman: Therefore, you were right and they were wrong although they are experts in their field.

Mr. Murphy: We are experts in our field too.

Chairman: I accept that but you had professional advice on the valuation. What is the latest position on the recovery of costs and what further steps are envisaged? How do you rate the chances of recovering them?

Mr. Murphy: If I can put it in non-technical terms, we sent the Sheriff and we got nothing back. We listed March Properties in Stubbs Gazette. We then got judgment mortgages on March Properties, one of which is fully in place and the second will be in place within the next couple of weeks. A judgment mortgage takes three months to set up.

Chairman: Are March Properties still operating?

Mr. Murphy: Yes

Chairman: And you have a mortgage listed in Stubbs Gazette?

Mr. Murphy: Yes, we have mortgages registered against the folios in the Land Registry. However, there are other creditors. We have to be careful to balance the amount of money we spend on chasing them with the amount of money we are likely to get back. My personal judgment is that the chances have to be low. However, we also have outstanding a court order which allows us to re-enter to look for other damages. In other words, we are also looking to get back the maintenance which we undertook during this protracted sale period. We will be watching March Properties to see if their situation changes so that we can go after them for that also. You can take it that we are going after them as toughly as the law allows.

Chairman: Are they a development company?

Mr. Murphy: They are.

Chairman: They must have assets if they are a development company.

Mr. Murphy: They have two assets. The Carlow shopping centre is on their books at about £350,000 and their unit in the Ballymount Industrial Estate is in their accounts at £120,000.

Chairman: Have you registered a mortgage against each of them?

Mr. Murphy: We have.

Deputy Byrne: The Chairman has asked the key questions. We have judgment mortgages against this company and two of its properties. What is the total amount of money we are owed? How much are we seeking to recover?

Mr. Murphy: Under the judgment mortgages, £104,000.

Deputy Byrne: Is that against both properties?

Mr. Murphy: I believe the judgment mortgages are registered against both properties.

Deputy Byrne: Therefore, we are seeking £104,000. The company owns the Carlow Shopping Centre and Unit 3 in the Ballymount Industrial Estate but Mr. Murphy continues to beg caution. Why would that be if the company has assets worth £470,000?

Mr. Murphy: They have other preferential creditors.

Deputy Byrne: Mr. Murphy states that the company has been listed in Stubbs Gazette. Does that mean that the company is essentially bankrupt and that the Government is one of many claimants against it?

Mr. Murphy: No, it does not necessarily mean that. I think that, under the law, we could force the company to liquidate its assets. However, that would be expensive and I am not sure that the preferential creditors would not mop up any available money.

Deputy Byrne: Does the term “preferential creditors” refer to the Revenue Commissioners?

Mr. Murphy: Revenue is not listed. There are others, however, such as the ICC.

Deputy Byrne: They have first call?

Mr. Murphy: Before us, yes.

Deputy Byrne: Lot 2 is presumably a bank of listed buildings, listed under the development plan?

Mr. Murphy: Yes.

Deputy Byrne: There are tight restrictions with regard to what can be done with the properties?

Mr. Murphy: Yes.

Deputy Byrne: The client hoping to purchase Lot 2 wished to remain anonymous and the agent involved could not disclose their identity. Why was it important to Mr. Murphy that the identity should be known?

Mr. Murphy: If the Deputy thinks back to the exact year and the other property deals going down at that time, the question of the identity of owners of property was very important.

Deputy Byrne: I would have to cast my mind back to the scandals which took place during that time. Mr. Murphy felt it important enough that he could not proceed with a deal-

Mr. Murphy: It was an actual Government direction at the time.

Deputy Byrne: Lot 1 was abandoned following the failure to produce proper documentation. Mr. Murphy stated that the solicitors representing the prospective purchaser attempted to introduce unacceptable amendments to the offer on the property. What were those unacceptable conditions?

Mr. Murphy: For Lot 1?

Deputy Byrne: Yes.

Mr. Murphy: I will need to check on this for the Deputy but, in the case of Lot 1, the prospective purchaser did have an actual bank letter. We were happy from the point of view of finance. However, when it came to the event, the bank did not produce. We did not sign a contract because the bank letter was not confirmed. The change of conditions the prospective purchaser required was to do away with a fee farm grant. Half of the purpose of the exercise was to preserve these buildings through the mechanism of the fee farm grant which is a set of conditions which are passed on to the next purchaser. If you sell a fee simple with conditions, they can fall off. A fee farm grant holds the conditions.

Deputy Byrne: The three banks of properties included four houses in the first, five in the second and four in the third. Why was the valuation so different? Why was the variation so great?

Mr. Murphy: They were actually quite different in size. The top four houses were absolutely enormous with a one acre site situated behind them. The middle houses had no gardens whatsoever. There were encroachments of various kinds into the back of these houses. The houses further down had a small bit of land behind them.

Deputy Byrne: With regard to the contract for the sale of Lot 2. The developer applied for planning permission but was refused. What application was placed before the planners?

Mr. Murphy: He basically wanted to remove the interior and restructure it.

Deputy Byrne: That developer went before the High and Supreme Courts. Was it the case that he felt he had been badly advised and had a strong case?

Mr. Murphy: I have to be careful in answering that question. I take it that he was serious. He queried a single word in the contract document and the judges in the Supreme Court did not leave their bench before giving their answer. The whole Supreme Court hearing lasted about 20 minutes. The Deputy can make his own deductions.

Deputy Byrne: Does Mr. Murphy believe that this developer treated the OPW with a dismissive attitude?

Mr. Murphy: Yes. I am absolutely sure that he felt he could get away with it. He met with what can only be described as a greatly strengthened Office of Public Works property section. We are going to behave in a fully commercial manner, have done for the past six years and will in the future. We will have to meet whatever commercial strengths set against us with equal strengths.

Deputy Byrne: I thank Mr. Murphy for his honesty in answering that question. Was it the case that a political climate existed at the time that developers could somehow bend the rules by means of political influence or interference, and that the Office of Public Works was merely a tool in the hands of its political masters? The developer obviously hoped that this door remained open and that-----

Mr. Murphy: I have to disappoint the Deputy. There is no story behind that. The amount of political interference in central Government property dealings is nil, from my experience. There would be no logic to it. March Properties was dealing with us, not the political end of things. There may well have been a feeling in the past that Government Departments were not as fully commercial as they might be.

Deputy Byrne: Mr. Murphy informed me in the affirmative that this developer was playing cat and mouse to some degree. The developer was dealing with a Government Office and felt more secure in his ultimate desire or aim to achieve his goal. Mr. Murphy did say that he believed that such a school of thought existed. Is it correct to say that developers dealing with Government Departments, or agents acting on the Government’s behalf, believe that the relationship involved differs from those experienced in the commercial world, that deals can be made or rules bent?

Mr. Murphy: Let me put it this way. I do not think that many Government Departments, until now, would have had someone listed in Stubbs Gazette, sent the Sheriff out or taken a case to court. We tend to be civil. However, we intend to be as fully commercial as any private sector body in the future and have been during the past number of years.

Deputy Byrne: These pillars of society who have experience working with Sisks and have a long track record in developing properties, including Ballymount industrial estate, etc., owe the taxpayer £104,000.

Mr. Murphy: Some £104,000 with the right to re-enter for the other losses.

Deputy Byrne: It might not be a lot of money when one takes into account the total budget of the Office of Public Works, but there is a matter of principle involved. These two property developers have property valued at £0.5 million between Carlow and Dublin. How confident are you of getting that £104,000 which they owe State?

Mr. Murphy: I would not like to say that I am not confident. I will only say that we will pursue it to the extent that we do not get ourselves into further expense and further loss. We will keep an eye on March Properties to see how its affairs are going. We will press it only if we think we can get the money back. On the basis of the two properties I mentioned, I suppose the odds are low.

Deputy B. O’Keeffe: What did you mean when you said it was a sensitive property? Was it a property where the buildings could not be changed structurally on the outside or was it sensitive to planning?

Mr. Murphy: The main sensitivity from our point of view was that identified by the Heritage Council. These were Georgian houses of a particular date and the external facades were part of an historical streetscape leading down to Merrion Square. The internal layout and plaster work of some of the houses was particularly important. That is also the subject of the fee farm grant. In fact, the Heritage Council was involved to the extent of drawing up guidelines for window-pane sizes and window bars.

Someone mentioned the fact that we started this selling process in 1989. The reason for the delays and the stop-start nature of the sale process was because the Heritage Council initially wanted us to hold on to one of the premises, No. 24, Mornington House, where the Duke of Wellington was said to have been born, but I believe County Meath also has a claim on his birth place. That house plus garden were at one stage supposed to be retained and our first sale efforts did not include that house.

Deputy B. O’Keeffe: Because of the Heritage Council’s interest, it would have to be accepted that this would be extremely sensitive from a planning point of view. Given that you confirmed that the sale was unconditional and that your office had received just £40,000 as a deposit, was it not strange and, indeed, foolhardy that you would allow somebody purchasing that property to apply for planning permission before they had completed the sale and signed the contract? As regards the planning application, will you explain to the Committee if that application sought to materially change the front or any exterior part of the house as opposed to internal features?

Mr. Murphy: We signed a contract, but they failed to perform on the contract. We signed a contract with no conditions about planning - in other words, as far as we were concerned we had secured a sale. It was that contract which they failed to perform and which the courts found they had failed to perform.

Deputy B. O’Keeffe: I am on a number of statutory authorities and it is a fact of life that when you seek tenders in terms of the sale of property a lot of these people reject conditional tendering and that, by and large, will accept the unconditional tendering. The reason is that such groups do not want to become involved in planning permission on the basis that if the purchaser did not get the planning they required, they would not go ahead with the deal. Would it be fair to suggest that it was very foolhardy of your Office to allow planning permission to proceed before the sale was signed, sealed and delivered given the sensitive nature of this and the interest of the Heritage Council? Did you not see that this would have implications for the sale further down the road?

Mr. Murphy: As far as we were concerned, the signing of the contract meant that the unconditional sale was secure. There was nothing we could do to stop them going for planning permission then. There was a closing date of five months which was a slightly longer period, but not unusual for us. This was the one valid bid which we had. We took the commercial decision that this was the route to go.

Deputy B. O’Keeffe: It seems nonsensical that you would allow a planning application to go ahead. If I had five months to purchase this property, I would know the result of planning permission within two. All the pluses would be on my side rather than on that of the OPW. When your agents checked out the financial situation of this company, it had not yet decided which financial institution it would borrow from and this decision would be made only during the period of the signing of the contract and the closing of the sale. You have now said that the contract had been signed. It seems that no proper research was done on the ability of this company to complete the sale. Was your Office remiss or did you not get good value for money from your agents?

Mr. Murphy: The agents did full research on the capacity of this company.

Deputy B. O’Keeffe: Then it was flawed research.

Mr. Murphy: On the basis of what they presented to us at that time, it seemed reasonable. A company with a track record of development and with people on its board who were capable of doing this work was prepared to put money down. That is a reasonable commercial risk.

Deputy B. O’Keeffe: Did the research give any indication to your Office of the liabilities and the preferential creditors of that company?

Mr. Murphy: I do not have those details. However, in other companies which we deal with there are mortgages and cross mortgages and so on, it is often the sign of a healthy company if it is using its assets to the fullest extent. That particular feature would not have been a warning to us. The pace and scale of a company’s business would be the main indicator.

Deputy B. O’Keeffe: It would seem that the first thing anyone carrying out research and looking at this company would do is to find out what money was committed to the projects it had undertaken, what were its borrowings and its capability to complete the sale. Although I have no expertise in this area, it would seem to me that all the pluses were on the side of the purchaser and that no guarantees or conditions were put into the contract of sale to save the OPW’s skin.

Mr. Murphy: No. It is quite the opposite to what the Deputy has said. The guarantees were on our side. We had a contract signed, sealed and delivered. The courts upheld that and ordered March Properties to perform on that contract. That is a fact. They then said they could not perform.

The standard contract form which we use is the private sector form. It has in it the penalty clause of forfeiting whatever deposit you put forward. In real life, outside the Civil Service, there is also always the possibility of failure in property matters. That is provided for in the standard form.

Deputy B. O’Keeffe: It certainly seems OPW won the battle in this instance and lost the war.

Is Mr. Murphy happy with the performance of the agents? After all, their fees were £72,857. From the outside looking in, it seems we did not get good value for money on this deal, particularly since in seems apparent there were no discernible goods to be assigned. We went to court for £40,000 and it cost the State £60,000. In all honesty, the whole thing seems to be a total cock-up. To think we would go to court to recover £40,000 and, not having recovered it, cost the State £60,000. What research was carried out on this? Are we not again net losers in pursuance of the claim we have on these people? The preferential creditors are there and if the company were liquidated in the morning, it would cost the State a fortune and it would probably get nothing out of it.

Mr. Murphy: I must correct some of these figures. The actual estate agent’s costs on the centre block, 25-29 Merrion Street, was £20,000 not £72,000. The £40,000 to which the Deputy refers is the deposit which was put down and which we automatically held. The court judgments are for £104,000 more, with a right to re-enter for further losses.

Deputy B. O’Keeffe: We have not got a hope in hell of collecting it. The preferential creditors are in there. If it were liquidated in the morning, there is nothing for Mr. Murphy’s Office. The question which arises is whether in this episode it was ever worth pouring good money after bad.

Mr. Murphy: The actual amount of money which we have spend so far in pursuing the court orders and so on is very small. It is absolutely minimal. As I have said, we are keeping an eye on our costs from our end. We are not going to throw good after bad.

Deputy Finucane: Having reviewed the OPW’s 1993 and 1994 reports, I am extremely concerned with how the OPW conducts its business and this is evident from listening to the questions and responses. In the 1993 report, a lot of the Committee’s discussion focused on the Tuam sugar company premises. The OPW told the Committee at the time there would not be political interference in property. There was naked political interference at that time and I do not expect Mr. Murphy to comment on it.

However, it appears to me that this matter has become a saga. I hope when we review the OPW in the 1995 report, lessons will be learned from the handling of this and guidelines created. Various Deputies have focused on the estate agents and the benefit of the advice the OPW received. Did Mr. Murphy indicate the OPW had a list system for estate agents?

Mr. Murphy: That is correct.

Deputy Finucane: They take their place in a queue until their turn comes around. It would be far more meaningful to have proper tendering procedures for estate agents if the State is to get proper value for money. Not alone should there be tendering procedures, but there should also be support mechanisms in order to prevent long sagas like this one. There is nearly £500,000 involved here in the State preserving a property which it decided to sell it in 1989. There began a long saga and which was finalised in 1994.

Am I correct in saying the Duke of Wellington was the hero of the Battle of Waterloo?

Mr. Murphy: Yes.

Deputy Finucane: I think this particular saga was the OPW’s Waterloo. In March 1990, the State’s indication to OPW was not to sell No. 24 Merrion Street. I do not know the wisdom of the State’s advice because I would imagine any interested developer would not want the lot broken up in the centre with No. 24 unsold. What was going to happen to No. 24? Was it going to finish up as a derelict building in the middle of a nice structure with a “Duke of Wellington” plaque on the front? Who was going to buy the other premises? I do not know the content of the State’s advice and that of the Heritage Society’s at the time. I am glad the Government had the good sense in July 1991 to decide to proceed in the sale of all the properties.

Is this the property which Hastings, the hotel developers, are developing?

Mr. Murphy: It is.

Deputy Finucane: Is he developing all of the property?

Mr. Murphy: He is developing it all, together with the land behind it.

Deputy Finucane: Will the OPW introduce a tendering procedure in future when it is involved in property of that size? It is a big daunting assignment, even for OPW.

Mr. Murphy: I take that point. In the system which exists at present, we do not pay the full scale fees; we negotiate down. We don’t always simply go to our list. We might go to a number of agents.

The Deputy is quite right. It is not a formal tendering procedure. It is a point which I take on board.

Mr. Purcell: As I understand it, six auctioneers were invited to present proposals for the sale of the houses. They each presented proposals, one was recommended and one was chosen. As I understand it, this particular case didn’t strictly go by the rota system. Perhaps the Accounting Officer has further information on that.

Mr. Murphy: What the Deputy was mentioning, I took that to be tendering on actual price. The Comptroller and Auditor General is quite right. In using our list, we would look at more than one agent, their track records and what proposals they might make for a particular property. At that point, we would not look at the price. We would negotiate the price with the chosen agent. That is our traditional method but I must say I would have no problem with taking the tendering route.

Chairman: While the sale of these buildings turned into a long drawn out process, it must be said the OPW does not appear to have been responsible for the delays and problems which arose. The Committee notes paragraph 27. Is that agreed? AGREED.

Deputy Doherty: Some of OPW’s responsibilities have been transferred to the Department of Arts, Culture and the Gaeltacht. Can Mr. Murphy outline these responsibilities?

Mr. Murphy: The responsibilities which are moving are those of the Heritage service. That includes parks, monuments and wildlife. Then there is the question of the waterways section about which the proposal to have an inland waterways authority has been current for some time.

Deputy Doherty: In effect, a major part of what was the traditional responsibility of OPW is to be under the control of another Department.

Mr. Murphy: An important part of the OPW is moving. The success of the OPW in the heritage area makes people think the OPW is moving. Heritage constitutes about 10 per cent of the OPW’s activities. In staff terms the proportion is some what higher because the heritage service staff are the heritage service whereas on the works, property and procurement side we buy in services to a much greater extent. In the early 1970s there were only two people working on heritage matters. What people see as the heritage portfolio now includes parks, monuments, wildlife, waterways which have all been assembled quite literally in the last ten years, many of them even within the last five. These include the Botanic Gardens and Kennedy Arboretum which are quite a recent addition to the Board. The Board was very successful and the new service is moving on to the Department of Arts, Culture and the Gaeltacht.

