MIONTUAIRISC NA FINNEACHTA
(Minutes of Evidence)
AN COISTE UM CHUNTAIS PHOIBLÍ
COMMITTEE OF PUBLIC ACCOUNTS
Déardaoin, 24 Aibreán 1997.
Thursday, 24 April 1997.
The Committee met at 11 a.m.
DEPUTY DENIS FOLEY IN THE CHAIR
Mr. John Purcell (An tArd Reachtaire Cuntas Agus Ciste) called and examined.
Mr. Kieran McGowan (Chief Executive, IDA Ireland) called and examined.
Mr. Oliver Tattan (Chief Executive, An Bord Tráchtála) called and examined.
Mr. Pat Hayden (Principal Officer, Department of Enterprise and Employment) in attendance.
Mr. John Walsh (Assistant Secretary, Department of Tourism and Trade) in attendance.
Chairman: I have received correspondence from the Department of Agriculture, Food and Forestry.
Deputy B. O’Keeffe: Does that relate to the beef tribunal?
Chairman: Yes. We are noting the first one.
Deputy Ellis: According to the correspondence from Margaret Hayes, £8 million was paid in respect of claims under the export credit insurance finance schemes. What percentage was that of the total cover provided?
Chairman: We can get that figure. She is referring to 1990, covering exports made in 1988. A further amount of £0.8 million was paid in 1986. We will get the total figure for the Deputy.
Deputy Ellis: I just want to know what percentage of the total that figure represents.
Chairman: Any questions on agriculture?
Deputy B. O’Keeffe: I note Mr. MacGiolla’s claim was for £606,000 and that Deputy O’Malley has lodged a claim for £968,000. The Tánaiste’s application for legal expenses has not been noted. Could we inquire from the Department if his claim has been submitted?
Deputy B. O’Keeffe: It is suggested the claim will be about £1 million.
Chairman: We will get that information for the Deputy. It probably will not be available before the election.
Deputy Ellis: A list of outstanding legal bills must be submitted. We have pursued this matter previously with the Secretary of the Department. People have six years in which to claim their expenses. Could we have the full list of those who are entitled to claim and a list of those who say they do not wish to claim their legal costs?
Chairman: We will get that information.
Deputy Byrne: If it is true they have six years in which to claim. I hope they do not add the interest accrued to the amounts claimed. The issue of the Goodman payments has been aired in the newspapers in the past week and the taxing master has acceded to all his claims. According to this communication, the amount outstanding under appeal is over £2 million for Larry Goodman. Has the Comptroller and Auditor General more up to date figures because that the letter is dated 17 April? Will he give us the current figures approved by the taxing master?
It is outrageous that the legal profession could contemplate charging taxpayers this type of money. It is frustrating to see the power of the legal profession. A commission ought to be established to investigate its rates. I understand they are determined by whatever the market can bear. On numerous occasions I have commented on the fact that so many people in the legal profession are making a killing at the expense of the ordinary punter, be it through compensation or public liability claims. This is probably one of the most disgusting elements of Irish life. Their outrageous advertising policy tries to attract people to their offices in order to pursue frivolous claims. No other profession can make such outrageously large and inflated claims on the taxpayer. It seems to be immune from any form of criticism or censure. The costs are invariably sent to the Taxing Master who arbitrates on the matter. We know that women who sought equality payments made claims on the Department of Social Welfare to the tune of £1.5 million. The Taxing Master said they were only entitled to £1 million.
Why is the legal profession allowed to present arbitrary and totally inflated charges when taxpayers had to rely on the Taxing Master to arbitrate on the matter anmd were told they tried to rob the State of £500,000 and it would not be paid to them? It is immoral and requires a fundamental review by a committee of this Parliament. Maybe this Committee is the appropriate body and perhaps it would be appropriate for the Comptroller and Auditor-General to start investigating fees that are being levied against the State.
Deputy B. O’Keeffe: When we were discussing the beef tribunal we dealt with legal fees and said how outrageous they were. We were looking at mechanisms under which they could be controlled and the cost of tribunals curtailed. We now have the Dunnes tribunal and previously we had the hepatitis C tribunal. Will the Comptroller and Auditor-General outline if any parameters were put in place to curtail the costs of legal representatives at the present tribunal and the earlier one? Was any agreement sought with regard to costs before the present tribunal was set up?
Chairman: I do not want to have a debate on the matter. We are dealing with correspondence.
Deputy B. O’Keeffe: It is important that we should learn lessons from the past.
Mr. Purcell: The main problem with the beef tribunal that was brought to the attention of this Committee was that there was no advance agreement on the scale of fees that would be paid to the legal representation for both the State and the tribunal, and no distinction was drawn between fees for sitting days and non-sitting days until well into the proceedings of the tribunal. Lessons have been learned particularly when the State is appointing its own counsel or, in the case of the Dunnes tribunal, where a counsel is being appointed both for the tribunal and the public interest. While I cannot confirm that these arrangements are in place - I will do so in due course - I have no reason to believe that they would not be. When a tribunal is set up, there is no control over the payment of fees on behalf of people who are granted representation, other than the control that is exercised by the Taxing Master. People granted representation at a tribunal are awarded their costs. Those costs are not known in advance. It is open to the Taxing Master to look at how reasonable those costs are.
Deputy Byrne: What does the Comptroller and Auditor-General think of the system? Public money is involved? Did he ever do any work on it?
Chairman: There is another forum for dealing with that.
Deputy Byrne: This is a very important issue because we are talking about public money.
Mr. Purcell: I examined the experiences in other countries in handling affairs like this. It looks as if each country must go through at least one of these types of tribunal or investigation before it realises what it is letting itself in for financially. It happened in Britain with the Crown agents. The Scott Inquiry was dealt with in a much more economical and satisfactory fashion. The same happened in the United States with the special investigations. At least one of those - I think it was the Colonel North affair with Laurence Welsh as special prosecutor - went over $50 million. It was only well into the inquiry that it was decided to curtail the allocation of money because it wa going on indefinitely. At the time we felt there would never be a repeat of the beef tribunal but we have had a couple of tribunals since, none of which has assumed the scale of the beef tribunal. There are further lessons to be learned but it is impossible for me to prescribe how a Government should go about such an investigation.
Deputy Byrne: I recommend that we invite the Comptroller and Auditor General to do a value-for-money audit on the office of the Taxing Master.
Deputy B. O’Keeffe: The Comptroller and Auditor General made an important comment arising from a recommendation made by this Committee. Regarding the present tribunal and the one on hepatitis C he said we do not know whether the recommendations that emanated from this Committee in terms of what charges were made by people representing the State and the public interest were put in place. Can we write to somebody to establish if our recommendations have been put in place and can they report back to us?
Chairman: Yes, we will take that up.
Deputy Byrne: Maybe the Comptroller and Auditor General can say whether it is within his remit to do a value-for-money audit of the office of the Taxing Master.
Chairman: I am moving on to the Department of Justice. Are there any questions on the letter from Mr. Dalton?
Deputy Byrne: I congratulate Mr. Lonergan for managing to feed his prisoners for £3 plus per day. It is an example of the really efficient running of the kitchens in Mountjoy. He should be applauded for keeping costs so low.
Deputy B. O’Keeffe: They do not look lean and hungry.
Deputy Ellis: Over a long period I have tried to find out why Garda escorts only cost £700,000 but those provided by the Army cost £3.3 million. I see them on a regular basis and I cannot understand what rate Garda time and equipment is being charged at to justify such a low cost.
Chairman: I do not want to interrupt the Deputy but Mr. Dalton says in his letter that he is awaiting information from the Garda authorities in order to provide a response to the Committee’s question.
Deputy Ellis: We are talking about something we queried during the last two visits by the Secretary of the Department of Justice. I know he is trying to find out the costs of the service as well. The beneficiaries should pay the full cost of the service. It is ridiculous that taxpayers have to subsidise organisations that are making very large sums. We are talking about groups that are making half a billion pounds annual profit from taxpayers. It is unfair that the taxpayer should pay for cash escorts.
REPORT OF THE C & AG ON THE AUDIT OF THE 1995 ACCOUNTS ON NON - COMMERCIAL STATE SPONSORED BODIES - IDA.
Mr. Kieran McGowan (Chief Executive, IDA Ireland) called and examined.
Chairman: I welcome Mr. McGowan.
