Committee Reports > List of Committees > Dáil > 1997 > Committee of Public Accounts > Audit of the 1995 Accounts of: Non-Commercial State Sponsored Bodies

Minute of the Minister for Finance in Response to the PAC Report on the Audit of the 1994 Accounts of Non-Commercial State Sponsored Bodies, Health Sector Bodies and VEC’s

Matter of particular concern to the Committee

The Minister notes the proposal by the Committee that the Comptroller and Auditor General (Amendment) Act, 1993, be amended to make Chief Executive Officers of Health Boards, VECs and State Sponsored Bodies accountable in a manner similar to Accounting Officers. This is being actively considered by the Department of Finance but there are legal issues involved, relating primarily to the issue of shared accountability between CEOs and Boards or Committees, which will take some time to consider. The Committee will be advised of the outcome of these deliberations.

In the intervening period the Compellability, Privileges and Immunities of Witnesses Act, 1997 became law on 5 May 1997. This Act provides that a person, other than the President or a member of the judiciary, can be compelled to appear before, and answer questions posed by, or present documents to, certain Oireachtas committees. Once a person is compelled to attend, he or she can be asked questions on any matter which falls within the terms of reference of the investigating committee, apart from a small number of exemptions specified in the Act.

The Act will come into operation as soon as the Oireachtas establishes Subcommittees of the Committee on Procedure and Privileges to implement its terms.

NON-COMMERCIAL STATE SPONSORED BODIES

FÁS

Surplus Office Accommodation

The Minister is informed that an agreement was recently (1997) concluded between FÁS and Citibank to sublet the entire back block, inclusive of the 9,000 square feet of floor space previously surplus to requirements at the Baggot Street Head Office. This agreement will result in annual savings to FÁS of approximately £742,550, i.e. £450,000 in rent, £93,500 in rates, £95,000 in maintenance costs, £62,250 in heat, light and power costs, £35,000 in cleaning costs and £6,800 in insurance costs. The agreement also provides that the block will be refurbished by Citibank at its own expense.

Because the entire block has been sublet, it will be necessary for FÁS to adapt the remaining space in its Head Office and to provide some more space to rehouse units of its workforce which have been displaced. While the cost of this exercise has not yet been fully determined, it is estimated by FÁS that it will amount to (approximately) £1.25 million on a once-off basis. This cost will in effect be offset in twenty months by the annual savings of £0.742m.

FÁS is satisfied that the agreement to sub-let, negotiated with Citibank, is a very good package from its point of view, particularly considering the dated condition of this part of the Head Office building.

The Minister notes the Committee’s concern regarding the importance of the careful negotiation of leases for both non-commercial State Sponsored Bodies and Government Departments and the desirability of lease break options in all tenancy agreements.

FORBAIRT PROJECT FAILURE

The Minister is informed that the Product Development Department who had undertaken the project in question has been disbanded and Forbairt are not now engaged in this type of work.

The full cost of the project was approximately £2.35m, made up of operational costs of £1.5m and the settlement payment of £0.85m. The settlement payment was made on 6 June 1995. No money has been recovered through the professional indemnity insurers, though this matter is still being pursued by Forbairt.

The managements of the Programmes for Advanced Technology have been made aware of the issues which arose in this case and of the necessity to avoid waste. They are also fully aware that no undertakings should be given to develop new products at fixed prices.

BORD IASCAIGH MHARA

Losses arising on Investments in Fishing Vessel

The Minister notes the views of the Committee and shares its concern that a loss of this magnitude was made. The Minister also notes that a substantial part of the loss arose in relation to loans and in this context wishes to point out that the BIM loan function was terminated by the Minister for the Marine in February 1993.

The Minister is informed that following on from the C&AG’s Report on this matter, BIM engaged consultants to review its grant and loan approval procedures. Alterations to its procedures as recommended by the Consultants’ Report have since been put into effect by BIM.

