COMMITTEE OF PUBLIC ACCOUNTS
FIRST INTERIM REPORT ON THE APPROPRIATION ACCOUNTS 1995
COMMITTEE OF PUBLIC ACCOUNTS FIRST REPORT ON THE APPROPRIATION ACCOUNTS 1995
1. Overpayments of Social Insurance and Social Assistance
The Committee again considered the section, which appears annually in the Report of the Comptroller and Auditor General (C&AG), which refers to the level of detected overpayments of benefits and assistance under the Social Welfare schemes and the extent to which the overpayments are attributed by the Department to fraud or suspected fraud.
The Committee was told that of the £16.4 million in overpayments detected in 1995, £11.7 million (over 70%) was attributable to fraud across the range of Social Welfare payment schemes which, the Committee noted, continued the pattern evidenced in recent years. In addition, only 35 prosecutions had been brought against offenders in 1995 despite the fact that there were over 10,000 cases of fraud or suspected fraud that year.
The issue was of particular interest to the Committee as there had been a recent labour force survey, carried out by the Central Statistics Office, which estimated that, while detected unemployment fraud for 1995 totalled £4.9 million, actual unemployment fraud appeared to be at 11.4 per cent or amounted to some £100 million per annum, particularly if working full-time and claiming was to be used as the criterion for fraud. The survey also indicated that the cost of unemployment fraud would be much higher if a wider definition of fraud was used. In general, it appeared that the survey cast serious doubts over the effectiveness of the Department’s controls in recent years and pointed to the need for a fundamental re-examination of the approach to combatting fraud.
In evidence, the Accounting Officer told the Committee that the real level of Social Welfare fraud was not known and, although the Department had some evidence in relation to the level of fraud, the conclusions to be drawn from the evidence was speculative at that stage. The only major exercise undertaken by the Department to measure the level of fraud had been carried out with the aid of consultants in the mid 1980s, and had been referred to in previous examinations by the Committee. A major report on the Department and the way it was tackling fraud had been prepared at that time and, as a result of that report, significant changes had been made in the Department structurally, organisationally and in the way fraud was tackled. The report showed that 2 per cent of unemployment payments were clearly fraudulent. A further 7 per cent of cases were of doubtful validity, and subsequent examination had shown that only two thirds of that 7 per cent were valid. Insofar as it could be measured, the result was a probable level of fraud of about 5 per cent.
The Accounting Officer pointed out that the CSO had stated that, unlike the survey carried out by the Department of Social Welfare in the mid 1980s, the current CSO survey was not a fraud survey but had been carried out in order to attempt to explain the gap between the labour force survey and the live register, which appeared to be giving indications which had yet to be proved. However, he indicated that a thorough examination of the data would be carried out, particularly as the figures had indicated that the level of fraud was higher than what had been previously estimated by the Department.
The Accounting Officer pointed out that as approximately 30,000 people sign off and another 30,000 sign on the live register every month, it explains to some extent the reason the detected overpayment level is such a small proportion of total activity. However, he indicated that the Department’s control activities yield savings of £120 million per annum, arising from overpayments which are actually discovered and from people whose benefits are terminated and who cease to claim. He also indicated that, while the normal control activity right across the Department would continue, a specialist live register management function had been established with the purpose of determining the level of fraud and taking necessary action. The activity of the Department would now be more overt than covert and major publicity campaigns would be undertaken to ensure that every citizen would be aware of the seriousness of fraud.
The Committee will always be concerned with the level of social welfare fraud and it hopes that every genuine effort is made to combat it. While it notes the various initiatives recently undertaken, it is somewhat surprised that greater urgency was only attached to this area when the full implications of the labour force survey by the CSO were considered. The Committee wants to be reassured that anti-fraud measures will get top priority from now on, thereby ensuring that the vast majority of social welfare recipients, who are genuinely entitled to their benefits, are not being stigmatised as fraudsters.
