MIONTUAIRISC NA FINNEACHTA
(Minutes of Evidence)
AN COISTE UM CHUNTAIS PHOIBLÍ
COMMITTEE OF PUBLIC ACCOUNTS
Déardaoin, 1 Bealtaine 1997.
Thursday, 1 May 1997.
The Committee met at 11.00 a.m.
DEPUTY DENIS FOLEY IN THE CHAIR
Mr. John Purcell (Comptroller and Auditor General) called and examined.
Mr. Matt McNulty (Director General, Bord Fáilte) called and examined.
Mr. John Dully (Assistant Secretary, Department of Tourism and Trade) called and examined.
Ms. Monica McHenry (Finance Manager, Bord Fáilte) called and examined.
Mr. Brendan O’Donoghue (Secretary, Department of The Environment) called and examined.
Chairman: There are three items of correspondence to be noted, namely, from the Director General, FÁS; the Secretary of the Department of Agriculture, Food and Forestry and the Department of Finance.
Deputy Ellis: Regarding the correspondence from the Department of Agriculture, Food and Forestry, it appears there are a number of outstanding claims. Has the Department or anybody else written to the people concerned to ask them to lodge their claims?
Chairman: This is the up to date position.
Deputy Ellis: The correspondence shows that £5.8 million has been paid to date, that £9.175 million has been awarded to date and that total claims amount to £11.4 million.
Chairman: We were told last week in correspondence that there is no need to follow-up outstanding claims and that it is up to the individuals concerned to make their submission.
Deputy Ellis: That is correct, but at what stage will claims become statute barred?
Chairman: After six years.
Deputy Ellis: Six years from when?
Chairman: From the date of the tribunal.
Deputy Ellis: The date of commencement or conclusion?
Chairman: I think it is the date the tribunal concluded.
Report of the Comptroller and Auditor General on the Audit of the 1995 Accounts of Non-Commercial State-Sponsored Bodies.
Mr. Matt McNulty (Director General, Bord Fáilte) called and examined.
Paragraphs eight, nine, ten and eleven refer to Bord Fáilte. Members are free to ask questions but the significant paragraphs are ten and eleven.
Deputy Ellis: Will we take all paragraphs together?
Chairman: No, we must take them separately. I welcome the delegation and I ask Mr. McNulty to introduce his officials.
Mr. Matt McNulty: Joining me are Monica McHenry, financial manager, Bord Fáilte, and John Dully, Assistant Secretary, Department of Tourism and Trade.
Chairman: We will begin with paragraph eight.
8.Bord Fáilte Restructuring
In 1994 a firm of international consultants examined the functions and structure of Bord Fáilte. The resultant report identified a need to refocus Bord Fáilte on core activities which it identified as
•selling Ireland overseas
•supporting the development of the Irish tourism industry
•providing information for decision makers.
The consultants suggested that certain activities should stop or be transferred to other agencies. These were identified as
•product registration and grading
•management of EU Tourism investment
•domestic marketing and sales
•the Gulliver electronic information and registration system.
In addition, the consultants recommended that consideration be given to the transfer of activities such as the ‘Tidy Towns’ competition to other organisations.
In regard to human resources, the consultants found that Bord Fáilte employed 288 permanent staff, 26 contract staff and 14 consultants. The report stated that Bord Fáilte had a high and rising cost base which was putting pressure on discretionary spending. This cost base before discretionary spending had risen from £13.4m in 1991 to £17.2m in 1994, an average increase of almost 9% per year. In the same period, discretionary spending remained at £15m per year. Staff turnover was low and the average age was over 45 with many staff having carried out the same function for a number of years. 80% of staff were in the top salary bracket within their grade, limiting the salary incentives available. There had been few young recruits and a lack of trained marketeers, with only 12 people in the organisation having had direct industry experience within the previous 10 years. Skill gaps in senior marketing and development positions were identified.
The consultants recommended a staff structure of approximately 230 full time permanent staff and a reduced number of contract and consultancy staff after taking on about 20 new staff to meet the skills deficiencies identified. The recommendation of the consultants would involve shedding 78 permanent staff. A voluntary early retirement scheme was introduced with a target of 80 staff. 68 staff participated in the scheme.
I asked the Director General about the extent to which activities had been transferred in line with the consultant’s recommendations. He informed me that Bord Fáilte had devolved or outsourced
•accommodation and product approvals
•accommodation, registration and grading inspections
•the production of Discover Ireland and Accommodation Guides.
Under the Tourism Traffic Acts, Bord Fáilte retains responsibility for setting standards and for appeals in respect of registered accommodation.
A decision was taken by the Department of Tourism and Trade that Bord Fáilte should retain responsibility for the management of EU Tourism funds. Arrangements for the transfer of the Gulliver system to an outside agency are at an advanced stage. Responsibility for the ‘Tidy Towns’ competition has since been transferred to the Department of the Environment.
Mr. Purcell: Paragraph 8 summarises the main findings of the consultancy report on Bord Fáilte and the implementation of its recommendations. While recognising the valuable work done by Bord Fáilte in delivering a successful tourism product, the report concluded that it was time to refocus its strategy in order that it become a facilitator rather than a provider of tourism services and a leaner organisation with an infusion of new marketing expertise. In practice, this meant the transfer of certain functions to other agencies and the introduction of a voluntary early retirement scheme for staff. The transfer of functions has taken place leaving Bord Fáilte in a position to concentrate on its main business of promoting Ireland as a tourist destination.
While it was hoped to achieve 80 early retirements, at the date of the report 68 had availed of the scheme at a cost to the organisation of £1.9 million. The present authorised staff complement of the board is 235. This limit covers permanent, contract and temporary staff. The issue of how to apply the limit to take account of the hiring of agency and seasonal workers is being discussed with the Department of Tourism and Trade.
Chairman: Has the transfer of certain activities to other agencies had the desired effect of reducing spending in Bord Fáilte? Has this had an affect on income and on the annual surplus figure?
Mr. McNulty: The transfer went smoothly. In some cases it involved a transfer to people to carry out functions on our behalf while in other cases we shed responsibility to other groups. The most important transfer was of responsibility for the inspection and grading of hotels. This was done through a public tendering procedure and was transferred to Tourism Quality Services. We closely monitor this and it has been working well. Instead of hoteliers paying fees directly to us as in the past, Tourism Quality Services pay us a single fee.
Responsibility for the tidy towns competition was transferred to the Department of the Environment. Publication of Discover Ireland was transferred to a commercial publishing company and it has continued reasonably well. It was decided not to transfer grants administration from Bord Fáilte. Instead two EU management boards were established to deal with marketing and development to which we provide services. This has worked reasonably well.
Chairman: Can the Committee be up-dated on the sale of Gulliver since our meeting in March?
Mr. McNulty: When I appeared before the Committee in March we had not obtained Government authority to dispose of it. That authority was granted by the Government on 9 April but authorisation from Northern Ireland had not come through as of yesterday. It is a joint project and two approvals are required. We are ready to proceed and everything has been concluded apart from the sale.
Chairman: Has a figure been agreed?
Mr. McNulty: Yes.
Chairman: Can it be made public?
Mr. McNulty: I would not like to publicise it until the deal is signed. However, I gave a previous commitment to the Members that I would contact the Committee when agreement is reached.
Deputy Ellis: Responsibility for hotel inspection has been transfer to TQS. In that context, is the service given to hoteliers better than that provided by Bord Fáilte in respect of grading before the transfer?
Mr. McNulty: It is a similar service. There has been little or no change in the costs and procedures involved. Inspections are carried out by people with qualifications similar to those held by officials of Bord Fáilte. We had a number of meetings with the hoteliers and, while there were a number of hiccups, they have not experienced any major problems. I spoke to representatives of the Irish Hotels Federation this morning and I was informed that the situation is proceeding satisfactorily. There do not appear to be any difficulties, apart from the minor problems which occur from time to time.
Deputy Ellis: Such problems can occur in any operation of that nature. It has been stated that there can be discrepancies between the same rating given to two hotels. What mechanisms are in place to ensure that all four star hotels meet the same criteria? Has Bord Fáilte set down guidelines to govern the actions of TQS in this regard?
Mr. McNulty: Bord Fáilte has set down guidelines which were approved by the Minister and the Department. There are five bands and the criteria in some are broader than in others. For example, in the lower band, which covers one star hotels the criteria are quite tight. In the upper band, which covers five star hotels, they are very tight. In the middle band, which covers three star hotels, the could be significant differences between establishments at the upper and lower ends of this band. In order to allow for fair play, etc., there are two appeal mechanisms. Anyone not satisfied with their rating can appeal for a management review which is carried out by an officer of Bord Fáilte who deals with appeals. If they remain unsatisfied, there is a further procedure under which they can appeal to a committee made up of people from the industry. No appeals have been made under this procedure but a number of people have sought management reviews.