The grant assessment procedures have been amended to provide that the Fleet Investment Committee can approve or reject applications involving an investment up to a limit of £60,000. Investments above £60,000 and below £500,000 are submitted by the Fleet Investment Committee to a Management Committee and decisions in respect of applications in excess of £500,000 are made by the Board of BIM. The chairperson of BIM’s Fleet Investment Committee now has a role at management level. The Board of BIM is kept advised of all applications received, approved and of payments made. The new procedures also provide for ongoing monitoring of projects by BIM Area Officers. Where differences on technical matters arise between BIM and the promoter’s technical advisors, BIM will normally call on the services of outside technical advisors.

Since the inception of the Operational Programme for Fisheries, tighter controls on the evaluation, selection and approval of projects for EU aid have been put in place. These have been enshrined in Procedures Manuals which implementing agencies are required to adopt.

HEALTH SECTOR BODIES

General Medical Services (Payments) Board

Pharmacists’ Claims

The Minister is informed that in addition to the introduction of third party verification, of which the Committee is already aware, further controls were introduced in 1997. These include the issue to each patient of an itemised receipt for all medicines dispensed for the purpose of claiming under the Drugs Refund Scheme and the introduction of an embossed medical card. This card, (on which will be embossed the personal details of the holder) in conjunction with a new prescription form, will facilitate details being imprinted on the forms. The embossed medical card is being introduced on a phased basis with effect from 1 September, 1997.

The Minister notes the Committee’s concern about the high mark-up on drugs, but is conscious of the importance of the pharmacists’ contribution to health care delivery. The wholesale price of drugs and medicines placed on the market is controlled by an agreement negotiated between the Department of Health and Children and the Irish Pharmaceutical Healthcare Association (IPHA). Payments to pharmacists in respect of the “GMS Scheme” (for medical card holders) do not include a mark-up. The pharmacists are reimbursed at the ingredient cost of the medicinal products, plus a fee per item. This system of payment was negotiated with the Irish Pharmaceutical Union. The standard fee at 31 December 1994 was 155.89 pence per item.

A mark-up of .50% on the wholesale price exists in the private sector. It is understood that this mark-up was established with the first introduction of proprietary medicines to the Irish market and pre-dates the introduction of drugs schemes. Reimbursement by the State in respect of the Drugs Cost Subsidisation and the Long-Term Illness Schemes (both administered by the GMS Board) and the Drugs Refund Scheme is based on this mark-up in the private sector which consists of the wholesale price of the drug, a 50% mark-up and a dispensing fee.

Rebates from Pharmaceutical Manufacturers

The Minister shares the Committee’s concern about losses, but is satisfied that the circumstances were exceptional and that matter has now been addressed. The capacity problem has been resolved in full and the provision of reports and invoices used in the collection of rebates from manufacturers are distributed in a timely manner.

Beaumont Hospital

The Minister notes the Committee’s concerns on out of hours payments and welcomes the efforts of Beaumont Hospital to reduce those to a more acceptable level. The operation of the radiological CT unit was the biggest component of the X-ray on-call, which accounts for about half of this pressure, and it is felt that the recent approval for a second CT scanner for the hospital should alleviate the pressures on the Unit and ensure that more of the work is handled during normal working hours. The hospital has confirmed that its current policy is to control the volume of outside of normal hours demand so that only necessary tests are requested after hours. The hospital has undertaken a number of initiatives aimed at improving the efficiency of the clinical support services and is satisfied that the combined measures will impact positively on the use of out of hours radiography/laboratory services.

The Minister is informed that initiatives are being taken at a national level to address the out of hours problem generally. This is referred to in more detail under the heading of “General Issues” following.