The Committee accepts that the determination of the real level of the fraud is difficult to assess but it wishes to be kept informed of the progress being made in this regard, particularly as the only definitive figures available are out of date.
Finally, the Committee is not impressed with the small number of fraud cases taken to court and hopes that this is not indicative of the Department’s attitude to the prevention of fraud.
The matter will be considered further by the Committee.
2. Overclaiming by a Dental Panellist
The Committee considered the overclaiming, of an amount of between £13,000 and £27,000, by a dentist who is on the Department’s panel of dentists who provide dental services to insured persons. Although the amount involved was not large, when taken in the context of the £19 million paid to dentists under the scheme in 1995, the circumstances of the case were disturbing both to the C&AG and to the Committee.
The operation of the scheme involves the direct payment by the Department to dentists in respect of qualified patients. The system relies very much on trust as the Department depends largely on the appropriateness of the dentists’ choice of treatments to be undertaken under the approved schedule and also on the honesty of the dentists to claim only in respect of those treatments which have been carried out. It is only in recent years, with the improvements in computerisation, that the Department has been in a position to monitor the scheme and to carry out reasonableness checks on dentists’ claims.
The detection of this particular case occurred when it was noted that the average claim of the dentist in question was five or six times the panel average. In the course of the follow-up investigation, the dentist admitted to making some inappropriate claims and, although the Department estimated the extent of overclaiming to be in the region of £27,000, it ultimately settled with the dentist for £13,000. The dentist was retained on the panel but future work by him under the scheme is subject to the prior approval of the Department in each case. On being asked the reason the dentist was retained on the panel, the Accounting Officer explained that, in cases such as this, each situation is examined on its merits and a decision on the most appropriate action to be taken is made.
The Committee was told that the particular case had led to the strengthening of the Department’s control of the dental benefit scheme and that cases and payments were now being monitored much more closely. In addition, the Accounting Officer expected that the control would be broadened in future by arranging closer co-operation with the Department of Health.
The Committee once again emphasises the need for Departmental controls to be strengthened in relation to the payment of fees, in particular as this scheme was operated on trust between the Department and dentists. Where overclaims arise it casts doubts on the operation of the scheme and the honesty of the claimants. The Committee believes that it is another aspect of social welfare fraud which should be dealt with equally vigilantly.
The Committee hopes that more stringent controls will be operated in relation to this scheme from now on and that the situation will not recur.
3. Overpayment of Equal Treatment Arrears
During an audit of equal treatment arrears paid in 1995, it was noted that the Department had identified a substantial number of overpayments arising from the application of incorrect rates, payments for incorrect periods and data entry errors. It had also been noted that, in certain cases, overpayments had occurred where claimants had been assigned more than one RSI number and had received duplicate payments as a result.
At the time of the examination, the Committee was told that 1,838 overpayments had been confirmed to a value of just over £1.25 million, and that £59,000 of the overpaid amount had been recovered. In a further 300 potential overpayment cases, the amounts overpaid had still to be calculated.
The Accounting Officer had attributed the occurrence of overpayments to three main factors:-
1)incomplete data on the central records computer system;
2)the volume of claims received; and
3)the urgency with which the payments had to be made.
These had all militated against thorough checking of the claims. However, due to the small number of claims now being received, a more thorough check to ensure that claim data used is correct was possible and the duplication of claims no longer arose as the computer programme had been updated to identify duplicate RSI cases.
In evidence, the Accounting Officer told the Committee that, in view of the circumstances of the situation, in relation to the payment of equal treatment arrears, the staff of the Department had been put under severe pressure to ensure that payment of the arrears was made as soon as possible. The Department had decided that estimates of the amounts due and the amounts to which people were entitled, would be calculated on the basis of the information it had available and about 75 % of that estimate was paid up front, in the mistaken belief that a 25% shortfall would be sufficient to cover any discrepancies.