Mr. McGowan: Accompanying me are Tom Rochford, head of regions and property divisions of IDA; Martin Burbridge, our chief accountant and Pat Hayden, Principal Officer in the Department of Enterprise and Employment.
Chairman: Paragraph 4 of the Report of the Comptroller and Auditor General reads:
ENTERPRISE AND EMPLOYMENT SECTOR
IDA (IRELAND), FORFÁS
4.Textile Plant Rescue
A multinational textile company acquired two plants in Ireland in 1988
•an empty factory of 302,000 square feet in County Clare
•a textile plant employing 350 workers in County Kerry.
By 1993, the plant in Kerry required significant investment and the Industrial Development Authority sought to persuade the company to undertake that investment and thereby save 220 of the existing jobs. The company’s position was that the investment would need the support of significant grant assistance. Grant assistance could only be given under the terms of the Industrial Development Act, 1986 in circumstances where
•new employment was provided or existing employment was maintained in the State which would not have been maintained without assistance and
•it would increase output and value added within the economy.
It was decided to effect the injection of funds into the company, with the objective of maintaining an employment level of at least 220, through the purchase of the factory in Clare by the Industrial Development Authority. The company and the Industrial Development Authority agreed to co-operate in identifying a project for the factory and by August 1993 the Authority had commenced negotiations with another major US textile company that was interested in establishing a project in the factory. The Industrial Development Authority agreed to purchase the Clare factory and a price of £5m was settled upon. This was approved by the board of the Industrial Development Authority in December 1993 and confirmed by Government decision. However, subsequent to the purchase of the factory by Forfás in January 1994 the other major US textile company with whom IDA Ireland was negotiating decided, for its own commercial reasons, not to proceed with the project.
The Government decision was conditional on
• the entire £5m being expended on machinery and equipment for the Kerry plant - the machinery to be purchased within 12 months and retained until at least December 1998
•an undertaking that at least 220 jobs would be retained at the Kerry plant until December 1998.
In addition, the Authority was to endeavour to persuade the company to invest a further £3m in the plant.
It was noted in the course of audit that the employment level at the Kerry plant had decreased to 169 by August 1996.
It was also noted that the valuation of the Clare factory in the books of Forfás, which, at that time, held all industrial property on behalf of Forbairt and IDA Ireland 6, was reduced to £3.02m.
I enquired from the Chief Executives of IDA Ireland and Forfás as to
•the total grant and other financial assistance made available in respect of the Kerry plant since its establishment
•how the agency satisfied itself that the £5m investment in machinery and equipment occurred and how much of the additional £3m was invested by the company
•how the employment and other terms of the assistance were monitored and enforced
•the extent of refunds due to the agency as a result of employment reductions
•why the value of the factory had reduced to £3.02m and how it is currently utilised.
The Chief Executive of IDA Ireland has informed me that grant assistance of £984,000 had been made available in respect of the plant since 1988.
In regard to how the agency satisfied itself that the £5m investment was made, he stated that regular and ongoing contacts were maintained between the agency and the local and corporate management of the company. The investment programme was completed by June 1995 and the audited accounts of the company record cumulative expenditure on plant and machinery to that date at £5.44m with an additional £0.78m being incurred on associated building modification. IDA Ireland executives, as part of their regular contact with the company, viewed the new plant and were satisfied that it was compatible with that detailed in the company’s investment programme submission.
6The responsibility for industrial property was transferred to IDA Ireland with effect from 1 January 1996.
Employment levels are monitored through
•an annual survey each October by Forfás
•quarterly contacts by IDA Ireland project executives with the company.
The agreements with the company were recorded in two documents, both entered into in January 1994
• the terms of the purchase of the factory were set out in an agreement with Forfás
• a further agreement with IDA Ireland stipulated that the company invest £5m in the Kerry plant and maintain employment at 220 jobs.
The latter agreement stipulates that, in respect of any shortfall in investment or jobs, an amount of money based on the actual shortfall would be repaid.
In March 1996 the company formally announced a restructuring programme involving a reduction in employment of 90 people phased over a 5 month period commencing in May 1996. Employment was to reduce from 231 to 141 under this programme. A formal request for repayment was deferred until completion of this programme at which time the exact number of redundancies would be known.
As employment has now reduced to 141, i.e. 79 below the base of 220, IDA Ireland, in the normal course of business, is enforcing the clawback condition in relation to jobs. This has resulted in IDA Ireland seeking repayment of £601,427 from the company. This is calculated at £7,613 per job for the 79 jobs.
In regard to the subsequent revaluation of the factory, the Chief Executive of Forfás has explained to me that despite the best efforts of the industrial development agencies it did not prove possible to sell or let this factory as envisaged at the time when the £5m valuation was attached to it. This valuation was based on the fact that the Industrial Development Authority was in substantive discussions with a major US textile company to locate a facility with the potential for 450-700 jobs in the factory. By the end of 1994, negotiations with the US company had terminated following the decision of that company to make an acquisition in France rather than develop the Clare property as a greenfield site for its project.
It was then considered prudent, for accounting purposes, to revalue the building on the balance of probability that it would not be sold as a textile plant. If sold for another purpose it was clear that the building would require substantial refurbishment and upgrading. On the basis of the extensive knowledge and experience of the staff managing the property portfolio it was considered that a more realistic and prudent figure in valuing the property for accounting purposes would be £10 per square foot having regard to size, location and specification of the building. Accordingly, the plant was revalued to £3.02m.
Mr. Purcell: Paragraph 4 outlines the circumstances in which the IDA purchased a factory at Gilloge in County Clare which had lain idle for the previous nine years at a cost £5 million. The proceeds of the sale which took place in 1994 were used by the vendor, as agreed, for investment in another of its factories in Tralee in order to sustain a minimum of 220 of the existing 350 jobs there. At the time of the sale there was an expectation on the part of the IDA that the factory could be sold to a major player in the textile industry, but this fell through and the IDA has been left with a substantial property on its hands which is diminishing in value and which has cost it over £200,000 in carrying costs since the sale.
While investment in the Tralee factory had the desired effect in the short term, employment fell to 141 during 1996. The IDA has, therefore, enforced the clawback condition in relation to job numbers and has sought repayment of over £600,000 from the company. As far as I am aware no refund has yet been obtained but the Chief Executive may be in a position to up-date us on this matter.
I felt it necessary to report on this matter as it constituted a departure from the IDA’s normal role in industrial development. In effect, the IDA acted as a rescue agency which falls outside the policy parameters under which it normally operates. Under governing legislation, the IDA is precluded from directly grant aiding the Tralee factory in a situation where jobs were being shed. Therefore, in a sense the rules were circumvented by the purchase of the Gilloge factory and the subsequent use of the proceeds in the way described.
The final cost to the State will only be known if and when the IDA sells the property or attracts a suitable industry to use it.
Chairman: This is of particular interest to me as it concerns the Klopman factory in Tralee. With hindsight, was this a good investment of public money or should the IDA have acted differently?
Mr. McGowan: We were satisfied, on the basis of much discussion with Klopman at the time, that substantial investment was needed if the jobs of 220 of the 350 employees were to be saved. We were also satisfied that the company was not going to make that investment unless they received £5 million from us. As pointed out by the Comptroller and Auditor General, the company did not comply with the terms of the necessary legislation to give it a grant so we came up with this way of making the investment with a view to saving the jobs. At that time, Klopman had reached agreement with Hualon, a Taiwanese company, who agreed to buy the factory for £4.5 million but decided not to proceed with the purchase. Based on this and the fact that we quickly entered discussion with another company, Malden Mills, about purchasing the company for £5 million, we felt that it was a reasonable set of circumstances. The process was embarked upon to save the 220 jobs. We knew they had been offered £4.5 million. We reached agreements on two occasions with two different companies - Malden Mills and American Power Conversion - to purchase the factory for £5 million. Unfortunately, neither deal went ahead.
We tried to save jobs. We still have the factory and are trying our best to sell it and get as much as we can for it.
Chairman: Is it correct that Klopman received an injection of £5 million after January 1994?
Mr. McGowan: Yes.
Chairman: This was on the basis that the IDA was taking over the factory in Clare. Was the price of the factory in Clare inflated in order to give them £5 million because the value of the factory now is just over £3 million?