Deputy Ellis: Complaints are sometimes made by those who operate hotels with eight to ten rooms who believe they are being pushed to one side on all fronts. Does Bord Fáilte have plans to try to provide assistance to such people to improve their status?
Mr. McNulty: It is understandable that small-scale operations experience difficulties because they cannot support the cost of overseas marketing because of the small number of rooms involved. We tend to form the smaller hotels into groupings, 20 of which are now in operation, and we are then in a better position to provide assistance. We brought about these groupings ourselves. On the last occasion I appeared before the Committee we discussed Gulliver and, in that context, we have made an arrangement that there can be no discrimination based on size or positioning which works in favour of the small properties. The regional tourism organisations are very active in helping them to avail of opportunities to attend promotions, at home and abroad. There is a very strong domestic tourism initiative underway at present. This week is “Rediscover Ireland Week” which is geared to help the small, family run units.
Deputy Ellis: Does Mr. McNulty expect that the transfer of Gulliver will take place before the high season or will it not be implemented until next year? Did today’s electoral matters in another jurisdiction have a major say in that regard?
Mr. McNulty: They probably slowed down the approval process. We are anxious that the sale will be completed as quickly as possible. Within the arrangements made with the purchaser, they take responsibility for the costs from 1 January this year. However, it was always recognised that there would it would take several months to complete the transfer. The new system is in operation and we are prepared to work with the purchaser for a number of months to ensure that the transfer runs smoothly, with no interruption to service. The transfer will be seamless from the point of view of the its customers and the trade in Ireland. They will not be aware of the change. We hope that the first awareness of the change will come about in the autumn when some new services will be offered and, hopefully, some expansion for the future will be announced.
Deputy Ellis: Will the purchaser be recouping costs from Bord Fáilte in respect of staff hours worked during the transfer period?
Mr. McNulty: The purchaser assumed responsibility for costs from 1 January. It was hoped that the transfer would have been affected by April of this year. However, the purchaser will obtain the income from 1 January which was also part of the deal.
Deputy Byrne: Will Mr. McNulty outline his views on fly-by-night operators in the bed and breakfast area? I have noticed that signs advertising bed and breakfast appear outside houses during the peak summer period. Is Mr. McNulty satisfied with the situation where such accommodation is so readily available? What is his attitude towards obliging these individuals to register so that legitimate bed and breakfast operators will not be undermined?
Mr. McNulty: There is a strong belief within the industry that all accommodation should be registered or listed in some way. We support the idea that there should be a simple listing system for all accommodation offered to visitors, which would be in the interests of the consumer. This would involve a considerable amount of additional work and Bord Fáilte is not in a position to introduce such a system.
Deputy Byrne: Should Bord Fáilte pressurise the Minister for Tourism and Trade to standardise the bed and breakfast trade? This area could be abused by unregistered property owners who rent accommodation to families or young tourists. Is there not a need to introduce a register to avoid damaging the industry’s reputation?
Mr. McNulty: Consumers can be given great reassurance if they realise that accommodation has been inspected. The number of inspection categories available cater for all eventualities, including people who offer specialist accommodation for a number of months in the year. The provision of such accommodation is required during special events. We can co-operate with these people who do not necessarily have to make a full-time commitment to avail of the listing.
Deputy Byrne: I raised this issue not only in terms of questioning the health and safety aspect but I am also concerned about the environment. I am sure Mr. McNulty is familiar with the obscenity of the many shoddy, dirty signs hung outside houses in highly popular scenic areas and resorts. This horrendous mishmash of signs advertise the availability of bed and breakfast accommodation. Does Mr. McNulty agree that instead of enhancing the scenic and tourist potential of many areas this haphazard use of signs detracts from their scenic beauty? Is it time that a standard sign was introduced?
Mr. McNulty: I agree that the proliferation of signs of different types and quality can be a detracting element. There is a standard sign available in a number of different materials which displays the shamrock, the official imprimatur of approval. A number of other associations also have signs which are quite good. Some local authorities have taken the initiative in respect of these signs, particularly those in the south east. We have supported the initiative to regularise the signage, which can get out of hand, can be confusing rather than helpful for visitors and can detract from the environment. The Minister has encouraged us and we have responded to ensure everyone offering accommodation realises that becoming listed with Bord Fáilte is an easy and inexpensive process. He asked us to run seminars on this for people in different parts of the country. A good result was achieved with approximately 2,500 to 2,700 additional bed and breakfast premises being officially listed or registered since 1989.
Deputy Byrne: Is Mr. McNulty satisfied the number of registered bed and breakfast premises is sufficient to meet market demands? Is it because there is an insufficient number to meet market demands that there is a proliferation of unregistered and shoddy premises?
Mr. McNulty: One can probably only exist as unregistered or unlisted accommodation if one is in a key location. If not, one needs assistance by being included in guide books and tourist offices. Considerable assistance is available to those who register or enlist. We believe our tourism industry has the best standards in the world for registered and listed bed and breakfast accommodation and we are anxious to retain that high level because the tourist we are trying to attract will demand those high standards in future.
Deputy Finucane: I am sure a sense of balance is to be found between bed and breakfasts and hotels and Mr. McNulty is correct in what he says about the Bord Fáilte logo. Bed and breakfast accommodation addresses the liking of American tourists for staying in a house with a family. I am sure cost is also a factor.
Bord Fáilte is represented on the independent product development boards established in 1992 by Deputy McCreevy. In its input into these boards, does it take cognisance of the overall accommodation situation? It is a barometer of confidence, especially in rural towns, that many hotels are finally modernising and upgrading their accommodation from one to three stars. In examining the market trends for tourism, would Bord Fáilte be concerned that we are reaching saturation point in grant aiding these hotels? For example, if hotels are within a radius of six miles on a national primary route, there is still a restriction on the volume of traffic and people using those hotels. To what degree is that factored into any consideration of grant aiding hotels under the product development boards?
Mr. McNulty: There have not been any significant amounts of money, in either the first or second programmes, for improving existing accommodation or for new accommodation, except in rare circumstances. Most grants in both programmes have been geared towards assisting those who provide accommodation to establish something such as conference or leisure facilities to give them long season capability and to open during winter. Accommodation in the Border area has received assistance at most levels, especially through the International Fund for Ireland and other schemes. The model we used to assess whether or not to grant aid them included a measure dealing with any dilution of existing business. I am happy to report the industry has been growing strongly in the past decade and we have been able to take care of the approximate 6,000 new people who have entered the accommodation area at all levels, be they self-catering, bed and breakfast, farm and guest house or hotel.
Deputy Finucane: Bord Fáilte has an input in independent product development boards in all areas, except the mid-west region where Shannon Development would be represented on the board. Is Mr. McNulty concerned at the lack of uniformity in decisions made by the boards? Although they are classified as independent product development boards and were set up on that basis, they have different criteria for assessing what merits grant aid. For example, the product development boards on which Bord Fáilte is represented seem to have a different criteria than the Shannon Development area for grant aiding facilities such as golf clubs. I am concerned at the lack of uniformity. Newcastlewest golf club near me built a lovely stone clubhouse, applied for funding and has so far been unsuccessful. Golf clubs in Gort and Macroom, for example, and other locations under Bord Fáilte’s wing, were classified as acceptable. It causes me much concern and heartache that there appears to be a lack of uniformity in how people determine the criteria for funding - I used golf clubs as an example - and I am concerned about that.
Mr. McNulty: The two boards we service are reluctant to grant aid private golf clubs and any deviation from that has been based on guarantees from such clubs. Private golf clubs, which are for the benefit of members, do not normally come within the ambit of the EU boards. The latter try to ensure the availability of golf for visitors every day of the week on a commercial pay per play basis. Clubs have managed in a few cases to transform themselves to the extent they can give guarantees so that the board may decide assistance should be given. The amount of grant aid for private golf clubs would be very low and the majority of funding has been spent on clubs run as commercial enterprises on a pay per play basis and available to take bookings anytime from foreign visitors.
Deputy Finucane: Would Mr. McNulty not agree that what he terms private golf clubs are, in fact, owned by members who put considerable effort into them? Do they not deserve grant aid where they dovetail into tourism in the area by providing a support service to hotels which cater for foreign tourists? I do not begrudge a large hotel such as Adare Manor receiving £500,000 in EU funding but it is hard to take when a golf club, owned by members, cannot get assistance because of criteria interpreted differently by product development boards, an example of which I gave?