The Committee fails to understand how overpayments of this nature arose, particularly since the Department must have known that these arrears would have to be paid. The Committee would have expected that the systems would have been prepared to meet the arrears challenge and that the Department would have made them as foolproof as possible. The Committee is disappointed that this situation arose at all, particularly since the situation in relation to overpayments has frequently been mentioned in the past and the Department has been urged to take particular care when there was a chance of overpayment. The Committee hopes that every step will be taken to recover the remaining overpayments in the near future.
4. Cost to the Exchequer arising from delay in implementing EC Directive
The Report of the C&AG refers to the situation following the non-implementation of an EC Directive, 79/7, which provides for equality of treatment between men and women in social welfare matters. Under the Directive, the principle of equal treatment means that there shall be no discrimination on the grounds of sex, directly or indirectly, or by reference to marital or family status. The six year time limit allowed for implementing the Directive expired in December 1984. The provisions of the Directive were not enacted into Irish legislation until July 1985, when the Social Welfare (No. 2) Act, 1985 was enacted, and the regulations were brought into effect by way of commencement orders in May and November 1986, which was nearly two years after it should have been.
The Social Welfare (Preservation of Rights)(No.2) Regulations, 1986 increased the rate of benefits for those who had been in receipt of an adult dependant allowance, but who ceased to be entitled to the allowance after the implementation of the 1985 Act. These transitional regulations were renewed from time to time, with decreasing amounts payable and finally expired in July 1992. The transitional payments were paid only to married men, as they were the only ones who ceased to be entitled to adult dependant allowances by virtue of the 1985 Act.
Between 1987 and 1991, the Irish Courts referred cases to the European Court of Justice regarding the implementation of the Directive during the period of delay and it ruled against the State in some of these cases. Subsequently, the European Communities (Social Welfare) Regulations 1992 were enacted to provide for equality of treatment during the period December 1984 to November 1986. However, in 1995 the High Court held that “the State was in breach of its obligations under Community law to implement EC Directive 79/7 and that the plaintiffs were entitled to damages”.
As a result of the High Court ruling, it was expected that, by the end of 1996, £254 million would have been paid out on foot of arrears of equal treatment. In addition, there would be the additional cost of administration and legal expenses which had not been totally quantified, although a figure of £13.5 million, generally thought to be conservative, was quoted in the report. Another £15 million had been paid out in respect of court cases settled prior to 1995.
Equal treatment arrears comprise a number of elements:
(i)£142 million for differences in treatment not remedied by the 1992 regulations;
(ii)£50 million for alleviation payments to women on the same basis as those paid to men in the period 1986 to 1992; and
(iii)£62 million to compensate for the delay in paying.
Ultimately, failure to act in a timely way will have cost the State almost £300 million. In addition, the effect of the court decisions has meant that double payment has been made to households in respect of adult dependant and child dependant allowances and double payment has also been made in respect of alleviation payments. As the European Court of Justice held married women in the same family circumstances as the married men in question were entitled to these payments.
In evidence, the Accounting Officer told the Committee that, at the time of the examination, the vast bulk of the arrears had already been paid and that it was the Department’s intention to finalise payment by the end of 1996. The final cost was expected to be £288 million over and above what it would have been if the directive had been implemented on time.
The Committee is very concerned at the very large cost that has resulted from the delay in implementing the equal treatment directive. The Committee urges that, in future, the financial consequences of postponing such decisions will be taken into account before Governments decide to postpone the implementation of directives made under EU law.
The Committee hopes that lessons have been learned in this instance and that a similar situation will not arise again.
During its examination, the Committee also noted that an estimated £4 million would be paid in legal fees, in respect of actions taken by 16,000 of the 76,000 qualifying women. It appeared to the Committee that, in addition to these fees, in some cases the legal profession were charging the women between 10% and 20% of the arrears paid to them. The Committee cannot but deprecate this situation particularly as so many women were paid arrears without the need to avail of legal services.
TRANSPORT ENERGY AND COMMUNICATIONS
5. pecial Promotion Measure for Shannon Airport.