St James’s Hospital

The Minister is informed that further improvements in stock control have been introduced at St James’s Hospital since the Committee’s visit. In the Main Supplies Department a computerised Materials Management System, incorporating purchasing and materials management, went live in May 1996 and continues to operate efficiently. This system was also introduced for a section of the Engineering Stores in June 1997 and is being progressively rolled out to replace existing manual purchasing and stock control systems over the next few months. In the Pharmacy, development of existing software system to encompass stock control is complete and currently under test. Implementation of this new software will occur over the next few months.

HEALTH BOARDS

General Issues

The Minister is informed that, in relation to the general issue of inadequate control over pharmacy stocks and poor stock control generally, provision has been made for implementation of the recommendations of a Materials Management Advisory Group. This initiative, which is now being implemented, should upgrade the stock purchasing and management policies and procedures in the health agencies.

The Minister notes the Committee’s concerns about out of hours payments nationally. He is pleased to note that agreement has been reached, with the assistance of the Labour Relations Commission, on a package of measures, including a nationwide review of the radiography service, which is expected, over time, to reduce the problem of high out of hours costs.

Other Issues

(i)Western Health Board - Billing of Patients

The Minister understands that undertakings given to the Committee by the CEO of the Western Health Board concerning collection of outstanding debts have been implemented, and that debt collection has improved.

(ii)North Eastern Health Board

The Minister understands that the problems have been reduced by the introduction of direct payment arrangements with the VHI for all acute hospitals of the NEHB.

VOCATIONAL EDUCATION COMMITTEES

Co. Donegal VEC

The Minister agrees that a similar situation should never arise again. As stated in the Report the Department of Education has since warned all VECs not to share the same solicitor or legal adviser with any party with whom they are concluding contracts. Co. Donegal VEC has since gained full possession of the land in question.

City of Dublin VEC

According to the Chief Executive Officer of the VEC the repair work resulting from storm damage was considered extremely urgent. A major part of the roof of a very large four-storey school building had been blown off in a storm. The remaining part of the roof was in dangerous condition and the top floor was open to the elements. In the circumstances very urgent remedial works, to be paid for by the City of Dublin VEC’s insurer were necessary. In the normal course of events capital works are subject to the Government guidelines on Public Procurement.

City of Limerick VEC:

The Minister for Finance notes that, since the meeting of the Public Accounts Committee, the Department of Education has actively managed the case in order to achieve an outcome acceptable to all parties and consistent with the Supreme Court decision.

To this end, the Department engaged the services of a facilitator to mediate between the teacher in question and her former employers. Sustained efforts at facilitation have, to date, not proved successful and the Department of Education is now in consultation with the Attorney General’s Office with a view to the early resolution of this issue.

Co. Westmeath VEC

The Minister has been informed by the Department of Education that improvement in the performance of Co. Westmeath VEC continues.

The process of developing new control systems, procedures and reporting formats for the VEC sector is progressing. Guidelines have been issued to VECs to enable them to quantify more accurately their end year financial position and ensure that all transactions are brought to account in the year to which they relate. These guidelines are being kept under review by the Department with a view to possible refinement and amendment as appropriate in light of any difficulties encountered in the sector and following consultations with both the VECs themselves and the C & AG.

It is intended that the exercise will culminate in a comprehensive revision of the Vocational Education (Accounts, Audit and Procedure) Regulations, 1931 to bring them into line with modern business and accounting practices. It is expected that these revisions to the accounting and management practices of VECs will bring about significant improvements in financial management in the VEC sector and in the quality of information available to the Department of Education.

Property in France

The Minister is informed that no sanction was given by the Department of Education for the lease/purchase by Westmeath VEC of the building in France. Following the departure of the acting CEO it emerged that legal advice addressed to him by the VEC’s solicitor indicated that the Committee might be acting outside the scope of its authority in seeking to acquire the property and recommended that further action by the Committee should be investigative only.

The Department of Education’s objective now is to arrange for the sale of the building in France on the best terms possible to the State. The Office of Public Works is acting as the Department’s agent in this matter and has engaged a firm of Valuers/Estate Agents to inspect the premises and assess its value in the light of prevailing market conditions.