Mr. McNulty: The funding of golf is almost at an end in terms of market needs. I praise highly the work done, by private golf clubs because we could not have survived in the past without them. In 1988, golf began to be a significant business. We were earning approximately £35 million in foreign revenue from it and that quickly grew to approximately £60 million in 1993. We could no longer depend on a situation where tourists might or might not be able to play a round of golf or where an outing might or might not be able to be accommodated. We had to recommend to the product boards and the Government that grants given to golf clubs would have to be accompanied by a letter of conditions, a formal legal agreement, ensuring facilities would be provided for visitors in future. Many private golf clubs felt unable to do this and received limited assistance as a result.
Deputy Finucane: Much focus was placed on the cost of the change in the Aer Lingus logo or livery. Did it cost much to change Bord Fáilte’s logo from the shamrock to the new one? What was the cost?
Mr. McNulty: The cost was between £100,000 and £150,000. That includes the design and initial print costs. It was a relatively cheap operation for the logo which is seen on television.
Deputy Finucane: Attention has recently focused on the projected tourism figures for the first few months which are considerably down on the previous three months. You have paralleled this with the change in the logo. What is the reaction of the consumer to the change in the logo? Have we ended up with a confused identity? Why do you think there has been a reduction in the numbers?
Mr. McNulty: The report which was carried in the newspapers was dated around 14 March. As a result of the launch of the new logo and the new Brand Ireland, it ran later in the market. We did not start the advertising as early as we did last year and we had spent less on it at that stage. If one did not include the internet inquiries the figures showed a slight reduction. The internet inquiries were a new service and if they were added there was no problem.
The most important thing is that we are taking a medium to long term view with the industry. This is not a Bord Fáilte decision, it is a joint decision taken by all of the partners, including Government and industry, that we need to change the image of Ireland in order to continue to get high levels of growth into the next century. The logo is a small part of the overall change.
The most important change is the change in the imagery of Ireland. Most people who have seen it like it. The logo has to be agreed in an all-Ireland context. There was no possibility of us retaining the shamrock which we had used although we retain it as the Bord Fáilte logo. All Bord Fáilte literature continues to carry the shamrock. This additional logo is meant to convey to the consumer a quality standard approval and, hopefully, a welcome. We will be measuring its success but it has to be operating in the marketplace for a reasonable period before we can do so. It will be another two or three months before we will have the first measurement of its effectiveness.
We have made arrangements that this will be carried out independently of Bord Fáilte by a company which obtained the contract through a public procurement process. When the results are published we expect that they will show things which need to be changed but I think it will validate the total approach reasonably well. That is the feedback we are getting from the industry.
Deputy Finucane: I know what Mr. McNulty is saying with regards to the shamrock and that he wants to get away from the association with the land of leprechauns and that type of image. How would he reconcile this with Aer Lingus spending a certain amount of money changing its livery? All it did was stagger the shamrock. The shamrock is still part of Aer Lingus.
With regards to our image internationally such as St. Patrick’s Day when Ministers go abroad and attend parades, the shamrock is brought to President Clinton and so on, surely it was a strong symbol of this country for the ethnic population which regards itself as having Irish roots? Was it wise to change the imagery? Mr. McNulty has the benefit of professional advice. Aer Lingus flies all over the world, yet retains the shamrock, albeit slanted. I think there is a contradiction.
Mr. McNulty: I do not think there needs to be any confusion. I do not wish to speak for Aer Lingus but its problem is slightly different and simpler in many respects to the problem we face. What it wishes to achieve is that when its aeroplanes are parked on the ground at international airports it wants the tail fins to stick up and clearly be identified with Aer Lingus and Ireland.
We have to use the logo designed for Tourism Brand Ireland in a whole variety of media and ways. Aer Lingus publications, in addition to carrying their own logo, also carry the Brand Ireland logo. Increasingly, the Brand Ireland logo will be seen on Aer Lingus material. There is no contradiction between them.
The symbol one needs for a brand is slightly different to the symbol one needs for a corporation. Bord Fáilte retains its logo, there is no need to change it - it is a shamrock and is well identified, we have spent a lot of money on it. Aer Lingus tweaked its logo but it has retained it. We were looking for something different - a logo which would become associated with a brand and, therefore, it had to mean something to people in terms of the brand. The shamrock is a plant and it is very hard to give it a meaning that would be consistent with a brand.
Hopefully, the research which will be available in three months will confirm that the arrangement to go ahead with the relaunching and refreshing of the total image, including the logo, will be seen as a very valuable one. The benefit of a logo is that one can build equity into it. We will be mentioning it in our annual reports and be giving the independent view of this company which will assess its value. We will be attaching a value to it. People attach significant financial value to brands because of the money they have invested in them. Hopefully, as years go by, we will be in the same position.
Deputy Byrne: I am not sure of the connection between Bord Fáilte, Dublin Tourism and Temple Bar. Temple Bar started off as the jewel in the crown of Dublin Tourism but it is rapidly turning into a crown of thorns given the current media exposure of the activities of British lager louts. As the head of Bord Fáilte, is Mr. McNulty happy that we can save Temple Bar and retain it as the jewel in the crown of Dublin? Is he concerned, as I am, that the activities of the publicans in the area are bringing the whole district into disrepute and that rather than becoming a friendly pedestrianised district, there is a sense of fear and threat about because of the activities of so many drunkards.
Mr. McNulty: There is no doubt that the development of Temple Bar was a major boost to the tourist attractiveness of Dublin, particularly for short stay weekend visits, but for all visits as well. I was involved with the project from the beginning and a certain vision was taken of Temple Bar as a cultural quarter with a high degree of cultural activity which everyone subscribed to.
The market conditions mean that this has to be reviewed after a period to see how the chips fell in terms of how many people came forward with cultural projects, retail outlets, pubs, hotels and so on. That is happening at the moment and there has been a report. We have expressed a view and we believe, like Temple Bar Properties, that some of the problems are related to the management rather than the numbers. A badly managed premises will always create problems for its neighbours and the area, whereas a properly managed business will not.
A number of meetings have been organised with interests in the area, including residents, retailers and publicans and these views are being expressed. In the meantime, the various committees involved in the area are and have been assessing whether a proper mix is being maintained. No outcome has been reached but we have made a contribution. Our view is that it needs to be reviewed. Some uses need to be given greater priority and others need to be capped.
Deputy Byrne: We are all aware, and as a Dublin TD, a member of the city council and a private citizen, I am deeply conscious that the hundreds of millions of pounds which have gone into Temple Bar are potentially at risk.
Time and again I have highlighted the irresponsibility of publicans in the area who are putting hundreds of million of pounds of taxpayers’ money and European funds in jeopardy. If the proper steps are not taken quickly, the confidence of those who purchased accommodation to live in the community and the tourists interests who want it to be the jewel in the crown, will be jeopardised. This is likely to be jeopardised because of the unseemly antisocial behaviour of people gathering in huge numbers. Does Mr. McNulty share my concern that, if we do not get it right very quickly and the tide of British lager louts coming into Temple Bar is not stemmed, the project is very vulnerable?
Mr. McNulty: The Deputy has stressed behavioural attitudes, as I have. A pub or restaurant does not become a problem unless it is managed irresponsibly.
Deputy Byrne: There is music blaring outrageously.
Chairman: I want to move on.
Deputy Byrne: This is an important point. This area has received hundreds of millions of pounds in investment.
Mr. McNulty: We in Bord Fáilte are anxious to support the Temple Bar community, and it was envisaged as a community and not as a leisure or recreational centre, its residential element is important. We were glad to see some of the facilities located in Temple Bar and now we must look at what has been achieved through the normal process and deciding if this needs to be changed. A number of agencies are looking at a change of direction on this and I hope a decision will be made soon.
Chairman: Bord Fáilte has an important role to play in the promotion of Irish tourism. This Committee is pleased to see the great emphasis being placed on its core function as a result of this restructuring. However, we also stress the importance of maintaining control over the activities transferred to other agencies. This paragraph is noted and we will move to paragraph 9.
Bord Fáilte made £15.6m grant assistance available to tourism projects in 1995. This assistance was sourced from and applied for the purposes set out in Table 9.1.
Bord Fáilte Grant Assistance 1995
In the case of the Operational Programme for Tourism grants are approved by two autonomous boards
•the Management Board for EU Marketing Grants
•the Management Board for Product Development.
The boards are made up of representatives of the Department of Tourism and Trade, Bord Fáilte and commercial and business interests.
Bord Fáilte is responsible for all other administrative operations.