Deputy Doherty: Is it proposed that the waterways section will move as well?

Mr. Murphy: Yes. The Government’s intention is to look at the possibility of an Inland Waterways Authority, but the Minister for Arts, Culture and the Gaeltacht would have authority for it.

Deputy Doherty: In the context of its wildlife responsibilities, has the OPW purchased lands for wildlife or other purposes in different parts of the country and, if so, where?

Mr. Murphy: We have. It is a long list which I can supply to the Deputy.

Deputy Doherty: Has it purchased in County Roscommon?

Mr. Murphy: I will look at the list and let the Deputy know.

Deputy Doherty: What is the staff complement of the President’s household and what categories of staff are employed there?

Mr. Murphy: I have the 1993 figures but I do not think it has changed to any extent. There is a catering and services manager, a cook, an assistant cook and four household assistants. There are also three regular part - time workers and a variable grade of on-call workers which includes a cook and five other household assistants.

Deputy Doherty: Is there anybody to tend the gardens?

Mr. Murphy: No, that is done by the Phoenix Park staff.

Deputy Doherty: Is there staff other than what is included?

Mr. Murphy: That is the running staff. The OPW would look after the gardens and maintenance.

Deputy Doherty: Has there been any recent recruitment?

Mr. Murphy: I cannot tell the Deputy that straight off.

Deputy Doherty: There is an out turn of £270,000 and £282,000 for arterial drainage. In what connection were the arterial drainage surveys carried out?

Mr. Murphy: They are carried out mainly for hydrometric reasons, in other words, for river flows. These are ongoing surveys conducted by the Office of Public Works and the information is provided to local authorities, EPA and anyone else who wants it.

Deputy Doherty: I understand that the Department of Finance does not propose to allocate further funding for the completion of the Boyle river drainage. What amount of expenditure would be required to complete the scheme as initially proposed?

Mr. Murphy: In excess of £3 million would be required to complete the parts that are not finished.

Deputy Doherty: I understand that a lock has been developed between Acre’s Lake and Lough Allen in Country Leitrim. I am also led to believe that the lock is at such a level that it is impossible for boats to pass from one lake to the other.

Mr. Murphy: Boats can pass. What the Deputy might be referring to is something which disappointed me greatly. We did work on the Lough Allen end including providing moorings and reviving the old lock. The first summer we had these facilities was a fine summer, when people should be out boating on the lake. However, the drought in the area was such that the water level fell and the lock could not be used. Part of the complication is that the OPW is not statutorily in charge of the water level there. The ESB are in charge. We are arranging a management agreement with them so this will be avoided in the future and the facilities we have put in can be used.

Chairman: A total of £281,000 was paid in settlement of claims for personal injuries on State property. On what properties did the main injuries in this category occur and what steps, if any, have been taken to ensure that personal injuries claims are kept to a minimum?

Mr. Murphy: There was one particularly large personal injury claim which amounted to £125,000 and there was another costing £37,000. Those are two particularly sizeable claims. We have put in place the arrangements needed to keep personal injuries to an absolute minimum and eradicate them if we can. We also take part in a Public Sector Claims Liaison Committee that shares information on personal injury claims.

Chairman: Subhead J mentions an excess expenditure of £1.8 million. The excess was due mainly to costs associated with acquisition of Emo Court, the Phoenix Park World Cup football reception costs and the purchase of the Ormonde collection of paintings and tapestries. I am interested in the Phoenix Park. Was that in connection with scaffolding for the World Cup reception?

Mr. Murphy: That is right.

Chairman: It was an on and off situation. What did it actually cost?

Mr. Murphy: The scaffolding cost about £300,000. The total cost was around £0.5 million.

Chairman: Why is it shown under national monuments and historic properties?

Mr. Murphy: That is because it took place on one of the historic properties, the Phoenix Park.

Chairman: What was the cost of the paintings and tapestries for Kilkenny Castle?

Mr. Murphy: I do not have that figure with me but I will communicate it to you.

Chairman: What was the cost of the acquisition of Emo Court?

Mr. Murphy: It was £1 million. We were buying the furniture and certain elements of the court. The rest of the property came to us as a gift.

Chairman: I wish to refer back to the Phoenix Park reception after the World Cup. Was £500,000 the total cost?

Mr. Murphy: Yes.

Chairman: Seventy-three people received miscellaneous allowances to the value of £23,652. What are these allowances in respect of and how are they calculated?

Mr. Murphy: Part of these are merit pay. Many of them are standard allowances: the Private Secretary in the Minister’s office, higher duty allowances, IT allowances, a computer allowance, special duty allowances, unsocial hours for wildlife rangers and driving allowances. They are the standard Civil Service list.

Chairman: What was the top individual payment?

Mr. Murphy: The top individual payment on the special allowances would be the Private Secretary to the Minister and Private Secretary to Chairman. Then a former Private Secretary to the Minister.

Chairman: How much was the actual figure?

Mr. Murphy: The total amount between three people is £10,000. I do not have the breakdown as between individual payments.

Deputy Byrne: Mr. Murphy is aware that the House is currently debating a Bill relating to the child sex tourism industry to deal with people leaving the country, presumably paedophiles, to go to the Middle East, Thailand and further afield. We wish to prosecute these people when they return. Given your Department’s involvement in the wildlife area, we also understand that people come from England in organised groups blatantly bringing their hunting dogs to indulge in another obscene form of entertainment or sport called badger baiting. You are also aware that the Wicklow Mountains are home to a number of important herds of deer and you might be aware that a great deal of poaching and illegal killing of deer is taking place. What is your Department doing, while it retains control over the parks and wildlife section, to stamp out the obscenity of badger baiting as an organised recreational sport for people coming from England and Northern Ireland to this country and vice versa?

Mr. Murphy: The responsibility for that lies with the Department of Justice. As I understand it, that Department has responsibility for shooting, fowling and so forth. We give licences for badger eradication in certain areas because of TB problems. However, that is a separate matter. You are talking about “sport”.

Deputy Byrne: Do you not engage the services of wildlife wardens in the mountains?

Mr. Murphy: We have wardens and they report to us.

Deputy Byrne: You would then know what a badger set looks like and you would know the configuration of the landscape and so forth. Presumably you have wardens whose job is to protect the wildlife?

Mr. Murphy: Yes.

Deputy Byrne: It is nothing to do with Justice; it is your Department.

Mr. Murphy: Yes. We have wildlife rangers and we manage to keep tabs on what you are saying. We also would investigate where there were any problems. However, the final actions required to prosecute people would be a matter for the Department of Justice through the Garda Síochána.

Deputy Byrne: Concerned individuals and voluntary agencies - for example, anti-bloodsport agencies - have been particularly successful in infiltrating these badger baiting gangs. They have used video recording equipment to record the conversations of these groups. Can you give me words of encouragement about how successful your wardens have been in having people engaged in this obscenity arrested? How many poachers in the Slieve Bloom or Wicklow Mountains have been before the courts as a result of the activities of your wardens?

Mr. Murphy: I do not have that information here but I will find out what the score is for you.

Deputy Byrne: At what stage will the parks and wildlife section be moved from your Department?

Mr. Murphy: The administrative arrangements are to be reported on by the end of next month. I presume that decisions will be taken quickly after that.

Deputy Byrne: Given that it is well known that people come here for holidays and indulge in badger baiting, have your rangers the necessary equipment to deter this type of activity? How safe are the badger sets?

Mr. Murphy: I cannot give you details on what the rangers can do. They are equipped; they have their cars, radios and so forth. However, there is not much they can physically do to protect a badger set. They can note it, mind it and report to the gardaí if there are any problems with it but there is not much more they can do.

Deputy Byrne: With regard to subhead D, purchasing of sites and buildings, there was recent controversy over the purchase of a well-known garden, the Shackleton garden. Are you disappointed that the State did not acquire these famous gardens?

Mr. Murphy: The policy on that is for the Department of Arts, Culture and the Gaeltacht. I ask the Deputy to address that Department.

Deputy Byrne: As has been pointed out, all politics are local. You spend a great deal of money on conservation works, national monuments and historic properties. You spent about £10 million on Dublin Castle last year. Have you heard of Drimnagh Castle?

Mr. Murphy: We have.

Deputy Byrne: Are you aware of the voluntary work that has gone into the restoration of that castle?

Mr. Murphy: Yes, I know about it.

Deputy Byrne: Would it be of interest to you to know that the castle has been refurbished to an extremely high level in a voluntary capacity and that the committee running it would like further assistance to make it attractive to the corporate sector to use it for corporate purposes? However, it lacks funds to install toilets. Would your Department have a role to play in providing some money to assist this group in its excellent work?

Mr. Murphy: The policy on that is a matter for the Department of Arts, Culture and the Gaeltacht. I understand the Heritage Council had some part in it. However, we are more than willing to give them whatever advice and encouragement they need. All they need do is get in touch with me.

Deputy Byrne: Could you give me an update on the plans to extend the Zoo and what stage they are at? There is a subvention of £620,000. Is it losing that much money?

Mr. Murphy: It is losing money still. The numbers visiting this year, unfortunately, were down. However, numbers visiting monuments of all types - parks and so forth - are also down. The fine summer resulted in people going to beaches and not to the Zoo and other attractions.

With regard to the Zoo, the capital programme has started. A sum of £1 million was spent this current year on it and there are plans to continue with the capital programme that was announced by Government last year. The radical change in the Zoo is that the staff numbers have been rationalised. Virtually half the Zoo staff have taken a voluntary redundancy package so it is now running on a very lean basis. We hope with the investment of the capital money and the reduced staff that we will have a profit making Zoo in a very short time.

Deputy Broughan: Is Deputy Trevor Sargent’s elephant better yet? Was there not a contretemps two years ago?

Mr. Murphy: I do not think Deputy Sargent’s elephant was ever sick. The reports of sick animals are greatly overrated.

Deputy Broughan: Did he not loose his trunk?

Deputy B. O’Keeffe: I am sure that when Deputy Byrne was talking about badger baiting you felt a fair amount of badger baiting was going on at this Committee and there was not much you could do about it. One matter intrigues me. Could you tell me something about the reference on page 124 to the famous silk hat and its presentation? What is its significance?

Mr. Murphy: What is so significant about the silk hat?

Deputy B. O’Keeffe: Is it valuable?

Mr. Murphy: It was the hat of an MP, Mr. Charles J. O’Connell, in the last century. I know nothing more about the hat except that it was offered to us and we accepted it. It will be on display in Killarney or Muckross.

Deputy B. O’Keeffe: Regarding Subhead E, almost £3.2 million was spent on the rationalisation of office accommodation. Will you define the term rationalisation for the Committee, given that it cost £3.2 million?

Mr. Murphy: One example that cost £1 million will give the Committee a flavour of it. We had a building, Baggot Bridge House, where civil servants worked. IBEC was looking for full new accommodation and it chose Baggot Street. We had a requirement to rationalise the Department of Transport, Energy and Communications and bring that Department into one central office to the extent that we could do so.

Confederation House, where IBEC was based previously, suited our book because it backed into other accommodation we had. In that rationalisation exercise we swapped buildings, Baggot Bridge House for Confederation House, and then fitted out Confederation House for the Department of Transport, Energy and Communications, giving the Minister closer access to the Dáil, better accommodation for his civil servants and better organised accommodation for the workings of his Department. That is the type of work we do under the rationalisation heading.

Deputy B. O’Keeffe: Is there any return to your Department? Having spent £3.2 million on the rationalisation, were there any benefits from sales?

Mr. Murphy: Absolutely. The sales in the last five years-----

Deputy B. O’Keeffe: In this rationalisation which cost £3.2 million, was there any return to your Department by way of sales?

Mr. Murphy: All these moves are links in the chain and I am trying to think what building fell off at the end of that one. I cannot tell the Deputy straight off but I can tell him that our sales in the last five years netted £7 million and we also surrendered leases with a capital valuation of around £30 million as a result of our rationalisations.

Deputy B. O’Keeffe: Perhaps you could have a look and supply material later which is relevant to that matter.

Mr. Murphy: Certainly.

Deputy B. O’Keeffe: Regarding the Templemore Garda station, £1.2 million was spent in 1994 and £1.5 million was spent in 1992, giving a total of £2.7 million. Does this mean all the works are complete in Templemore? Could you indicate the approximate value of that property?

Mr. Murphy: The two figures picked out by the Deputy are the last expenditures on the Templemore project which involved £16 million. The work that was done and the figures the Deputy mentioned involve the sports and recreational facilities. We managed, through good management of the contract, to get sufficient savings to do the sports facilities which were not included in the original £16 million package. I thought we had reached the end of the Templemore project but I understand Garda policy on additional training may well involve us in putting in a further dormitory block there.

Deputy B. O’Keeffe: Is there any opportunity for the public to avail of the facilities provided in Templemore?

Mr. Murphy: We discussed this with the management there when we did the first project. The idea was that it would happen. There were certain things such as a cycling race when the racers were housed there and used the facilities. However, Garda training has increased to such an extent that the management has not found it possible to fit in more of these public businesses. However, they rent out - I am not sure whether people pay money or whether it is free - but they allow the Templemore schools to use the Garda swimming pool and sports facilities.

Deputy B. O’Keeffe: Is any income generated?

Mr. Murphy: I am not sure.

Deputy B. O’Keeffe: A matter intrigues me under miscellaneous items. A sum of £46,201 was paid in settlement of claims for loss of or damage to personal property arising from the activities of this office.

Mr. Murphy: To give the Deputy an example of the type of thing involved, a television camera was lost overboard from a boat while on the River Barrow for which we hold responsibility. That is the type of loss involved.

Deputy B. O’Keeffe: A camera?

Mr. Murphy: A television camera. They had permission from us to film. This is how we came to be caught for the loss. My notes state it was our boat and our river and the camera was lost overboard.

Deputy B. O’Keeffe: What about the film?

Mr. Murphy: The film was for us also.

Deputy B. O’Keeffe: In the interest of detail, will you provide the Committee with a detailed breakdown at a later stage of the £46,000 sum to see what other items were involved?

Mr. Murphy: Certainly.

Deputy B. O’Keeffe: A sum of £150,000 was paid to a company for loss in value of property in compensation related to a work site. There was a legal cost of almost £21,000 paid in this case also. To what did this refer?

Mr. Murphy: While I am searching for that element, may I tell the Chairman in response to his question earlier that the Ormonde paintings in Kilkenny Castle cost £250,000. We are having trouble locating the information sought by Deputy O’Keeffe.

Deputy B. O’Keeffe: In that case, I have another question which relates to the reception in the Phoenix Park. It seems extraordinary that the cost of a reception would be included under the national monuments heading. Regarding your position as the Accounting Officer, did you seek a budget or was a budget fixed for that event? It seems quite extraordinary, if it was decided to hold a reception - that is fair enough - that as Accounting Officer the question would not arise as to what budget was being allocated? It seems a decision was taken to hold the event but no budget was put in place or control of costs and suddenly, as a result, we are faced with having a special allocation made to the Department arising from it. Were you perturbed about this situation?

Mr. Murphy: What perturbs me about this situation is that I do not get an allocation for it. In fact, we have to work within the Vote as we have it. There is no budget line made for us. We have to work from the Vote subhead. The Department of Finance is never so generous as to give us a special allowance for it. As it has to come out of money that is already there for other reasons, we are very conscious of cost control in these cases. This outing was a special case. The Deputy will recall it was on, then off and then on again. It was difficult enough to hold onto costs, but we did our best in difficult circumstances.

Deputy Broughan: Most of us were unhappy that the Republic of Ireland team was not received in the normal way in Dublin City centre by Dublin City Council, as happened on the previous occasion. The organisation of the reception was a disaster. It was a political decision, was it not?

Mr. Murphy: It was.

Deputy Broughan: Made by the Taoiseach of the day. You fulfilled the decision.

Mr. Murphy: Yes.

Deputy Broughan: However, if the reception had been similar to the previous one, it would hardly have cost the OPW anything. Is that correct?

Mr. Murphy: We would not have been involved at all.

Deputy Broughan: When the huge crowd turned out in Dublin after the European Championships there was no cost to the State.

Mr. Murphy: No cost whatever.

Deputy Broughan: From every point of view, therefore, it appears to have been a disastrous decision by the then Taoiseach. With regard to the Meteorological Office in Glasnevin, have the problems identified in previous reports of the C&AG regarding the disastrous mistakes in the planning and architecture of the building been fully remedied?

Mr. Murphy: They have been fully remedied within the costs we set down, and the contract has been completed.

Deputy Broughan: So the recladding has been fixed and so on?

Mr. Murphy: Yes.

Deputy Broughan: Regarding Subhead F.3, the savings of approximately £1.3 million arose from lower payments on decentralisation projects due to lower interest rates, favourable rent reviews and the surrender of some premises. Does this involve any of the relocations to the Tuam office, which my colleague, Deputy Finucane, raised earlier?

Mr. Murphy: No. There is no connection.

Deputy Broughan: On foot of our last meeting with you, has there been any attempt to recover the moneys which were lost? I know you and your colleagues maintain that these were notional moneys, but it appeared to us at the time that they were real costs to the State. As your Office advised, the decision by the then Minister, Deputy Noel Treacy, led to us losing approximately £300,000 in relation to decentralisation to Tuam. Have you done anything to attempt to recover this?