The Report of the C&AG sets out the circumstances in which a substantial overrun of almost £1 million occurred on a special promotion measure for Shannon Airport.
In October 1994, Shannon Airport Marketing was established as a section within the Department of Transport Energy and Communications, consequent on a recommendation of a task force in relation to passenger numbers in Shannon. The new section, based in Shannon, comprised a Chief Executive and four other staff on loan from Shannon Development and four on loan from Aer Rianta.
In evidence, the Accounting Officer explained that, as a result of the general interest in the Shannon region and the needs of the Airport, the Government had established the Shannon special task force, which comprised people who were deeply involved in business, and thereafter had set up Shannon Airport Marketing. New arrangements had been put in place, the aim of which were to stop the obvious fragmentation, overlap and traditional institutional rivalries between Aer Rianta and SFADCo as there had been a problem with institutional arrangements in Shannon because there was no clarity of roles between SFADCo and Aer Rianta.
There had been a number of shortcomings in relation to the planned action and at the end of October 1995, the Government decided to assign full responsibility for the promotion and marketing of Shannon Airport to Aer Rianta, as it was deemed that the current arrangements were ineffective. One result of this re-assignment was that Aer Rianta took over responsibility for all charges arising from the activities of Shannon Airport Marketing.
As late as November 1995, the Department was under the impression that there would be an underspend on the Estimate provision for the section so it was of considerable surprise to it, when, in the last two months of 1995, invoices totalling £1.567 million were presented to it for payment, which would have brought total expenditure to nearly £2.8 million. The overrun of £985,000 was attributable to promotional activities carried out by Shannon Development and Aer Rianta on behalf of the section.
The Accounting Officer accepted that there could have been better Departmental control over the operations of the section. However, he pointed out that the Department had believed that the arrangements in place were adequate to the task and would have been so if Shannon Airport Marketing had kept the Department fully informed of commitments as they were being undertaken. He pointed out that the formal written instructions, which had issued in 1994, had been very clear and had specified that, under no circumstances, could Shannon marketing make commitments above £50,000 without the permission of the Department. Unfortunately, the instructions had not been adhered to.
The Accounting Officer confirmed that the task force situation had since been corrected and that it was being financed now by way of grant in aid. In addition, he assured the Committee that all the money had been spent and targeted to where it had been intended by Government. He believed, however, that the expenditure would be administered more successfully by Aer Rianta, who were better equipped than the civil service to deal with marketing issues.
Despite the Accounting Officer’s explanation, the Committee fails to understand how overspending such as this arose in this Department in consecutive years and believes that it is imperative that controls to prevent overspending are tightened. It urges that all Government accounting procedures and guidelines are fully adhered to from now on so that future promotion activities for Shannon Airport will be more effective and carried out within budget. It trusts that it will not have to comment on matters of this nature in future.
OFFICE OF PUBLIC WORKS
6. Dublin Castle refurbishment
The Committee considered the situation where a cost overrun of £2 million had occurred in relation to the refurbishment of a block of nine houses in the Dublin Castle complex.
The 1994 budget had unexpectedly given a once-off allocation of £10 million to cover the project and the allocation had enabled OPW to bring forward a programme of works which it had scheduled for future years, including £8 million for this particular project. In explaining the allocation, the C&AG pointed out to the Committee that although £10 million had been made available through annual Estimates, the figures in the Estimates had no real validity when the cost of a particular job was being discussed. The projected cost of the project had to be decided on the basis of the actual cost of having it carried out by a contractor who, after a restricted tendering competition, got the job. The actual tender chosen by the OPW was £6.6 million which, with professional fees etc. added, came to approximately £8 million. Ultimately, the job cost £10.1 million, which was £2.1 million over the £8 million. In evidence, the Accounting Officer disputed the size of the overrun and told the Committee that, although the contract price had been £8 million, the amount allocated by the Minister for Finance at the time had, in fact, been £10 million. The quantity surveyor had indicated that the project would cost £8 million and tenders received seemed to bear this out. A contract for this amount was placed. However, it appeared that the two private sector elements involved had lacked experience in this extensive and specialised renovation work of old buildings and the Accounting Officer admitted that the OPW’s own experience in relation to these matters should have been taken into account.
