Committee Reports > List of Committees > Dáil > 1997 > Committee of Public Accounts > Report No. 02 - Value for Money Examinations

PART I - GENERAL OBSERVATIONS

Minute of the Minister for Finance in response to the Committee of Public Accounts First Report on Value for Money Examinations

Department of Agriculture, Food and Forestry

1.LEADER Programme.

The Minister is informed that the various issues raised in the VFM Report were addressed in the arrangements for the implementation of LEADER II and the necessary changes were introduced.

New administrative procedures were put in place and detailed operating rules for the implementation of the Programme were circulated to all groups prior to its commencement.

The Minister is also informed that an independent evaluator has been appointed to undertake a mid-term review and on-going evaluation of LEADER II. Part of the brief is to carry out a final review of LEADER I with particular reference to the job creation impact. It is expected that a report will be available by end-March 1997 and a copy will be forwarded to the Committee. As requested by the Committee the evaluator will also be requested to review the role of LEADER in sustaining employment and to examine the importance of part-time jobs as a means of keeping people in rural communities. A copy of this report will also be forwarded to the Committee when available.

Department of Health

2.Energy Management in the Health Service.

The Minister is informed that the Department of Health has issued a circular to all health agencies drawing attention to the VFM Report on Energy Management in the Health Services and indicating the action which agencies should take.

In addition, the report was discussed in detail at a seminar which the Department organised for the Technical Services Officers of Health Boards in January 1996 where follow up action on foot of the report was discussed.

The Department also provides support for combined heat and power (CHP) and energy monitoring initiatives where possible within funding constraints.

The Minister is assured that the importance of taking measures to secure savings, that are achievable with minimum investment, has been communicated to the agencies and plans have been received from two Health Boards for action in 1997 - subject to the availability of funding.

The Department is also considering a basis for opening negotiations with the E.S.B. as suggested by the Committee.

The Minister has brought to the attention of the Office of Public Works the Committee’s recommendation that the energy - saving measures identified in the VFM Report should be applied to other public sector buildings.

Department of Justice

3.Garda Transport

The Minister is informed that the Accounting Officer, Department of Justice furnished a progress report to the Committee on 24 September 1996 and has undertaken to keep the Committee informed of further developments.

Department of Finance

4.Management of Telephone Facilities in the Civil Service.

A report on “Management and Control of Telecommunications Costs in the Civil Service” was forwarded to the Committee on 14 November 1996. This updated the previous report furnished on 30 July 1996. The Department of Finance will continue to monitor the effectiveness of current policies in order to ensure that telephone costs are minimised to the greatest possible extent.

PART II - PARTICULAR EXAMINATIONS

COMMITTEE OF PUBLIC ACCOUNTS

Second Report on Value for Money Examinations

Introduction

Section 9 of the Comptroller and Auditor General Act 1993 provides the Comptroller and Auditor General (C&AG) with the powers to carry out examinations, as he considers appropriate, to ascertain whether the resources of Departments, persons or funds, audited by him, have been used economically and efficiently. He may also carry out examinations of the systems, procedures and practices used by audited bodies to evaluate the effectiveness of their activities.

To this end a specific section had been established in the Office of the C&AG for the purpose of examining expenditure to test whether value for money had been obtained.

At the conclusion of any examination by the C&AG, a report of the examination may be presented to Dáil Éireann and the Committee of Public Accounts has the power, under Standing Order 146 relative to Public Business, to examine the reports, if so presented, and report thereon to Dáil Éireann. The following report is the second of the reports of the Committee on VFM Examinations which are pursuant to the provisions of the Act and the extended powers of the Committee.

At the time of this report, a total of fourteen examinations have been completed and presented by the relevant Minister to the Dáil. The following report is as a result of the Committee’s consideration of five of these examinations.

1. GAS INTERCONNECTOR PROJECT

1.1Background

The construction of a pipeline interconnector to link the Irish and UK natural gas transmission grids was one of the largest engineering projects undertaken by a State agency in recent decades. Bord Gáis Éireann (BGÉ) had direct responsibility for the construction of the Interconnector, which it founded with a combination of retained earnings, borrowings and assistance from the EU REGEN initiative. As a result of the project, the gas industry in Ireland can continue when the remaining known reserves of natural gas are exhausted, which is expected to happen around the year 2000.

The Department of Transport, Energy and Communications was involved from the earliest stages in appraising options for the importation of gas and in briefing and advising the Government about the project. It consulted with the EU Commission on funding for the project, which was the largest single pipeline included in their region. The Department took the lead in negotiating a necessary inter-Governmental treaty with the UK authorities. In addition, the Department had a role in monitoring progress throughout the construction period.

The Value for Money examination focused on three aspects of the Department’s involvement in the project:

1)the way in which the Department appraised the available options and advised the Government about them;

2)the systems the Department adopted to monitor the project; and

3)the factors the Department will need to take into account in evaluating the effectiveness of the project.

The report concludes that the assessment of the likely economic return from the project was not as comprehensive as it might have been, principally due to the omission of the substantial sums required for the development and upgrading of the natural gas grid. These could amount to anything up to £200 million and would significantly reduce the expected rate of return on the investment. Nevertheless, the C&AG acknowledged that the Government decision to proceed with the project is unlikely to have been any different even if this information had been known, due to the persuasive strategic, security and environmental reasons for doing so.