Mr. Murphy: I would not regard these as being losses. They arose on the Valuation Office Vote. From the OPW point of view we certainly lost nothing on the Tuam business. The losses are notional. Without going back over the saga, the staff involved were still working and these were staff salaries that, notionally, could have been put to better use. However, they were working in the way they had been working for many years previously, and there was no change in their situation.

Deputy Broughan: Were they not commuting over many miles?

Mr. Murphy: They are still doing so.

Deputy Broughan: Is this not an unsatisfactory situation?

Mr. Murphy: I do not know if there are any Dublin people in the Tuam office, but people who have moved from other parts of the country to our decentralised centres do not appear to have any hesitation in living 30 minutes drive from the centre. They do not regard it as onerous. The important thing is that they are at work at the time specified.

Deputy Broughan: Was it not a fact that, however you regard it, there were additional costs which effectively resulted from a personal decision of the then Minister, Deputy Noel Treacy in the dying days of the first Government headed by Deputy Reynolds as Taoiseach?

Mr. Murphy: There were no additional costs to the Vote of the OPW. There was no cash lost by the OPW.

Deputy Broughan: However, the Valuation and Ordnance Survey effectively lost money. Is this not correct?

Mr. Murphy: They claimed that they could have earned more. According to them, this was their loss.

Deputy Broughan: When we investigated this last year, it was apparent that a political decision had consistently overturned your professional decision. What can you say to this? I am aware that we do not have compellability of witnesses legislation.

Chairman: We have already addressed this matter in detail.

Deputy Broughan: Year after year mistakes are made. We do not have a process to have, for example, former Minister, Deputy Noel Treacy, attend the Committee and answer questions on the matter. We have a discussion, say that the matter could have been handled better and that we have learnt for the future, as was said, for example, on the sale of the buildings in Merrion Street. However, we do not have any accountability.

After nearly three years as a member of the Committee, we must start having accountability. I know our officials were not responsible, because they said they were not, nevertheless, we must be able to deal with political accountability involving a Minister when he deliberately overturns a decision of officials. The Committee must be accountable to Dáil Éireann. This is our function, and there is a case to be made- - - - -

Chairman: We have already dealt with this matter.

Deputy Broughan: We are dealing with Subhead F.3, on decentralisation projects. When we dealt with the Ordnance Survey, we said it was a matter for the OPW, but now that we are dealing with the OPW, it is a matter for Ordnance Survey. I am aware that a political decision was taken, but there would appear to have been a significant loss to the State not too many months ago and we do not appear to have any way in which to recover the situation arising from a bad decision. What is a Committee on Public Accounts for, other than to pursue issues where public money has been lost and to wherever it may lead?

Chairman: Under the heading, there is a saving of £1.2 million.

Deputy Broughan: That is so because we were put into a hole in Tuam against our will, and the OPW and the Ordnance Survey effectively dug us out of it. In the dying days of a discredited Government, decisions were made against the decisions of officials, as they told us on the last occasion, yet we apparently have no method by which we may recover the situation.

Chairman: The Committee will report on this to the Dáil and it will be for the Minister to decide what action to take.

Deputy Broughan: Can we ask the former Minister, Deputy Noel Treacy either to report to the Committee or to report on it when the findings are sent to the Dáil?

Chairman: Our report will be submitted to the Dáil.

Deputy Broughan: This is the twenty seventh Dáil. We are supposed to be introducing new measures of accountability. This is a clear example where a former Minister should be called to account for a decision, which officials say was his decision, given that we have no mechanism to account for it.

Chairman: The Accounting Officer has advised that there were no losses.

Deputy Broughan: I disagree. It is apparent from our last investigation that there were losses.

Chairman: The report will be issued and the matter can then be dealt with.

Deputy Byrne: Having spent £500,000 on the reception of the Republic of Ireland soccer team, do you envisage, Mr. Murphy, spending £500,000 for a similar reception in the near future?

Mr. Murphy: We will have to open a book on this.

Deputy Byrne: I wish to congratulate whoever it is that is responsible for these apparent financial rewards in recognition of their exceptional performance. What type of exceptional performances were made by officers that merited these rewards? What kind of a jury selects these people?

Mr. Murphy: The awards themselves are part of the administrative budget arrangement. Part of this allows for merit pay. In the future we will have a very transparent version of it. In the past people who had done particularly good work were singled out. If any work was worth an award, the work of Ms Mary McKenna, the architect for the Céide fields project, certainly was. An accountant, Mr. Donal Wickham, carried out a large computerisation of the Government Supplies Agency and he was given an award. Ms Orla O’Gorman, who worked in our personnel section, did trojan work in defending personal injury claims, for which she received an award.

Deputy Byrne: Are such awards unique to your office?

Mr. Murphy: Not at all.

Deputy Byrne: Does this system operate throughout the public sector?

Mr. Murphy: Yes.

Deputy Byrne: I had not heard of this before. It should be put on record that the Committee of Public Accounts likes to applaud people who do a good job because it is easy for us to attack public servants who we perceive as not doing a good job.

Mr. Murphy: Thank you.

Deputy Byrne: With regard to Dublin Castle and catering, are we saving £36,000?

Mr. Murphy: No, that is a misprint. It is not the catering but the shop which has gone to franchise. Catering has always been franchised. It is the shop on which we are saving money.

Deputy Byrne: Is the principle the same? Now that we have franchised out the shop to a concessionary, are we saving £36,000?

Mr. Murphy: Yes.

Deputy Byrne: Did it take time for this lesson to be learned?

Mr. Murphy: No. We are all the time moving towards this. The work of the OPW is very much analogous to private sector activities and we always have to measure whether any work we do is better or worse done by ourselves or the private sector. It is purely a matter of costs.

Deputy Byrne: It is a major disappointment that the OPW could not compete with the private sector. The shop is saving £36,000, which is a phenomenal sum. Why was it so costly for OPW staff to run the shop?

Mr. Murphy: We had staff in the shop who were full time and on full civil service rates. It is easier for an owner/user of a shop to apportion costs and pay us money for the concession.

Deputy Byrne: You managed to save money under Subhead I because of the delay in placing a contract for Kilmainham Gaol. What consultation with the public was necessary in this instance, has this consultation taken place and have the works commenced? What was the advantage to the Office of having consultation with the public?

Mr. Murphy: The works are finished and there will be a formal opening of the new facility next March. The consultation involved various historic groups, one of which is the Kilmainham Gaol Visitor Committee. These are people who have been very involved with this jail since 1960 and it was essential to consult with them at least.

Deputy Broughan: Why do you not yet have a computerised accounting system and why is there not a full valuation of capital assets?

Mr. Murphy: We have a fully computerised accounting system. We are working on a full tracking and billing system. Improvements are continually being made to computerised accounting systems. The system we have was state of the art some years ago. There are better facilities available now and we are working on them. This is an ongoing process.

Deputy Broughan: If we move to accrual national accounting, would you have a full statement of the capital assets you hold?

Mr. Murphy: We have asked the Valuation Office to carry out a full assessment of capital asset values.

Deputy Broughan: Of the £140 million net budget for the OPW, how much of this went to subcontractors?

Mr. Murphy: We do virtually no contracting work. All our building work goes outside the Office, as well as a high proportion of architectural, engineering and other work.

Deputy Broughan: You are talking about a very significant proportion of your budget.

Mr. Murphy: Yes, a very significant portion. Most work goes outside the Office. We do not provide services from within our own staff but buy them in.

Deputy Broughan: That would not have been the case some years ago. You have moved gradually towards this situation.

Mr. Murphy: This has been the case for more than 20 years. There are still some areas where we have direct labour but these are tiny and do not signify in the totality of the Vote. Even in these areas we will look at further franchises.

Deputy Broughan: Do you use the tendering system all the time or do you have a rota system?

Mr. Murphy: There is full tendering.

Deputy Broughan: On every job?

Mr. Murphy: Absolutely.

Chairman: Is Vote 10 agreed? AGREED. Thank you Mr. Murphy.

The Witness withdrew.

THE COMMITTEE ADJOURNED.

AN COISTE UM CHUNTAIS PHOIBLí

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 23 Samhain 1995

Thursday 23 November 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. Joseph Meade, Director of Audit, Office of the Comptroller & Auditor General, called and examined.

Mr. Niall McSweeney and Mr. Robert Bradshaw, Dept. of Finance representatives in attendance.

APPROPRIATION ACCOUNTS 1994

VOTE 38 - FOREIGN AFFAIRS & VOTE 39 INTERNATIONAL CO-OPERATION

Mr. Pádraic McKernan, Secretary, Dept. of Foreign Affairs, called and examined.

Chairman: The letter before Members is a reply from the Department of Foreign Affairs to a query. The last paragraph covers the issue concerned.

Deputy B. O’Keeffe: This is a serious issue because when we sought the list of passengers from the Department of Defence, it referred us to the Department of Foreign Affairs. Now the Department of Foreign Affairs informs us that it cannot supply us with the list of passengers and it refers us to the appropriate section in the Department of Defence.

The Taoiseach’s office has been contacted about this also — his office approves use of the Government jet and Air Corps flights. That was referred on to the Department of Defence. We seem to be going in a never ending circle, unable to ascertain the information this Committee sought. Surely that is inappropriate — has the time come when straight questions must be asked? This information must be available to the Air Corps for insurance purposes. If the Department of Foreign Affairs is using the flights, would it not have a list of passengers, as would the Department of Defence, for insurance purposes? Is a certain amount of hedging going on between both Departments?

Chairman: The letter from the Secretary of the Department states that he has discussed the Committee’s request with the Tánaiste, who has indicated that he would welcome the opportunity to answer in full any question which any Member of the Committee may table in the Dáil in relation to his official use of Air Corps aircraft.

Deputy Finucane: As I said at a previous meeting I regret the emphasis placed by this Committee on the flights of the Tánaiste in 1993 and 1994. Much of the attention has focused on the Tánaiste and if one is talking about passenger lists, it is wrong to concentrate specifically on him. Given that the Minister for Defence took 86 flights in those two years, one should also ask who the passengers were on those flights. Regrettably, this has dragged on to such an extent that I would like it brought to an end. I do not think it is necessary to continue a witch hunt on the travels of one Minister. If we are to be fair as a Committee we should follow this logic and consider everyone who travelled on these flights.

Deputy Byrne: I would also like to see the end of this issue because there are far more important ones we could deal with. It reminds me of The Valley of the Squinting Windows — who is the Tánaiste carrying on his aeroplane, are they girlfriends, boyfriends, clerics or enemies? This is a heap of rubbish. However, if the information is available and the Tánaiste is prepared to issue it, it should be given through the Committee as the matter was raised here, so that it can be taken off the agenda once and for all.

Deputy Doherty: I do not wish to be involved in any witch hunt and I do not like to think that Members would put their priorities into that area, because it would be a dangerous precedent, bad practice and wrong. As the last Deputy said, the question has been put already and the controversy, if any, surrounding it should not be heightened by a suggestion that less than the required amount of information is being made available. If clarification is required or questions are unanswered, let that be known. I have no interest other than letting the question be answered once it has been put. Let us not appear, either in here or to the public, as persons who in certain areas find answers impossible whereas in other areas they come readily. The suspicion which may attach to our proceedings in circumstances where matters are done properly creates greater difficulty than we might appreciate at this time. I would like the matter cleared up by the questions being answered so we would not be seen to be going in hot pursuit of anyone.

Chairman: I take the points made by Deputy O’Keeffe, Deputy Finucane, Deputy Byrne and Deputy Doherty and refer again to the last paragraph of the letter from the Accounting Officer, stating that he has discussed the Committee’s request with the Tánaiste, who has indicated that he would welcome the opportunity to answer in full any question which any Member of the Committee may table in the Dáil in relation to his official use of Air Corps aircraft. I close the matter at that.

Deputy B. O’Keeffe: I cannot accept that. There is a principle involved in that we cannot get information from two Departments-----

Chairman: That is not the point-----

Deputy B. O’Keeffe: ----- who have responsibility for this.

Chairman: That position has to be clarified.

Deputy B. O’Keeffe: In effect this Committee is being denied information that it has requested.

Chairman: No, in fairness to the Tánaiste-----

Deputy Broughan: If I may intervene, last week I dismissed this constant rigmarole about the use of aircraft by the Tánaiste as “gobshite politics”. We have another example of it here this morning. We require a Minister to carry out his designated duties in an effective manner; in the Department of Foreign Affairs that involves wide travel in the European Union and on other international business. I do not think it is required that one travels up and down Ireland for eight, 16 or 20 hours. That is the basic issue and again we have had this nonsensical ráiméis issue raised at this Committee.

Only last week a serious mistake was made by a former Fianna Fáil Minister, when no one was anxious to investigate the disappearance of up to £400,000 in public money through a significant political error in the OPW. Yet we have to put up with this week after week when we saw last week that the aircraft was used by many different Departments and was used for Government business. We have wasted a lot of time on this issue when we could be profitably exploring major issues of inefficiency throughout the public service. Either we have a Department of Foreign Affairs or we do not; and if we have one — which was administered by a former Fianna Fáil leader for 15 years of this State’s history — we need basic arrangements for the person carrying out the office.

Chairman: I am closing the discussion now. Each side has contributed and I have ruled on it.

Deputy B. O’Keeffe: Deputy Broughan has spoken about “gobshite politics”. That is not what is involved here — information was sought and two relevant Departments are failing to give it. That is the principle before the Committee — one says the other has the information and between them they are not giving it.

Deputy Broughan: Between Deputy O’Keeffe, Deputy Ellis and Deputy Doherty, why are we spending time on this-----

Deputy Doherty: I was not involved. I stated at the outset that I was not engaged in any witch hunt or hot pursuit. I was very fair about the matter and to associate me with the specialised politics Deputy Broughan has described is most unfair.

Deputy Broughan: I withdraw those remarks about Deputy Doherty.

Chairman: The matter is finished.

Deputy B. O’Keeffe: None of the other Deputies here will accept that from Deputy Broughan either. We are not involved in a witch hunt, we want to elicit information, which we think is the right of this Committee. The Committee decided to look for this information, it was sought and it has not been given. There is a principle involved and that is why I raise the issue — we cannot get the information from two relevant Departments who have the responsibility and authority to give it to us.

Chairman: You are welcome Mr. McKernan; I understand it is your first time before us. I ask you to introduce your officials.

Mr. McKernan: With me are Ms Mary Whelan, the Assistant Secretary in charge of administration; Ms Margaret Hennessy, the Assistant Secretary in charge of the Development Co-operation Division; Mr. Gary Ansbro, who is the Finance Officer; Mr. Martin Greene, the accountant in ODI; Ms Joyce Duffy, who is his assistant; the accountant from the general Department Accounting Branch; and two officials from the Department of Finance.

Chairman: Paragraph 50 of the Report of the Comptroller and Auditor General reads:

Exchequer Extra Receipts

Misappropriation of

Visa Application Fees

50.Certain foreign nationals require a visa before entering the State. The system of visa applications is administered by the Consular Section of the Department of Foreign Affairs. Each application must be accompanied by the appropriate fee before it is processed. Receipts are paid over as Exchequer Extra Receipts and the amount collected in 1994 was £266,838.

In September 1994, misappropriations amounting to £685 were detected at the Passport Office in Dublin. Passport fees submitted in cash with postal applications in the period February to September 1994 were misappropriated. A member of the staff in admitting to these misappropriations also revealed that he had misappropriated visa application fees on a number of occasions in the period 1989 to 1994 while he had been working in the Consular Section of the Department. A Departmental investigation established that visa fees totalling £6,933 had been misappropriated. As it appeared that this irregularity would not have been discovered without the voluntary admission I sought the views of the Accounting Officer.

He informed me that he fully accepted that an inadequacy of control systems within Consular Section led to the misappropriation of funds over a five year period. He explained that the officer involved was one of two Visa Officers who took in application fees directly from the public. The practice was that particulars of applications, including the fees received, were entered in a computer and the money on hands at the end of each day was checked by a supervisor against print-outs of the computer entries. This system allowed the officer not to record some applications on the days they were received, to keep the corresponding fees for himself and to make the computer entries a day or more later by using reference numbers out of sequence or, in a few instances, fictitious numbers. After the daily reconciliation of print-outs and receipts, there was no further check of computer records of applications and fees received as such checks were not considered necessary. He explained that receipts for payments were not being issued and the supervising staff were not as conscious as the officer concerned of the vulnerability of the computer system to abuse resulting in the failure to prevent the irregularity.

The Accounting Officer stated that a very thorough review of all money handling procedures in the Consular Section was carried out when the misappropriations came to light which was supplemented by a review by the Department’s own Inspection Unit in February 1995. The weaknesses mentioned as well as others which were discovered have been or are in the process of being corrected. In addition, work is almost completed on designing new computer software which will make it impossible to make visa application entries after the dates to which they relate and which will have many other in-built safeguards. The Accounting Officer expected that the new computer system would be put into operation by September 1995 but in the meantime there is very close supervision and checking of the handling of visa application fees and he is satisfied no misappropriation is possible at present.

The Accounting Officer informed me that the officer was suspended in September 1994 and in May 1995 he was informed of the intention to seek his dismissal. The Department envisages that the salary which the officer has forgone up to the time of his dismissal will be offset against the moneys owed to the Department and a direct refund will be sought for any outstanding balance.

Finally, the Accounting Officer assured me that he was confident that the internal controls now in operation would prevent errors and irregularities and ensure the timely detection of any that may occur within the Department.