Mr. McGowan: Valuation of a factory is influenced by two different and sometimes conflicting factors. There is the need to get the highest price possible from the purchaser. However, it is also necessary to comply with the relevant accountancy practices and financial reporting standards to include in financial statements a net book value which reflects a prudent estimate of the recoverable value. This is the process which led to the revaluation downwards to £3 million. We are now entering that process again as we complete our financial statements for 1996, namely, examining the valuation of our entire portfolio, including the factory in Gilloge. We will try to reflect a prudent recoverable value but we will also try to get the highest price for it.
Chairman: I compliment Mr. McGowan and the IDA on the approach to the management of Klopman. However, it has done a U-turn because, after the injection of £5 million, Klopman guaranteed 220 jobs up to December 1998. That figure is now down to 141. It has not been fair to the employees because they have asked them to take certain cuts. Is the IDA seeking a refund of the difference between 141 and 220?
Mr. McGowan: Yes, we are. We have not got the money yet but we will. The parent company guaranteed that we will get the refund based on the 70 jobs short of the 220 at the rate of £7,600 per job. We are in discussion with Klopman on the future of the plant because it is operating in a very difficult sector.
Chairman: An agreement was reached to invest the £5 million and the IDA asked the company to invest a further £3 million. According to the figures presented it has only invested £1.2 million. Has the IDA any hold on the company regarding the balance?
Mr. McGowan: No. The decision we made was to try our best to ensure the company invested up to £3 million but only £1.3 million was invested in addition to the £5 million.
Chairman: Will the IDA become involved again in rescuing Klopman if the need arises?
Mr. McGowan: We will continue to try our best to save the 141 jobs in Klopman.
Deputy Ellis: We all understand the problems Mr. McGowan has regarding this business. It is correct to say that the price paid was the going rate at the time for work space?
Mr. McGowan: Yes. The company was previously offered £4.5 million. The area covers 302,000 square feet.
Deputy Ellis: That amounts to £20 per square foot.
Mr. McGowan: It is less than £20.
Deputy Ellis: All textile plants in Ireland seem to be running into major problems on a number of fronts. Is it true that equipment needs to be updated as many of the plants are approximately 15 to 20 years old and do not seem to have access to the necessary resources because of the tight margins within which they operate? Has the IDA plans to upgrade those plants to the same standard as their competitors?
Mr. McGowan: I agree that many of the textile and clothing operations are under pressure because they are competing with companies that are operating in countries with lower costs. Operations in Ireland which are very labour intensive have a tough time. We are encouraging them to try to automate or introduce other added value functions such as design or development work so that they can offset the higher labour costs with other compensating advantages. If companies do this and expand their operations in the process, we would be interested in providing financial assistance. However, we would not provide such assistance for the purposes of retooling or re-equiping because it would not comply with the terms of the legislation.
Deputy Ellis: It appears there will need to be a radical injection of capital into this sector in the future by means of grant assistance or from the parent companies. It is obvious that parent companies will not invest such capital and will instead establish operations in the cheap labour markets of the Far East. Is there a need to change the legislation to allow the IDA to provide further assistance to companies with a ten to 15 year track record?
Mr. McGowan: Not so much a track record, but if a company has a ten to 15 year life forward as a result of investments made in the area of design or development we would be interested in discussing assistance. I do not believe there is a need to change the legislation because we must be careful that good money is not thrown after bad. In this area we have the ability to give companies research and development grants to take on design and technical capabilities. That can be done if we are satisfied that they have a long life forward and are taking the kind of action which will make them competitive.
Deputy Ellis: What was the original amount paid to the company in question for the jobs it created in County Kerry prior to the £7,600 injected in 1993?
Mr. McGowan: Since 1988 when the company took over from Burlington, it received, as stated in the report of the Comptroller and Auditor General, £988,000 in total grants, a little less than 50 per cent of which took the form of market development fund grants.
Deputy Ellis: In other words it only received £988,000?
Mr. McGowan: Yes.
Deputy Ellis: Therefore, the company’s job costs are probably running at the norm or even below it?
Mr. McGowan: Yes. One way to look at it from our point of view is that, if the worst comes to the worst, we will have to recoup the money at a rate of over £7,000 per job. On the other hand, we will have the factory to sell and we will attempt to obtain the best possible price. Therefore, we might not make too great a loss.
Deputy Ellis: In other words, the IDA’s position is reasonably secure. Questions have not been raised about the IDA’s accounts because everything appears to be in order. As in the case of other semi-State companies, the accounts in question are up to date unlike those of local authorities where an antiquated system of accounting obtains.
Deputy Byrne: Mr. McGowan referred to a multinational company’s acquisition of two plants in Ireland in 1988. In January 1994, Forfás purchased the County Clare plant for £5 million. From whom was that plant purchased?
Mr. McGowan: Klopman.
Deputy Byrne: Is it correct that the plant had been lying empty for five years at that stage?
Mr. McGowan: Yes but Klopman had two plants. The plant in County Clare was empty while the one in Tralee was in operation and employing people. We purchased the empty plant with a view to trying to save the jobs in the Tralee plant.
Deputy Byrne: I appreciate that. When Mr. McGowan states that the plant was “empty” is he indicating that the IDA purchased the shell of a factory or was there machinery on site?
Mr. McGowan: To the best of my knowledge, there had been machinery on site but most of this had been removed by the time we purchased the plant. Therefore, the factory could be used for any purpose.
Deputy Byrne: Is it correct that the IDA was convinced that £5 million was the correct value for a plant that had been on the market for five years and presumably could not be sold during that time?
Mr. McGowan: The two main ingredients that went into the decision to pay £5 million for the plant were, first, that we were satisfied such an amount would be required to save the jobs and, second——
Deputy Byrne: Will Mr. McGowan clarify about what the IDA was satisfied?
Mr. McGowan: We were satisfied that the company needed £5 million if the jobs were to be saved. Two years earlier, Klopman had been offered £4.5 million from another company in a deal approved by the Government but, for entirely different reasons, that company decided to establish a base in Northern Ireland. The £5 million did not seem out of line as Klopman had been offered close to this amount on a previous occasion. We were also mindful that this amount would be required to save the jobs.
Deputy Byrne: While I applaud the IDA’s efforts to save jobs, I would like to believe that a three card trick was not being played in respect of the plant’s market value. The plant is on the market, the IDA cannot sell it, it is empty and is valued at over £3 million? Is it correct that the figure of £200,000 refers to maintenance of the structure?
Mr. McGowan: Yes.
Deputy Byrne: I do not believe value for money has been obtained as the IDA purchased a factory shell which has been empty for ten years, for £5 million and it has cost £200,000 to date in maintenance costs. I assume there will be further maintenance costs. Is it correct that considerations other than the market value of the factory shell were involved in this deal?
Mr. McGowan: There were considerations other than the market value of the building. In this instance, the term “shell” refers to a building which would be ready for immediate start-up if a suitable operation were found to occupy it and begin production. As already stated, another influencing factory involved saving the jobs. Since the building came into our ownership, we have reached agreement with two companies to pay £5 million for it. Therefore, both companies - Maldon Mills, in the textile area, and American Power Conversion, in the electronics area - separately agreed to purchase the plant from us for £5 million. Before we became involved a company agreed to pay £4.5 million and since we purchased the plant a further two companies agreed to pay £5 million but all three deals fell through which is unfortunate. We now have on our books a building valued at £3 million, for which we paid £5 million, which we are still trying to sell for the best possible price.
Deputy Byrne: The IDA almost sold the plant on two occasions for £5 million, the amount which it paid for it. I understand that it was valued at £20 per square foot when purchased by the IDA. However, this has been reduced to £10 per square foot which is 50 per cent of the original value. Why was that?
Mr. McGowan: There are two conflicting elements in the valuation on the books. One is the need to obtain as high a price as possible for the factory and the other is the need to comply with the relevant standard statements of accountancy practices to ensure the books reflect a prudent realisable value. That may well mean the value is reduced. In the context of the 1996 accounts, it may be revalued again. We are anxious that there be no public comment about the book value because any such comment on revaluing property downwards would not help one’s chances of selling it at a higher price. There have been cases where we have sold properties for a price in excess of what was stated on our books and others where we have sold them for less. We will continue to try to obtain £5 million for this building.
Deputy Byrne: How much does it cost to maintain this factory?
Mr. McGowan: The annual care and maintenance costs for the factory are about £275,000. It is temporarily being used for storage by the second company we almost sold it to, American Power Conversion. It is paying the annual maintenance at this time but we do not know how long that will last as it is a monthly arrangement.