The Department of Education is also seeking legal advice in regard to the actions of the then acting CEO of the VEC in regard to the purchase of the property.

COMMITTEE OF PUBLIC ACCOUNTS

Report on the audit of the 1995 Accounts of Non-Commercial State Sponsored Bodies

1. INTRODUCTION

1.1Background

The Comptroller and Auditor General (Amendment) Act 1993 widened the remit of the Comptroller and Auditor General (C&AG) to include some Non-Commercial State Sponsored Bodies, Health Sector Bodies (including Health Boards) and Vocational Education Committees and allowed him to prepare a special report on any general matters arising from his audit of these bodies.

In March 1997, the C&AG published a report which set down matters of a general nature arising from his audit of 1995 Accounts of Non-Commercial State-Sponsored Bodies within his statutory remit and to which he believed attention should be drawn. The Committee examined each the bodies referred to in the C&AG’s report and the following report is the result of the Committee’s deliberations.

The deliberations were carried out by the Committee of the 27th Dáil (a list of members of which are included in Appendix 1 to the Report).

2.1 FÁS

2.1.1Apprenticeship Levy

Provision was made in the Industrial Training (Apprenticeship Levy) Act, 1994 for a levy on employers to part fund a new apprenticeship programme to be run by FÁS. With effect from April 1994, the new levy was to replace the existing industrial levies on employers in the construction, engineering, printing and paper sectors. It was to be collected by the Revenue Commissioners as an additional employers’ PRSI contribution of 0.25 per cent and paid over to the social insurance fund for onward transmission to FÁS.

The original intention was that the Revenue Commissioners would furnish full details of contributors to the Department of Social Welfare and that it would then pay the correct amount to FÁS. Following as estimate of the amounts paid by employers, the Department of Social Welfare paid a sum of £3.6 million to FÁS as an estimate of levy proceeds for the first year. However, it soon became clear that the Revenue Commissioners were unable to provide the required information without updating their computer system and, until such time as that was done, or until a manual trawl of the P35 returns was completed, it would be impossible to determine definitively, who paid the levy and how much had been paid. The Revenue Commissioners had estimated that there had been a 50 per cent compliance rate among employers in the first year but a later exercise carried out by them indicated that the compliance rate was, in fact, only 39 per cent.

The Committee was told that although it was hoped that the sectoral codes supplied by FÁS to the Revenue Commissioners would help to identify relevant employers, the information required had not materialised. Neither had the proposed mailshot referred to in the report of the C&AG, which was intended to remind employers of their obligation to pay the levy.

The particular issues of concern to the C&AG were:-

-that there was an indicative compliance rate of less than 40 per cent in respect of a statutory levy.

-sufficient urgency was not being shown to address the problem, which, with the benefit of hindsight, would probably not have arisen in the first instance if proper procedures had been implemented.

-the arrangements had left FÁS without a source of income from which it was expected to fund a new apprenticeship training scheme.

In evidence, the Director General told the Committee that the idea of using the PRSI system as a basis for collection had originally emanated from the Central Review Committee - the social partners operating under the Programme for Economic and Social Progress. Unfortunately, the Revenue Commissioners had been unable to implement the collection system and the Department of Social Welfare had, as a result, refused to allocate any money since.

The Committee was told that the Office of the Revenue Commissioners had the statutory responsibility for collecting the levy and that accountability should lie with that office. In addition, it was felt that the Department of Social Welfare, who were in a position of paying or not paying the levy, also had a certain responsibility in this matter. However, the Revenue Commissioners had informed FÁS that it had a difficulty collecting sector levies and that if the proposed system was to be introduced the Revenue computer system would collapse.

Following its examination the Committee wrote to the Office of the Revenue Commissioners and the Department of Social Welfare for the up to date position in relation to the difficulties. In response, the Office of the Revenue Commissioners stated that, in collecting the Apprenticeship levy through the PRSI collection system, a particular difficulty arises as it is not an across the board liability and is confined to employers in certain sectors. From the outset, it had been recognised by all concerned that the identification of those liable and the separate tracking of receipts from the Levy would be problematical.