In the course of audit in March 1996, it was noted that Bord Fáilte had no formal monitoring procedures in place to ensure continued compliance with grant conditions or to confirm that targeted results were being achieved. Bord Fáilte would only institute formal monitoring procedures in cases where projects were in difficulty and otherwise would rely on ad hoc inspections either by its staff or those of Regional Tourism Organisations.
In view of the extent of public investment in tourism projects, I asked the Director General what action he had taken or proposed to take to ensure that
•investment is applied for the purposes intended
•projects continue to comply with grant conditions
•project performance is monitored against targets.
The Director General informed me that in the course of the development of a project there is continuous tracking as the development proceeds, both by Bord Fáilte staff and by independent expert advisers. Grant payments are made only if the development is in accordance with the agreed plan. The requirement for an independent auditor’s certificate ensures that grants are only paid out on relevant expenditure.
In regard to post-completion performance and compliance, the Director General assured me that formal monitoring procedures which Bord Fáilte was about to put in place were at an advanced stage. These procedures will ensure that projects continue to comply with grant conditions and that performance is monitored against targets.
He also informed me that, at the request of the Management Board for EU Marketing Grants, Bord Fáilte is reviewing its post-monitoring procedures for marketing grants which, unlike development grants do not have conditions which remain in place for ten years after payment.
Mr. Purcell: As can be seen in this paragraph, Bord Fáilte issued over £15.5 million in grants for tourism projects in 1995. Those grants fall into two categories: marketing and capital. For the grants issued under the Operational Programme for Tourism, there are two separate boards which have responsibility for approving the grants. The processing of applications, payment of grants and post-payment monitoring are the responsibility of Bord Fáilte. This monitoring is important because not only does the EU Commission require it for the Operational Programme and INTERREG initiatives, but also in its own right as a means of checking compliance with conditions and evaluating the impact of the projects supported.
My concern was that Bord Fáilte was slow in building up its monitoring procedures, and that, at a minimum, could leave it open to criticism from the Commission or the European Court of Auditors. In the last month a project team has been put together by Bord Fáilte and the monitoring of grant-aided projects has commenced, which is very welcome.
Chairman: Why did Bord Fáilte not have formal monitoring procedures to ensure compliance with grant conditions, especially after the payment of the grant, before the Comptroller and Auditor General’s report? How will the new team monitor this situation?
Mr. McNulty: We mentioned the restructuring of Bord Fáilte and the Comptroller indicated that we would be given a staff allocation of 235. That allocation was predicated on the report, which envisaged that all of this work on the administration of grants and servicing of EU boards would be outsourced from Bord Fáilte.
It was decided not to outsource but to retain this in Bord Fáilte. However, there was no increase of the 235 staff allocated. That caused immediate reorganisation problems to deal with the grant applications as a priority and monitoring them as a second priority. We had always envisaged that when sufficient applications were processed to divert the staff who had been doing that job into monitoring. As the Comptroller said, we got the monitoring process agreed late last year and we began the “paper” aspect of it, which calls for financial reports. As of the beginning of April, I put a team on this matter on a full-time basis and they have a good mix of skills. We will be monitoring three areas: a physical examination to ensure everything that was grant-aided is there and is being used for the designated purpose, an operational review as to the running of the operation and a financial review. As a result of that, we will allocate to each grant-aided project being monitored one of four categorisations. It will be certified as being fine, or, on the other end of the scale, compliance will not be certified and we will determine what action we need to take. There are two intermediate categories. One is that the project requires priority monitoring because it may not be doing as well as expected and the other category is that further checks may be required.
The EU and the Department of Tourism and Trade have accepted the monitoring plans and those plans are now in operation.
Chairman: We can conclude this paragraph. The Committee is concerned that Bord Fáilte did not have formal monitoring procedures in place with such large sums of money involved but is pleased to see that as a result of the Comptroller’s audit, it has now implemented the proper procedure. The Committee trusts that Bord Fáilte is now aware of the controls required in all cases of grant funding and will ensure that the Comptroller will not have cause to issue this kind of paragraph in the future. We will move on to paragraph 10.
10.World Equestrian Games
A bid by an Irish company to host the 1998 World Equestrian Games in Ireland was successful. One of the conditions attaching to the awarding of the games to the company was that the company undertook to pay the Federation Equestre Internationale (FEI) £4.5m on or before 31 December 1998. The television rights were reserved to FEI.
Grants totalling £0.5 m have been paid by Bord Fáilte to the company by 31 December 1995. Bord Fáilte agreed to guarantee payments up to £1.5 m to FEI.
In December 1995, arising out of concerns at the manner in which the company was handling the arrangements for the games, Bord Fáilte appointed two directors to its board. In March 1996, following consideration by the Government, the Minister for Tourism and Trade decided to withdraw further financial support from the company.
The withdrawal of support followed a review carried out by the Minister of the State’s involvement in the games, the exposure of the Exchequer and the business plan of the company. The review had noted
•that FEI, which retained the TV rights had still to complete negotiations on a TV strategy
•the absence at that stage of any contracts for commercial sponsorship despite repeated indications that negotiations with a potential sponsor were advancing
•growing concerns about the company’s budget projections given that in the two years since the successful bid of March 1994, its expenditure projections had increased by 79%, while income projections rose by 35%, almost half of which was accounted for by a higher projection for commercial sponsorship
•a key element of the company’s income projections was provision for income from a title sponsor totalling £3m, which appeared to be in excess of anything achieved in the past for a sporting event in Ireland with no credible evidence that it was achievable
•the risk that increases in costs coupled with a serious shortfall on income projections, could leave the games with substantial losses
•the lack of evidence that any Irish or international financial institution or commercial business was prepared to invest its funds in this enterprise.
I asked the Director General
•the extent of all financial commitments of Bord Fáilte or the State to the games
•the position in regard to the hosting of the games and the current exposure of the State in the event of the games not proceeding or being run at a loss.
The Director General has informed me that
•title sponsors have since been found who are providing £2m in sponsorship - £1.35m (net of commissions) in cash and the balance comprising vehicles and marketing support
•new structures have been put in place to ensure the efficient running of the games including a finance committee which will monitor the finances of the company and the implementation of financial controls
•it is the intention of the company to appoint a financial controller in 1997
•a firm of accountants will provide general financial and tax advice as well as acting as auditors to the company.
The Director General also informed me that as a result of the sourcing of a title sponsor the Government has agreed to provide funding totalling £0.5m to be paid in the years 1996 and 1997 which is additional to the £0.5 m already paid by Bord Fáilte up to 31 December 1995. Furthermore, a new contract has been agreed with FEI which ensures the gradual reduction of the level of guarantee from £1.5m to £0.75m.
The company is currently projecting a net surplus. The projected income and expenditure assumes sponsorship income of £2.25m. As the title sponsors are providing £1.35m, this means that a balance of £0.9m has yet to be secured.
Mr. Purcell: This paragraph outlines the nature and extent of the State’s financial support for the holding of the World Equestrian Games in Ireland in 1998. The world controlling body for the sport, the FEI, sold the rights to staging the Games to a company set up by the Equestrian Federation of Ireland. That company’s brief was to make all necessary arrangements for financing and organising the Games. The State agreed to provide financial assistance. To this end, Bord Fáilte paid £500,000 to the company in equal instalments in 1994 and 1995. As part of the agreement, Bord Fáilte agreed to guarantee £1.5 million of the £4.5 million the company had undertaken to pay FEI as the price for staging the Games in Ireland.
In March 1996, as a result of concerns about the viability of the Games, the Government decided to withdraw its support and the reasons are set out in the paragraph. There have been a number of developments since then. Title sponsors came on board and the Government decided to revive its commitment to the Games as a result, with £250,000 being paid to the company in 1996 and a further £250,000 to be paid in 1997. As part of the restructuring of the financial aspects of the agreement between the company and the FEI, the £1.5 million State guarantee will be gradually reduced to £750,000 by the time the Games will have been staged.
At the time of writing the report I was concerned that the State would be left to foot a big bill if the Games were run at a loss or cancelled. That concern has since been justified because, according to press reports, a major sponsor has decided to restrict its contribution to £450,000, leaving the organisers the task of raising another £1 million to fill the funding gap on a project that was already marginal in terms of profitability. To put it mildly, the possibility of the organisers reverting to the State for further financial support cannot be ruled out.
Chairman: I note from this paragraph that, to attain the currently projected net surplus, the company must secure additional sponsorship of just under £1 million. According to newspaper reports, the main sponsor, Nissan, has reduced their sponsorship from £1.5 million to £450,000. How confident is Bord Fáilte of obtaining the required funding?