The report outlines the cost of the project which came to approximately £ 249 million, which was only 4.6 per cent over budget, and states that it represented a good overall performance on such a complex undertaking. The systems and procedures adopted by the Department helped contribute to this achievement. However, there had been some delays in commissioning the gas compressor station in Britain and there was a budget overrun on the project administration and design costs which, the Committee was informed, were due in part to the collapse of the Kentz group of companies.

Attention was drawn to the fact that many relevant factors have changed since the Interconnector project was approved in 1991. There has been a decision to build a new peat-fired electricity generation station which may affect the demand for natural gas for the power generation sector. However, the State has taken on extra obligations under international agreements governing sulphur dioxide emissions, which may lead to increased use of natural gas.

1.2The Department’s Response

In evidence, the Accounting Officer agreed with many of the criticisms contained in the report but stated that he was of the opinion that there had not been a consistent approach to calculating an economic rate of return. In that context he disagreed with the report and pointed out that while the increased costs of £160 million were significant, the associated benefits had not been highlighted.

He explained that, in the report, the figure was broken down into £79 million for upgrading and maintenance, which, in view of BGÉ’s emphasis on safety which was supported by the Department, would have been spent even if there was a planned wind down of the national grid, and £81 million which was associated with the construction of the pipeline and which, the Accounting Officer agreed, would have been put to better use if it had been allocated to project assessment. He went on to explain, however, that in including the £81 million, the associated revenues of this investment had not been outlined and that the marketing schemes used by BGÉ provided proceeds which were used to aid the funding of the pipeline. The Accounting Officer believed that the combination of the safety elements and the addition of the marginal revenue effectively neutralised the £160 million.

Considerable concern had been expressed in relation to the timing of the project and to the fact that, had the project been postponed by 2 years, a considerable amount of money could have been saved. The Accounting Officer agreed that delaying the project could have saved between £30 million and £35 million but would have put the £90 million EU grant at risk. In addition, a postponement could have caused an additional loss of up to £20 million on the steel contract, as a result of the market fluctuations which prevailed at the time.

When the decision was made to undertake the project, there was a genuine concern, on the basis of a consultant’s advice, that the gas supplies were going to last only 3 to 5 years, which meant that the project should be proceeded with as soon as possible. Subsequently, it emerged that this advice was incorrect, and although the forecast was revised in 1991, the Department had no choice but to carry out its original plan to have the pipeline in place by 1993.

1.3The Alternatives

During the examination of the Accounting Officer, the alternatives available to the Department and BGÉ were discussed. In the absence of another gas find within our jurisdiction, the Department identified two methods of importing gas - by constructing a pipeline or by importing liquefied natural gas (LNG), which could be brought in only by special tanker. The Department carried out a feasibility study which analysed the options and found that the cost of LNG was significantly higher than the cost of any pipeline configuration and that it would have cost approximately £250 million, in current prices, to build a storage terminal in Ireland. In addition, depending on the source of the LNG, special ships would have to have been purchased at a cost of approximately $300 million each.

The Accounting Officer explained that there were distinct geographical risks from taking the gas in LNG form from Algeria and Nigeria which could not be minimised, particularly as it emerged subsequently that there would be no LNG available from the particular locations until the year 2,000.

Another option which was considered was clean coal technology, assuming that it became available, although at the time of the examination, it was still at an experimental phase and would probably not be available until the first quarter of the next century. It was also pointed out that the ESB’s indicative programmes are expected mainly to be based on combined gas turbine technology which will result in a large demand for gas and which will be essential for the ESB to remain competitive.

The Committee discussed the current position in relation to exploration and the likelihood that further fields would be discovered and were told that up to now, the strike rate off the Irish coast had been very low. However, there had been an enhanced drive on exploration in recent years particularly off the west and north west coast, and the Department was hopeful that the increased activity would eventually yield dividends.

1.4Conclusions

The Committee welcomed the report and agreed that it should be recognised as a useful and informed examination of what was a large and complex project, the culmination of which ensured the continuation of the supply of natural gas to Irish consumers after our known reserves become exhausted, around the turn of the century. The Committee is encouraged that the expenditure on such a large project was completed very close to budget, especially in view of the unforeseen problems encountered along the way and agrees that BGÉ and the Department of Transport, Energy and Communications should take credit in that regard.

Nevertheless, the Committee is critical of the fact that the estimated economic returns from the project had not taken account of the costs of developing and upgrading the national gas grid, estimated to be in the order of £160 million up to 1998.

The Committee urges the Government to take the necessary steps in the near future to ensure long term security of natural gas supplies, particularly in view of the fact that major investment had been and was still being made in gas and other energy infrastructure. It encourages the Department to take the necessary steps to evaluate the effectiveness of the Interconnector project as an input to energy policy formation.

The Committee wishes to be informed of the findings of any reviews that may be undertaken of this project and may examine the matter again if any new issues arise.

2. REGIONAL DEVELOPMENT MEASURES

2.1Background

The State benefits from very substantial transfers of resources from the EU, which are intended to assist economic and social development. The VFM examination of Regional Development Measures under the Community Support Framework (CSF) 1989-1993 reviewed the evaluation systems which operated in relation to selected programmes and referred specifically to a range of programmes for investment in industry and productive infrastructure.