Mr. Meade: This paragraph refers to two separate frauds perpetrated by a member of staff in the Department of Foreign Affairs. The first was in the passport office and involved pocketing cash received with applications for passports. As a result of complaints from applicants about the non-receipt of passports the Department discovered the source of the problem. In admitting to the fraud, the officer concerned also made a voluntary admission that he had misappropriated visa application fees during his previous assignment in the consular section during the period 1989-94. This was a more substantial fraud of £6,933 as against £685 in the Passport Office.

It emerged from the subsequent investigation that the system for processing receipts for visa applications in the consular section was open to abuse. As you will see from the paragraph, the Accounting Officer has since taken corrective action. With regard to the Passport Office, to be fair to everybody, it would have been fairly difficult to prevent the misappropriation which was fairly crude and was bound to be detected before long. The officer in question has since resigned but, to the best of my knowledge, the sum misappropriated has not yet been fully recovered.

Chairman: What progress have you made in recovering the money and how has it been recovered?

Mr. McKernan: A certain amount was recovered during the period of the officer’s suspension when his pay was attached. Subsequently, as a result of an appeal regarding his particular family predicament, he was restored to half pay and half of his pay was retained so as to make up the amount of money he had misappropriated. He has resigned, rather than be dismissed, and he is currently in employment. He has been in contact with the Department of Foreign Affairs and has been interviewed with a view to establishing a schedule of repayment so that all the money he took will be restored. The sum which remains is £2,820. Those are the steps which have been taken to ensure that restitution is made.

Chairman: On what basis did the Department investigation decide that a total of £6,933 had been misappropriated and why was this not detected earlier?

Mr. McKernan: As you have just been told, the misappropriation fell into two parts. The discovery was initially made because of thefts of cash accompanying passport applications received in the post - a fairly crude theft, as has been remarked. Incidentally, the fact that this particular theft came to light was a consequence of the system which is in operation in the Passport Office. The person in question was taking cash and then replacing it with cheques from other applications. Inevitably, members of the public complained that they had not received their passports and that their cheques had been cashed. When an investigation took place the theft was discovered.

In admitting his culpability, the officer concerned also pointed to the fact that over a period of time when he was working in the consular section he had misappropriated visa fees. In that case, the subsequent investigation looked into the system of control in operation in the visa section of the consular section and discovered certain weaknesses there. The most significant weakness was the fact that it was possible for someone who was clever and dishonest enough to make retrospective entries on the computer so as to create the impression that the service which had been dispensed had been properly paid for. There was a pretty thorough investigation of all the information available on computer, and otherwise, and the total disclosed was £6,932. I understand that this was the result of the most exhaustive investigation which could be undertaken. It also relates to the period of time which the officer was working in that section.

Chairman: Has the new computer system been implemented yet and what will be its benefits?

Mr. McKernan: I am glad to say that is has been. I visited the consular section the other day to see how the system operates. A series of checks are involved. First, there is a system whereby all cash receipts are placed in a register and recorded and the individual seeking the service concerned is given a receipt. Subsequently, each application is entered into the computer but the software is organised in such a way that it is impossible for someone to make a fictitious entry the next day. In other words, the entire operation has to be recorded in the cash register and on the computer so that each day a complete record of that day’s transactions and the receipts issued in respect of them is available.

There are also other controls which relate to access to other valuable goods such as visa stickers. These are kept in a safe to which only certain persons have access and there is both a key and a decoding system to prevent unauthorised access. There is a pretty thorough system in operation. The current system in the Passport Office is that those accepting applications from people who apply in person do not handle the cash which is given separately to a cashier who registers it and issues a receipt to the applicant.

In sum, the checks in the Passport Office and the Consular Services Office combine physical and computer controls. It would be virtually impossible to defeat those checks but, as has been said, if somebody is unwise enough to steal money and put it in his pocket that would be discovered pretty quickly. This usually happens where money is sent through the post - despite our advice to the contrary, members of the public are still inclined to send cash through the post.

One of the features of the passport case was that there was severe overcrowding in the Passport Office which meant that the space available for supervision was limited. As a result of improvements, such as the redeployment of staff, the opening of a passport office in Cork and the use of An Post in a very efficient manner, the pressure on the Passport Office has been lessened and we have more space and a more thorough and consistent system of supervision.

Deputy Broughan: Why did you not send a file on this to the DPP? Why was this not officially prosecuted? The sum in question was £7,000 of public money and many of our constituents who stole far less were given substantial jail sentences.

Mr. McKernan: I came to this case when it was fairly mature; in saying that, I am not implying any criticism of my predecessors or the management of my Department. However, I think that the explanation is that the individual concerned has a gambling addiction and he was very co-operative in the investigation, thus enabling us to identify fairly rapidly the amount of money involved. We still have the option of prosecuting. However, because of his particular circumstances, the fact that he was taking treatment and representations were made on his behalf, it was decided to proceed with his dismissal. However, before the dismissal took place, during the period when he had the right to have his case examined - every civil servant has that right - he did, in fact, resign. It is possible to proceed with a prosecution. We anticipate, as has been stated, that we will recover the funds that have been misappropriated. Therefore, prosecution might achieve retribution and punishment - perhaps exemplary punishment. In terms of those who work in the Passport Office, I think the fact that the person has lost his job and career in the Civil Service is example enough.

Deputy Broughan: As public representatives, Members sometimes feel that such decisions should be made by a judge at the end of a case.

Mr. McKernan: Of course that is so. There have been cases, as we know, in which persons have been prosecuted. In one set of cases I read about earlier this year, a prison sentence was imposed on conviction. In another case where there was a conviction, a sentence was not imposed as I recall because the individual concerned is receiving treatment for a gambling addiction. It is a matter of judgment, deciding what is in the best interests of the individual Department, with regard to morale, etc. We discussed our approach to this with the Department of Finance and it was left to the management of my Department to decide how best to proceed. It is a question of judgment, of understanding and compassion and of practicality, in that we are getting the money back.

Deputy Broughan: I believe that this is the second successive year that problems have arisen with the accounting procedures in different sections of the Department of Foreign Affairs. A number of well publicised cases - I remember at least one - occurred a number of years ago. Mr. McKernan has informed the Committee that progress has been made - particularly though decentralisation to Cork and co-operation between An Post and the Passport Office which means that long queues on Molesworth Street are a thing of the past - but how can we be sure that this type of irregularity will not happen in the future?

Mr. McKernan: The answer is that there is no such thing as a future fact. It could happen again. It could happen that somebody would be unwise enough to steal cash from a postal envelope. However, this can be combated by a combination of prudence by the public with regard to what they put into the post - if they apply for a passport through ’swift post’, the financial transaction has already been completed - and the fact that, very quickly, if there is no fee accompanying a passport application, the passport cannot be issued because the computer will not proceed with that application. No fee, no foal in this case.

Deputy Broughan: With regard to the daily reconciliations carried out by the Department, would Mr. McKernan be aware of what is happening on a weekly or monthly basis?

Mr. McKernan: On a daily basis. All cash and cheques received are reconciled each day. The cheques are deposited in one part of the Central Bank and the cash in another. Reconciliation takes place every day.

Deputy B. O’Keeffe: With regard to the Department’s accounts for 1991, the Committee experienced major difficulties in relation to passport controls. A consideration of the Official Report for that time shows that the Committee of Public Accounts was assured that proper controls would be put in place. However, the controls seem to have failed again. Will Mr. McKernan assure the Committee that, three years hence, the controls now in place will be foolproof?

In relation to the passport control controversy which took place in 1991, money was received each day with passport applications. Was it not an automatic procedure to deposit money to the Department’s accounts? Did the person receiving the post not ensure that the money and applications were separated? Is it not very tawdry of Mr. McKernan’s Department not to have a very basic administrative procedure in place to eliminate the opportunity for misappropriation?

Mr. McKernan: I fully agree with the Deputy. If I could just go back over the case I have been describing, very quickly and briefly. First of all, I think I said at the outset, that it was the existence of the controls in the Passport Office which detected the fraud. The individual concerned had been stealing cash from envelopes. He had then been replacing the cash with cheques from other applications. That application would proceed because a fee was included. That passport would be issued. However, he held on to applications submitted with a cheque. There were 16 such applications. It was the checking system which discovered the fraud. What I said at the outset, what Deputy Broughan alluded to, is that checks can be put in place - they are present and monitoring - which will ensure, as far as is humanly possible, that people will not steal and get away with it. However, as far as systems are concerned, both on the consular side and the passport side, they are as foolproof as they can be. I am satisfied, having inspected them personally, had them explained to me and being aware that they were devised with the help of the Office of the Comptroller and Auditor General, that they are as good as one can get. I would not anticipate that the rather clever visa fraud, that was perpetrated in the consular section, which involved abuse of a computer system, could, in fact, occur again.

Deputy B. O’Keeffe: From reading the Report of the Comptroller and Auditor General, it appears that this irregularity would not have been discovered without the voluntary admission of the individual involved.

Mr. McKernan: That’s right.

Deputy B. O’Keeffe: Mr. McKernan stated that the checking system within his Department identified the fraud but the Report of the Comptroller and Auditor General states that only for-----

Mr. McKernan: With respect, I think the point is that the original theft in the case under discussion was discovered in the Passport Office. As a result, the individual concerned voluntarily confessed to other thefts which took place when he worked in a different section of the Department of Foreign Affairs.

Deputy B. O’Keeffe: On the consular side?

Mr. McKernan: Yes, the Consular Section. He was taking visa fees and making false entries to the computer system. That was a weakness in the system. That weakness has now been addressed in the way I have been describing.

Deputy B. O’Keeffe: Mr. McKernan mentioned that the individual in question had a gambling problem. Were officials of the Department aware of that problem before the fraud was discovered?

Mr. McKernan: I do not believe so. I was not serving in the Department at the time. I was in the United States and Brussels. However, I do not think so.

Deputy B. O’Keeffe: Did the individual’s resignation take place on the grounds of ill health?

Mr. McKernan: No. He resigned because it was made clear that his dismissal would be sought and the possibility existed that he might be prosecuted. However, he decided to go. He is receiving treatment for his gambling addiction and is co-operating with the Department in terms of making restitution. He has a new job and is paying the money back.

Deputy B. O’Keeffe: Does a timescale exist for the complete repayment of that money to the Department?

Mr. McKernan: Yes. We will try to establish a timescale so that he will pay a proportion of his salary back each month. What is being negotiated at the moment is how much he will be in a position to pay - £50, £100, whatever.

Deputy B. O’Keeffe: I would agree with the Department’s decision not to prosecute given the circumstances of the case. It was possibly the most humane way to deal with it. It is fair enough since the money will be returned.

Deputy Finucane: In order to help put this matter in perspective, how many passport applications were there in 1994? How many visa application forms were issued in the same year?

Mr. McKernan: I will have to ask for the figures but passport applications in total run into the hundreds of thousands. I understand there are about 250,000 passport applications per year.

Deputy Finucane: Is that in 1994?

Mr. McKernan: That is annually nowadays.

Deputy Finucane: What about visas?

Mr. McKernan: We don’t have precise figures with regard to the numbers of visas but the value, again, is about a £250,000. One must realise visas are issued not only in Ireland but in our embassies abroad to those nationals of other states who require them. We can in due course give the Committee the number.

Deputy Finucane: I am trying to get it into perspective because, while I appreciate they are issued abroad -----

Mr. McKernan: And at home.

Deputy Finucane: ----- and at home, the point is that that particular official would have only been dealing with the ones at home. Is that not true?

Mr. McKernan: He was dealing with passports.

Deputy Finucane: What about visas?

Mr. McKernan: Yes. He was dealing with visas as well.

Deputy Finucane: How many visas would be issued in Ireland?

Mr. McKernan: I don’t have those figures with me but in general there would be much fewer per day.

Deputy Finucane: Other Members have mentioned, and Mr. McKernan said, that it was the official who brought the fact that he had misappropriated visas to his attention.

Mr. McKernan: That is correct. Visa funds. Not the forms, the funds.

Deputy Finucane: In the context of the passports, Mr. McKernan was talking about less than £700. With regard to visas, he was talking about a lot more money. The visa misappropriation may never have been discovered within the Department because, as Mr. McKernan says, the computer system only came into effect afterwards. For a person who is reputed to have had a gambling problem at the time, what does Mr. McKernan think motivated the person to say he wanted to clear the whole decks?

Mr. McKernan: Who can know the exact psychology of the person concerned. The facts are a clue. First, the actual discovery, as I understand it from reading the history of the case, occurred when an investigation was made because of complaints from the public that people, who paid for passports with cheques, had not received their passports but their cheques had been cashed. The man concerned was on leave at the time. A search of his desk disclosed that he had retained a passport application. Word of mouth spread as these things do. Before he returned from leave he telephoned and told his supervisor what had happened. Subsequently, he admitted, when he was interviewed, what had happened when he was working in the consular section, which is in a different location.

That is what happened. He confessed, took treatment and is taking treatment and realised the enormity of the damage which he had done to himself, his career, the peril in which he had placed his family because he was in danger of losing his house by not being able to pay his mortgage and so on. Remorse, restitution and the development of a little cop-on are the three reasons.

Deputy Finucane: I agree with Deputy Batt O’Keeffe. For the amount involved and the sequence of events, the gambling problem and everything like that, there could probably be no greater punishment than if he lost his job in the Civil Service.

What is the overall level of staff in the Department of Foreign Affairs?

Mr. McKernan: If one counts everybody at home and abroad it is 967. That includes everybody: people employed in Dublin, abroad, locally recruited staff, etc.

Deputy Byrne: I would be more anxious that the Committee concerns itself with reassuring the public, for example, that there are not two forms of discipline, one in the public sector and the other in the private sector, rather than with the humanity or sadness of the case. I do not go along with the view that because a civil servant has an alcohol or drugs problem, for example, he should be treated in a different way to an employee in the private sector.

I think this man has been attended to with remarkable lenience and I want to tease out some of my reasons for feeling this way about it. For example, would Mr. McKernan agree that if this person were an employee of Dunnes Stores or a major employer in the private sector, management would have taken the soft line which the Department took because he was a civil servant?

Mr. McKernan: Since I haven’t worked in the private sector, I don’t know. I imagine that if one were to investigate the behaviour of the private sector, he or she might find in many areas occasions when it was judged in the interests of firm concerned, perhaps, better to proceed along the lines on which the management of the Department of Foreign Affairs proceeded.

- It is true that there are anomalies and that individuals who may have been found guilty when in relatively minor jobs in a shop, for example, are prosecuted but these are matters of opinion. I can only speak for the management of the Department of Foreign Affairs.

Deputy Byrne: Does Mr. McKernan agree that there should not be two formulas for disciplining staff who rob their employers?

Mr. McKernan: Of course, I agree with the Deputy.

Deputy Byrne: Would he like to see equity in justice too?

Mr. McKernan: There should not be two sets of standards. I agree completely with the Deputy but I am trying to point out that the decision to proceed along the lines which I have been describing arose not from any kind of automatic application of dismissal and prosecution by management but because of appeals to the Tánaiste and the Minister of State. It was they who, in conjunction with the Department and in a procedure with which we agreed fully, proceeded along the lines on which we are proceeding.

I agree fully with the Deputy that there should not be two standards. I also make the point that it may often be the case - and I am not saying this by way of argument - in other walks of life that white-collar criminals are treated with perhaps more indulgence than they might receive in the Civil Service.

Deputy Byrne: Would Mr. McKernan agree that being a civil servant was an advantage to this man since representations were made on his behalf? Does he agree that an employer would not be as responsive in the private sector?

Mr. McKernan: I don’t know the answer to that question. I simply don’t know. It is quite possible. As a public representative, perhaps the Deputy or others might have been asked from time to time to intervene on behalf of somebody in difficult circumstances who was in danger of dismissal from his job through dishonesty in a private firm in a small town. Who can say?

Deputy Byrne: Was it the Tánaiste who made the representations?

Mr. McKernan: No. Representations were made to the Tánaiste and the Minister of State. Consequently, the Department tried to see what could be done. However, nothing could be done in the sense of proceeding to dismiss the man concerned but before the dismissal, which I think the Deputy would agree is a pretty severe punishment, was put in place, the man resigned.

Deputy Byrne: Can Mr. McKernan inform the Committee of the source of the representations which were made?

Mr. McKernan: I don’t know the answer to that question. I presume it was from his family.

Deputy Byrne: The reason I am teasing this matter out with Mr. McKernan is that at one stage, if I picked him up correctly, the man was suspended. Then he was restored on half pay. Did that come out at some stage?

Mr. McKernan: Yes. That is right.

Deputy Byrne: Was he suspended and then taken back into work?

Mr. McKernan: That is right.

Deputy Byrne: Does that not seem to be a remarkably strange approach to disciplining a person?

Mr. McKernan: He was suspended without pay initially. As a result of representations which he made and which were made on his behalf - remember this occurred before I arrived back in the Department - the man was put back on half pay. We were told that he was in danger of losing his house and his marriage. The portion of his pay to which he would have been entitled were he an honest employee was retained in order to restore the money he had taken.

Deputy Byrne: I was going to come to that point. Does it not seem to be a remarkable approach? This man defrauded the State and the taxpayer of in excess of £7,500. We do not know the full extent to which he was engaged in fraud. These are the figures that were proved. He was reinstated and you, as an employer, decided that the retribution would be to deduct money from his salary. Half of his pay will be deemed to be his contribution to the taxpayer for having defrauded them in the first place.