Mr. McNulty: The World Equestrian Games is a major global event. Bord Fáilte has a role in monitoring the Government contribution to the Games. Following advice from Bord Fáilte that we were dissatisfied with preparations, the Government, threatened to withdraw its sponsorship. We ensured that certain controls were put in place by the World Equestrian Games. This resulted in Nissan sponsorship of £2 million, approximately £1.35 million in cash and the remainder in kind. As you correctly reported, Chairman, the newspapers have now indicated that Nissan has withdrawn. It is leaving the £400,000 in cash which has already been spent and it is prepared to help with the sponsorship-in-kind through its local operator.
This information is recent; we only were advised of it last Friday. The WEG committee has been in touch with the Minister and it has made a case for reconstruction. That matter is under consideration by Government at present. Until a decision is reached, I am not in a position to indicate whether or not the WEG can be restructured satisfactorily.
Chairman: The media has reported that the RDS will not now be a venue for the games. Can the same level of income be maintained by holding all aspects of the games at Punchestown?
Mr. McNulty: WEG’s independent decision in relation to the RDS has an affect on its budget and we were awaiting an assessment of that affect before the sponsor withdrew. Now there are two problems; the budget has altered as a result in the RDS change and the sponsor has withdrawn, so the project’s difficulties have increased significantly. The Committee will probably accept that, due to the recent action of the last few days and the need for the Government to consider what has happened, it is difficult to be precise but I will try to help in any way I can.
Chairman: The company has projected a surplus for the project. How positive is this, considering the only other games, those held in Stockholm and the Hague, incurred substantial losses? What will be different in the case of the Irish games?
Mr. McNulty: It is a large scale project with a current projected budget of £9.6 million. To achieve that, the amount of sponsorship required in cash terms would be in the order of £2.58 million. There will be much additional help-in-kind needed. The withdrawal of the sponsor means reaching that target is made more difficult to the extent of about £1 million, that is, there is a shortfall in those projections of about £1 million at present.
There is also the matter of the change of venue, that is, the RDS, and the amount of money which is generated by paying customers at the gate. All of those matters would need to be considered in the light of the Government’s decision. One could not have confidence at this point in time but one is looking at all of the information coming to hand. Because it is immediate and ongoing even as we speak, it is difficult to bring it to a conclusion today. It may be necessary to revisit the matter at a later date when it becomes a little clearer.
Chairman: Did Nissan give a reason for reducing its sponsorship from £1.5 million to £450,000?
Mr. McNulty: The principle problem, as we see it, is the lack of clarity in relation to the television coverage the event will receive. It is quite a popular event and it gets wide television exposure in other countries. All of these complicated television arrangements need to be tied down as quickly as possible with the host television station. That has not been completed satisfactorily to date to the point where one could rely on it. I hope it will be completed because it is the key to the success of the games.
Deputy Finucane: Nissan has availed of the tremendous buoyancy in car sales recently so the company probably has reservations at this stage and this is reflected in its reduced investment in the event. If a wise corporation such as Nissan has reservations about this project, Bord Fáilte and the Government should tread wearily.
This morning’s newspapers were optimistic that a £1 million sponsor would be found quickly. Is that speculation or is there a certain amount of validity to that assertion?
Mr. McNulty: I have no information available to me at this stage which would confirm that view. It is an event which attracts sponsors because it receives considerable television coverage. It is watched by segments of people which can be important to sponsors. At present, I would have to say that it is speculation, according to the information available to me.
Deputy Finucane: When will the World Equestrian Games take place?
Mr. McNulty: The proposed dates are the first half of August 1998. There will be about 1,800 competitors from 115 countries. The bookings have been coming in steadily over the past number of months. The brochures have been published and they are available abroad. It will attract at least 3,000 people who will involved directly plus spectators, publicity people, press, television crews, etc. It is quite a large event.
Deputy Finucane: Is Bord Fáilte keen that it should take place?
Mr. McNulty: The initial decision to support the games was a Government one. It is a much larger event than anything which could be supported by the Bord Fáilte budget but we welcome the publicity which such an event generates.
Deputy Finucane: Did the Government not have extreme reservations about this project in March 1996, mainly because the television rights were not copperfastened and there were other issues of which it was unsure? That was March 1996 and this is May 1997. The television rights are still not settled a year later. If the Government had reservations in March 1996, surely they still exist. Surely those reservations are based on sound foundations since Nissan has reduced its commitment to the project.
Mr. McNulty: The Deputy did not get that impression from anything I said. The earlier reservations were based on the fact that there was no principle sponsor. In other words, the earlier reservation was met to a certain degree when Nissan came on board with £2 million.
Deputy Finucane: There is still no principle sponsor.
Mr. McNulty: Yes, but that only became the case in the past couple of days. According to the speculation in the newspaper this morning, the people involved in WEG are actively seeking a sponsor at present. They have made proposals to Government about the situation. Until there is some clarity in that regard, it is hard for me to be conclusive as to whether, from a Bord Fáilte perspective, the event can be mounted successfully.
Deputy Finucane: I accept that. Assuming the project goes ahead, how much is the State likely to invest in it?
Mr. McNulty: If the project had to proceed and meet its current budget of £9.6 million, the total State outlay in terms of grants would be about £1.320 million.
Deputy Finucane: Is there a deadline for finalising the television strategy? If one wants to organise an event such as this, a great deal of advanced planning must be undertaken before it takes place. If the television strategy is not in place, Bord Fáilte and Ireland are not likely to benefit internationally.
Mr. McNulty: Putting these strategies together is a matter for WEG and FEI. The rights to the television strategy are retained by the international federation, FEI, who has commissioned the help of some of the leading people in this field. We must await the outcome of their work. There is not a great deal Bord Fáilte can do about it because it involves complex global negotiations with over 100 countries. Ideally, Bord Fáilte would obviously like to see the strategy in place at the beginning or as soon as possible thereafter because it instils confidence in everybody that the levels of publicity will be achieved and it is a source of income to the games. The fact that the strategy is not in place is disappointing but it is outside the control of Bord Fáilte. Bord Fáilte cannot make it happen. Bord Fáilte can only report that the strategy is not in place as we speak.
Deputy Finucane: I accept that. I am only saying that television rights were an issue in March 1996 and they remain an issue in 1997. There comes a time when somebody must say that agreement on the strategy would be expected before 1 July, for instance. Bord Fáilte is probably an innocent bystander but one cannot be when one has exposure with regard to funding. Is there a time scale to copperfasten these issues so that one can go ahead and plan for the event?
Mr. McNulty: There is a time scale. It would have to be in place in excess of one year ahead of the games. We regarded that as a benchmark. As a result of the issue coming to a head, that will be reviewed and I imagine that the time scale will be shortened.
Deputy Finucane: Have Mr. McNulty any fear with regard to Nissan’s reduction in sponsorship? There are concerns that the project could frazzle out.
Mr. McNulty: That is a real fear because Nissan is the lead sponsor. It would leave a gap in excess of £1 million in the budget. It will not be easy to fill that at this stage.
Deputy Finucane: Another big event coming to Ireland is the Tour de France. It gives tremendous exposure on television, etc. How does Mr. McNulty equate both events in terms of tourism?
Mr. McNulty: The Tour de France is a well made package. The promoting company already has television agreements and so forth in place from year to year. There are 1,500 journalists accredited to travel with it. One is dealing with a company that has organised it year in, year out. As a result of the Government’s support a contract has been signed which outlines everybody’s responsibilities. We reviewed it earlier in the week and everybody is taking care of their responsibilities.
In terms of publicity the Tour de France receives much more television coverage than the World Equestrian Games, which are exposed in many countries to a niche market involved in equestrian activity. We have worked out rough figures for both of them. However, the Tour de France is second only to the Olympic Games in terms of size and media interest worldwide.
Deputy Finucane: What is the cost of holding the Tour de France?
Mr. McNulty: The Government has agreed a package of financial support with local authorities, the Department of Tourism and Trade and other interests worth approximately £2 million.
Deputy Finucane: That is against £1.3 million for the World Equestrian Games.
Mr. McNulty: The total exposure to date is £820,000 but if everything promised was to be paid by the Government, it would be £1.320 million.
Deputy Byrne: Is there a moral to the story that a man has greater affiliation to his bicycle that he does to horses? The prospect of holding the World Equestrian Games is rather bleak even though everyone would love to have them here. I congratulate Bord Fáilte which as far back as 1995 got involved and placed two directors on the board of this company. The report of the Comptroller and Auditor-General is bleak and damning. Which Irish company bid for it? What experience did it have that it made such an incredible mess?