Spending under the particular programmes examined totalled £2.54 billion, which represented a third of all expenditure under the 1989-1993 CSF, jointly funded by the State, the EU and the private sector. A central aspect of that agreement was an increased emphasis on the evaluation of the effectiveness of EU-funded programmes in contributing to economic and social progress. Evaluation was intended to ensure that the best possible use was made of the money spent under the CSF and that lessons would be learned for future programmes. A number of evaluation studies of the programmes had been carried out and the C&AG’s examination focused primarily on the usefulness of these studies in helping Departments maximise their achievements and identify obstacles in undertaking evaluations.

In general, the C&AG believed that the expenditure had contributed to a significant and lasting increase in living standards in Ireland. At European level, Ireland is regarded as being among those countries which use the available funds to best effect. The Committee was told that the measures were well focused and, where set, output targets were generally achieved. However, the study found that there were three areas where Departments fell short of what was required in relation to meaningful evaluation of the effectiveness of spending programmes in that:-.

1.some Departments did not set clear objectives and measurable targets;

2.Departments frequently failed to collect data on a regular basis to enable them analyse progress and assist in the generation of performance measures; and

3.spending programmes often began without the Departments establishing the baseline position they were trying to influence.

The Department of Finance had explained that quantified objectives and indicators were not included in the 1989-1993 CSF, mainly because of time constraints. As a result, a number of evaluations carried out by consultants at public expense did not amount to reviews of effectiveness but concentrated largely on implementation and output statistics. The situation had been rectified in the 1994-1999 CSF where a set of specific, quantified objectives at macro and sectoral level had been identified and the Committee was told that the baseline position together with a quantified forecast for 1999 had been established.

The report also identified a number of shortcomings in individual programmes which emerged during the course of the study, namely:

-a substantial part of the science and technology programme concentrated on supporting research in third level institutions with the intention of subsequently transferring the leading edge technology to industry. However, the capacity of firms to absorb new technology is related to the extent of in-house research and development investment in skills. It was not until 1993 that the level of direct support for research and development within firms was developed by the introduction of a new measure;

-some of the programmes in advanced technology were ineffective and did not represent value for money. However, the Committee was told that proposals for significant changes to the structure and administration of the programmes were under examination.

-under the transport programme, in excess of £20 million had been spent on capital works at regional airports even though passenger numbers had declined by nearly 50 per cent over the period of the programme. Many believed that the priorities should have included measures to promote traffic rather than further capital development.

-in the tourism programme, the Committee was told that some elements of a private sector marketing measure, which had attracted a contribution of £16.5 million from national and EU funds, had been criticised as being ineffective by consultants who evaluated the scheme.

-in the water and sanitary services programme, there seemed to be a tendency for cost drift to occur between the design and completion of projects.

The draw down of EU funding and the efficiency with which it was handled was also examined in relation to pre-1989 projects and the 1989-1993 programmes. The study had established that almost £51 million of the ERDF moneys allocated to pre-1989 projects had been effectively lost when the earmarked projects, which were mainly on the industrial side, did not proceed or were scaled back. Alternative substitute projects were not put forward in time to secure the available funding. There were also some delays in claiming, mostly in respect of the water and sanitary services. The Department of Finance had pointed out that this kind of problem was largely eliminated when EU funding switched from a project to a programme basis under the CSF.

2.2The Department’s Response

In evidence, the Accounting Officer at the Department of Finance stated that the entire area of enlarged structural funds at EU level has led to a very rapidly evolving situation with which the Commission and the recipient countries have been obliged to deal. In the first phase of the major enlargement of structural funds, the emphasis of the Commission and recipient countries had focused on establishing a programme of effective expenditure and drawing down of funds. In the second phase, partly due to pressure from donor countries, the Commission increased its demands for more sophisticated and quantified evaluation and had been pushing the evaluation approach into areas where it had not previously been used at either national or international level. The third phase again involved a response to the concerns of donor countries, as a result of which the Commission had put increasing emphasis on more intensified administration and control of fund expenditure.

He explained that Ireland had always sought to be in the forefront of all stages in terms of the effect of spending and drawing down of money. Ireland always makes every effort to respond to the concerns of the Commission and the Union and did so in relation to providing improved evaluation and more intensive monitoring and administration of funds. Although Ireland was not perfect in relation to its projects, it is very highly regarded in Brussels with regard to its drawing down and use of structural funds. In addition, it has responded well to pressure from the Commission for enhanced evaluation techniques and administration of funds. He believes that if Ireland had not had a good record it would not have received such favourable treatment in terms of the allocation of funds under the present and previous CSF.

2.3Decommission of Funds

In the period 1973-1988, out of a total allocation of £775 million a substantial amount of funds, amounting to some £51 million (6 per cent of the total funds allocated) had been decommitted.

The Accounting officer admitted that it would have been more desirable to have avoided those decommitments. However for some time a successful programme of decommitment and recommitment had been operated and had succeeded in recommitting £45 million. He explained that arising from a change in Community legislation, the facility for decommitment was withdrawn. A legal issue had arisen as to when the cut-off for inability to recommit arose.