In consideration of this particular case, one of the key elements of the management of the project had been ensuring that the money could be spent within the year. This meant that an urgent approach to all aspects of the project had to be adopted and also involved proceeding with placing the contract where structural designs were available for only three of the nine houses earmarked for refurbishment.
The C&AG had also been concerned about the level of financial control exercised over the project, in particular, the failure to keep a project-specific record of expenditure and also the early demise of the monitoring committee, on which the Department of Finance was represented. In addition, from a value for money viewpoint, not only had there been a cost overrun, none of the parties had been aware that this would be so until 70 per cent of the contractual time had elapsed.
While the Accounting Officer accepted that there may have been some shortcomings in relation to the project, he believed that it should not be ignored that, at the end of the exercise, the State now had a significant asset. He drew the attention of the Committee to the fact that, since its conclusion, Ship Street had been used for the Mitchell Commission, the Clinton visit, the Whitaker constitutional review committee and the EU Presidency. In the future it was expected that it would be used as a holding area for the Chief State Solicitor’s Office while its office is being refurbished and ultimately that it would be used by the Revenue Commissioners. That in turn will give rise to rationalisation of accommodation and consequential savings. He believed that, ultimately, a fair and reasonable price had been paid which had represented good value for the project. However, he undertook in future to ensure that the experience of the OPW in specialised areas such as this was communicated to any private sector professionals that were involved in any future similar projects.
The Committee is concerned with the deficiencies in the preliminary assessment of these projects which resulted in a substantial overrun of expenditure and time. The Committee cannot accept the Accounting Officer’s contention that there was no overrun because the contract price in reality was deemed to be £10 million. In those circumstances, it would appear that the OPW was negligent in awarding a contract for a sum which it knew could not be delivered on. Furthermore, it wonders why the quantity surveyors, employed to advise the OPW, approved the award of the contract in these circumstances.
Finally, while the Committee accepts that, historically, good value may have been obtained, it cannot accept a situation where a monitoring committee to control spending is set up and then ceases to function, resulting in an overspend of public finances. Furthermore, the Department of Finance should have been consulted at all stages and proper management accounts should have been maintained.
The Committee hopes that a situation such as this will not be repeated.
7. Irregularity in relation to Rents Paid
In October 1995, irregularities in the payment of rent in respect of a property in County Tipperary, which is used as a Garda station, were discovered. It appeared that details regarding the landlord had been falsely modified resulting in invalid payments being made.
The matter first came to attention in November 1992 when solicitors representing the owners of one of the properties wrote to the OPW seeking an explanation as to why rent, which had been previously paid to them, was several years in arrears. According to the OPW’s records, rent was being paid since 1986 to another firm in respect of the same property and the OPW asked the solicitors to furnish evidence of their right to payment. When no response was received no further action was taken until April 1995 when the solicitors wrote to OPW again. On this occasion a search revealed that the relevant files were missing. A follow up investigation by the internal audit unit uncovered four other cases, also in relation to properties being used as Garda stations, where apparent irregular payments of rent had also been made. The preliminary finding of the internal audit unit was that the irregularities had been perpetrated by falsifying the payee details and increasing the rent payable. The final cost of the irregularity was expected to be £176,000, when the payments of rent due were made to the correct landlords.
As the Garda investigation was ongoing at the time of the examination, the Accounting Officer could not give details of how the irregularity had arisen. However, he informed the Committee that, when the original query was made in 1992, rent was being paid on the particular property in accordance with standard payment methods and the office believed that no error had occurred. The fact that the solicitor did not respond to the query seemed to bear this out. When the solicitors wrote again three years later a full investigation commenced in the OPW.