Deputy Byrne: On what would £275,000 be spent? Would it be 24 hour security?
Mr. McGowan: It is spent on heating and security.
Deputy Byrne: Must the factory must be heated if it is only being used for storage?
Mr. McGowan: Any building will deteriorate if it is not kept properly.
Deputy Connor: How much vacant property has the IDA at present?
Mr. McGowan: We have roughly 800,000 square feet, of which 500,000 is booked and reserved.
Deputy Connor: That leaves 300,000 square feet. Some 500,000 square feet is not being used as factory space but is booked and reserved. Does that mean people will establish industries there?
Mr. McGowan: Yes. The nature of our business is that, when we are in discussions with companies and trying to get them to sign up, there is a reservation process before they set up here. That accounts for the 500,000 square feet.
Deputy Connor: Does this tell us anything about the interest of industrialists in establishing in this country?
Mr. McGowan: Yes. The interest level for the past few years has been high and it is continuing apace this year.
Deputy Connor: If we take Mr. McGowan’s statement as a benchmark, was the position better or worse one or two years ago?
Mr. McGowan: My opinion, rather than the facts, is that the property situation is tighter than it was a few years ago because demand has been high. In the past few years, our policy has been that, instead of building factories with our or the State’s money, we have sought to interest private sector developers to construct buildings. This is desirable. A combination of the fact that we are no longer building factories and the high level of interest in inward investment means that the property situation is tightening up.
Deputy Connor: Some 800,000 square feet of factory space is currently vacant, divided as described. How much land has the IDA?
Mr. McGowan: Some 2,200 acres.
Deputy Connor: Is it fair to say that, in certain areas, there is no prospect of this land attracting the interest of an industrialist for a long time, if ever?
Mr. McGowan: One of the processes in which we are currently engaged is what we call “land swaps” with local authorities. This means the IDA is now seeking to swap for more suitable and attractive sites on a county by county basis with local authorities some of the land acquired when it had a wider brief, for example, in relation to small industry and indigenous development. That is a very active process to ensure our land portfolio matches our day to day responsibilities as an organisation.
Deputy Connor: Excluding the main centres of industrial growth such as Dublin, Cork, Limerick, Galway and the Clare-Shannon area, will Mr. McGowan indicate how much land and factory space the IDA has in towns with populations of less than 3,000 and between 3,000 and 5,000?
Mr. McGowan: Could we supply the Deputy with that answer afterwards? It is very difficult to answer.
Deputy Connor: The country is obviously going through an economic boom with huge investment. However, I come from a constituency, Roscommon, where there is considerable criticism of the fact that it receives very little of investment. The Minister for Enterprise and Employment announced the creation of greater incentives for industrialists to locate in small areas. What else is the IDA doing? What is the local office in Athlone doing to improve the industrial prospects of towns such as Roscommon, Birr, Banagher, Boyle or Castlerea, which have high rates of unemployment at this time of high levels of investment?
Mr. McGowan: There is a high level of investment, much of which has gone to the larger cities and not as much to smaller towns as local people and as we would like. That is partly due to the fact that the mix of our business has changed in recent years. More than half has come from the expansion of existing companies, which is not truly mobile. A small number of very large projects are not prepared to consider locating outside the main centres.
We are trying to place more emphasis on getting smaller companies, especially from Germany. Historically, European companies were much more willing to consider locating in smaller towns. We are also trying to encourage one of the largest growth areas in our business, services, for example software services or back office service projects, which, until now, has not been prepared to go outside the main cities, to locate in other areas. We have a dedicated resource in our company to make this happen.
As regards what the Athlone office is doing, we have a monthly management meeting in the organisation and the area directors meet with the salesmen and talk about future business, where it is coming from and what its needs are. The local office aggressively puts forward the case for its area. We draw up the programmes for visits, etc., based on those discussions.
Deputy Connor: Can the IDA offer an industrialist who wants to locate in a small town such as Castlerea, Boyle or Birr with Athlone as the regional office, a more concessionary rate for the letting or sale of its property?
Mr. McGowan: Theoretically we can but we tend to try to influence them with a higher grant rather than granting concessions. We are trying to run the property portfolio on a commercial basis. We would give them more money as a grant or rent subsidy. If we can encourage companies to go to locations which are more attractive for us and less attractive for them we would consider giving them more money. These form part of negotiations and it would not be desirable to say how much more money. That would depend on the circumstances but we do so regularly.
Deputy Finucane: Deputy Connor rightly stated that much of the industrial focus has been centred on four population centres. Mr. McGowan outlined the reasons and the direction in which he wishes to go. He pointed out that he will probably go after more German companies which, if they locate in this country, tend to be quite stable and stay for the long haul. Am I correct in saying that it might be difficult to go in that direction because of the changes which have taken place in Germany? It is my understanding that the unification of Germany has resulted in companies from the former West German being encouraged, if possible, to locate in the former East Germany or in their hinterland including the Czech Republic and Romania. These are low cost base centres in comparison to Ireland.
These companies would be sensitive to German trade unions with regard to overseas investment, particularly as Germany has its own economic problems. There are many reasons for and against these companies looking to Ireland. Is it more difficult to attract suitable businesses from Europe to set up in small towns such as Boyle, Newcastle West and Castlerea?
Mr. McGowan: The Deputy’s description is accurate and is one of the reasons why we have not had so many German and European companies establishing in Ireland since 1989. The vast majority of our business is coming from the USA. However, there is an interesting new phase to this. Within the past year, many of the companies which were excited about moving to the former East Germany, the Czech Republic or Poland have found that it is not the bonanza they thought it was going to be in terms of low cost. This is because productivity rates and the work ethic is very poor in these countries. We now have a better pipeline of business from Germany than we have had for eight or nine years. These companies have moved on in their thinking beyond moving to their natural hinterland. Their inclination now is to look at what has historically been good for them. It is timely for us to revisit these companies now when they are a little disillusioned with the other options.
Deputy Finucane: Mr. McGowan pointed out the change in emphasis with regard to the IDA not becoming involved in advance factories and trying to encourage potential private investors. Would he think again about small urban centres? I mentioned towns with populations of between 3,000 and 5,000. They experience problems in getting private investors to invest in a BES scheme with regards to an advance factory compared to a large urban area such as Limerick city. Does Mr. McGowan think that where there is land available for industrial development in areas such as Limerick and Askeaton, unless there is the added attraction of an aesthetically pleasant modern structure provided by the IDA in conjunction perhaps with a private investor, such areas will not attract investment?
Mr. McGowan: I agree it is difficult but it is not impossible. Companies are influenced by a complex set of factors when choosing a location, one of which is the local degree of enthusiasm. There are a number of examples where the local community invested its own money. That makes a big impression. If an individual or group in a town such as Newcastle West invested its own money, that would help. There are examples of this. It is not easy. It is tough for small towns to compete for business and there must be a match between what they are offering, the size of the project, the company and the personal interest of the owner, if it is a personally owned company.
Deputy Finucane: Many of the small communities are vibrant. However, part of the criticism is that the whistle stop tours on which potential industrialists are taken by the IDA or Shannon Development do not include visits to these towns. People in these towns never get a chance to present their wares. Industrialists see the locations but they do not meet the people so they do not get a feel for the town.
Mr. McGowan: The only constructive suggestion I can make is that we look at some of the towns which have been successful and at how they have developed afterwards to see how the local community became involved and how this influenced companies to locate there. There are two or three examples of towns of this size where this has happened. It is worthwhile looking at what they have done to see if it can be replicated.
Deputy Finucane: The IDA is not involved in my area with grant aid or advance factories. That is the responsibility of Shannon Development. There is a criticism about the land made available. Certain communities have difficulty attracting any industry. That is made more difficult by what is felt in the area is the uneconomic value put on the land which is available for potential industry.
One industrialist who located in west Limerick stated that he would be better off returning to the USA and locating in North Carolina. The climate would be more conducive as regards property prices.
Shannon Development may say that it is self-financing. One can be self financing on a commercial basis by virtue of what one demands for property and buildings. However, there is a conflict between that kind of self-financing and what one charges potential industry.
It is difficult enough to attract industry at present. Location is important. If a town is on a national primary route it has advantages. If it is off such a route it is disadvantaged. If one wishes to promote industry in such areas one cannot talk about a figure of so much per square foot. It must be adapted accordingly. Sufficient cognisance has not been taken of this. I would like to see this done and not have industrialists ringing me up and saying they are trying their best but the price is uneconomic.