The Accounting Officer explained that there was a mixture of reasons for decommitments on industrial projects, which had been prioritised by the Government:-

1.In some instances, it was a question of projects not proceeding when they had been committed. For the most part the projects went ahead but either particular phases’ of them did not take place i.e. they were smaller in scale than originally envisaged and therefore attracted lesser structural funds moneys or they came in under budget and therefore the qualifying expenditure to which the percentage related again attracted less funds.

2.In other cases, the industrial projects went ahead on full scale but because they did not live up to their job targets, the industrial grant and associated ERDF moneys had to be scaled down.

In the latter situation, the decommitments have only materialised and come on stream progressively over the period from 1988 to 1996. At the time of the examination, there were some decommitments which were still expected and had not fully materialised.

The representative from the Department of Enterprise and Employment added that the situation in which projects did not materialise in full was not unusual, particularly when the context of what might be approved by the industrial development agencies in a given year was taken into account. It was generally expected that there would be a success rate of 75 to 80 per cent in relation to projects which would be approved by the development agencies.

2.4Transport

The Committee discussed the situation in relation to regional airports and the fact that passenger numbers had been declining in the period of the programme. The representative from the Department of Transport, Energy and Communications explained that, at the time the decisions were originally taken to invest in regional airports they were growing very strongly. Between 1987 and 1989 traffic had grown from 100,000 to over 400,000. Unfortunately, when the investment was taking place, the Gulf War and the recessions in the UK and the US impacted on the airports very strongly and, as a result, passenger numbers declined to 236,000 in 1993. In addition the introduction of low fares on the Dublin/London route had considerable impact, as people changed their travel patterns and opted to travel to Dublin and avail of the cheap flights which were not available from the regional airports.

However, the Committee was told that, since 1993, the number of passengers had been increasing again. In 1994 the number was 294,000 and in 1995 it was 355,000.

Action had been carried out in two areas.

1)An essential air services programme had been put in place for two of the airports and tenders, which would provide for financial support for the provision of services, were in the process of being examined in relation to two other airports. The fact that four of the airports would be subject to the essential air services programme prior to the end of 1996 would help increase traffic.

2)The Minister for Transport, Energy and Communications had announced marketing support for the airports over the next number of years, involving an expenditure of £2.35 million, which would help to market the airports as destinations.

The Department stated that the long-term prospects for the regional airports were positive. There was further scope in the tourism and other sectors to develop traffic and he believed that the essential air services programme and marketing grants will help in that regard.

One of the aims of the peripherality programme was to reduce transport costs particularly for exporters. Based on an estimate, it had been considered that transport costs were 9 per cent of export costs. The C&AG pointed out in his report that the 9 per cent figure was questionable and was an overestimate.

The Committee was told that the figure of 9 per cent was the result of a limited study carried out when the peripherality programme was being finalised. Two studies had been carried out since, one by the ESRI and one by TCD and the University of Ulster. They had both considered the 9 per cent figure to be too high and had come up with figures as low as 3 to 4 per cent. However, the ESRI study clearly noted that its data was necessarily tentative as there had been a small sample size and a poor sample response. Transport costs were considerably higher in Ireland than they were in the UK and mainland Europe, although it was now generally accepted that the 9 per cent figure was too high.

Since the publication of these studies, further detailed analyses had been launched in order to clarify the situation and an ongoing project was being carried out by An Córas Tráchtála as agent.

The Committee was told that the peripherality programme had delivered on essential major road infrastructure which had led to time and cost savings for transporting goods. It was also pointed out that, given Ireland’s peripheral status, transport costs would always be higher and that it would be difficult equalise the costs although there was an objective to reduce the costs.

2.5Tourism

The Committee was told that the final progress report under the Operational Programme for Tourism had been completed and at the time of the examination, it was being considered by the Commission, as was the claim for outstanding payments under the programme.

Five per cent of the total grant expenditure under the programme was outstanding at the time of the examination, but the representative from the Department of Tourism and Trade stated that, in relation to the Operational Programme for Tourism, which covered the period 1989 to 1993, expenditure incurred during 1994, in respect of projects committed before the end of the 1993 period, had still to be verified and checked. The total amount of grant expenditure under the operational programme was £170 million but the actual expenditure involved was £383 million.

The figures which emerged from the Operational Programmes showed that there was a good spread of investment throughout the country and that areas which had achieved much from tourism in the past were achieving more now. Through a combination of spreading the season and the visitors, the Department were now dealing adequately with the situation.

The Committee was told that the regional tourism organisations have had to deal with a difficult situation in relation to tourist numbers visiting Ireland, particularly where there had been a large influx in visitors. The Regional Tourism Offices had, as a result, attempted to become more commercial in their approach in terms of the facilities and operations they had on offer, and this, in turn had generated more income.

Tourism business had increased in the area of business conferences etc., both in relation to large conferences, attended by 2,000 people or more, and also in the area of smaller conferences, a large number of which were supported by the operational programme.

In response to the C&AG’s observation that a lot of employment would have been generated without any grant assistance under the operational programme, the Department pointed out that tourism, and indeed industrial policy, was similar to advertising in that only half of it works and that the half that works was unknown. In terms of the new operational programme, the Department had a different assessment procedure, where independent management boards were looking at all grant applications and making judgments as to whether financial assistance was necessary for the project to go ahead in relation to the applications.