Mr. McKernan: I wish to clarify one point. He did not come back to work. There was an investigation underway. Half pay was restored to him; he did not come back into the Department of Foreign Affairs. He was on half pay, the decision on which was a matter of opinion and judgment. He was retained on half pay because of the representations he and his family made that his fate would be even worse than that. A management decision was made against the background I have been describing at some length and in some detail. If you wish to insist that we prosecute him, then we shall prosecute him.

Deputy Byrne: I am not insisting that you prosecute. I am trying to discuss the extremely generous managerial response to someone who defrauded the State. This person was involved in a scam over five years and the Department failed to detect it. He admitted robbing nearly £7,000 from the visa section in which he was working. Gambling addicts are renowned to be terrible liars. In fact, all addicts are renowned for their ability to lie. How can be you and this Committee be satisfied that this was the totality of the fraud in which he was engaged over a five year period?

Mr. McKernan: We are, as far as I can tell and from discussing this matter with my colleagues, satisfied that we got to the root of the problem. I am quite satisfied that we have identified the thefts as far as is humanly possible with the information at our disposal.

Deputy Byrne: The formula agreed for the restoration of salary was that the salary which the officer had foregone up to the time of his dismissal - which did not occur because he resigned - would be offset against the money owed to the Department.

Mr. McKernan: I am sorry I was distracted for a moment. Can you ask that question again?

Deputy Byrne: I am trying to figure out the agreement struck with this individual for the repayment of the taxpayers’ money. It said in the Comptroller and Auditor General’s report that the salary which the officer had foregone up to the time of his dismissal - it was not a dismissal, it was a resignation - will be offset against the money owed to the Department. He was restored on half pay. Am I to understand that the other 50 per cent was retained by the Department as retribution?

Mr. McKernan: That is right.

Deputy Byrne: I am not happy with the way with which this case was dealt. I will explain briefly why. The Department allowed a man to resign and take up paid employment elsewhere without even obtaining a charge against his income in order to repay the State that which he had stolen. That is not the way public servants should be treated.

Mr. McKernan: I do not want to make an argument out of this but the fact is that when he resigned before being dismissed, he was out of work. It would be impossible to establish a schedule of payments with someone who is out of work. He got a job and we are now trying to establish an agreement and schedule of payments with him in such a way that the £2,000 can be restored as soon as possible. That is the situation. Whether a person has stolen money in the private or public sector, if he is to repay it he must have something from which to repay it.

Chairman: While we note this paragraph the Committee must express its concern at the control weakness which allowed this misappropriation to occur and hope that the new controls will be sufficient. Is that agreed? AGREED.

VOTE 38 - DEPARTMENT OF FOREIGN AFFAIRS

Mr. McKernan further examined.

Deputy Broughan: What is the current salary of an ambassador?

Mr. McKernan: The current salary of an ambassador depends on the grade of the ambassador. Generally speaking the grade is that of Assistant Secretary so the salary is roughly £50,000 per annum which of course is taxable. In addition, ambassadors and other officers serving abroad receive foreign service allowances or - representation allowances. This is not salary but a form of payment in respect of the extra costs incurred in working abroad, living abroad, maintaining a family abroad and representing the State and entertaining. Essentially, the salary is that of the corresponding civil servant at home, usually an Assistant Secretary. A counsellor earns £35,000 and in some cases where we have offices in developing countries and the staff is small, the work is conducted by an Assistant Principal or First Secretary and the salary is correspondingly less.

Deputy Broughan: Are there many ambassadors with salaries equivalent to Secretaries? How many ambassadors are there?

Mr. McKernan: There are 38 ambassadors. I can get the figures for you. In order to be paid at the grade of Secretary, a person must have been Secretary of the Department. Only one person is in that position at the moment.

Deputy Broughan: Earlier this year, we looked at the new Government information booklet which gives salaries of all State employees. A number of us were struck by the fact that ambassadors seemed to earn £80,000 plus. The English Public Accounts Committee has sometimes been concerned with the traditions of diplomatic service. For example they built a new embassy in Paris at enormous cost. Their case goes back 800 years to their treaties with Portugal. Expenditure may have to be looked at again in light of modern communications and advances. In any representations I have made to the Dáil, I have been very impressed with our foreign service and the outstanding commitment they have, especially in a number of countries where I have met people, for example in Russia. Is there any sense where we have a highly paid kind of service on the English model where, with facsimile machines and on line communications, we could have an efficient, value for money type of situation?

I was taken aback with the salaries of ambassadors, as it appears they are being paid more than our top civil servants, ministers and judges. Is this appropriate?

Mr. McKernan: There is only one ambassador at present who is a grade one ambassador, and whose pay corresponds to that of a Secretary of a Department. This arises because the person was, in his time, Secretary of the Department of Foreign Affairs. It must be borne in mind that the salary paid is taxed. There is an additional payment, a house is provided, and so on, in most cases, and the head of mission receives a representation allowance which is intended to cover the costs, both of living abroad and of representation. Other officers receive a rent allowance and payments in respect of the cost of living abroad.

It is not in any way extravagant. For example, the average total cost of an Irish diplomatic mission is £450,000 per year, and since 1940, the amount of public expenditure devoted to our external relations is less than 0.5 of 1 per cent, and it has been like this for many years. In recent years, the Department has expanded its network somewhat, but some of that expansion had to take place within the existing budget. I do not believe, therefore, that one could regard the Irish diplomatic service as extravagant or overpaid.

Deputy Broughan: How does the sum of £450,000 compare with the embassies of Finland, Denmark or a comparable country?

Mr. McKernan: A country such as Finland or Denmark would probably have twice the amount of representation at embassy level that we have. As you referred to the British embassy, let me illustrate by way of example. I happened to work in Washington for six years. We had six diplomatic officers and perhaps 12 others. The British embassy had approximately 600 people, of whom, perhaps, more than 100 were diplomatic staff. The cost of the British embassy in Washington DC to the British taxpayer is the equivalent of the cost of the entire foreign service of Ireland.

Deputy Broughan: In how many countries would we own the embassy building itself?

Mr. McKernan: We have 15 residences abroad which are owned by the State. They are in Athens, Berne, Brussels - the permanent representation - Canberra, Copenhagen, The Hague, The Holy See, Lagos, Lusaka, Madrid, Ottawa, Paris - where the residence and the chancery are combined - Riyadh, Stockholm and Washington DC. We also own certain chancery premises, the office part of the embassy, in Copenhagen, The Hague and Washington DC.

The remainder comprises rented accommodation. There are 20 residences for ambassadors, seven residences for other diplomatic staff and two apartment blocks in Moscow and Beijing, because of the nature of the those countries.

Deputy Broughan: If we were going into a new area or renewing contracts or whatever, would your policy be to look at the situation in each country or city and then decide to buy or to rent? Do you have a hard and fast rule on this?

Mr. McKernan: Over the years, the OPW was the body responsible for these issues. We have more autonomy in these matters nowadays. Speaking from my own experience, it would be preferable, ultimately, to own a premises, rather than to rent it. For example, this would be the case in Brussels. In addition, if one were to rent a chancery building or a residence in Washington DC, where I worked, comparable to the one we now have, the cost to the State would be greater.

Deputy Broughan: Are the liabilities of the missions included in these accounts?

Mr. McKernan: What do you mean by the liabilities? Do you mean the cost or running the- - - - -

Deputy Broughan: Yes. Are they included in these figures?

Mr. McKernan: They are included. We can provide a breakdown, mission by mission, if that is what you require.

Deuty Broughan: Where are they are included in the Vote?

Mr. McKernan: They are normally to be found under subhead A.6 of the Vote.

Deputy N. O’Keeffe: With regard to Vote 38, are people involved in trade and the promotion of Irish goods in our embassies abroad?

Mr. McKernan: Yes. It is the responsibility and duty of every Irish embassy and consular mission, of which we have four in the USA, to engage in trade promotion. This is done in various ways, for example, by working in close co-operation with other Irish organisations in the countries concerned, such as An Bord Tráchtála and, with regard to inward investment, IDA Ireland.

We opened three embassies this year, in Hungary, the Czech Republic and Malaysia. An ABT official is part of the set up of the embassy and is part of the Deputy Head of Missions, so they are integrated into the service. In other countries where there is not a CTT or an ABT representative, the embassy conducts a good deal of its activities. Indeed, it is there largely for economic reasons. For example, there are few political reasons why one would have an embassy in Iran these days. There is close co-operation with other bodies and the embassies themselves engage in trade and investment promotion.

Deputy N. O’Keeffe: Could I have a breakdown of the figure in respect of the Vote for travel and subsistence?

Mr. McKernan: Travel fares break down as £1.25 million. Subsistence, or payment to persons while they are abroad for hotels and living costs breaks down as £365,000 for hotel costs, £141,000 for home leave costs, £47,000 for children’s travel - children may be attending school here and travel to join their parents abroad - and £1.2 million for transfers, or the cost of transferring officers from abroad home and back in a period where, for example, there is a major shift around of staff, as has occurred over the past two years. In addition, provision is made for compassionate leave, where air fares are paid for people if they have to return for funerals of close relatives. There is also competition travel for people who are going forward for promotion.

Deputy N. O’ Keeffe: Under what heading are the expenses of the political heads of the Department?

Mr. McKernan: There is a breakdown of this in subhead A2. The expenses of the Minister amounted to £89,000 in 1993 and £119,000 in 1994. The expenses of the Minister of State amounted to £63,000 in 1993 and £129,000 in 1994. The expenses of the Secretary amounted to £25,000 in 1993 and £18,000 in 1994. Administration costs amounted to £134,000 in 1993 and £137,000 in 1994. In 1994 the expenses of the Anglo-Irish division and the political division were £129,000 and £332,000 respectively.

Deputy N. O’Keeffe: Could you please explain what the political division is?

Mr. McKernan: The Department of Foreign Affairs is organised on the basis of divisions, which correspond to the work in which all diplomatic services are obliged to engage. The political division’s principal activity is conducting Irish political relations with other countries, working specifically within the framework of the EU common foreign and security policy. This entails a great deal of travel because meetings of the political committee and its working groups almost always take place abroad, except when we hold the presidency of the EU when many of these meetings take place at home. The political division is also responsible for our activities in the UN, both in New York and Geneva, to which delegations have to travel several times a year.

The economic division, the expenditure of which was £332,000, also travels a great deal to Brussels and elsewhere. A certain amount of this division’s travel costs, when it attends council meetings in Brussels and elsewhere organised under the aegis of the European Union, is recouped.

Deputy N. O’Keeffe: Does this include the cost of State cars, helicopters and inward and outward flights?

Mr. McKernan: State cars are a matter for the Department of Justice and come under its Vote. Helicopters and aircraft, which belong to the Air Corps, come under the Vote of the Department of Defence.

Deputy N. O’Keeffe: There is probably no blame attached to you but you are obviously being used to front this. I am referring to the Tánaiste and his use of Air Corps aircraft.

Chairman: I am ruling that out of order. Stick to the Vote.

Deputy N. O’Keeffe: It is unreal that a senior Minister is dictating to the Committee. I did not think he would come down so much from the high moral ground. What is the cost of insurance for additional passengers on the aircraft? What is the cost of the food served on the Government jet to guests travelling to and from Farranfore? What is the cost of the smoked salmon and red wine?

Deputy Byrne: I think the Deputy must have drank a few glasses of wine before he came here.

Deputy N. O’Keeffe: I have to tell you, Chairman, that you are out of order because the Minister -

Chairman: Deputy O’Keeffe, you are out of order.

Deputy Byrne: It is a pity people would not turn up for the meeting on time. I hope the previous speaker did not indulge in glasses of red wine before he came here because he is very excitable.

Chairman: Speak on the Vote, Deputy.

[Interruptions.]

Deputy Byrne: May I speak now?

Deputy N. O’Keeffe: I am not finished yet, Chairman.

Chairman: You are finished. Your time is up.

Deputy N. O’Keeffe: Anything I raised is relevant.

Deputy Byrne: In what way is red wine relevant to Vote 38?

[Interruptions.]

Deputy Byrne: Maybe we should ask our diplomats to intercede and restore order here. I wish to say to Mr. McKernan - it is important that this should also be said to his officials serving in embassies abroad - that members of the public who seek the assistance of embassies find the service they provide second to none and the staff are highly professional. Members of the Irish football team, who are the next best ambassadors after our own, have on many occasions complimented the staff of our embassies overseas because of the humane and professional way the staff dealt with them.

The promotions and support activities linked to the 1994 World Cup amounted to £150,000. Subhead B deals with the repatriation and maintenance of distressed Irish persons abroad. What type of formula is used to assess the requirements for repatriation of Irish citizens overseas? Were many of them victims of muggings and theft and were some of them football fans?

Mr. McKernan: I will deal with the general point first and I will then address the World Cup issue. Generally speaking, repatriations arise when people are in distress abroad. It could be as a result of having been mugged and robbed or as a result of having been involved in an accident. If we have an embassy or consular office, we endeavour to secure advance payment or guarantee against the cost of repatriation. However, sometimes this is not immediately possible; this can happen when we are obliged to repatriate somebody from a country where we are not represented.

There is no formula as such other than obvious need. These cases arise when people are in difficulties. It is unusual that we would have a repatriation from the United States because there are informal networks and people are helped by relatives. Typically, repatriations arise in countries like Spain and Italy. It is usually a matter of plain common sense. If individuals are robbed and are out of funds, they need to be repatriated.

In the case of World Cup, there was a particular aspect which accounted for a great deal of money. A total of $22,000, or £14,620, was advanced by the temporary consulate we set up in Orlando during the World Cup to enable payment of the hotel accommodation of about 300 Irish fans who were on the point of being evicted from their hotel, which had not been and had no prospect of being paid by the London company, Sportex. The money was paid directly to the hotel on the basis of individual commitments to repay the Department signed by the 68 people who accepted responsibility.

It is not our normal practice to pay people’s debts abroad but there were a number of exceptional reasons for serious concern in this instance. These reasons were the large number of Irish citizens involved, including many women and children; the certainty of their impending eviction; and the adverse local and international publicity which would have followed, with the Government being blamed for not assisting them. Thirty people have so far repaid the Department in full, amounting to £5,795, and 11 others have paid £1,156 in instalments. Our usual practice of not issuing new passports applies to defaulters. They will not be able to follow the football team again unless they cough up.

Deputy Byrne: I was referring to that incident. Credit must be afforded to the staff and officials of the embassy. I heard from some fans who were out there that the embassy acted in a most exemplary and professional manner. It is worth recording that point.

Regarding Vote 38, I note under miscellaneous items that over £64,500 was paid in an out of court settlement of a claim against the Department. Could the Committee hear of the background to this settlement and the reason for it?

Mr. McKernan: This refers to an accident which occurred in Brussels several years ago. The accident involved the then ambassador to Belgium, his wife and son. As I recall, it occurred around St. Patrick’s Day, when the ambassador and his wife and son were returning from a function in the Irish college in Louvain on a very snowy night. The normal embassy driver was not driving the car. The car was being driven by the ambassador’s wife. It skidded and crashed into the barrier of a tunnel in the city of Brussels. There was a multiple pile up. The ambassador and his wife were quite severely injured and I gather their son also. They spent a good deal of time in hospital and the ambassador, whom I know personally, has a permanent limp as a consequence.

It turned out, by one of the anomalies of Belgian insurance and by an inadvertence on the part of the embassy at the time, that all the people concerned were not fully insured. As it happened, the only driver who was insured was the embassy driver. He was not driving the car and that is how the business arose. That is the explanation.

The state normally carries its own insurance. It is usual now, and in fact required, that all cars and their drivers be insured. Usually, the only persons driving an official car, apart from the official driver, would be the head of mission himself and by agreement with the Department, together with insurance coverage, perhaps his spouse. For example, my spouse occasionally, once or twice, drove the official car when we first went to Brussels because we did not have a car of our own and I do not like to drive because I have bad eyesight.

It was an accident involving Ambassador Brennan, his wife and son. They were quite severely injured and there was a claim for damages. This is the outcome.

Deputy Byrne: The £64,000 was paid as damages to that family.

Mr. McKernan: That is right. Injuries and costs.

Deputy Byrne: The only person insured to drive an embassy car is the driver. Would it be common that other members of the diplomatic corps would be driving other than drivers?

Mr. McKernan: As I explained, this was one case where that occurred. Nowadays the driver and anybody else who is designated as a driver, for example, the head of mission and his spouse, are insured. In this case only the driver was insured and the other people were not insured with the result that I described. I can read a detailed account if the Deputy wishes.

This case dates back to March 1987 when the Irish Ambassador to Belgium, Mr. Edward Brennan, his wife and son were returning from an official function when the embassy car crashed into a motorway barrier, causing injuries to all three. The car was being driven by Mrs. Brennan although the insurance covered only the official embassy driver. The insurance company refused to pay up and the issue then became one of State liability in the matter.

The terms of the settlement, as authorised by the Attorney General, was £53,000 damages to Mr. Edward Brennan, plus costs. Payment of the settlement plus interest charges was made on 26 April 1994. Mr.Edward Brennan’s legal costs of £11,000 were paid on 4 July 1994. Mr. James Brennan’s settlement of £25,000 was paid on 13 June 1995. The Chief Solicitor’s Office has recently submitted a demand for £8,000 in respect of Mr. James Brennan’s legal costs.

That is the full story.

Deputy Byrne: Can the Committee rest assured this could never be repeated, that the insurance policy now covers our staff across the world?

Mr. McKernan: That is correct as far as official cars are concerned. People with their own cars are obliged to abide by the law of the land. One must conform to the legal requirements of insurance in other countries on both official cars and private cars, for example, in the United States.