The Chairman of the Revenue Commissioners stated that Revenue are committed to supplying the Department of Social Welfare with an analysis of the FÁS levy payments from the annual P35 returns, however the full computer development necessary to accompany it would be complex to implement. It was, however, being incorporated as part of a major computer development which was currently underway.

Until such time as the new computer system was complete, Revenue had put interim arrangements in place, involving the use of existing trade classification codes, to identify those liable and applying the rate of compliance from a sampling exercise to determine levy amounts collected. In order to validate the accuracy of the sampling techniques applied, Revenue had arranged to carry out a manual scan of the current P35 returns and the issue of a mailshot to relevant employers, regarding the levy, was being planned.

In its response, the Department of Social Welfare further stated that, in collecting the levy through the PRSI collection system, a number of issues had arisen, primarily due to its sectoral nature, which included:-

-the identification of the employers

-the methods by which the employers would be made aware of their liability, and

-the means by which levy money collected could be identified separately from - the existing contributions and levies.

Difficulties had arisen in relation to liability and compliance as there was no mechanism whereby liable employers could be readily identified by the Revenue computer system and therefore the level of compliance could not be easily determined.

As the compliance figure of 50% used in 1994/95 was subsequently found to be incorrect, the Department of Social Welfare had decided to suspend payment of the levy to FÁS in 1995/96 as other PRSI recipients, such as Social Insurance and Health and Employment, were being left short. As the Revenue Commissioners were manually scanning the 1996/97 tax returns for validation purposes, it was expected that money would be allocated by the Department of Social Welfare to FÁS in respect of that year.

The Committee is aware that FÁS had very little input into the collection of this levy and is sympathetic to its situation. It is incumbent on the Revenue Commissioners and the Department of Social Welfare to provide an accurate and efficient collection system for this levy, which has been statutorily provided for. The present system of relying on estimates to determine the payment to FÁS is unacceptable and an alternative should be sought as a matter of urgency.

The Committee notes that negotiations are ongoing and that the Revenue Commissioners are endeavouring to find a solution to the collection problem but would like to see a solution to the situation sooner rather than later. It would also like to see greater effort being made to attain full compliance in as little time as possible.

2.2NATIONAL THEATRE SOCIETY LIMITED

2.2.1Box Office Sales

In the Report of the C&AG, information is provided in relation to the 1995 box office performance of the National Theatre Society Ltd..

The society, which operates the Abbey and Peacock Theatres in Dublin, is a private company in which the Government has a shareholding. Its finances are provided by the State by way of an annual subsidy which is channelled through the Arts Council. At the present rate of subsidy, the society had an accumulated deficit of more than £500,000 at the end of 1995 and the unaudited figures for 1996 appeared to show this increasing to nearly £700,000 at the end of 1996. The Committee was told that attendance levels of approximately 63 per cent capacity had been achieved in 1995 and were 57 per cent in 1996.

In evidence, the Chairman of the National Theatre Society stated that since 1995, box office takings at the National Theatre had been very successful and that they had increased by 16 percent between 1994 and the end of 1996. The society were looking forward to a further 14 per cent increase in 1997. The Artistic Director went on to state that the National Theatre had responsibilities on a national scale which were not shared by other, more profitable, theatres. The programming of the National Theatre was based on principles which had been in existence since the founding of the theatre, and the society’s interpretation of those principles was always an attempt to balance commercial with artistic success. In addition the Society had more long-term commitments and responsibilities.

There been a decline in theatre going audiences in Ireland - a trend which was evident right across Europe - which had been apparent since the late 1980s which was as a result of the impact of cinema, home entertainment and video etc. In view of the decline in attendances, the National Theatre Society had appointed a marketing officer to target certain plays at specific audiences and promote the theatre in general. In 1996, the Society had started an outreach programme which contacted community groups in Dublin and throughout the country through various schemes in order to promote theatre and drama as an educational and developmental process. The schemes were run in collaboration with arts officers, libraries, art centres, etc..