2.6Small and Medium Industry

The VFM report referred to the number of jobs created under the Operational Programme for Industrial Development 1989-1993 and indicated that the number of jobs created was low. The representative from the Department of Enterprise and Employment agreed but stated that low job creation rates would have applied to the manufacturing industry in general at that time and that the position had been relatively static for a number of years. Nevertheless, the Irish manufacturing industry had been faring significantly better, in comparative terms, than its counterparts in Europe and the OECD. He also pointed out that net job creation was not a target of the Programme at the time although it would be in any subsequent programme.

2.7Water and Sanitary Services

The Committee discussed the issue of Dublin’s water requirements and was told that the matter was being addressed following the results of a consultancy study which had indicated that the policy approach to water requirements needed to be altered. It further stated that there was not necessarily a need to build more capacity or to adopt high profile engineering solutions, although undoubtedly these would be required. Its main recommendation was that water conservation in the Dublin area should be improved, particularly as it was found that almost 46 per cent of water in the Dublin area is lost through the system, over 40 per cent of which was lost was through the public authority system.

The representative from the Department of the Environment agreed that it would be greatly more cost effective to tackle the loss intensively and to reduce it to a figure of about 20 per cent, over a five year period, rather than to continue to invest in major new projects designed to deliver more water capacity and it was working with the Local Authorities to achieve this. He further pointed out that there had been considerable investment in the water supply situation in Dublin in recent years, particularly in Ballymore Eustace, Dun Laoghaire and at the Leixlip treatment works.

The Department’s representative admitted that there were heavy demands facing the Department in the Dublin region in terms of waste water treatment and, in that connection, it had requested Dublin Corporation to implement a design and build option in its major project, which is expected to be completed by the year 2000.

In relation to water services generally, the Committee was told that most water service projects are run through the Cohesion Fund rather than through the new 1994-99 programme and, in the context of Cohesion Fund requirements, projects to be supported would have either cost benefit analysis, or an equivalent technique of economic evaluation, carried out on them. The Department had been working with the Commission to devise more suitable indicators and techniques to show the value of the kind of projects being dealt with. Another study had been carried out since the early evaluation on the 1989-93 programme and discussions with the Commission were ongoing. The Department and the Commission, were trying to develop the most progressive and leading evaluation techniques possible in this area.

In relation to cost overrun in certain projects, it was explained that cost increases were to be expected in the sort of civil engineering contracts used in the water services area for two primary reasons:-

1.price variation clauses are the norm;

2.in this area, in particular, the contract figure for some of the services included in the contract can be somewhat nominal in that they are subject to re-measurement depending on various circumstances, such as ground conditions or the length of pipe needed.

The representative from the Department explained that price increases could be avoided through the use of fixed price contracts but that the fixed prices quoted would be dearer in the first place. However, he admitted that there was scope for argument about whether fixed price contracts could be introduced but the price variation method has been traditional. Nevertheless, at the time of the examination, there was an ongoing review of the building Industry and the issue was expected to be debated further.

Eurostat comparative figures show that civil engineering costs in Ireland were among the cheapest in the EU, which, while not necessarily a vindication of the particular projects, meant that using the particular contract arrangements did not necessarily entail paying more than would be paid in other countries for similar services or infrastucture.

2.8Conclusion

The Committee welcomes this examination of the effectiveness of the evaluation of spending programmes under the regional development measures and believes that an examination of this type is of considerable importance in relation to the evaluation of fund allocation and distribution.

The Committee believes that the importance and benefit of these programmes to the Irish economy cannot be overemphasised but it also points out that it is vital that adequate structures are in place to make the best use of this funding and that EU funds are drawn down in a timely and efficient manner. Departments also have a clear responsibility to spend public resources in the most effective way possible. The Committee urges all Departments to set and monitor appropriate targets for all spending programmes, whether EU funded or not. They should also ensure that the effectiveness of their spending is systematically evaluated so that lessons can be learned for the future.

The Committee looks forward to examining the results of the 1994-1999 CSF and hopes that dealing with the problems experienced in the past will assist in the future operation of the programmes.

3. MEANS TESTING

3.1Background

The Committee of Public Accounts has, on a number of occasions in the past, expressed concern at the proliferation of means tests that are carried out in order to validate an applicant’s entitlement to State and local authority benefits. In response to these concerns, the Comptroller and Auditor General carried out an examination to determine the efficiency of the present system, and to identify any areas for simplification or rationalisation in means testing arrangements, the administration of which, it is estimated, is costing upwards of £15 million each year for 42 schemes.

The examination was carried out using a number of methods. Seven identified schemes were examined. Interviews were carried out among staff in various means testing organisations, and this was supplemented by postal surveys to provide information regarding the tests. A random sample of files was also examined.

The report identified three main inefficiencies:-

1.approximately 40 per cent of applicants who were already receiving welfare payments were being retested;

2.there was duplication of testing in relation to the supplementary welfare allowance, which was administered by the health boards, although funded from the Vote for Social Welfare; and

3.almost 40 per cent of applicants had no means.

In addition, there were a number of barriers identified which prevented harmonisation such as

(a)the different ways in which information is held in organisations,

(b)the legal position in relation to the sharing of information, and

(c)the amount of discretion allowed by some bodies.