Deputy O’Malley: There are many important countries throughout the world where we do not have embassies. We usually have diplomatic relations but they are represented from elsewhere. I have in mind places such as Brazil and Mexico which are large important countries. Given that this is so, why do we have two embassies in the city of Rome?

Mr. McKernan: We have two embassies in the city of Rome because there are two states there, the Vatican and the Italian republic. It has been the case, as I understand it, since the foundation of the State that we have maintained two such missions. From time to time, it has been suggested, notably by the Department of Finance, that perhaps the embassy to the Vatican might be closed. However, for reasons I am sure members of the Committee are better placed than I to judge, these proposals were not proceeded with.

I agree with the Deputy that we ought to be represented in a country as big as Brazil and as economically important as Mexico. We are represented there, as the Deputy implied, from elsewhere; in the case of Mexico from Washington and in the case of Brazil from Portugal. It is not very satisfactory but it is a matter of cost. We would be very pleased to have the means to establish an embassy in a country as important currently and potentially as Brazil and also Mexico.

Deputy O’Malley: There are two states in the city of Rome but it does not necessarily mean that one embassy cannot cover the two.

Mr. McKernan: That is possible and it is something which is a matter of policy. It is not for me to recommend whether we should shut the embassy to Italy and do it from the Vatican or vice versa. There would perhaps be a saving but the embassy to the Vatican is relatively small and inexpensive. That is a policy question in the end.

Deputy O’Malley: You told Deputy Ned O’Keeffe in reply to questioning that all embassies now are engaged in the promotion of trade, investment and similar matters. Can you give the Committee a full assurance that is the stated policy of the Department? It was my experience at one stage in my time as Minister for Industry and Commerce, that an agency under my aegis was informed by an ambassador abroad that: “My house is the house of the President of Ireland. I will not have it sullied with trade.” I intervened with the then Minister to try to put an end to that practice. However, while officially it was ended, I felt that was still the attitude of some ambassadors at that time. Can you assure me that is no longer the attitude?

Mr. McKernan: I can. I have not come across such an exotic explanation before of an apparent refusal to engage in trade. I have not heard of that particular case but I assure you it is highly unlikely it will ever happen again. I suspect the comment was rather eccentric, to say the least. It certainly does not correspond with reality or policy.

Deputy O’Malley: For other countries the primary motivation for the existence of their embassies is frequently the trade and investment possibilities. Would you say that in terms of Irish foreign or diplomatic policy trade is at least as important nowadays as the diplomatic or political activity?

Mr. McKernan: Yes, I would. One can easily think of countries where the political and cultural connections between us and them may be regarded as tenuous - I should not go into examples lest I give offence to the countries concerned - but where the motivation behind the establishment of the embassy in the country concerned is clearly economic and commercial. One can imagine certain countries in the Middle East which fall into that category.

Deputy B. O’Keeffe: How many honorary consuls are there and where are they located?

Mr. McKernan: I understand the figure is 58 - the numbers fluctuate in the sense of fluctuating upwards - serving in 45 countries. We made 13 appointments in 1992, 4 in 1993, 3 in 1994 and 3 to date in 1995. Not all were new posts.

Deputy B. O’Keeffe: Where would the major concentration of new appointments be?

Mr. McKernan: In the last few years we appointed a number of honorary consuls in the United States. At one point we only had one honorary consul in the United States - in St. Louis - but in my time there a number were appointed - one in Atlanta, for example, because of increased connections between Ireland and Atlanta as Delta Airways had a service between there and Ireland. We also have one in Los Angeles and one in New Orleans. A new honorary consul was recently appointed in Bolivia. I can give the Deputy details in writing of the precise appointments made in 1992.

Generally speaking, one appoints an honorary consul in a country where we do not have an embassy and where there is a connection with the country - Irish business interests or Irish tourists. There is an honorary consul in Spain although there is an embassy there. There is an honorary consul in Hong Kong, for example.

In all cases the honorary consuls are appointed with a view to providing a service. There is an honorary consul in Mexico, although we have a non-resident embassy presence there, who provides a good service.

Deputy B. O’Keeffe: What remuneration attaches to the office of honorary consul?

Mr. McKernan: They are paid, as the title implies, an honorarium of £500 per annum. In addition, all honorary consuls are entitled to obtain one half of consular fees collected, subject to a limit of £100 in respect of any one fee, and are recouped expenditure on communication costs. If an honorary consul is issuing passports or visas and is obliged, as is usually the case, to convey the information regarding the application by telex or fax those costs are recouped. The honorarium is £500, which is rather slight.

Deputy B. O’Keeffe: What is the average commission paid to such consuls, particularly in the US?

Mr. McKernan: They would not issue visas in the US.

Deputy B. O’Keeffe: Are they involved in the sale of passports? What other functions would the honorary consul have?

Mr. McKernan: It would be very unusual for an honorary consul in the United States to issue a passport.

Deputy B. O’Keeffe: What about other countries?

Mr. McKernan: In other countries certain consuls would have a stock of passports, for example, Mexico, because situations can arise where they need to provide a passport.

Deputy B. O’Keeffe: Would they be involved in the sale of Irish passports to foreigners?

Mr. McKernan: No, not in the sale of passports but the issuing of passports to somebody who is entitled to a passport - a citizen. For example, if somebody came to the honorary consul in Hong Kong looking for a passport it would be somebody who was entitled to have a passport, renewing a passport or who could show they were Irish with a birth certificate, for example. It would simply not happen that an honorary consul would, so to speak, conduct the business of issuing a passport to somebody who is not an Irish citizen. The issuing of passports, as I understand it, in the context to which the Deputy alludes is one where a person is issued with a passport consequent upon acquiring Irish citizenship through a process of naturalisation. The naturalisation of citizens and the consequent issuing of a travel document - which is what a passport is - is a matter first for the Department of Justice and then for the Department of Foreign Affairs.

Deputy B. O’Keeffe: Would an honorary consul have any function in the trade or promotion area?

Mr. McKernan: Yes, but it depends where the honorary consulate is located. For example, the honorary consul in Mexico is extremely helpful in the trade area. As we have a non-resident embassy in Mexico it is not possible for the Ambassador to visit more than several times a year. As it happens the honorary consul in Mexico is a well-known and influential businessman with a lot of contacts throughout Mexican society and Government and, therefore, was extremely helpful over the years as far as business is concerned, particularly as regards the trade in Mexico in milk powder which is sold in large quantities through Conasupo, the Mexican state purchasing organisation.

It depends on the location of the honorary consul, whether the country concerned is one with which we have a good deal of trade or investment interests.

Deputy B. O’Keeffe: Would it not make sense for a country dependent mainly on exports to ensure each honorary consul was given a trade function?

Mr. McKernan: The typical honorary consul is somebody who is not an Irish national, although in some cases they are, but is involved in the business or professional world of the country in which they are located. If we have trade interests or promotion in the country we would certainly look to the honorary consul.

Deputy B. O’Keeffe: Would it be their function to seek out markets?

Mr. McKernan: Yes, it would. For example, an honorary consul in a certain country could say there is a possibility of a particular type of trade. If the honorary consul in Mexico - I return to this country because I am familiar with it - points out that a new state purchasing organisation is being set up there which will do certain things, or a new policy is being pursued, that creates possibilities. He would immediately convey that to the Embassy in Washington and to An Bord Bainne. Usually honorary consuls are proposed first for the job. But they are identified and appointed in terms not only of what they can do for themselves as regards the prestige attached to the post, but what they can do to forward Irish interests.

Deputy B. O’Keeffe: Given that they get a commission on passports, has it ever been considered that they would get a commission for increased trade to those countries?

Mr. McKernan: That is a difficult question to answer. The fact that an honorary consul is usually someone whose activities in that area are only part of his or her professional activities or an avocation, I doubt that such a situation would arise. If there was so much trade and so much to be gained from it, we would probably set up a full time mission in the country or city concerned.

Deputy Ellis: I welcome Mr. McKernan here today. How many people usually travel to European summits?

Mr. McKernan: Because of the need to control the numbers of people attending the European Council, it is generally agreed that the official delegation of any country should not exceed 19 persons on the list. This is exceeded for various reasons; different countries have large delegations. Sometimes Irish delegations exceed 19 because individual Ministers may require extra people to deal with issues which may, arise. For example, the Tánaiste will always attend a European Council meeting, which consists of Heads of State and Foreign Ministers, and frequently the Minister for Finance will also attend. He may, therefore, require a number of his officials to travel with him. In recent years the European Council has been used as an occasion for bilateral discussions between the Taoiseach and his British counterpart. This means that people from the Anglo-Irish division of the Department, who would not normally be involved in the business of a European Council, which is European Union business, will travel as well. This tends to increase the numbers of people on a delegation. However, the official limit for all 15 countries is 19 people.

Deputy Ellis: You are saying that we regularly exceed the official limit of 19 people. How many people attended each summit in 1994?

Mr. McKernan: I can only give the Deputy the information for the Department of Foreign Affairs. Two people travelled with the Tánaiste to the European Council in 1994 which took place in Corfu. Additional people from the Department went to that Council meeting, although I do not have the precise numbers. One of the reasons extra officials travelled but were not on the official lists was to see how the European Council was run, particularly in anticipation of organising it ourselves next year. For example, at the last European Council which I attended in Cannes we took some extra people from our organisational and press side, etc., who might not normally be there, in order to see how the work was being conducted with a view to preparing our European Council which will take place next December in Dublin.

Deputy Ellis: I take it that the two people who accompanied the Tánaiste were civil servants.

Mr. McKernan: Yes.

Deputy Ellis: That is the normal procedure. When you come back next year you might be able to tell us why between 40 and 50 people went to the last summit in Cannes. They may not have all been from the Department of Foreign Affairs; a lot were from the Department of the Taoiseach.

Under subhead C support for Irish emigrant groups in the US, how is it dispensed?

Mr. McKernan: The total amount of money was £150,000. I will explain the background to this because I was in the United States for a long time. A particular problem arose from 1981 onwards because of the presence in the United States of a large number of young Irish men and women who had, for economic reasons, been obliged to travel to the United States. They went there on visitors’ visas and stayed illegally after they overstayed the permitted limit of the visit. Partly in response to that, the settled Irish Americans and Irish emigrants in a number of cities established organisations to help emigrant groups to integrate, to find jobs, etc. Political lobbying provided valuable assistance to the Embassy in Washington in its efforts to bring about a change in US emigration legislation which successfully led to the Donnelly visa arrangements and, ultimately, to the Morrison visa programme which has eliminated the problem of the undocumented Irish.

These voluntary groups asked for assistance. The list includes the Irish Emigrant Centre in Boston, £16,000; the Irish Pastoral Centre in Boston, £27,000; the Irish Emigration Service in Chicago, £11,000; Emigration Assistance Coalition in Los Angeles, £3,247; the Bronx AOH in New York, £650; the Emerald Isle Emigration Centre in New York, £28,000; the Irish Apostolate of the Diocese of Brooklyn, £11,600; the project Irish Outreach in New York, £39,000; Gaelic Emigration Assistance in Philadelphia, £1,298; Cara in San Francisco, £3,247; and Foir in San Francisco, £6,000. The total is £150,000.

Deputy Ellis: Was this a once-off payment?

Mr. McKernan: Yes, for 1994.

Deputy Ellis: Did we make payments in 1993 and 1995 to these groups?

Mr. McKernan: The total for 1995 was £150,000.

Deputy Ellis: Was it dispensed to the same groups or were new groups included?

Mr. McKernan: There was one new group, the Irish American Club in Washington.

Deputy Ellis: How much did it receive?

Mr. McKernan: It received £1,864.

Deputy Ellis: Is a check carried out at a later stage to see how this money is spent or are these groups asked to return their accounts to show how they spent it?

Mr. McKernan: The expenditure from the grants is recorded by the recipient bodies in separate certified accounts. These accounts are submitted to and examined annually by the consulate generals concerned. The grants are only a fraction of the expenses of the support groups.

Deputy Ellis: Subhead G.1 is funded by the National Lottery. Where is the money in subhead G.2 spent or what type of events are funded? We recoup £250,000 of the £400,000 from the National Lottery.

Mr. McKernan: The total expenditure is £399,000, which includes the National Lottery money. The breakdown by category is: £85,000 to the visual arts; £70,000 for theatre and dance — I am giving round figures-----

Deputy Ellis: Can we have the recipients, so that we can have a breakdown of how the £85,000 was distributed?

Mr. McKernan: We do not have those precise names here but I can let the Deputy have them by correspondence.

Deputy Ellis: There have been complaints that some of the money has found its way to one group or the same groups on a continual basis and other groups have not be able to avail of it. Perhaps Mr. McKernan can give a full record to the Committee in a written reply as to who received what over the past number of years.

Mr. McKernan: I would be glad to do so.

Deputy Ellis: The Irish-American Economic Advisory Board received £20,000. Is that a consultancy fee or for other purposes?

Mr. McKernan: It is not a consultancy fee, it is to meet expenditure. It is given on the following conditions — it relates to travel and subsistence costs incurred by board members in attending meetings of the board, travel and entertainment expenses incurred by the Embassy, either by the Ambassador, or other official authorised by the Ambassador, exclusively or primarily in connection with activities of the board. The majority of the expenditure arises under subhead B. The allocation mentioned by the Deputy remains for 1995 at £20,000 — it was the same last year. The membership of the board includes some of the most prominent figures of corporate Irish America and it provides an important service.

Deputy Ellis: Does the Department have any upper limit with regard to the amount of subsistence or hotel expenses that can be covered? I know it varies from city to city around the world but what is the maximum allowable?

Mr. McKernan: The maximum in any case is set by the Department of Finance.

Deputy Ellis: Does that apply to Ministers?

Mr. McKernan: We are talking about subsistence now?

Deputy Ellis: I am talking about the overall — there is a set limit for Members of the Oireachtas, as there is for civil servants, and there is a scale for cities around the world. I want to know if there is a set limit-----

Mr. McKernan: For hotel costs?

Deputy Ellis: Yes.

Mr. McKernan: In the case of civil servants, the amount fixed for subsistence is intended to cover the cost of accommodation and cost of living — food, etc. In the case of many cities, the subsistence amount allowed is inadequate to cover the costs of hotel accommodation. In those circumstances in the case of an officer, the hotel cost is paid for and the subsistence is reduced accordingly - a proportion of subsistence is paid, usually about two-thirds. As far as hotels are concerned the Department does not expect and would be rather amazed if its officers took to staying in the Ritz, so usually they pick quite modest hotels or those that are located-----

Deputy Ellis: The Waldorf?

Mr. McKernan: I have stayed in the Waldorf but at a cut rate. Not to be facetious, we ensure we get value for money because we are operating within a budget.

Deputy Ellis: I agree but where possible is it not normal for us to use groups with Irish links or Irish links? Do I take it that is the policy?

Mr. McKernan: That is right — for example if a hotel is owned by Aer Lingus, as used to be the case in certain cities, we would use that in preference to any other. Sometimes it is not possible but generally we do.

Chairman: Before calling the next Member I have a request from RTE — they wish to take a few shots so I ask Members to co-operate. I call Deputy Eric Byrne to ask supplementary questions.

Deputy Byrne: I did not hear how many Embassies and Ambassadors we had. Can Mr. McKernan confirm that the structure is that we would have an Ambassador and a First Secretary? How many Ambassadors do we have and what is the gender ratio?

Mr. McKernan: We have 38 bilateral Embassies. Four of those are development co-operation offices but they carry the title “Embassy”. There are four multilateral missions, which are to the EU, the UN and the OSCE, the Organisation for Security and Co-operation in Europe — there are two UN offices. We have five Consulates General, one of which is a development co-operation office in Lesotho. We have one joint secretariat in Belfast.

Deputy Byrne: What is the gender ratio of these Ambassadors and consuls?

Mr. McKernan: We have three women Ambassadors and the rest are men.

Deputy Byrne: That is three out of 38?

Mr. McKernan: That is right.

Deputy Byrne: The diplomatic service is clearly still a male preserve, is it?

Mr. McKernan: Sorry, I should have said four because one of our development officers in an Embassy is also female.

Deputy Byrne: Nonetheless career diplomacy still seems to be a male preserve, attracting men rather than women.

Mr. McKernan: There are three women officials with me.

Deputy Byrne: I noticed that and I was conscious that few of them would end up as Ambassadors.

Mr. McKernan: It is fair to say that in recent years the recruitment of diplomats into the service, which is a career service, is through the entry grade of third secretary. There is a stiff exam and interview system, as the Deputy will know. I do not know the proportionate result but I think women are well represented in the overall total.

Deputy Byrne: But not at the very top?

Mr. McKernan: True but that takes time.

Deputy Byrne: Is this time because of the ridiculous bar that married women had to leave the Civil Service and therefore their career was interrupted?

Mr. McKernan: That was a feature in the past. It has gone now but it certainly would have had an impact at the time.

Deputy Byrne: Finally, as to the career prospects of women in the Department, how many of those who become Ambassadors would have worked their way up through the Civil Service, as against the concept of a career diplomat, a business person or retired person coming on board?

Mr. McKernan: All of the women currently------

Deputy Byrne: Sorry, of the Ambassadors as a whole, do they all come up through the Civil Service ranks or do they-----

Mr. McKernan: We have an entirely career service.

Deputy Byrne: As to the value of Irish passports to criminals, what is the value attached to the passport in certain Third World countries like Nigeria or even the USA or Australia? I do not want the monetary value so much. How many Irish passports are stolen each year and to what use would they be put in an illicit or illegal way?