There is a huge difference between asking an industrialist to locate in Charleville, which is IDA territory, where land and buildings are more attractively priced and asking him to go to Kilmallock which is ten miles away. Land and factories are available in Kilmallock yet it is more difficult to attract industry to such a town. I welcome the fact that Paddy Gallagher has been appointed to the area. I would like the IDA to look at certain areas and say we have a land bank and factories there, let us adapt our pricing structure to attract industry to that location rather than have fixed prices which are unattractive to industrialists.
Deputy Hogan: There has been considerable emphasis recently on investment in the main urban centres. Perhaps Mr. McGowan could tell us how many inquiries there have been made this year compared to other years and if there is any regional variation.
Mr. McGowan: As regards the number of inquiries, one of the internal measures of potential future business is what we call site visits by potential investors. Because they use their own money and time, it shows how interested they are in investing here. Site visits are at a high level. There have been approximately 250 site visits a year for the past three years, which has resulted in a great flow of business. The figures to the end of March this year are well up on last year’s figures. The inquiry level is still quite high.
I am confident we will have a better spread outside the main urban centres this year than we had last year because we are working hard to encourage that and because of the mix of business. We cannot influence the mix of business, but there is more interest from Europe which will help to achieve a better spread throughout the country. The level is at least as high as last year and the spread will be better. Three projects were announced yesterday by the Minister for Enterprise and Employment. This brought the total so far this year to 37, over half of which were outside the main cities.
Deputy Hogan: Perhaps Mr. McGowan could give us details of the recent announcement about greater assistance to encourage a better regional spread.
Mr. McGowan: The Minister indicated that within the overall guidelines for negotiating deals there would be a significant extra amount for companies - we do not want to quantify how much before we start negotiating - which are prepared to go outside the main cities. Rather than giving the extra amount in a formal grant, as that could influence the price of property it could be given as a grant towards rent, employment or capital. There will be extra money in the form of extra grants for companies which are prepared to go outside the main cities.
Deputy Hogan: Mr. McGowan said that 500,000 square feet of vacant space is reserved, of which 80,000 is in Kilkenny. I suspect there is more around the country because 300,000 square feet has not been declared.
Mr. McGowan: That was not counted because it is occupied at present.
Deputy Hogan: Some 25 per cent of that vacant space is in my city. When will IDA Ireland get rid of it because it is 20 years since that factory was closed? A number of small industries were put into that factory, but it has been difficult to market.
Mr. McGowan: Space is reserved which we hope will be converted. The future is uncertain but the company concerned is a good one and it is interested in coming to this country. If it decides to come here, it will go to that factory.
Deputy Hogan: How long is it reserved?
Mr. McGowan: Reservations last for two months but they can be rolled over twice if the project person can convince us of a continuing interest.
Deputy Hogan: I do not want Mr. McGowan to divulge confidential information. However, I am sure he knows that we had a number of inquiries which almost came to fruition. I hope something positive happens on this occasion.
IDA Ireland is in negotiations on the green field site. Have those negotiations been concluded?
Mr. McGowan: They are not totally signed off but the situation is looking good.
Deputy Hogan: IDA Ireland is heavily involved in the Belview port area of south Kilkenny and I understand there will be more involvement in the near future. Is the situation in relation to Bell Lines having any impact on the port’s viability? How will it affect potential investment in the Belview port area?
Mr. McGowan: We would be interested in a successful outcome because that site is a process industry site. Companies inquiring about it would be anxious to have a roll-on/roll-off facility.
Deputy Hogan: IDA Ireland has a difficulty as regards the provision of infrastructural services there.
Mr. McGowan: There are few sites with that type of infrastructure, such as closeness to the harbour, availability of water, etc. It should be an attractive site for a certain type of industry.
Deputy Hogan: Has IDA Ireland worked out an arrangement with the ESB?
Mr. McGowan: Power must be brought to the site, which will involve connection charges, etc. However, that factor would not stop something happening if sufficient interest was shown.
Deputy N. O’Keeffe: Does Forbairt have responsibility for the 100,000 square feet which is currently vacant and does it include advance factories?
Mr. McGowan: Most of that space is for inward investment. Forbairt has some inward investment responsibilities in the food area but IDA Ireland is largely responsible for such inward investment. The 100,000 square feet is IDA space.
Deputy N. O’Keeffe: Mr. McGowan mentioned job creation, the expansion of existing industries and the interest shown in this country in terms of development. However, if we want to create jobs in the future it must be in the information technology area. Over the past number of years we lost a substantial number of high-tech industries, such as Siemens, to Scotland and the north of England. We also lost Taiwanese and Korean companies to that area. Why were they not interested in coming to this country? We seem to attract low-tech industries rather than those involved in information technology, electronics or computers. There is a bigger fallout when low-tech industries close because services which supply them are usually of a low-tech nature which are not able to meet the challenges.
I congratulate IDA Ireland on locating Eastman Kodak in Youghal, Berg in Fermoy and Johnston & Johnston in the Cork city area. However, the south-west region has suffered severely in the past number of years. IDA Ireland’s 1996 employment figures for assisted companies show the south-west at 5.5 per cent, which is lagging behind the national average of 8.2 per cent. I am greatly concerned about that. I wish Mr. McGowan and IDA Ireland well in their endeavours.
Mr. McGowan: I would not agree we are involved only in low technology. The most advanced factory in the world is Intel in Leixlip about 20 miles from here where half the world’s supply of pentium chips are made. If we are capable of supporting that, we are capable of supporting high technology industry.
We have a mix of technology, including many sophisticated technology companies. I agree with the Deputy’s point that we should to be involved in software development, technical content and knowledge based industry. Some of the industries the Deputy mentioned in the south-west, for example, Johnson & Johnson, Berg and Eastman Kodak, are high quality companies.
We lost four companies, two Korean companies, Hyundai and Lucky Goldstar, to Wales and Scotland, one Taiwanese company, Chung-wai, to Scotland and Siemens to Newcastle, which were all big investors. We lost three of the four companies because we were not prepared to pay the price for them to come here. We have strict cost benefit guidelines and we believed the price in the case of the three companies was too high to be value for money for the taxpayer. We were not able to convince Siemens that it could go ahead as quickly here as in Newcastle.
Deputy N. O’Keeffe: Finland is probably the most advanced country in the world in terms of information technology. We do not have Finish models such as Nokia. Why can we not do something similar here? I understand your position is very difficult in terms of job creation and in trying to get mobile industries to come to this country. You mentioned Intel, but what other companies compare with it?
Mr. McGowan: Hewlett Packard, Motorola and IBM. I encourage the Deputy to visit some these companies because the technology content is very impressive.
Deputy N. O’Keeffe: Only three of the industries coming to this country located in the Cork/south-west region, which is the biggest region.
Mr. McGowan: Many people will say the south-west region has done very well. The pipeline for inquiries is quite good.
Deputy N. O’Keeffe: The pipeline is no good if you cannot locate companies there.
Deputy Connor: Mr. McGowan will know of the controversy in Ballaghaderreen, County Roscommon, about the sale by the IDA of a site to establish a waste transfer depot. It resulted in considerable local protest because it was seen as an inappropriate place to locate it. I agree with that view having seen the site and its proximity to schools and houses which were built since the IDA bought the site 30 years ago. Planning permission was appealed and an oral hearing was held in Roscommon. An Bord Plenála upheld Roscommon County Council’s decision to grant planning permission.
Another major plant, a cigar company, is located there and employs over 100 people. The manager of the cigar company has said he will recommend leaving that site if the waste depot is established. Is this a wrong decision? I suppose Mr. Rochford was involved in the sale of the property. What can be done to reverse this decision?
Chairman: It is an unfair question but if Mr. McGowan wishes to answer it, he may do so.
Mr. McGowan: I would be happy to answer it because it is a difficult and complex situation. We sold land to a company which wanted to carry out an industrial undertaking in accordance with Government guidelines for waste recycling. It has proceeded by the book and received planning permission which was appealed. We have legal agreement with the company to sell the land subject to planning permission. The company received planning permission but many local people do not want it to go ahead. If a solution is to be found, it will have to be found locally. We have a legal contract which is enforceable. The company received planning permission for a waste recycling project which has been encouraged by successive Governments but there is much local dissension. A solution will have to be found with the agreement of the promoters of this project.