The report went on to suggest a number of possible options which could be considered, although there would be much work to be carried out regarding cost benefit and service impact before deciding if they were to be adopted. Among them were:-

-the establishment of a single means testing agency;

-risk categorisation of claimants;

-linking of schemes so that qualification for one would be treated as a passport to others;

-more information sharing among the relevant agencies;

-the adoption of a common definition of means; and

-integrating schemes to make delivery of service more client centred.

3.2The Department’s Response

3.2.1 ISSS Working Group Report

In giving evidence to the Committee, the Accounting Officer began by briefly informing the Committee of the work of the Integrated Social Services System (ISSS) working group, who had reported to Government and made many recommendations to it. The Government, he said, had set up an interdepartmental management group to cost the various elements in the report. The report indicated that a period of between three and five years would be required to fully implement its recommendations.

The Accounting Officer stated that the ISSS report had concluded that the establishment of a single means testing agency was not desirable at present, particularly with the creation within the Department of its central means database, called the Means Recording System (MRS), which he felt should be made available to other agencies such as local authorities, health boards and those dealing with educational grants. At the time of the ISSS report, 140,000 means assessments had been recorded. However, he pointed out that the Data Protection Commissioner had reservations regarding the sharing of information including the idea of a single ID-type card to be used for all social services which had been a recommendation in the ISSS report, and felt that legislation should be introduced to overcome this difficulty. It was stated also that the Commissioner indicated that such changes should be the subject of public debate.

3.2.2 Calculation of Means

The Accounting Officer was asked about the different ways in which means were calculated from scheme to scheme. He agreed that the ideal situation would be one where the criteria would be the same for all schemes across all the various agencies, and he referred to the fact that DPMA, which had previously been administered by the health boards, was now under the Department and it had been lined up with the other schemes in this regard. However, he also acknowledged that the question of equalising of means is a difficult one although the Department was making great efforts to make its clients aware of the way in which means are calculated, which means are assessed and why.

With regard to the high number of people who were identified as having no means, the Accounting Officer pointed out the difficulties in establishing the means level of any claimant.

However, he stated that once a claimant has been assessed as having no means, the processes through which they must go to claim benefit are greatly reduced.

3.2.3 Administration

In relation to the cost of administering the means testing - estimated by the C & AG to be in the region of £15 million per annum - and the duplication among each of the agencies carrying out those means tests, the Accounting Officer pointed out that balanced against that must be the amount of the consequential savings that arise because of those tests.

The Accounting Officer agreed that, in relation to duplication, there could perhaps be improvements made in relation to having entitlement to one benefit automatically creating an entitlement to another, thereby eliminating some of the tests, for example, giving a medical card to people on unemployment assistance. Already, he said, there was some degree of this, but he was satisfied that there was more that could be done in this area. However, he pointed out that the idea of linking of entitlements was hindered somewhat by the problem of identifying claimants across a number of schemes, although the ISSS group had recommended that a common identifier - RSI number - should be used as a unique public service identifier, a recommendation with which he concurred.

He also agreed with the ISSS group conclusions that the public service should be treated, for the purposes of the Data Protection Act, as a unit and that there should be a ‘one stop shop’ approach to delivering of services. However, the data protection issues had to resolved before this could happen.

3.3Conclusion

The Committee feels that it is important to make the means testing procedures used by the State as efficient as possible, so as to reduce the inconvenience to applicants. The financial cost of such tests should also be reviewed. Multiple means testing has the effect of greatest inconvenience and should be avoided, and this in turn will achieve considerable savings for the State.

The Committee also believes that the both the report of the C & AG and the report of the ISSS working group will form a sound basis for improving the efficiency of the means testing arrangements to the benefit of both applicant and State and urges that their recommendations should be taken on board. The Committee wishes to be kept informed of developments in this area.

4.FEOGA BORROWING

4.1Background

Borrowing activity is undertaken by the Department of Agriculture and Food in order to purchase commodities for intervention storage and to fund payments for CAP guarantee schemes pending reimbursement by the EU at agreed rates. Borrowing is currently in domestic currency, but between January 1983 and May 1994, the Department borrowed mainly in foreign currencies.

The study set out to examine whether the Department borrowed funds efficiently, how well the associated risks were managed and the lessons to be learned for the future. The study was carried out with the assistance of a firm of corporate financial management consultants and included interviews with relevant personnel in the Departments of Agriculture and Food and Finance, as well as the National Treasury Management Agency (NTMA).

The report established that the strategy of borrowing in foreign currencies in the period 1983 to 1994 proved to be more economic than the equivalent cost of domestic borrowing, and that the strategy during the period was generally well managed. However, it highlighted how a deviation from borrowing in the usual foreign currencies in December 1992, when the Department borrowed in Japanese Yen, cost £5.8 million more than borrowing in Deutchmarks, for example.

The Comptroller and Auditor General concluded that the overall strategy of foreign borrowing was primarily the correct one, but the report questioned whether some portion of the debt should have been funded in domestic currency. The report agreed with the current policy of borrowing exclusively in Irish Pounds.

The examination identified a number of options in relation to future borrowing. It was felt that, rather than continuously borrowing for periods of one-month, there should be ongoing analysis of interest rates and yields which should then determine the optimum period for borrowing. There was also merit in identifying a core borrowing requirement at fixed rates, to be used as protection against adverse interest rate movements.