Mr. McNulty: The international company involved is listed in the Comptroller and Auditor-General’s report as FEI——
Deputy Byrne: An Irish company made a successful bid. Which one was it?
Mr. McNulty: WEG Limited. It was set up by the Equestrian Federation of Ireland and other equestrian interests as a legal entity so that it could operate separately from the normal business of those organisations.
Deputy Byrne: Bord Fáilte expressed concerns in December 1995 and two directors were put on the board. Would it not at that stage have been wise, given that there were concerns and history shows that the games incur substantial losses, to pull the plug and say that holding the games was not a viable prospect?
Mr. McNulty: No, we were given a role by the Government to monitor the investment for the event which is our position with regard to events of this nature. We had a number of staff working with the company to take care of our responsibilities. We wanted to put directors on the board so that we could have direct access to the information that would be available to board members and get feedback on any difficulties. When difficulties arose our staff cast themselves in the role of helping to try and solve these, but if a serious obstruction to the holding of the games were to occur, our role would be to ensure the Government is advised on whether it would be possible to mount the event and what the exposure would be.
Deputy Byrne: At what stage does one throw in the towel if it cannot happen? At what point does an alternative country have a prospect of holding them? Are there any contractual agreements linked to the bid which we cannot get out of?
Mr. McNulty: The contract was granted to World Equestrian Games Ireland by the FEI which is the international body. There is a contract in existence which initially had a guarantee against loss of the games of £1.5 million. The money was given by the Government and Bord Fáilte signed off on it. As a result of the restructuring following the initial concerns, some changes were made within Dublin equestrian games and the guarantee was modified. It was to reduce immediately by £250,000, and by £500,000 on 8 May 1998. That would mean the outstanding guarantee would be £750,000 at the time of the games. That has been interrupted by the withdrawal of the sponsor. There was no indication prior to this that the sponsor might do so. It seemed very solidly linked to the project. What has happened over the past number of days means that it must be reassessed and a realistic view taken as to whether all of the ingredients, including sponsorship and television coverage, can be put in place in the time available which is in excess of one year and a quarter.
Deputy Byrne: Is the television coverage linked to Sky or national broadcasting stations?
Mr. McNulty: It is linked to the equivalent second national television station in most countries but the problem is that the linkages are not complete. The agreements are not signed and contracts are not in place. It would typically be covered by Network 2 rather than RTE 1 in Ireland and the same would apply in most other countries with news coverage on the major stations.
Deputy Byrne: How long is the event anticipated to run?
Mr. McNulty: There will be activity for about a month but the major event will take just over two weeks.
Deputy Byrne: I wish the project well but urban Deputies have a greater affiliation to the bicycle than the horse. I envisage that the equestrian community is very wealthy. Could Mr. McNulty indicate the financial contribution to the Exchequer from the equestrian, horse breeding class, given that the taxpayer is likely to pick up a huge tab if this is not financially successful? How far is its backside out the window?
Mr. McNulty: Their money would mostly come into play during and immediately before the games. They were playing a major part in providing free labour for stewarding and accommodating people who would be coming as officials. There are areas where income would have been derived from people interested in equestrian support and this would be put against corporate hospitality, entry fees, local advertising by Irish equestrian interests, etc.
Deputy Byrne: Bord Fáilte and the Department of Tourism and Trade are facing a potential bill and have committed taxpayers’ money to the project. This is a wealthy and exclusive industry - how much of its money is at stake? How much has it invested? Perhaps the Comptroller and Auditor General can tell me. We see how much the State has committed but not how much has been invested by this group which competed to hold the World Equestrian Games. What was its financial commitment at that stage and what is it now?
Mr. Purcell: I take the Deputy’s point. My concern is on behalf of the taxpayer because we have already paid £750,000 in grants and another £250,000 will be paid this year, which will bring the total to £1 million. The guarantee against a loss-making games is about £1 million, which has been reduced from £1.5 million. On present projections — which are tight, as I said — the likelihood is that the taxpayer may pay up to another £1 million. That would be £2 million in all if the games go ahead, even if there was a lead sponsor.
Deputy Byrne: What about the input from the industry — the breeders, the bloodstock side, etc.? This is a huge and wealthy industry.
Mr. Purcell: It is not clear from the projection where that would come in. I bow to the Director General’s greater knowledge and it would appear that industry funding would be given closer to the event. I do not know to what extent there would be sponsorship offences, etc., or who might avail of that. On the face of it, I do not see that there has been sponsorship from the equestrian industry.
Deputy Byrne: A company has formed and successfully bid to hold a prestigious event like the World Equestrian Games in Ireland but has apparently not put forward any funding — is this not a shoddy way of making the bid in the first instance? This is a huge, wealthy industry which has not guaranteed £1 million towards the games so why should the taxpayer do so? They sound like the merry gentlemen who get on their horses to chase stages at certain times of the year. They thought it was a good idea but only if the taxpayer was going to pick up the tab — they have not committed themselves to a brass farthing. I find it objectionable if there are no built-in potential losses for those who bid for the games but a large potential loss for the Irish taxpayer.
Mr. McNulty: At this stage it would be difficult to extract the information about how much a group of people might invest — that would come with the games themselves. The budget for mounting the games is about £9.6 million and the taxpayers’ contribution — if all grants had been paid and the games went ahead as previously scheduled — would have amounted to £1.6 million, therefore £8 million would have had to be raised from other sources by the WEG group. That would include commercial income, sponsorship, admission fees, local sponsorship, television rights, etc.
Deputy Byrne: That was if all things went well, as we would have wished, but we can see Mr. McNulty’s concerns in December 1995 and the Comptroller and Auditor General’s concerns in his report. The Government lost faith and clearly stated it was withdrawing funding from the project because it was concerned on foot of the recommendation of the directors of Bord Fáilte. It was an ill-conceived project by the Irish equestrian community and it is a sad day.
Chairman: The dates for the promotion are in July and August next year, is that right?
Mr. McNulty: I believe so, August predominantly.
Chairman: There will be 5 million visitors to Ireland this year and the peak period is July and August so was it not possible to hold the international function in May, June, September or October?
Mr. McNulty: No. While we attract a large number of visitors, one of the aberrations in tourism is the dip in numbers visiting the urban area of Dublin in particular during July and August because business travel, which normally makes up a percentage of hotel bookings, decreases in those months. We tried to see whether we could hold an event in that period to bring up the levels. We have had other events during that period in the past. In the holiday areas around the country accommodation is fully used during the peak period but this aberration happens in Dublin — it occurs in other capital cities also — whereby accommodation bookings reduce in the July/August period.
Chairman: When these people come here, one hopes they would have the chance to travel around the country but they would have no hope of getting accommodation in July and August. I am surprised there is a dip in Dublin during those months. Would Mr. Dully like to comment on the discussion about the games?
Mr. Dully: I confirm what Mr. McNulty said — given recent events, WEG Ireland has approached the Minister and made proposals for further assistance. The Minister is on record as saying these will be considered by Government and decided on at the earliest possible date. I cannot say more than that.
Chairman: The Committee is delighted to see such a prestigious event coming to these shores and must commend Bord Fáilte on its powers of persuasion. Undoubtedly these games will be of great benefit to the Irish tourism industry and this can only be welcomed. Having said that, Bord Fáilte must keep expenditure in mind and ensure proper controls are maintained to minimise the exposure of the State in the event of the games being run at a loss. The Committee wishes Bord Fáilte well with the project. The paragraph is noted.
Paragraph 11 of the report of the Comptroller and Auditor General reads:
11.Grant Assistance to Tourism Project
A historical them project was established in County Waterford as part of an investment plan under the Tourism Operational Programme 1989-1993. The project was part of an initiative aimed at creating weather independent facilities, the lack of which was seen as a longstanding weakness in Ireland’s tourism product.
Grants totalling £1.81m had been made available from the Operational Programme through Bord Fáilte towards the capital expenditure. The grants were based on 50% of eligible costs which were agreed maximum amounts on buildings, technical equipment and project fees but excluded any actual or nominal value of the land on which the project was sited. Grant payments were based on certificates of expenditure provided by the auditors of the operating company, certificates of practical completion provided by the project architects and reports on the total project provided by an independent architect engaged by Bord Fáilte. A marketing grant of £30,000 and a further grant of £5,000 under Bord Fáilte’s own Capital Development Grants scheme were also made.