Deputy Connor: It is an inappropriate site. It is a small industrial estate. It was bought by the IDA 30 years ago and was on the outskirts of the town. However, the development of the town, including the construction of a new school, means that the site is unsuitable. People are not against waste recycling but you must be very sensitive about the sites on which you allow a waste recycling depot. No matter what the planning permission states, you cannot allow for noise, spillages, wind blown refuse, etc. Nobody is against waste recycling but people are against locating plants in inappropriate locations. This is an inappropriate location about which something must be done. Recently the Waste Bill was enacted and it is a different ball game but we need to consider carefully where we allow people to locate such plants.
Mr. McGowan: We cannot be responsible for policing the planning of such plants. The local authority gives planning permission if it believes the location is suitable. An oral hearing was held and the planning permission was confirmed. The company has a right to go ahead and its agreement must be sought if a solution is to be found.
Deputy Byrne: I compliment the IDA on attracting so many jobs. As a Dublin Deputy, it is all right for those who are well educated, particularly those with third level degrees. It is heartening for them and their families to be able to find such a pool of jobs. With the demise of traditional plants and factories, including inner city factories such as Donnellys and the textile industries, and the increasing number of long-term unemployed, what is your response to my request that you target economic blackspots? Is it your view that those who do not have skills and training are deemed unemployable forever? Do you have any hope for that ever increasing number of long-term unemployed on the live register? Given the closure of Semperit and Packard Electric and the interesting points you made about investment not being as attracted to the former eastern European countries as heretofore, is there any light at the end of the tunnel for marginalised, unskilled and semiskilled workers living in economic blackspots?
Mr. McGowan: The Deputy referred to the textile and clothing industry. As we said earlier, because of the labour intensity of these sectors, our chances of encouraging such companies to come here are not great. On the issue of the long-term unemployed, which is a difficult one to influence, we are trying to find locations near very disadvantaged areas. For example, we have an industrial estate in Blanchardstown which is doing very well. It is a saleable location and is drawing people in from very disadvantaged areas. It is the same in Coolock. We try to put infrastructure near places with disadvantaged people because it would not be saleable to put that infrastructure in the middle of the disadvantaged areas themselves.
Also, those companies buy in services from other companies that are already here, so about one job is created for every job in the firms. Many of those jobs would be in the areas mentioned.
Deputy Byrne: The prospects of having large plants for large numbers of unskilled or semiskilled workers-
Mr. McGowan: I would not be optimistic about that because if they came here they would probably not last.
Deputy Byrne: Why does Mr. McGowan not see that the natural growth area for industrial development is the port area? Leisure and residential areas are intruding to a large degree.
Mr. McGowan: There are not many kinds of industries around that locate in ports. The technology and healthcare industries are coming here. Dublin port is regarded as an unbelievably competitive asset, especially compared to what it was. It is part of the sales package to get people to set up in the outer city. However, the industries that would settle in a port area are not mobile and there are not many of them around.
Chairman: This Committee welcomes this information from the Comptroller and Auditor General and would like to stress the importance of the effort being made by the IDA to obtain a full refund from the particular company and to find a suitable buyer for the Clare factory as soon as possible. This Committee trusts that the IDA will only enter into an operation in the knowledge of the financial implications and that there could be a downside to be considered. This paragraph is noted.
Why has the accounts receivable amount increased from £400,000 in 1994 to £2.3 million in 1995?
Mr. McGowan: That is because of funds due from Shannon Development. The background is that grant payments in the mid-west are administered by Shannon Development and funds are advanced to that body by the IDA on foot of requisitions from them that set out the amounts of money they will disburse to our clients.
At the end of 1995, the IDA identified that payments had been made to three companies that were Forbairt and not IDA companies. The relevant amounts were treated as accounts receivable in our books and accounts payable in Shannon Development’s books. In consultation with the Comptroller and Auditor General, revised procedures have been put in place to ensure this does not happen again.
Chairman: Why was there an additional £6 million received in EU grants in 1995? Are all EU payments made on time and up to date regarding amounts due?
Mr. McGowan: The claims are made on time and are up to date in regard to amounts due. The funding comes in. There are EU-related influences on the delivery of funds but our claims are made on time.
Chairman: Why was an additional £6 million in EU grants received in 1995?
Mr. McGowan: That was because £4 million of that amount was a new fund called Measure 1, which was an EU fund to pay for research and development.
Chairman: What is included in the sundry income figure of £145,000?
Mr. McGowan: Most of that relates to a once-off exchange gain in relation to a deposit we had on our old office in Tokyo. We moved that office from its original location to Ireland House and we had money on deposit for a long time. When we changed office, that money came back with a very substantial exchange gain.
Deputy Finucane: What procedures are in place to ensure that, when grants are paid to Shannon Development for companies in the area, it can be verified that the grants were paid to those companies? Are there monitoring procedures for what happens afterwards with those companies?
Mr. McGowan: We have monitoring procedures in that we have grant agreements that we police in relation to the companies’ performance. The procedures on the money paid gave rise to the point I raised earlier. In the past, Shannon Development requested the money and we gave it to it. It ended up paying money to three Forbairt companies rather than IDA companies. We now have tighter procedures whereby we get information from it on which companies it is paying, and we have an end of year process to ensure that the money has gone to companies that are IDA companies.
Deputy Finucane: The IDA has a manager for the midlands and the mid-west. Does Mr. McGowan envisage an office being based in Limerick or is he satisfied with the present arrangement?
Mr. McGowan: The present arrangements are fine, and the record shows that. The area has done well and there is no need for a new office in Limerick now.
Chairman: I congratulate Mr. McGowan on job creation throughout the country. He might keep north Kerry in mind in future as unemployment has risen there.
The witness withdrew.
REPORT OF THE C & AG ON THE AUDIT OF THE 1995 ACCOUNTS ON NONCOMMERCIAL STATE SPONSORED BODIES - AN BORD TRÁCHTALA
Mr. Oliver Tattan (Chief Executive, An Bord Tráchtála) called and examined.
Mr. Tattan: I am accompanied by Mr. John Walsh, Assistant Secretary at the Department of Tourism and Trade.
Chairman: We are dealing with An Bord Tráchtála. Paragraph 12 of the Report of the Comptroller and Auditor General reads:
AN BORD TRÁCHTÁLA
The financial statements of An Bord Tráchtála show that the amount owed to it by assisted clients was as set out in Table 12.1
An Bord Tráchtála Debtors 1994 and 1995a
Note: Debts in the case of the Sales Performance Incentive Scheme and the Targeted Marketing Consultancy Scheme include only the amounts which had fallen due for collection at the relevant date.
Trade debtors arise out of agreements with export companies under which the Board provides services which include information, advice, finance and introductions for which it recovers some of its outlay.
The Sales Performance Incentive Scheme was introduced in 1988 and provided assistance to companies by way of repayable incentives to fund sales campaigns overseas. These incentives were repayable in full over an 18 to 36 month period by means of a levy on certified sales achieved. The scheme was terminated in September 1993 and no further incentives were approved after that date although residual payments continued to be made on foot of existing approvals up to 1995.
The Targeted Marketing Consultancy Programme was introduced in 1990 with the objective of encouraging Irish companies to increase their marketing expenditure in order to undertake major sales drives in markets overseas where there is high expectation of good sales returns in the short to medium term.
An Bord Tráchtála provides up to two thirds of the cost of an approved marketing campaign. Up to half of the assistance may be provided by way of a repayable incentive which the company repays over a two to five year period as additional sales accrue.
Recoverable incentives of £2m due from companies in the food sector were transferred to An Bord Bia in 1995. While the total debt at 31 December 1995 (£3.5m) had reduced to £2.8m by July 1996 a large portion of the debt was outstanding for considerable periods of time. An aged analysis of the £2.8m is given at Table 12.2.
Aged Analysis of An Bord Tráchtála Debtors at July 1996
In response to my inquiries in regard to the cause of delay in the collection of debts the Chief Executive has stated that
•debtors are aware that their debts, in time, will be offset by the Board against grants approved 7
•special arrangements are made from time to time with debtors experiencing cash flow difficulties
•debtors occasionally raise queries on accounts and the time spent on investigation and response causes delay
•the Board encourages companies to commit expenditure to overseas investment and within reason does not wish to penalise companies for risk taking.