In the area of treasury management, the report suggested the use of Forward Rate Agreements, to fix future interest costs, and in the event of foreign currency being borrowed, the use of forward foreign exchange contracts and currency swaps. Finally, the report concluded that the option of the NTMA taking over the management of the debt as an agent could be cost effective, but stressed that it was something that would have to be looked at in the context of the wider debt management strategy of the State.

4.2The Department’s Response

The Accounting Officer, in evidence, welcomed the findings of the report and was satisfied that it confirmed that management of borrowing was reasonably good in the period reviewed. On the question of the NTMA taking over the borrowing activity, the Accounting Officer stated that the issue was one which was currently being looked at by his Department and the Department of Finance, but stressed that there were practical difficulties to be overcome in relation to whether the debt would be assimilated into the national debt or treated separately, particularly in the run up to EMU. The issue, however, is not one to which the Department would object.

In relation to the management of borrowing generally, the report was not critical of the way in which it was done. However, the Accounting Officer accepted that there were certain things in management terms which could be improved, such as ongoing analysis of interest rates and yields and the use of certain treasury management tools. He also stated that the question of computerisation, along with the recruitment of specialist skills was being examined, but he felt it would be prudent to wait until the issue of the NTMA’s role had been clarified.

The Committee questioned the Accounting Officer about the wisdom of borrowing in foreign currency, given that the liabilities were all in Irish pounds. However, the Accounting Officer pointed out that if borrowing had been made in domestic currency in the period under review, there would have been an increased shortfall in recoupment from the EU of £57.1 million. The interest rate differential at the time, he felt, was significant enough that the transfer to domestic borrowing was unwarranted. In relation to losses incurred as: a result of the Department borrowing in Japanese yen, as opposed to ERM currencies which had amounted to over £5 million, the Accounting Officer pointed out that the decision to borrow yen was forced upon the Department because of the non availability of appropriate ERM currencies at that point in time

On losses incurred as a result of the currency crisis, it was stated that the Department’s hands were tied to some extent, in that it was unable, due to Government policy, to revert borrowings to domestic currency at a time when the Irish pound was under severe pressure. Prior to the crisis, there had been no indication that such a crisis would occur as there was no perceived risk among the narrow band ERM currencies at the time. Such a transfer to domestic currency did, however, take place when it was opportune to do so and all borrowings were currently in domestic currency.

4.3Conclusion

The Committee concurred with the view of the Comptroller and Auditor General that by and large, the Department had managed the borrowing reasonably well, particularly in the light of the lack of specialist skills in the area of treasury management. It agreed with the suggestion that the Department should look at the option of transferring responsibility for managing the borrowing to the National Treasury Management Agency and noted that options in this area were under discussion.

The Committee wishes to be kept informed of any progress in this area and of the outcome of the discussions referred to during its examination.

5. GULLIVER:

THE IRISH TOURISM INFORMATION AND RESERVATION SYSTEM

5.1Background

Gulliver is the name given to a computer-based tourist information and reservation system which was developed jointly by Bord Fáilte (BFÉ) and the Northern Ireland Tourist Board (NITB). The system was developed within the two tourist boards at an estimated net cost of £8.6 million, 70% of which was provided by BFÉ.

The project of developing the Gulliver system was intended to be completed by the end of 1993. As development proceeded, it became clear that the original design of the system would not deliver the service intended at a cost the system users could afford. At the end of 1995, Gulliver was still at the development phase.

The purpose of the VFM examination was to ascertain:-

i.the extent to which the planned system was in place at the end of 1995

ii.the use of the existing system by the tourist industry

iii.the cost of the project

iv.the way in which the project was managed

v.the outlook for the system

The examination focused on the role of BFÉ in developing and managing the Gulliver system.

The role of NITB was not examined.

The Gulliver project started in 1990 with a three year completion time frame but by 1993, it had become apparent that the original concept and specification for the system were not capable of delivering the planned functions at a sustainable cost. An alternative plan, involving the use of personal computers linked to the central data base was put in train but, at the date of the C&AG’s examination, it had not yet been fully implemented.

Expenditure on the project to the end of 1995 was £10.2 million. This amount was offset by fee income of £1.6 million. Funding for the project came from the two tourist boards, EU grants and the International Fund for Ireland but it was found that the project did not represent value for money on a number of scores and the following problems were identified.

1.The system was not found to provide the planned service seven years on and was not being used to a great extent by the industry.

2.The cost was greater than had been estimated.

3.The project was not particularly well managed, which is evidenced by the need to change the approach when the original system was found wanting.

4.There was a delay in getting the new system up and running in the tour operators and information offices.

A further concern was the fact that the system may well have been overtaken by advances in technology which facilitate interaction and communications in a user friendly environment at much lower prices.

The C&AG told the Committee that, on the basis of what had been achieved to date, there appeared to be a question mark over the extent to which Gulliver has enhanced the pre-existing information and reservation system. In addition, there was a doubt over the value represented by the current portfolio of assets which would depend on whether the existing facilities can be economically adapted or developed to take advantage of possibilities offered by technological change.