Mr. McKernan: I do not know how many are stolen; there have been incidents in recent years in which a large number were stolen from the place where they were being printed. As to the value of an individual passport to a criminal, it is hard to put a figure on that. It is very hard to put a figure on the value of an individual passport to a criminal. Obviously, the plausibility of a person representing himself as Irish with an Irish passport is a factor if someone is clearly of a different ethnic background. It is not very easy to use an Irish passport and pretend to be Irish if a couple of questions from an immigration officer will establish that one is Chinese or whatever. In order to use an Irish passport, one needs to be able to pass as a plausible Irish citizen. It has been attempted, as we know, on the part of certain well known senior officials in the American administration who, I am pleased to say, are no longer with us. However, generally speaking, I could not put a figure on it. You are asking the black market value of a passport.

Deputy Byrne: I will rephrase the question. Is there any apparent trend throughout the world where stolen Irish passports are deemed to be of great value to the individuals stealing them?

Mr. McKernan: In the European Union and other countries, passports are produced in a way which makes them electronically readable and there are checks to detect fraud in the obtaining of a passport. The passport booklet contains a photograph, is laminated and has other detectable features. If one sells their passport or it is stolen and a person endeavours to pass himself off as Irish, they have to insert a photograph and so on and the fraud is pretty easily detectable.

Deputy Byrne: Could you provide later on written figures on the numbers stolen? Could you relate them to the fraudulent area in which they have attempted to use them? For example, it is reputed that an Irish passport was used by the American CIA during operation Desert Storm.

Mr. McKernan: It was claimed at the time by the Iranians that an Irish passport was used by somebody who said he was Seán J. Devlin but that was not his name. We never got to the bottom of that in the sense that we failed, despite a good deal of representational pressure, to get enough information from the Iranian authorities to establish whether that passport had been stolen or produced by the intelligence services. We have protested about it many times, occasionally to the embarrassment of the US Secretary of State.

Chairman: Will we adopt Vote 38?

Deputy Broughan: How many people worldwide could legitimately apply for an Irish passport? Have we ever considered that?

Chairman: I am sorry Deputy but-----

Deputy Broughan: There was talk recently that a significant number of people in South Africa are eligible for Irish passports.

Mr. McKernan: Only persons who are Irish citizens are entitled to an Irish passport. The Nationality and Citizenship Act defines Irish citizens as those persons who can demonstrate that they were born in Ireland, anybody one of whose parents were born in Ireland, or anybody one of whose four grandparents were born in Ireland. The Nationality and Citizenship Act was revised several years ago so as to bring in restrictions so it could not be a perpetual chain. Therefore, somebody whose great grandparent was Irish could not use that fact to obtain a passport. It is also the case that in certain countries somebody who might be entitled to an Irish passport by virtue of their descent would suffer penalties in relation to their own country. For example, it used to be the case that although many Americans would be entitled to an Irish passport, they were not entitled to have an Irish passport and US passport.

Deputy Broughan: We could still be talking about millions of people.

Mr. McKernan: I am not so sure about that. In the case of the United States, although we see the figure 46 million people of Irish descent, that is a self description in the census; for them to establish Irish nationality is another matter. When there was a grandfather clause, and when the news that a limitation was coming in in 1985 or 1986 was promulgated in the newspapers, we got a run on Irish passports and many applications. However, I doubt if in toto - and I am speaking from memory - they amounted to more than 20,000.

VOTE 39 - INTERNATIONAL CO-OPERATION.

Mr. McKernan further examined.

Deputy Broughan: You administer a huge budget with regard to ODA, which is obviously growing. How near are we to the 0.7 per cent?

Mr. McKernan: We are .027 per cent at the moment, so we are a good bit away from 0.7 per cent.

Deputy Broughan: If we want to join the illustrious countries such as Sweden and the Netherlands, which are 0.7 to 1 per cent, you would be in effect, administering a budget of several hundred million pounds.

Mr. McKernan: That would be right.

Deputy Broughan: In that year it was obviously a political decision to take the money for Rwanda out of subhead C, bilateral aid. I suppose I cannot ask you that as it was a policy question.

Mr. McKernan: It was, of course, a policy decision but one which it was proper to make, if I may say so, in the circumstances.

Deputy Broughan: We have special bilateral relations with some of the sub-Saharan countries such as Tanzania and Lesotho. Would they have suffered because we took those millions of pounds out of subhead C?

Mr. McKernan: I do not believe so. We transferred the money but chose areas where it would not cause harm. It also related to ongoing programmes. However, I do not think that one could say that anybody or a project suffered particularly because of that. The sum of £1.8 million is a lot of money but it is a tiny amount in comparison with the urgent need which it was intended to address; it was a dramatic emergency.

Deputy Broughan: Do you and the officials keep an ongoing brief in advising Ministers in relation to the breakdown of how we are spending this money? For example, we recently heard criticisms from some international agencies of our policy of putting so much money into personnel driven projects such as APSO rather than straight bilateral assistance - I felt that the criticism should be rejected. Do you keep an ongoing brief in relation to this huge and growing budget? I know that in the Programme for a Partnership Government and in the ongoing Programme for a Government of Renewal, both Governments tried to establish an area where Irish people may serve in terms of jobs and expertise. Do you keep that under ongoing review in your advice to the Tánaiste and the Government?

Mr.McKernan: Yes. There are two sets of reviews involved. One is the review of expenditure to ensure that it is properly spent. What the Deputy is driving at is effectiveness of policies. I think it is fair to say that the way in which Irish aid is administered abroad, and the way it is directed and targeted, has earned our aid effort a good deal of commendation. Ireland is not a very rich country and cannot afford enormous capital aid, but we can provide a combination of personnel and aid. That tells people much about the way in which Irish aid policy is delivered and implemented. The Deputy referred to APSO and our aim in that regard is to reach a target in the near future where we will have 2,000 Irish people working in voluntary positions abroad in the aid area. This is quite a respectable figure for a country such as Ireland.

Deputy Broughan: How is Ireland faring in relation to the old chestnut of refund of moneys from the United Nations? Ireland’s contributions are there for all to see, but I am interested with regard to the position in relation to refunds and appropriations.

Mr. McKernan: There are arrears owing to Ireland. Last year, the year under discussion, Ireland was owed £10.7 million. This year we reckon Ireland will be owed in the region of £11.3 million. The United Nations is going through a period of great financial difficulty, not to say crisis. Its capacity to operate - which was recently referred to by the Tánaiste and the President - is being put under enormous strain. I happened to be at the United Nations with the Tánaiste earlier this year and most of our conversation with the Secretary General was on this subject. We do recoup the money, we get the money back, but it takes time. The capacity of the United Nations to repay is obviously affected adversely by the failure of major donors to pay their mandatory contributions.

Deputy Broughan: Are Ireland’s contributions up to date?

Mr. McKernan: They are always paid on time.

Deputy B. O’Keeffe: If Ireland was owed £10.7 million last year and is owed £11.3million this year, why was £5 million paid to the UN under subhead A?

Mr. McKernan: In the case of international organisations - including the United Nations - there are, what are called, mandatory contributions. One is obliged to make such contributions by virtue of the fact that one is a member. It is an obligation taken on by member states, it is not a voluntary contribution. Each country is assessed according to its GNP, etc. There is a formula for such assessments. Ireland, along with all of the member states, has a legal obligation under Article 17 of the UN Charter to contribute to the expenses of the UN as apportioned by the General Assembly. Therefore, apart from the fact that we have a strong national interest in complying with that requirement, we have a legal obligation to do so. Our interests would not be served if we failed to pay our contribution. The answer is that we do so because we are legally obliged to do so. We took on that legal obligation when we joined the United Nations.

Deputy B. O’Keeffe: Ireland was involved in a co-financing project with the World Bank which has been terminated. Could Mr. McKernan provide the Committee with details of this involvement?

Mr. McKernan: Yes I can. This relates to a road project in the Kilosa district of Tanzania. Co-financing with the World Bank on the Kilosa district regional roads programme ceased in 1992. Payments from the World Bank have previously been treated as appropriations in aid. In addition, there was a lower than expected turnover of vehicles. That is the answer. The thing came to an end.

Deputy B. O’Keeffe: The project just came to an end. Could Mr. McKernan inform the Committee of the position in relation to vehicles?

Mr. McKernan: What happened from reading the file is that we expected to get more from the sale of vehicles than we did. Depending on the conditions under which they operate, if they are used very extensively and heavily, they might not be saleable. They get clapped out. That is basically what happens. The explanation on the file is that because of the very limited availability of public transport and the need to use heavy landrovers and other such vehicles on poor roads, it was necessary for the development co-operation officers to have a small pool of vehicles for project use and to assign these to projects that were constantly in need of transport for long difficult journeys. If you wear out the car and you resell it, you will not get much money for it.

Deputy Doherty: With regard to the £150,000 paid under subhead G, United Nations Population Fund, to what use is was money put?

Mr. McKernan: The UN Fund for Population Activities provides assistance in the field of population, including family planning awareness and education programmes, in response to requests from developing countries. It is financed by voluntary contributions by Governments and private donors. Until 1993, Ireland was the only EU member state not to contribute to the fund. Given the growing importance of the issue of population within the Union and at international level, it was felt that a contribution to the fund was an appropriate response to the challenges posed by the population explosion, particularly in developing countries. The contribution given in 1993 was £50,000 and this was trebled in 1994 to £150,000. There are basic principles in implementing guidelines which were adopted in a resolution of the development council and these are intended to govern this kind of expenditure. The principles are: non-coercion and non-discrimination; observance of the rights of individuals and couples to choose the number and spacing of their children; the need to integrate population policies and development policies. Attention is to be paid to the needs of individual families in the wider community.

Deputy Doherty: What type of population control methods are funded, or engaged in, by Ireland and in what countries?

Mr. McKernan: In all of the developing countries?

Deputy Doherty: Yes. What type of population control methods is Ireland supporting?

Mr. McKernan: If what the Deputy is getting at is whether we support policies that involve the use of abortion as a means of population control, the answer is no.

Deputy Doherty: With what other forms of contraceptive population control methods is Ireland associated?

Mr. McKernan: It is not simply a matter of contraception. It is a matter of population control and education with regard to family planning practices - which would include, quite clearly I presume, so-called natural methods of family planning and also contraception, but not abortion.

Deputy Doherty: In the use of contraception, I take it that what is described as “the pill” would be a form to which Ireland subscribes?

Mr. McKernan: I would assume so.

Deputy Doherty: In the light of recent public debate in relation to the dangers associated with certain contraceptives, does concern exist with regard to the impact they might have on - or the risks they might pose to - persons in Third World countries?

Mr. McKernan: It is a matter of policy to ensure attention is paid to the quality and nature of the methods which are used, including the contraceptive pill. The references which the Deputy makes to recent revelations in regard to the dangers inherent in the use of the contraceptive pill are topical and I have no doubt the dangers involved will be taken into account and the population policies of both the recipient and donor countries revised accordingly.

Deputy Doherty: Is Mr. McKernan anxious to establish that what we are supporting and contributing to would not have any inherent dangers? Will he be checking that out?

Mr. McKernan: Yes.

Deputy Byrne: That is family planning policy.

Deputy Doherty: What does the United Nations Voluntary Fund for Women’s Development address?

Mr. McKernan: Training and education mainly.

Chairman: Is Vote 39 agreed? AGREED. Thank you, Mr. McKernan.

The witness withdrew.

Deputy N. O’Keeffe: We are one of the few committees of the House, if not the only one, which does not have televised coverage.

Chairman: They are coming in now in a few minutes.

Deputy N. O’Keeffe: I Know but that is different. I am referring to live coverage of the Committee.

Chairman: We have already taken that.

THE COMMITTEE ADJOURNED.

AN COISTE UM CHUNTAIS PHOIBLÍ

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 7 Nollaig 1995

Thursday 7 December 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. John Purcell (Comptroller and Auditor General) called and examined.

Mr. Michael Cunniffe and Mr. Robert Bradshaw, Dept. of Finance representatives, in attendance.

APPROPRIATION ACCOUNTS 1994

VOTE 34 - ENTERPRISE & EMPLOYMENT

Mr. Kevin Bonner, Secretary, Dept. of Enterprise & Employment, called and examined.

Chairman: Does anyone wish to raise any matter of correspondence?

Deputy Doherty: I have a question for the Comptroller and Auditor General. A sum of £5,500 was received by Revenue in respect of seizures of motor vehicles and capital was repaid in compensation to the owners on foot of legal advice. What circumstances resulted in this seizure and the Customs officials having ultimately to repay the money?

Mr. Purcell: I only know what is written here and I am taking it at face value. It looks as though either an error was made or action was taken which later could not be substantiated. That is what it seems to imply but I have no further information on the matter. It was money received by Revenue which was repaid as compensation on foot of legal advice.

Deputy Doherty: It seems a serious exercise to have embarked upon and is not fully satisfactory. The process resulted in the seizure, on the one hand, and the subsequent sale of the cattle. The Revenue Commissioners then found they did not have a sufficient statutory right to do as they had done.

Mr. Purcell: They do not admit that it was a mistake. What they seem to suggest is that they would have difficulties refuting the claims of the owners.

Deputy Doherty: That is skating on thin ice.

Mr. Purcell: I cannot elaborate on it.

Deputy Byrne: I want to raise the matter of the response I received from the Commissioner of Valuation, Mr. Rogers. On reading the Accounting Officer’s letter, I cannot understand how the Valuation Office was so far off the mark vis-á-vis the maps. They envisaged these farmers would require only one map, each of which covers 300 hectares and costs £25. I am still mesmerised as to why they could get it so wrong. It transpires that the average order for these sheets was for two and a half sheets and, in fact, some of them required five or more sheets yet the Commissioner of Valuation seemed to think these farmers would only require one. Is there any way in which we can find out anything further from that office about how they could have got it so wrong?

Deputy Ellis: If a farm was situated at the wrong point on the map, one could need four or five maps.

Deputy Byrne: I understand that but why did the Commissioner of Valuation not understand it when he struck the fee of £25 per sheet and envisaged farmers would only need one sheet?

Deputy Ellis: He would have envisaged the farm being within the particular Ordinance Survey sheet section. Normally, that is the way it would happen but if a farm had two or three parts to his land, he could end up on different sheets.

Deputy Byrne: I appreciate that.

Chairman: Do you want us to take the matter up again with Mr. Rogers?

Deputy Byrne: Yes.

Chairman: I will ask him to clarify that.

Deputy O’Malley: There is a letter from the Revenue Commissioners on two seizures which were made where they had to make payments for different reasons. They both seem to relate to Customs matters on the Border where they were seizing cattle and sheep and where, in one case, a lorry crashed after having been seized.

I raised this matter of seizures by the Revenue Commissioners but I did not have those items in mind. I believed the Chairman of the Revenue Commissioners understood what I was talking about, which related to alleged VAT underpayments or non-payments where seizures of goods were made from traders and shopkeepers. He does not deal with those here; he only deals with matters related to the seizure of cattle and motor vehicles.

Since the last meeting, I telephoned one of the people concerned who told me he was, in fact, paid £40,000 in damages by Revenue for improper seizure. It is a serious matter because he was able to demonstrate to the sheriff at the time the seizure was being made that he did not owe anything and Revenue agreed that was the case. Notwithstanding that, they insisted the sheriff seize his goods. It should not be glossed over as if it did not matter.

Chairman: Do you wish the matter to be taken up with Revenue?

Deputy O’Malley: Yes. Can further inquiries be made about seizures in respect of incorrectly alleged non-payment of VAT from traders?

Chairman: I will take that up again with Revenue.

Deputy Ellis: I think we also asked Revenue about incorrect assessments being made by Revenue on individuals which were totally out of line with the people’s histories and the Accounting Officer gave us a commitment that this would be sorted out. I have seen cases recently where people have been assessed with as high as 20 times the normal tax liability. We should also ask Revenue on what basis they are making these assessments? Are they being made on a factual basis or on a “think of a figure” basis?

Chairman: We will take that question up with Revenue also.

VOTE 34 - ENTERPRISE & EMPLOYMENT

Mr. Kevin Bonner, Secretary, Dept. of Enterprise & Employment, called and examined.

Chairman: You are welcome, Mr. Bonner. Please introduce your officials.

Mr. Bonner: Mr. Paul Haran, Assistant Secretary in charge of finance and planning; Mr. Martin Lynch, is a finance officer; and Mr. Rody Molloy, is in charge of human resource programmes.

Chairman: Paragraph 47 of the Report of the Comptroller and Auditor General reads:

Subhead K. - Metrology Services

Purchase of

Equipment/EU Aid

47.The Legal Metrology Service (formerly the Weights and Measures Service) was set up under the provisions of the Weights and Measures Acts, 1878-1961 for the purpose of ensuring uniformity of measurements for trade purposes and standardisation of the methods of achieving those measurements. The Service comprised a National Weights and Measures Office in Dublin, a National Metrology Laboratory administered by Eolas (now Forbairt) in Glasnevin, Dublin, and a Weights and Measures Inspectorate based in the Dublin and Dun Laoghaire Local Authorities and ex officio Garda sergeants in the other counties.

A consultancy study carried out by the German National Metrology Institute in August 1991 concluded that the existing Irish Legal Metrology Service was organisationally fragmented, poorly equipped and lacking the necessary technical skills or equipment essential for a modern national metrology service capable of dealing with European standards and establishing the necessary mutual confidence with other EU/EFTA Member States.