The project, which opened in June 1992, experienced financial difficulties early on in its operations and Bord Fáilte commissioned a consultant’s study of the project in February 1993. It was the consultant’s opinion that the financial and administration procedures of the operating company were deficient in a number of areas, in particular
•the records were inadequate despite a high level of expenditure on bookkeeping
•tax returns had not been correctly compiled
•interim grant claims had been incorrectly compiled and claims (which included VAT) had been accelerated.
To alleviate the project’s financial difficulties, Bord Fáilte provided financial assistance in the form of a £313,000 grant paid through the South East Regional Tourism Organisation (SERTO) in 1993. This grant was repayable if the project’s finances improved.
The project closed in November 1995. Bord Fáilte attributed the closure to a failure in realising the projected levels of business necessary for survival and profitability and to debt problems.
The property was advertised for sale and a purchase ‘subject to contract’ was agreed in June 1996 by a property development company for £442,000. No contract has yet been signed. There is a condition in the agreement that the premises will continue to be used for leisure/tourism purposes and on this basis no refund of grant moneys has been sought.
I enquired of the Director General
•how and in what respect the post-construction performance of the operating company was monitored
•the actual performance of the project in terms of visitor numbers or other relevant indicators against that projected
•the book value of the project assets and the reason for the diminution in that value to the £442,000 realised on sale
•the security given by the company for the grants and financial assistance and the likelihood of any recovery.
•the action taken or proposed by Bord Fáilte in regard to claim processing in view of the findings of the consultant that claims had been accelerated.
The Director General informed me that between 1992 and 1995, Bord Fáilte had a seat on the board of the company which was the major shareholder in the operating company and which was monitoring the project. In addition, Bord Fáilte staff and a consultant engaged by Bord Fáilte were involved on an ongoing basis with the board and management of the operating company. In regard to the performance of the project, he informed me that while the project traded well in its first season, thereafter, visitor numbers fell off considerably to a low of about 45,000 in 1995. While this level may have been sufficient to operate the project on a break-even basis it was completely insufficient to address any of the debt problems.
The current value of the assets is approximately £442,000, a value that had been established as the market value following an offer for sale by public auction. It reflects the fact that the project has failed and the stipulation that further use be tourism and/or leisure related. The historical cost of the project was approximately £4m including a valuation of £400,000 for the land which was not grant-aided. The historical cost is based on the amount paid by the operating company to its contractors. In the circumstances of the business closing, the open market value of the asset is the most appropriate measure.
He also informed me that Bord Fáilte and SERTO had a joint second charge on the assets of the company and a deed of covenant agreeing the grant conditions. The company’s bankers had the first charge. There is no likelihood that Bord Fáilte or SERTO will recover any grants paid. The Bord Fáilte position is that it will continue to receive value for money from the grants if a new tourism project can successfully be put in place as the principal assets which were grant-aided are still in place.
In regard to the impact of claim processing deficiencies, the Director General assured me that only interim payments were accelerated. The final grant claim was correct and no material loss accrued to Bord Fáilte.
Mr. Purcell: Paragraph 11 draws attention to the collapse of a tourism project and the consequent loss of EU and State moneys. The project in question is Celtworld in Tramore which was approved for a European Development Fund grant of £1.8 million on the basis of an assessment carried out by Bord Fáilte. There were three investors in the project. The major shareholder was a company which had originally been established in 1966 by Bord Fáilte to develop Tramore as a tourism resort. It held half the shares to a value of £750,000, represented by £400,000 being the imputed value of the site provided and the balance being in respect of services rendered to the operating company and a further £85,000 in cash. The second investor was a building company which held one-third of the shares to a value of £500,000. That £500,000 was contributed by way of offset against payments due to one of its subsidiaries for constructing the facility. The third investor was a leisure company which held one-sixth of the shares, to a value of £250,000. That £250,000 was also contributed by way of offset, this time against payments due for work by an associate company on the technology which underpinned the project.
A further £231,000 was raised by a BES scheme, which fell short by about 50 per cent of what it was looking for. Additional funding was also provided by the banks, which retained a first charge on the assets of the operating company. Prior to opening, the Bord Fáilte sponsored company and the building company each provided a loan of £100,000.
Soon after the facility opened in June 1992, it became clear it was not attracting visitors in sufficient numbers to make it viable. In February 1993, Bord Fáilte engaged a consultant to examine the project. After he had reported, Bord Fáilte provided £313,000 to the south east regional tourism organisation, by way of grant, to be passed on to the operating company to alleviate its financial difficulties.
Unfortunately, the hoped for upturn in business did not materialise and, ultimately, the company ceased trading in September 1995. The property was put on the open market, but the condition that it must be used for tourism or leisure related activities has proved to be a stumbling block in disposing of the facility. The arrangement to sell the property for £442,000, as mentioned in the paragraph, has since fallen through. However, I understand there is another interested party and there might be some developments there.
It is clear that the resale value of the property will probably represent less than 10 per cent of what it cost. I accept there is always a risk in developing innovative tourist attractions, and that some will always fail despite the best efforts of those involved. Perhaps that is what happened here. However, there must be a doubt about the way the project was initially evaluated, particularly in light of the fact that it got into difficulties so early in its life. The Celtworld experience shows there is a need for improvement in Bord Fáilte’s evaluation and monitoring techniques, and that there are valuable lessons to be learned for the future. Incidentally, I note from the file that the EU Commission has asked for an independent review of the project, but I have no information on whether such a review has materialised.
Chairman: This is a very serious report by the Comptroller and Auditor General. Was a feasibility study carried out on this project? If so, who carried it out and did it cast any doubts on the viability of the project? Will Mr. McNulty give his analysis of why this project was unsuccessful?
Mr. McNulty: Undoubtedly, Celtworld failed, although I am happy it was one of the few failures we had in a very large programme of over 350 projects. It was designed to support the resort of Tramore, which is one of 16 resorts. The position at the beginning of this project was that resorts had lots of accommodation but very little for people to see and do. The philosophy which we put in place in the initial development programme, with which everybody agreed, was that there was a need to provide wet weather facilities.
Celtworld was designed as a wet weather facility. Unfortunately, it opened in 1992 which was one of the best summers we have had, with hardly a wet day for the entire summer. It did not trade well in its first year. In addition, as the Comptroller said, the BES element of the project did not meet its target, which left it undercapitalised. Also, about £300,000 was spent on a marketing campaign to launch the project.
Those forces combined to create a problem. As the Comptroller said, when we saw the problem we had it examined. The changes we made as a result of the consultancy report enabled the project to trade well in the subsequent year, but insufficiently well to get rid of the overhang of debt which had accumulated during the first year and the initial underfunding. It subsequently proved impossible to rescue it.
We then did what we considered the next best thing, which was to ensure that the benefits which were originally enshrined in the idea of putting the project in place, continue to be delivered by somebody else. That means, unfortunately, that those who invested in the project, including ourselves, the BES investors and the EU, must take a hit in terms of the capital which was put into it. However, it also means that the jobs which were created by the initial project, together with the facility which was created, will continue and it will be open for the current season.
Chairman: How many jobs were created?
Mr. McNulty: The total number of permanent jobs was about 15, with at least that number of seasonal jobs also.
Chairman: What is the break even situation?
Mr. McNulty: In the old circumstance we had estimated that to break even it would have to achieve approximately close to 100,000 visitors annually, 120,000 if possible. That was not achieved in the first year.
Chairman: What would that be worth in financial terms?
Mr. McNulty: I might need to check that and return to it, rather than guessing at it now.
Chairman: In comparison with the aquadome in Tralee, is £1 million not rather high?
Mr. McNulty: There is a Waterworld project next door, with which some linkages were established in terms of joint ticketing etc.
Chairman: The Comptroller stated that £1.81 million was paid in grants. Is there is a possibility of that money being refunded?
Mr. McNulty: It will not be possible to get a refund because we have offered the building for sale publicly and, as the C&AG’s report states, its market value has been determined. It is possible, however, for us to insist that we get very close to the conditions which were laid down in the initial grant to benefit Tramore and the EU funds. We are doing that at the moment. Probably one of the reasons the building attracted low interest is that we can insist on that condition at the moment.
The alternative is that the building would revert to us, but it is not a useful asset in our hands unless we can dispose of it. We have disposed of it in the way which we think is best suited to ensuring the continuation of the jobs and the project. The benefits which were originally foreseen will continue and it will be open for the current season. However, it is regrettable that it was a failure in the Celtworld form.
Chairman: Has the independent review requested by the EU Commission been carried out? If so, what were its findings?
Mr. Dully: The EU is completing an independent study of this project. I do not know what its findings will be but I tried to find out what they are likely to be. The most I could get is that they will not be very negative. I can say factually that an independent study has been undertaken and, from what I am led to believe, the outcome may not be too negative.