5.2Bord Fáilte’s Response

In evidence the Director General (DG) of Bord Fáilte gave the context in which Gulliver was proposed when it was examined in the 1980s. In 1988, as a result of a very thorough look at where tourism was going over the next 15 years, the following 15 years was divided into three five year periods. The first five year period were designated to getting the industry to grow more rapidly because growth prior to 1988 had been rather sluggish. The current five years were designated to building sustainable tourism and the five years beginning in 1999 will be designated to managing the tourism industry. Bord Fáilte believe that by 1999 the number of visitors will have gone up to possibly six million and the effects of the industry will need to be managed.

As part of an in-depth examination of the industry, ways in which the business was to be carried out had to be examined, particularly in relation to the way in which BFÉ were going to communicate with future customers who were to a large extent in overseas markets. It was pointed out that a global information network and reservation service, which must link into the overseas markets, including Germany, the US, France, etc., and provide a network service in Ireland, was required and that provision of this could involve major difficulties.

BFÉ got involved in Gulliver because they believed that the way in which business was being carried out in 1988 would be changed dramatically as time went on. Prior to 1988 there had been numerous different systems in place, not all of them compatible, using available technology and bringing about improvements in manual systems which had severe limitations in terms of international distribution.

In 1988 a decision was taken that future business of BFÉ would become largely dependent on technology. The DG explained that there were only four ways in which one could communicate with customers:-

a.in person, which was the way of the past,

b.by post,

c.telephone or fax, which was a growth area which had grown significantly,

d.communicating through technology.

In 1988, technology was beginning to show signs in terms of how it was going to develop. It was clear that the new area of communicating through technology would have to underpin the other three in addition to becoming the dominant form of communication. BFÉ had taken a deliberate decision that given the nature of Ireland’s tourism industry and the fact that Ireland was an off-line destination, the necessary innovative future investment in technology would have to be made as it was believed that it was best for the future of tourism in Ireland.

The DG explained that the basic problem underlying Gulliver was the fact that technology was constantly improving and changing. As the latest technology was installed, a new technology eroding it was already on the drawing board, if not at full development stage elsewhere. Many of these problems have now been addressed. BFÉ believes that the Gulliver system is one of the leading systems available to any tourism industry in the world.

Recently, BFÉ had decided to sell the system and the negotiations with a private sector investor have been completed. A formal request for approval had been submitted to the Department of Tourism and Trade and the Northern Ireland Tourist Board had made a similar request to its Department. Sanction from both Departments is awaited before the sale can be completed.

The terms of the sale meant that BFÉ and the NITB would together retain 26% of the shareholding in the business and the company would purchase 74%. Subsequent to the sale BFÉ would not be responsible for any further losses in Gulliver, which was not expected to reach profitability for some 3 years. It was also expected that the private investor would be from the 26 counties.

The Committee was told that the Gulliver system had cost £10.2 million up to the end of 1995 and that an additional amount of £1 million had been spent in 1996. Of the £10.2 million spent up to the end of 1995, approximately £3.5 million (much of it EU funds) had been spent on developing the research, software, etc. Some £2 million had been spent on educating and training people throughout the industry (including staff from BFÉ) on the use of Gulliver. A sum of £1 million had been spent on equipping the tourist information network in Ireland, and £2.5 million was spent on the operating costs over the six year period. The residual of the money, just over £1 million, was spent on reconfiguring the system to the new system, which was to be operable from 7 April 1997.

The DG pointed out that the report was inclined to refer to the Gulliver project as a reservations system only. As the national tourist board, BFÉ did not normally get involved in reservation systems but instead that they were involved in information giving. If Gulliver had never existed, BFÉ would have spent equivalent amounts of money on manuals, staff and other ways of communicating with its customers and that the expenditure was not incremental on what BFÉ would have spent anyway.

Giving information and communicating with customers is the basic task of a national tourist board overseas and getting income for providing information is almost an impossible task. As a result BFÉ had decided to couple the reservation system with the Gulliver information service in order to get some income. He predicted that the main income would come when Gulliver is capable of dealing with people overseas. At present it is only capable of dealing with them in a very limited way. However it is expected that the developments which have been planned will put BFÉ in a position to realise the potential allowed now by the new technology which had been perfected and tested.

The DG admitted that the management of the project had been deficient in certain respects but he pointed out that it had been a particularly difficult project. A Gulliver-like project would never be fully completed as it would have to continue to respond to changes in technology which would continue for as long as the project was evolving and doing its job. Considerable experience had been gained which would be useful to BFÉ in the future. Education and training in the use of the Gulliver system had been provided at a cost of £2 million which would not be wasted and although the system in place had not provided the planned service, the system which was to commence on 7 April 1997 would do so.

5.3Conclusion

The Committee believes that the importance and benefit to tourism of an efficient information and reservation system cannot be denied. However, it must express concern regarding the manner in which this project was managed. The doubt expressed by the C&AG as to whether the cost and output targets for completion of the project can be met has been noted and is shared by the Committee.

In relation to all public funds, the Committee points out that it is vital that adequate structures are in place to make the best use of any funding, whether EU or domestic. All public sector bodies have a responsibility to spend public resources in the most effective way possible. The Committee strongly recommends that all Departments and public bodies set and monitor appropriate targets for all their spending programmes so that appropriate and timely lessons can be learned for the future.

The Committee requests that it be kept up-to-date regarding the present and future position of Gulliver, particularly in relation to the proposed sale of the system.

DENIS FOLEY T.D.

Chairman

1 May 1997