In order to increase attendance numbers at the theatres, the Society were in the process of seeking approval for a major building development scheme from the Department of Arts, Culture and the Gaeltacht. The Society was committed to making both the plays and the building as attractive as possible and to interact as much as possible with the city, particularly the inner city. In relation to balancing the books, the crucial element, in future, would be to fine tune the balance between earned income and subsidies so that the theatre can survive and overcome the immediate financial difficulty.

The representative from the Arts Council informed the Committee that the Arts Council had been responsible for determining the grant to the National Theatre Society for 20 years. In that period it had become very familiar with the operations of the society. He agreed that the objective throughout the years had been to achieve an acceptable and satisfactory balance between the potential for earned income of various types and the level of subsidy. He stated that the Arts Council had been as supportive as possible over the years in the context of its remit and statutory duties in supporting all the arts throughout the country.

He admitted that the Arts Council might have been over-optimistic recently in relation to what might be achieved. It had made certain suggestions to the management of the Society as to how its income from all sources, not only the box office but also sponsorship and ancillary income, might be increased from a base year and the Council would then match those increases on a pound for pound basis in terms of future funding. He stated, however, that the view of the Society at that time was that the targets/objectives suggested by the Council were unrealistic and, unfortunately, that was proved to be the case. As a consequence, a series of tripartite meetings had taken place over the past number of months under the aegis of the Department of Arts, Culture and the Gaeltacht. He stated that the Arts Council were satisfied that a satisfactory formula and framework relevant to current practice and experience had been devised and that the Society would be able to carry out its important role with confidence in relation to Irish theatre.

The Committee notes and understands the difficulties of running the national theatre without incurring an overrun but is concerned by the level of losses incurred in recent years. It notes the efforts being made by the Society in trying to increase its box office receipts and hopes that the improvements proposed, both in relation to the building and the programme of the theatres will be successful. It urges the Society to use its marketing function to the fullest extent possible and trusts that every effort will be made to reduce its operating overruns to a level which is more acceptable. The Committee wishes the society well in its efforts to increase attendance levels and would like to be informed of progress in relation to the Society’s plans in due course.

2.3 IDA (IRELAND) LTD

2.3.1 Textile Plant Rescue

The Report of the C&AG outlines the circumstances in which the IDA purchased an unused factory in 1994 at a cost £5 million at Gilloge in County Clare. At the time of the purchase it was agreed that the proceeds of the sale would be used by the vendor for investment in another of its factories in Tralee in order to sustain a minimum of 220 of the existing 350 jobs there. There was an expectation on the part of the IDA that the factory could be sold to a major player in the textile industry, but this plan did not materialise and, since that time, the IDA has been left with a substantial property which is diminishing in value and which has cost it over £200,000 in costs since the sale.

While investment in the Tralee factory had the desired effect in the short term, employment fell to 141 during 1996 and the IDA enforced a clawback condition in relation to job numbers and sought repayment of over £600,000 from the company which, at the time of the examination, had not yet been paid.

In this instance the IDA had unusually acted as a rescue agency which was outside the policy parameters under which it had operated up to now. Under governing legislation, the IDA is precluded from directly grant aiding the Tralee factory in a situation where jobs were being shed. Therefore, the rules were circumvented by the purchase of the Gilloge factory and the subsequent use of the proceeds in the way described. The Committee was told that the final cost to the State would only be known if and when the IDA had sold the property or was able to attract a suitable industry to use it.