Deputy Byrne: What type of activities took place in Celtworld to attract tourists?
Mr. McNulty: It was an exploration of Irish mythology. There was a series of tableau type rooms where one was led through the mythological history of Ireland. It was a mixture of audio-visual and mechanical presentation, with sound and smell effects.
Deputy Byrne: Not unlike Dublinia?
Mr. McNulty: It was different from Dublinia in terms of how it was presented. Essentially, one sat on a stage which revolved through six different scenes. That theme has been discontinued and, as far as I know, the equipment has been removed. The theme when it reopens this year will relate to the Cretaceous period, involving dinosaurs.
Deputy Byrne: We heard the figure £1.8 million. However, I saw that additional grants of £35,000 and £313,000 were also paid. Would that bring the total grant assistance to £2,158,000?
Mr. McNulty: That is correct.
Deputy Byrne: There is a worrying report that the EU Commissioner wants a review. How much of the £2.5 million is EU money?
Mr. McNulty: There is £1.810 million in the form of a capital grant and £30,000 in the form of a marketing grant. That is £1.840 million.
Deputy Byrne: The Department of Agriculture, Food and Forestry has had EU money clawed back. Is that a possibility for Bord Fáilte?
Mr. McNulty: The EU gave £1.840 million for a certain project. The initial project put in place failed but the building is still there and there will be a project there which will be similar to the original project run, admittedly, by a different operator. Some commercial interests and our grant money will have to take a hit, but the benefits of the money given for the original project to Tramore and in terms of employment will be attained.
Deputy Byrne: If that is so why would the EU bother looking for a review?
Mr. McNulty: Obviously, any project which fails must be looked at to see if we can learn from the experiences through seeing what was wrong with the analyses. In this case the project was a wet weather facility and we did not have any wet weather in the period when it opened. In addition there were a number of structural problems in terms of the BES not coming up to scratch, for example. We would normally look at any project that failed. In the first programme we developed in excess of 350 projects and we had two failures - this is one of them and in the other case we recovered the grant.
Deputy Byrne: The purpose of this Committee is to look at the failures. We will not congratulate the victories but we examine the failures to protect the taxpayers’ money.
Mr. McNulty: I appreciate that.
Deputy Byrne: Bord Fáilte commissioned a consultant’s report which was fairly damning. How could the consultant find that the records were inadequate despite a high level of expenditure on bookkeeping? If there was a high level of expenditure on bookkeeping one would imagine the books were kept well, so to speak.
Mr. McNulty: That came to light during the examination. Information was being presented during that period which led those charged with directing the project and us who were monitoring it to believe that certain things were awry. It was when we sent our consultant in to examine the project following the poor trading season that these collateral issues came to light. When they came to light we dealt with them speedily. We put in place new systems and insisted that new people be taken on. We carried out certain rationalisations there. The project did trade successfully the following year but the problem was that the successful trading in that year was insufficient to wipe out the overhang of debt from the previous bad operation and the underfunding.
Deputy Byrne: Have all the necessary PRSI and tax returns been made?
Mr. McNulty: I think so in the sense that the project has gone into liquidation. I cannot give a definitive answer but I can get the information for the Deputy.
Deputy Byrne: The biggest shock is that, although there was in excess of £2 million in grants given to the project, including EU funds, the building is only estimated to be worth £442,000 because that is what was bid at auction. Is that an appropriate way to value property?
Mr. McNulty: We are selling it with the restrictions that it must be used as a tourism facility close to the original project. In other words, we are trying to ensure that what was envisaged initially will be continued by the new owner. We are not selling it as a building which can be used for any purpose other than that for which it was grant aided. Bearing in mind that the previous project failed, the new owner will want to refresh the operation. If fact he is putting in a totally new set up.
Deputy Byrne: I do not know if Celtic mythology is necessarily the most tourist attracting product. When the original project was conceived I sure market surveys were carried out. Why did it collapse so quickly? I know it was a sunny season when it opened but surely the marketing professionals would have structured their surveys so as to account for all potential downfalls.
Mr. McNulty: I visited the project during the initial period and the principal problem was that the building had no air conditioning. It was a closed building clad on the outside with aluminium - a good building for normal Irish conditions. However, it became like a frying pan during that period and it was not possible to remain in it. It had a lot of disadvantages. It was built to provide a balance in the resort for families, a family entertainment. It was a wet weather facility to give people something to do on the days they could not use the beach. Unfortunately during 1992 people were able to use the beach every day and the building was uncomfortable. It was not designed with air conditioning and other facilities which might have alleviated the problem somewhat. I stress that it traded well the following year but not sufficiently well. Hopefully, it will trade well again under new ownership and most of the original objectives will be achieved.
Deputy Byrne: How much has the taxpayer lost to date?
Mr. McNulty: If one takes the view that the grant was given to achieve the delivery of a project, the project is still there and is not diminished in any way one can consider that the original objectives are still there.
Deputy Byrne: It is paying customers that count. The structure could be put in mothballs in the hope that an entrepreneur will come along, but realistically—
Mr. McNulty: We have the new entrepreneur and building is being fitted out at present for its new use. It will open for the current season. The new owner is on site at the moment. It is not a dream or a hope, it is happening.
Deputy Byrne: I am confused now. I thought the sale at £440,000 collapsed. Who is the new owner and how much did he pay?
Mr. McNulty: The new owner is there at the moment under a legal agreement and we hope that the full agreement will be signed off shortly. The new owner is Mr. Felim McCluskey who operates the Mosney centre. The consideration was £380,000 with the restrictions.
Deputy Byrne: That is not a bad price for the purchaser given the capital costs were so much in excess of it.
Mr. McNulty: I would stress again that the project is continuing. If it was an industrial project it would have very little residual value. However, the employment is being maintained; the project is taking place at the moment and it will operate for the coming season. Hopefully, under new management it will trade sufficiently well now that the overhanging debt is no longer there.
Chairman: The Committee finds it completely unsatisfactory that public funds should be spent in this manner and implores Bord Fáilte to be more selective in its funding arrangements. This has been a costly but valuable lesson and every effort should be made to improve Bord Fáilte’s evaluation and monitoring techniques, as suggested by the Comptroller and Auditor General.
BORD FÁILTE - ACCOUNTS 1995
We will now move on to the financial statements. In the Director General’s review, you outline a decrease in numbers but a small increase in revenue from Northern Ireland tourists despite the fact that the ceasefire was in its full stride. What has been the effect of the end of the ceasefire on tourism from Northern Irish and other visitors?
Mr. McNulty: The operation of the ceasefire was a positive development from the point of view of tourism. It had an immediate effect of opening up possibilities for holidays to and within Ireland, including Northern Ireland. However, its interruption is of serious concern to the promotion of tourism and has a dampening effect on some of the work we do at market level.
During previous periods, when we had difficulties of that nature, we nevertheless had evolved a series of techniques which enabled us to double tourism. We must revert to using those techniques. We have tried to measure the positive effect of the ceasefire. It has had the effect of increasing the number of people in the UK who would previously not have taken a holiday in Ireland by at least five million. While it would have made the market larger by five million, it does not mean that five million people would have visited. However, in making the market larger it would have made our promotional situation in the UK that much easier. The departure from the peace process and the return to violence has had a very negative effect on tourism promotion, which is very difficult to quantify.
Chairman: On note 2, page 29, the account shows a reduction in spending on tourism promotion and development from £5.7 million to £2.1 million. Can you explain this?
Ms McHenry: That relates to the allocation from the Department of Tourism and Trade to the tourism promotion and development fund. The allocation was reduced primarily because the OTMI operation increased from 1994. It dealt exclusively with North America and it increased in 1995 to take account of North America, Britain and Europe. The allocation from the Government fund to tourism promotion and development was deflected accordingly to the OTMI operation.
Chairman: On page 39, the cashflow statement shows an increase in debtors and a large increase in creditors in 1995. Does this reflect a policy of prompt payment of debts by Bord Fáilte and a lack of emphasis on debt collection? How do the figures compare to 1996?
Ms McHenry: With apologies, Chairman, I have not got the information to hand. May I send it to you?
Chairman: Yes. On page 31, the 1995 expenditure on consultancy increased by over 400 per cent on 1995. Can you provide details of these increases?
Mr. McNulty: The main effect was the ADL consultancy which was concerned with the complete restructuring of Bord Fáilte. The Department of Tourism and Trade paid elements of that, while elements were also due to be paid by Bord Fáilte.
The witnesses withdrew.
THE COMMITTEE ADJOURNED AT 1.10 P.M.