As soon as the irregularities were discovered, the particular cases were referred to the gardaí by the OPW and, in order to verify other rental payments, a firm of accountants was engaged to review the system and report on the validity and accuracy of the ongoing rental payments. The accountants recommended improved controls and confirmed that all other rental payments in excess of £200 per annum were in order. In this regard, it examined 400 rentals to an annual value of £19.5 million.
The Committee notes the work carried out by the Office in relation to the outcome of the internal audit investigation and appreciates its desire to avoid any further irregularity. However, concern must be expressed about the fact that this fraud occurred in the first place and that it happened over such a long period.
The Committee would like to be kept informed of the situation in relation to the Garda investigation.
8. Local Development Grants
The report of the C&AG draws attention to the administration of the scheme of local development grants by the Department of the Taoiseach in 1995. Almost £873,000 was issued for this purpose in December 1995 to 37 projects. However, during the course of audit, it was noted that:
1.there was no evidence that the projects had been critically examined to ensure they met the criteria for assistance agreed with the Department of Finance;
2.tax clearance had not been obtained prior to payment; and
3.some grants were issued in advance of requirements.
The Accounting Officer had pointed out that, although there was no formal documentation of project appraisal, compliance with qualifying criteria had been checked by way-of additional information obtained by discussion and follow-up telephone contact. In regard to the C&AG’s other concerns, he confirmed that practically all of the grant recipients had since provided the necessary tax clearance. He explained that the Department had taken the view that the organisations and groups in question needed start-up funding in relation to the projects and this had required the issuing of advance grants. However, as work on most of these projects had only started on various dates during 1996 and, at the time of the examination, building work had yet to commence on five projects involving 5210,000, the C&AG believed that in this instance, public moneys had been issued with undue haste.
In evidence, the Accounting Officer admitted that, as a result of the time constraints under which the officials had been working, the 1995 grants had not been dealt with in accordance with all the normal procedures. However, he assured the Committee that, on foot of the C&AG’s examination, the grants being processed for 1996 were in accordance with all the correct procedures.
The Committee agrees that taking short cuts can be dangerous from a control and a value for money point of view and that the lack of documentation makes it difficult to achieve the standard of accountability required when dealing with taxpayers’ money. While the Committee fully understands and appreciates the need for local development funding for areas suffering severe disadvantage, it cannot accept a situation where proper procedures were not followed in the allocation of funds. It particularly deplores the fact that tax regulations were not followed, funds were issued in advance of requirements and there was a general lack of transparency in decision making procedures.
The Committee reiterates that it is essential that public funds are issued in an open and proper manner, whatever the urgent or other circumstances prevailing. Nevertheless, it welcomes the Accounting Officer’s assurance that in relation to 1996 grants, the situation had improved and all the various problems had been taken into account.
9. Confidentiality Clauses
During the examination of the Accounting Officer from the Department of Social Welfare, the issue of confidentiality clauses that have applied to settlements reached in relation to equal treatment payments, and the legal costs that have been charged in respect of the cases, was addressed and the Committee expressed deep concern at the application of confidentiality clauses in this and other areas of public life, particularly since the taxpayer was ultimately the one to cover the cost with no real explanation of the reasons and the amounts. This issue had arisen at a number of the Committee’s examinations of various Government Departments, in the past and the Committee felt that it should recommend that, in future, confidentiality clauses should not be entertained in the allocation of public money.
At its meeting on 21 November 1996, the Committee agreed the following motion:
“The Committee recommends that the State should never make settlements on a confidential basis except in exceptional circumstances and then only with the agreement of the Comptroller and Auditor General”
The Committee requests that its recommendation be adopted as a matter of urgency.
10. Accounts Noted
The following Accounts were examined and noted by the Committee and the Minutes of Evidence are published herewith:
Equality and Law Reform
Tourism and Trade
DENIS FOLEY T.D.
26 March 1997