In evidence, the CEO stated that, following lengthy discussions with the company involved, the IDA had been satisfied that substantial investment was needed if the jobs of 220 of the 350 employees were to be saved. The IDA had been satisfied that the company was not going to make the investment needed unless £5 million was received from the Authority. The company had not complied with the terms of the necessary legislation and the IDA could not give it a grant and, as a result, this way of making the investment was devised in order to save the jobs. In view of the fact that the IDA had entered discussion with another company regarding the purchase of the factory for £5 million, the agreement was made. Unfortunately, the deal was not subsequently finalised. However, every effort was being made to sell the property and it was being maintained to allow for immediate occupancy. In addition, as job numbers had been reduced the IDA were seeking a refund from the company.

This Committee understands the difficulties that have arisen in this instance but stresses the importance of ensuring that every effort is made by the IDA to obtain a repayment from the particular company and to find a suitable buyer for the Clare factory as soon as possible. The Committee trusts that the IDA will only enter into a similar operation again only in the knowledge of all the financial implications and problems that could arise. The Committee would like to be kept informed of any progress that is made in relation to this issue.

2.4 BORD FÁILTE

2.4.1World Equestrian Games

The Report of the C&AG 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 for the following reasons:-

-FEI, which retained the TV rights, had still to complete negotiations on a TV strategy

-there were no contracts for commercial sponsorship despite repeated indications that negotiations with a potential sponsor were advancing

-there were 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 and there was 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.

Subsequently, title sponsors came forward and, as a result, the Government decided to revive its commitment to the games, 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 was to be gradually reduced to £750,000 by the time the games were staged.

The C&AG was particularly concerned that the State would be left to foot a big bill if the games were run at a loss or cancelled, a concern which, at the time of the examination, appeared to be justified because a major sponsor had 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.

In evidence, the Director General stated that Bord Fáilte’s role was to monitor the Government’s contribution to the games. Following the Government’s threat to withdraw its funding, Nissan had offered sponsorship of £2 million, approximately £1.35 million in cash and the remainder in kind. However, there were indications that Nissan had withdrawn its sponsorship due mostly to the lack of clarity in relation to the television coverage the event would receive, although Nissan was leaving £400,000 in cash for use in the games, which had already been spent.

At the time of the examination the matter was under consideration by Government and there were some reports that a further sponsor had been found. However, in July 1997 the Games were cancelled and the company set up to organise the event was put into liquidation.

The Committee is disappointed that such a prestigious event had to be cancelled. The games could have been of great benefit to the Irish tourism industry and the benefit is now lost. It is concerned that sufficient research into the project was not carried out prior to the commitment of funds to it and hopes that the taxpayer does not end up totally footing the bill for this expensive plan.

The Committee wishes to be informed of the total cost to the State of the cancelled games and whether there is any prospect of recouping the money spent.

2.4.2Grant Assistance to Tourism Project

The Report of the C&AG outlines the situation in relation to the Celtworld historical theme project which was established in Tramore County Waterford as part of an investment plan under the Operational Programme for Tourism 1989-93. 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. Unfortunately, the project collapsed which led to the consequent loss of EU and State moneys.

The project 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, which held half the shares in the company, was a company which had originally been established in 1966 by Bord Fáilte to develop Tramore as a tourism resort. The second investor was a building company which held one-third of the shares and the third investor was a leisure company which held one-sixth of the shares. A further sum was raised by a BES scheme and 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. Following his report, Bord Fáilte provided £313,000, by way of grant, to the south east regional tourism organisation 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 proved to be a stumbling block in disposing of the facility. The arrangement to sell the property for £442,000, mentioned in the report of the C&AG, had fallen through but an another interest was reported to have emerged.

The resale value of the property was expected to represent less than 10 per cent of what it cost. In addition, there was a doubt about the way the project had been initially evaluated, particularly as substantial difficulties had arisen very early in the project. The C&AG was of the view that the Celtworld experience had indicated that there was a need for improvement in Bord Fáilte’s evaluation and monitoring techniques, and that there were valuable lessons to be learned for the future.