In July 1992 the Minister for Industry and Commerce approved the re-structuring of the Service with the objectives, inter alia, of the amaigamation of all elements of the Legal Metrology Service into one organisation; relocating the inspectorate into a regional structure with central administration; upgrading the technical expertise of the inspectorate over a period of time and upgrading the accommodation and equipment of the inspectorate to meet the present and future measuring needs of users. A Legal Metrology Group comprising representatives of the Weights and Measures Office and the former Eolas was established in July 1992 to draw up a reorganisation implementation plan.

Expenditure in respect of the reorganisation of the Metrology Service, including the purchase of equipment and the construction costs of the regional offices, qualified for European Regional Development Fund (ERDF) aid at the rate of 75% of eligible expenditure under the EU PRISMA Operational Programme. The original EU Commission Decision of 5 December 1991 directed that legally binding arrangements in relation to operations under the Programme be entered into before 31 December 1993 and payments made to final beneficiaries by 31 December 1994 in order for the expenditure to qualify for aid under the Programme. However, the Department made application on two occasions, which were granted by the Commission, for the extension of this limit which was finally set at 31 December 1994 for legally binding arrangements and 30 June 1995 for payments to beneficiaries. A maximum total of £2,634,750 in ERDF aid was approved by the Commission in April 1992.

Work on the construction of 8 regional offices in Dublin, Cork, Limerick, Galway, Dundalk, Sligo, Waterford and Athlone commenced in 1993 and by June 1995 the buildings were virtually completed. The costs incurred to 31 December 1994 were £3.23m comprising £2.06m in respect of construction costs, £1.05m in respect of capital equipment and £0.12m for computer software.

Up to 30 April 1995, only £538,000 in aid under the Operational Programme had been claimed, whereas, on the basis of eligible expenditure up to 31 December 1994, £2,424,700 could have been claimed.

In the course of an audit carried out by my officers in March 1995, it was noted that a large quantity of equipment intended for use by the Legal Metrology Service and with a total value of £371,000 was in storage at the Central Engineering Workshops (CEW) of the Office of Public Works (OPW). Some of the items in storage had been purchased in 1992. Among the equipment stored at the CEW were fourteen motor vans, purchased in June 1994, nine of which had been damaged in a break-in at CEW in December 1994.

An examination of the Department’s equipment inventory in March 1995, revealed that equipment, in respect of which payments of £166,000 had issued in 1993 and 1994, still had not been delivered by the suppliers and included 2 tractor units with a value of £90,000 purchased in January 1993. Other equipment, costing £26,000 purchased for the Legal Metrology Service, had been transferred for use by the Department’s computer unit or was on loan to an outside computer agency engaged by the Department to develop the software system being introduced as part of the reorganisation programme, while equipment valued at £268,000 was in storage at the National Metrology Laboratory at the Forbairt premises in Glasnevin, Dublin. Therefore, out of a total of £1.05m expended on capital equipment, items to a value of £831,000 were in storage or had not been delivered while items valued at £217,000 were listed in the Department’s inventory as being located in the Department’s premises.

I sought the views of the Accounting Officer on a number of issues, including:

-the purchase of equipment before it was needed

-the security of equipment stored at third party premises

-the delay in claiming EU aid

-overall management of the restructuring project.

The Accounting Officer replied as follows:

The reorganisation of the Legal Metrology Service entailed the construction of eight new regional metrology centres, purchase of new equipment, the transfer of staff from disparate locations into a semi-state structure, enactment of legislation and the optimum use of moneys provided by the EU under the PRISMA Operational Programme. The Minister had approved the project on 31 July 1992 and in order to comply with the deadline stipulated under the PRISMA Programme, legally binding commitments for buildings and equipment had to be entered into before 31 December 1993. The purchase of equipment which required the formulation of detailed specifications and adherence to Government tendering procedures, commenced in December 1992. The project was delayed by events outside the control of the Department involving the acquisition of sites and the building of the centres thereon by the OPW and the securing of agreement with staff interests to transfer arrangements for Local Authority, Garda and Departmental staff. The new equipment could not legally be commissioned until the legislation is passed. It was intended that the staff issues would be resolved to enable the Government to take account of them when approving the draft legislation.

The slow progress in staff negotiations and delays in the building programme required that extensions to the Commission’s deadlines be sought. The project differed from many others in that external funding was available and was subject to a time limit. The Commission recognised the considerations relating to staff and legislation in granting extensions. The modernisation programme could not be delayed until the reorganisation and legislation was completed without jeopardising the possibilities for 75% refund under the PRISMA Programme. Because of its advanced nature, the equipment could not be installed in existing accommodation. A major programme of retraining in its use both from the metrological and safety points of view was also necessary which could only be pursued when the staff issues relating to the establishment of the new service were resolved. Utilisation of the equipment would commence when the staff negotiations were complete, legislation was enacted, the new regional centres were occupied and training commenced and it was intended to have these matters finalised by early 1996. The equipment previously held on suppliers’ premises had since been delivered to the Department with the exception of the two tractor units which are registered in the Department’s name and are stored securely indoors on the supplier’s premises. All equipment in storage in CEW is stored indoors with the exception of the motor vans which have been moved to a more secure location and fitted with alarms.

Due to the priority deployment of staff to work in other areas there was a delay of some months in effecting the drawdown of ERDF funds in the latter part of 1994. Due to the delay in the Legal Metrology project, the PRISMA Operational Programme as a whole has not been finalised and the consequential effect is a shortfall of EU aid received to date. The outstanding aid will be made available some months after the completion of the legal metrology project. The project’s completion time has currently been extended to 30 June 1995 and a further extension to 31 December 1995 has recently been requested from the Commission. If this is granted and no further extensions are necessary, it is estimated that the final drawdown of EU aid will occur around March 1996.

Following an external evaluation of the PRISMA Programme undertaken in March 1994, on behalf of the EU Commission, the Legal Metrology project was highly commended for its contribution to the improvement of metrology and testing infrastructure in Ireland.

Mr. Purcell: Paragraph 47 deals with the delay in revamping the weights and measures service to bring it up to modern standards. The organisation of this service, including the construction of regional offices and the acquisition of new equipment will cost about £3.5 million but the expenditure qualifies for 75 per cent aid from the European Regional Development Fund. The original deadline for expenditure to qualify for aid has been extended on two occasions by the EU on application by the Department because of delay in completing buildings and difficulties in reaching agreements with the various staff interests. The project has not yet been completed and a further time extension was sought by the Department. My information is that the EU Commission’s conditions for granting an extension are unlikely to be met and that may result in the possible loss of about £200,000 in European moneys.

My other concern about the management of the project centered on the purchase of £1 million of equipment and vehicles long before they were needed. For instance, some forklift trucks, trailers and tractors were bought nearly three years ago but are still in storage. Apart from the fall in value arising from normal depreciation, storage and security costs would also be incurred.

The delay in completing the project is holding up the payment to Ireland of the final tranche of EU funds, which is conditional on the lodgment of a final report on the PRISMA operational programme as a whole. The Committee will see from the paragraph that the Accounting Officer emphasised that the money had to be spent before it was needed in order to meet time deadlines laid down by the EU. He also states that delays were caused by events outside the control of the Department and it was expected that the project would be completed by the end of 1995. At present that seems optimistic, bearing in mind that the new metrology legislation must be in place before the equipment can be commissioned and I do not think that has yet been submitted to the Government. All in all, even allowing for the mitigating circumstances put forward by the Accounting Officer, one is left with the feeling that the management of the project left something to be desired.

Chairman: Mr. Bonner, what is the current position in relation to claiming money from the ERDF and will there be any loss of funds?

Mr. Bonner: There has been a delay in this programme and we shortly expect to be in a position to put in place the necessary legislation for the metrology service, to be approved by the Government before Christmas and circulated about that date. We hope to have a claim submitted early in 1996 so that the draw down will occur in March or April of next year.

Chairman: In view of the pace of modern advancements is there a danger that equipment purchased will have become outdated or even obsolete before the legal metrology service is fully up and running?

Mr. Bonner: I suppose there is some danger of that in that equipment which was purchased some years before its commissioning or being put into operation would suffer some deterioration. As regards it being outdated in a couple of years, that is perhaps unlikely but at the same time there would be a question of deterioration or depreciation of some measure, so that what you say would be true, yes. The purchase of these materials was necessitated by our need to claim the money from PRISMA within specific dates in order to get the metrology project underway.

Chairman: What is the current position vis á vis the construction of the eight regional offices?

Mr. Bonner: They are all constructed except for one, which I think is the one in Galway.

Deputy Ellis: With regard to the eight regional offices, did the Department put those to tender or were they constructed on a lease and buy back arrangement? What is the position?

Mr. Bonner: I understand the building of these offices was put out to tender.

Deputy Ellis: They will now be owned by the State?

Mr. Bonner: Yes, that is the position.

Deputy Ellis: It was stated by the Comptroller and Auditor General that a number of vehicles were purchased. How many were purchased and what was their cost?

Mr. Bonner: There were 16 vehicles. I will get the cost for the Deputy in a minute.

Chairman: I ask the Comptroller and Auditor General to intervene at this point.

Mr. Purcell: From my own files I see there were two tractors to a value of £89,000; two fork lift trucks to a value of £55,700; two trailers to a value of £41,000; and 14 vans to a value of £179,000. I think these were the main vehicles involved.

Deputy Ellis: I take it the two tractor units were two trucks rather than two agricultural tractors.

Mr. Bonner: I am not sure what kind of tractors they were. I do not have information in that detail.

Deputy Ellis: Who authorised the purchase of those vehicles?

Mr. Bonner: They would have been authorised by the management of the Legal Metrology service in the Department.

Deputy Ellis: When they were authorising them, did they state the vehicles would be left in mothballs for at least three years? It seems ridiculous because vehicles, which can depreciate quickly, should only be bought as required, not bought and mothballed.

Mr. Bonner: The intention was to get them into operation as quickly as possible. The reason we had to buy them before they could be commissioned was that there was a necessity to claim funds, otherwise we would have lost the possibility of achieving the financing of the new Legal Metrology Service by the EU if we did not make this investment within specific deadlines. That was the reason the purchases had to be made when they were, even though they could not be commissioned immediately.

Deputy Ellis: What was the final date for draw down of this project, or had it to be drawn on an annual basis?

Mr. Bonner: The first date, as far as I remember, was the middle of 1993. We had to seek extensions of that at six monthly intervals until the end of the PRISMA project, which ends at the end of December this year. We sought extensions along the way as the project became delayed.

Deputy Ellis: On what date were the vehicles bought?

Mr. Bonner: They were bought in 1992 and 1993-----

Deputy Ellis: At what time in 1992?

Mr. Bonner: December 1992.

Deputy Ellis: In other words they were bought some six to eight months before it was necessary to buy them, taking the first date as the date. This deserves further scrutiny. It is not Mr. Bonner’s personal responsibility, although he is the Accounting Officer, but it shows a lack of co-ordination in the project. Vehicles are the last items one buys in any reasonably organised groups. When were the eight regional offices complete?

Mr. Bonner: The last is being completed now -- the Galway one is not yet completed but it is being finished now and the others have been completed at various dates earlier this year.

Deputy Ellis: In other words vehicles were bought two to two and a half years before the offices from which they were to operate were completed.

Mr. Bonner: The reason I give you is that the programme had to commence and we had to commence investments and show expenditure to show we were going to use the funds which had been set aside in the PRISMA programme for this project.

Deputy Ellis: When was work commenced on each office?

Mr. Bonner: I do not have those exact dates but they would have been commenced in 1993 and 1994.

Deputy Ellis: Poor management has been shown in what happened here; nor would we as the Committee of Public Accounts approve of the delays in claiming from the EU. Could Mr. Bonner tell us how much of the equipment which has been purchased will be found to be obsolete when this is up and running?

Mr. Bonner: None of the equipment will be obsolete. The only thing that will happen is that there may have been some deterioration or depreciation during the period but all the equipment which has been purchased will be utilised in the new Metrology Service. There were two reason for the delays. First, the people who are involved in operating the Metrology Service are composed of officers and officials from Local Authorities and the Garda. We have found it extremely difficult to get agreement on terms and conditions of employment for these various grades because they are all paid at different levels and different salaries and it has been found very difficult to find a method of integrating them into one uniform service which is the overall objective of establishing the new Legal Metrology Service. Those negotiations have been the thing which has singularly held things back. Secondly, there has been a delay in promoting the relevant legislation which, as I say, should be approved by the Government before Christmas and circulated around Christmas or at least in early January.

Deputy Ellis: What has been the cost of storing those vehicles and where are they stored at the moment?

Mr. Bonner: The vehicles are on premises of the Office of Public Works and therefore their storage did not incur any cost to us. They are stored in Inchicore.

Deputy Ellis: They are stored in Inchicore. What has been the cost of security?

Mr. Bonner: I take it that where they are stored at the moment has security anyway so the extra cost of security would be negligible.

Deputy Ellis: Are you being charged any storage cost by the Office of Public Works?

Mr. Bonner: No.

Deputy Ellis: Are the vehicles stored inside or outside?

Mr. Bonner: The vehicles are outdoors.

Deputy Ellis: So in other words, three years’ rust will have accumulated by the time you begin to use them.

Deputy Byrne: I read this report last night and I found it quite shocking that it came under the heading of Enterprise and Employment because enterprise was certainly lacking in the approach to the project. I wish to ask Mr. Bonner a few questions. We note that the Minister gave sanction for the project on 31July, 1992, and that when the Comptroller and Auditor General was carrying out an audit in March, 1995, he discovered in storage, items that had been purchased in 1992. Could you give us an idea of the type of items that had been purchased in 1992, why they were still in storage? I am anxious to know the rate of depreciation in value. I am anxious to know if it is scientific equipment or electronic equipment. Is it now worthless before it has ever been put to use because of the time span involved? I would appreciate if you could answer that question first.

Mr. Bonner: As I understand it, there were two main types of equipment. One was vehicles that would be used by the Legal Metrology officers in the course of their duties and secondly, metrology equipment which is akin to computer hardware.

Deputy Byrne: Given the rate of development in technology, would it be fair to assume that if the items were purchased in 1992, were still in storage up to the audit of March of 1995, and still have not been put into an office to work, that it is very likely that the technological items are now out of date?

Mr. Bonner: I understand that that is not the position. With technological developments in general, that might be marginally the case, but in such a short period of time it would be unlikely that they would go greatly out of date. It is obvious, however, that in regard to the actual machinery there was bound to be some form of deterioration in vehicles which are kept for a number of years without being used.

Deputy Byrne: The vans, according to our report, were not purchased until 1994. I am more interested in the equipment that was in storage as against the vehicles, but if you do not have that information you might provide it for us at a later date. What equipment had been purchased in 1992 that is still in storage?

Mr. Bonner: The type of equipment involved here is used for measuring standards. This service used to be called Weights and Measures. The equipment is used to determine that other weighing and measuring equipment is absolutely accurate. It is not the type of equipment that goes out of date in a matter of years.

Deputy Byrne: We will come back to the 14 motor vans which were purchased in June 1994. We read that sadly, while in storage in the Office of Public Works and under their care, nine of them were damaged as a result of a break-in. Could you tell me the cost of the damage caused and who picked up the tab?

Mr. Bonner: The total cost of the damage was £800 and that cost would fall to us.

Deputy Byrne: The total cost of damage to nine damaged vans was £800?

Mr. Bonner: That is correct. The damage, therefore, could not have been very substantial. I presume wing mirrors and glass were damaged and that type of thing.

Deputy Byrne: Given that I had my side window broken by a thief who took my radio which cost me £150 to replace, I wonder how you could get such good value out of £800 for nine damaged vans.

Mr. Bonner: The only answer I can give you to that is that the damage was not very substantial. I would say that it was hardly worth mentioning.

Deputy Byrne: The fact that the Comptroller and Auditor General felt that it was worthwhile mentioning that nine vans had been damaged as a result of a break-in is important to this Committee. I find it remarkable that nine damaged vans could have an accumulated cost of only £800. Perhaps somebody might be able to explain because a scratch to a car or van would cost £100 and it costs £150 to replace a broken pane of glass. If you are telling me that wing mirrors and things are broken, I would like to know how you did your calculation of £800. However, I wish to return to the matter of the 14 new vans sitting in storage which were subsequently moved to a safer location. Have these vans ever been used or are they still deemed to be new vans in storage? Have they been taxed and insured and put on the road?

Mr. Bonner: No. I understand the engines are started regularly to ensure that they are kept turning over and batteries have been taken out and charged and so on.

Deputy Byrne: Would you agree that there is a ball park figure of a 40 per cent depreciation in the value of equipment in the public service? We reckon depreciation is 20 per cent per annum.

Mr. Bonner: Yes, that is in regard to equipment that has been used. I do not know what the equivalent figure for an article which is kept and not used would be. It probably would not be 40 per cent.

Deputy Byrne: We note that £166,000 was issued to suppliers in 1993 and 1994 for equipment that was not delivered. When the Comptroller and Auditor General carried out his inventory he discovered this fact in March of 1995. Can you explain how anybody could agree to purchase goods and pay over £166,000 and not take possession of whatever goods or items were being purchased? Would this be an unusual occurrence?

Mr. Bonner: As I understand it, the vendors agreed to keep them in storage for us until such time as they could be used. As far as I know all that machinery has now been transferred to our property or Office of Public Works property. All the items mentioned there, paid for with that £166,000, are now in our possession.

Deputy Byrne: Would they be used or are they still in storage?