The Chief Executive stated that the annual write-off of bad debts amounts to approximately 2% of debts outstanding. The high level of recovery is attributable to the Board’s credit control policy which has the following features
•the issue of monthly statements and reminders to all debtors
•the practice of offsetting amounts due by debtors against credits in respect of approved grants
•the practice of referring overdue accounts to solicitors for collection and seeking judgment against defaulting debtors.
The Chief Executive stated that he believes that credit controls are enforced in accordance with agreed procedures. The Board considers that all debtors must pay their legal debts to the Board and that procedures up to and including the obtaining of judgments against defaulting debtors are strictly followed.
7It is the practice of An Bord Tráchtála to allow debtors to offset amounts due against more recent grant assistance.
While the Chief Executive considers the present procedures for debt recovery to be appropriate he informed me that the Board plans to reduce the period for which debts are outstanding before being referred to the Board’s solicitors for collection.
Mr. Purcell: Paragraph 12 draws attention to the £3.5 million owed to An Bord Tráchtála at the end of 1995, arising out of its trade promotional activities. Of that, £1.9 million was attributable to services provided to exporters, for which Bord Tráchtála charges in an effort to recover its costs. The balance is made up by two amounts in table 12.1, relating to specific schemes, where moneys are repayable to the board in line with additional sales clocked up by the companies that received financial assistance.
Table 12.2 shows that the position had improved by July 1996 when the debt had decreased to £2.8 million. That said, £1 million of that figure had been outstanding for over six months. This concerns me given the solid profile of many of the board’s clients. In the paragraph it is said that the Chief Executive is generally happy with the present procedures for debt recovery, and cites the board practice of allowing companies to offset amounts owing to the Bord against grants approved as a contributory factor to the delay in collection. Nevertheless, debt collection has since been modified to provide for the earlier reference of overdue accounts to solicitors.
Obviously I will keep the size of the debt under review in my current audit
Chairman: Given that many of the board’s clients are of a solid profile, would you consider that the modified debt collection procedures are strict enough or is the board being taken advantage of to a certain extent because it is a semi-State organisation?
Mr. Tattan: I think they are strict enough. We have started to see their effect already. The figure of £3.5 million on 31 December 1995 has been reduced to £1.8 million by 31 December 1996, so it has come down from the £2.8 million I quoted for July. We have reduced it by a total of £1.6 million in a year.
Chairman: Since you have tightened up debt collection, what monetary effect has it had on the level and age of outstanding debts?
Mr. Tattan: The age profile has also reduced. On 31 December 1996 we had reduced the debt which is over two months outstanding to 63 per cent from 75 per cent.
Chairman: How many actions were taken in 1995 and what were the results?
Mr. Tattan: We reduced the period by 30 days from 120 to 90 days. There were 13 court judgments received.
Chairman: How many cases were taken?
Mr. Tattan: In 1991, 51 cases were referred and 100 cases in 1996.
Deputy Finucane: I notice in the age analysis of the debts that in the six months or more category there is over £1 million outstanding or 37 per cent. Is that still the case or has that amount been recovered?
Mr. Tattan: We recover 98 per cent of the outstanding debt eventually. Our recovery rate is good. We only write off 2 per cent as bad debt.
Deputy Finucane: Does “eventually” mean a year or two years?
Mr. Tattan: Within two years.
Deputy Finucane: Why would it take two years? Is it due to cash flow problems in companies?
Mr. Tattan: In certain cases it would be due to cash flow. On the TMC loan programme some companies might have a cash flow problem.
Deputy Finucane: Do companies indicate this at an early stage and respond as soon as the cash flow difficulties are resolved?
Mr. Tattan: Yes. We would be aware of the situation and renegotiate with them.
Deputy Finucane: Is a tolerant approach adopted?
Mr. Tattan: We adopt a normal credit approach. If we insist upon repayment and the company does not have the cash flow we will not get paid. We adopt a tolerant approach. We run the loan programmes to share risk with our clients. That is the attraction of the programmes and the reason we run them.
Deputy Finucane: If a company has a cash flow problem and indicates that it cannot make a payment might there be a temptation to advance a further loan or are the shutters pulled down, so to speak?
Mr. Tattan: No. If there are further possibilities for a company to receive money on other schemes or programmes we would offset that further grant against what the company owes us.
Deputy Connor: An Bord Tráchtála acts as agent for certain companies in order to secure sales in the Middle East—
Chairman: That issue is dealt with in paragraph 13.
The Committee is concerned at the level of age of debts reported on in this paragraph but it is pleased that the board has taken action to remedy matters. It trusts the board will continue to pursue the debts and wishes to be kept informed of progress. The paragraph is noted.
Paragraph 13 of the Report of the Comptroller and Auditor General reads:
13. Marketing in the Middle East.
Up to 1989, An Bord Tráchtála acted as the agent of certain companies in order to secure sales in Middle East markets. The Board was paid a commission on sales in respect of such services.
In 1989 agreement was sought from client companies which had contracts with the Board to terminate the contracts. One particular company had a contract with the Board which included a condition that termination of the arrangement could only occur with twelve months written notice. The company objected to the notice period of one month proposed by the Board and requested information on alternative options available to it. Alternative arrangements were offered. However, the company did not confirm acceptance of these arrangements or its agreement to the reduced notice period and when the Board attempted to recover the commission debt by legal action, the company instituted legal proceedings in respect of breach of the contract conditions. In 1995, following legal advice, An Bord Tráchtála agreed a settlement with the company costing £81,000 8. The associated cost of fees to legal, accounting and other advisers was £111,000. In the course of audit I asked that details of the settlement and the events leading up to it be brought to the attention of An Bord Tráchtála’s board and this has been done.
In response to my inquiries the Chief Executive informed me that in 1989 the Board had contractual arrangements with 19 companies under the scheme. After reviewing the scheme, the Board concluded that it was not a core function of the organisation and that it should be withdrawn.
In regard to alternative arrangements he informed me that the Board established its Group Marketing Scheme under which export commission agents are provided with assistance towards start-up costs for an initial two-year period to develop export sales on a commission basis with client companies in Ireland. One of these agents was appointed to provide assistance to companies exporting to the Middle East, including the client company in question.
The Board has since established procedures under which all material legal actions must be brought to the attention of its members.
Mr. Purcell: This paragraph outlines the circumstances in which An Bord Tráchtála’s predecessor, Córas Tráchtála, failed to comply with the terms of an agreement to give 12 months’ notice of termination of providing an agency service for companies exporting goods to Middle East markets. The rather abrupt end to the arrangement in 1989 had, as it turned out, significant financial repercussions for ABT in 1995. When the board took legal action against one company to recover unpaid commission of £48,000 in respect of the service rendered the company instituted legal proceedings counter claiming that the board had been in breach of contract by not giving due notice of termination. Acting on legal advice the board agreed a settlement with the company whereby the £48,000 debt was forgiven and £33,000 would be paid to the company. Professional and legal costs of £111,000 were incurred by the board. The total cost to the board was of the order of £192,000.
8£48,000 in commission owed to the Board under the contractual arrangement was written off as part of the settlement of £81,000.
During the audit I asked that the settlement and the events leading to it be brought to the board’s attention and this was done. The board has since introduced procedures under which all material legal actions must be brought to the attention of its members.
Chairman: Was it not deemed essential to seek legal opinion when the decision was taken to terminate the contracts and give substantially less notice than that set out in the contracts?
Mr. Tattan: There were 19 companies in the scheme at the time and there was a 12 month period for cancelling the contract. One month was offered to all the companies all of which accepted. The company in question did not retrospectively accept that one month cancellation contract.
Chairman: What portion of the associated costs of the settlement relate to the counter claiming company?
Mr. Tattan: £33,000.
Chairman: To what period did the commission of £48,000 relate?
Mr. Tattan: It was 1988.
Deputy Connor: This sounds strange. One company did not accept the arrangements. What goods and services were being sold and where in the Middle East were they being sold? Was it in countries with unstable regimes?
Mr. Tattan: Because it had a network of offices, CTT was often asked by companies to represent companies on an agency basis and charge a commission for reselling their goods. This was supported by a school of thought in the organisation. That was the arrangement, especially for far flung markets where it might not be have been viable for one company to employ a person to run their own distribution system. I do not know if there was anything unstable about the regimes——
Deputy Connor: Did CTT sell meat on anybody’s behalf in the Middle East?
Mr. Tattan: No.
Deputy Connor: Is this practice continuing?
Mr. Tattan: It has been stopped.
Deputy Connor: What is done now to promote trade in Egypt or Saudi Arabia, for example?
Mr. Tattan: We offer our clients and their customers a range of services. Our clients are Irish exporters and we carry out research with them, set up itineraries for them to meet potential distributors and customers. We would also try to develop relationships with large buying corporations in the market to help them source competitively. This is done on a consultancy rather than a commission basis.
Deputy Connor: Is it successful?
Mr. Tattan: Yes.
Deputy Finucane: The organisation was directly involved in the past and it phased out that involvement. Export commission agents are provided with assistance towards start up costs for an initial two year period to develop export sales on a commission basis with client companies in Ireland. What you are saying is that there are agents who receive commission from their clients in Ireland based on their sales and you assist such people with start up costs.
Mr. Tattan: Yes. We do that now under a group marketing scheme.
Deputy Finucane: Is that financial assistance given to agents?
Mr. Tattan: It would be unvouched expenses in the form of a grant or a loan for a certain proportion of their total costs for a certain limited period of time.
Deputy Finucane: What sum of money is involved?
Mr. Tattan: Typically, it might be about £15,000 a year.
Deputy Finucane: Is that £15,000 a year paid on an ongoing basis to the agent?
Mr. Tattan: No, that would only be for the first year.
Deputy Finucane: How would one evaluate whether a proposal was valid with regard to paying £15,000 to an agent? I imagine an agent in that position would take on a client base and sell to Middle Eastern contacts. Obviously, he would he optimistic that he would do well, on a percentage basis, with those products. However, Mr. Tattan’s point is that there is no guarantee that will be the case and the agent is given a cushion of £15,000.
Mr. Tattan: We would not look for a guarantee but we would look for a viable marketing or business plan.
Deputy Finucane: If he submits a business plan but says he needs funding or assistance from the board, the £15,000 will assist him in the marketplace.
Mr. Tattan: Typically the person would live in the marketplace. It would be to assist him with the lead times that will be incurred.
Deputy Finucane: How would Mr. Tattan evaluate the success of the new arrangement compared to the old arrangement under his predecessor?
Mr. Tattan: Philosophically they are completely different. The old arrangement gave the trade board a middle man function of buying and reselling goods. That is not our function and this arrangement removes us from that. We are only a facilitator and we help the private sector to do it themselves.
Deputy Finucane: Is the board’s facilitator role unique to the Middle East?
Mr. Tattan: No. It could happen anywhere in the world.
Deputy Finucane: Does it happen in other locations?
Mr. Tattan: Yes. We have a case in Germany and two in the States at present.
Deputy Finucane: Is the board involved in some form of assistance?
Mr. Tattan: Yes, but it is not always financial assistance. It could be assistance in research or various types of support from our services, information and databases.
Deputy Finucane: If Mr. Tattan was to quantify the type of business which emanates from the Middle East, based on the people involved in export commission who are receiving assistance from the board, is it good value for money?
Mr. Tattan: We do not have any in the Middle East at present.
Deputy Finucane: What is happening in the Middle East? Are companies going in directly and selling?
Mr. Tattan: Yes, or through distributors or our facilities or offices. We do not represent them there or anywhere else in the world on a commission basis any more.
Deputy Finucane: That was an arrangement which operated for a period of time.
Mr. Tattan: Yes.
Deputy Finucane: Is Mr. Tattan happy with the volume of business emanating from the Middle East without a great direct involvement by the board now?
Mr. Tattan: We have a facilitating role. There are very few Irish companies doing business in the Middle East who are not using our office in some way. We do not handle their goods but we facilitate them in their contacts with their clients and distributors.
Deputy Finucane: The middle man has been extricated.
Mr. Tattan: Yes, in the sense that the goods do not pass through our books.
Chairman: The Committee must register its dissatisfaction with the handling of this matter. It has proved to be a costly lesson for the board and we trust that the new procedures introduced by the board will eliminate any chance of a repeat.
AN BORD TRÁCHTÁLA - ACCOUNTS 1995
Regarding the financial statement, I note that the total income and expenditure in respect of market development on most of the programmes decreased from 1994 to 1995. Why did this happen and how do the figures compare with 1996?
Mr. Tattan: The reason for that is the transfer of certain activities to Bord Bia in 1995.
Chairman: What caused such a sudden increase in the dividend of the board’s associated company, International Development Ireland?
Mr. Tattan: That was the distribution of undistributed profits it earned in previous years.
Chairman: I understand that company has been sold.
Mr. Tattan: Yes.
Chairman: What assets did the board realise from the sale?
Mr. Tattan: Approximately £300,000.
Chairman: Was the board satisfied with that figure?
Mr. Tattan: Yes.
Chairman: The board returned in excess of £46,000 in 1995, but only for the exceptional items that figure would have been a deficit of £350,000. What has the board done to correct this shortfall in normal activity?
Mr. Tattan: The exceptional items, such as the return of the UK VAT, was budgeted for. The additional spend was also proportionally budgeted for.
Deputy Finucane: Regarding the tangible fixed assets, how many motor vehicles does An Bord Tráchtála own?
Mr. Tattan: At present we own six.
Deputy Finucane: To whom are those vehicles allocated?
Mr. Tattan: We have four in overseas offices in Beijing, Riyadh, Moscow and Singapore. The other two are in the Dublin office. One is my own and a senior director has the other.
Deputy Finucane: I understand the need for them in Beijing and Riyadh. However, are the vehicles part of the packages negotiated with Mr. Tattan and the senior director?
Mr. Tattan: It is part of the running of the office.
Deputy Finucane: Are they used exclusively by yourselves?
Mr. Tattan: Yes.
Deputy Finucane: For example, are they used to pick up clients at the airport?
Mr. Tattan: Yes.
Deputy Finucane: They are general cars rather than exclusively owned by one person.
Mr. Tattan: It is an office car.
Deputy Finucane: The number of staff decreased by 16 in 1995. There is a reference to a sum for voluntary redundancy of £380,344. I presume that relates to the decrease in the number of staff.
Mr. Tattan: Yes, to a large extent. The number of staff reduced by 11 on the VER scheme. Two could be replaced according to the conditions of the scheme. Another eight members of staff transferred to Bord Bia. That resulted in a total reduction of 17. We hired an internal auditor so the net result was a reduction of 16.
Deputy Finucane: I presume the eight staff members who transferred to Bord Bia were not part of the voluntary redundancy scheme.
Mr. Tattan: No.
Deputy Finucane: It was just a straight transfer.
Mr. Tattan: Yes.
Deputy Finucane: To how many people did the voluntary redundancy cost of £380,000 relate?
Mr. Tattan: Eleven voluntary redundancies.
Deputy Finucane: Did the amounts vary considerably, depending on the employee?
Mr. Tattan: Yes, in terms of length of service.
Deputy Finucane: Was a study carried out of An Bord Tráchtála and did it then decided to rationalise or redefine its activities?
Mr. Tattan: It is a standard possibility to increase the turnover of staff in the organisation. Many other agencies have similar schemes.
Deputy Finucane: Does the board have any plans to decrease its staff numbers further?
Mr. Tattan: No.
Deputy Finucane: Does Mr. Tattan foresee the board taking on extra staff to replace some of those who left?
Mr. Tattan: Yes.
Deputy Finucane: In other areas, having redefined its activities?
Mr. Tattan: Yes.
Deputy Finucane: As the year 2000 approaches, does Mr. Tattan consider that An Bord Tráchtála has been considerably strengthened by the redefinition of its role and will face the future with confidence?
Mr. Tattan: Yes.
Deputy Finucane: Does Mr. Tattan regard An Bord Tráchtála as a great success story at this stage?
Mr. Tattan: Yes. Our clients and exporters would confirm that at some stage in their development they have greatly availed of the services of the trade board.
Deputy Finucane: What is the board’s shareholding in Shipping Services, a private limited company which was sold?
Mr. Tattan: Nothing any more. It was 47 per cent but it was disposed of in 1995.
Deputy Finucane: How did the board fare as it had such a significant shareholding? Did it receive a good offer for that shareholding?
Mr. Tattan: £60,000 profit.
Deputy Finucane: Was the board encouraged to dispose of it? Did the board decide to phase it out because it was not part of any core activity?
Mr. Tattan: Yes.
Chairman: Thank you, Mr. Tattan.
The witness withdrew.
The Committee adjourned at 1.05 p.m.