In evidence, the Director General stated that Celtworld had been established to support the resort of Tramore and had been designed as a wet weather facility. It had opened in 1992 which, he reminded the Committee, had been a very good and dry summer. As a result, the project had not traded well in its first year. In addition, to compound the problems caused by the weather, the BES element of the project had not met its target, which meant the project was then undercapitalised. Approximately £300,000 had been spent on a marketing campaign to launch the project. The changes made as a result of the consultancy report enabled the project to trade well in the subsequent year, but not sufficiently well to offset the initial underfunding and the debt which had accumulated during the first year. It subsequently proved impossible to rescue it and the project failed.

Subsequently, Bord Fáilte then tried to ensure that the benefits which had been originally enshrined in the idea of putting the project in place would continue to be delivered by somebody else. However it meant that those who had invested in the original project lost what had been invested in it. Nevertheless, the jobs which had been created by the initial project, together with the facility which was created, were saved.

The Committee was told that the results of the EU Commission review were not yet known but that Bord Fáilte did not expect them to be “very negative”.

The Committee is dissatisfied that public funds should be spent in this manner and implores Bord Fáilte to be more selective in its funding arrangements in future. 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 C&AG.

The Committee is pleased that a new project has been found for the facility and would like to be informed of its success or otherwise in due course. The Committee would also like to be informed of the results of the EU Commission review when they are known.

2.5 AN BORD BIA

2.5.1Voluntary Meat Promotion Levy

A meat promotion levy scheme was introduced with effect from 1991 by agreement between the Department of Agriculture, Food and Forestry and the relevant industry associations, as a means of providing additional funding for meat promotion. It was to be borne by the meat processing sector and was collected first by CBF and later by its successor, An Bord Bia. The levy was payable by firms in the meat processing sector and operated from 1991 to 1994, when proceeds from the levy dropped to 38 per cent of promotional expenditure. An Bord Bia were, however, satisfied with this figure as it had only realistically expected a return of 40%.

During its time of operation, some £3.67 million was collected, which amounted to 85 per cent of what was due. The outstanding amount of £650,000 was written off in the 1996 accounts of An Bord Bia. The levy has since been replaced by the introduction of a co-funding arrangement involving specific promotional activity whereby 50 per cent of the cost of individual promotions is to be met by the exporters who derived the benefit from the activity.

In evidence, the Chief Executive stated that the scheme had related to retail agreements which had been negotiated with retailers annually. The agreements covered the promotional activity over one year and was related to the volume of product which would be sold by a particular retailer. The idea behind it was to have a sustainable relationship with the retailer focused on increasing the exports of “vac-pac”, which in 1990 would have been about 80,000 tonnes. The idea behind the promotional levy was to put in place a programme which would result in retailer agreements and was largely successful as those particular exports increased to 140,000 tonnes in 1995.

The initial period of the voluntary levy was 1991 to 1993 and it was then extended into 1994. In view of the fact that:-

1.the levy was a voluntary one,

2.An Bord Bia’s funding basis had altered to where half of its funding came from Structural Funds, and

3.the level of administration involved in the retail agreements

it was decided to review it in 1995 and to move to a separate basis where the levy would be collected on a company by company basis.

The Committee was told that, in 1995, retail promotions were approximately £1.2 million and that the industry contribution was £300,000. The CEO explained that, at the time, Bord Bia had been moving from annual agreements to more project specific ones which were not negotiated annually. Promotions were being run in which retailer funding counted as matching funding rather than supplier funding.

The basis for retailer agreements was also changing because of the type of promotions that were being run. When the BSE crises had occurred, the retailers were not interested in annual agreements because of the substantial change in the whole marketing environment and as a result specific promotional agreements were entered into.

The Committee understands the difficulties faced by both An Bord Bia and the retailers in relation to the voluntary levy. It hopes that the new specific arrangements negotiated with the retailers will operate more succesfully and trusts that every effort will be made by An Bord Bia to administer the new scheme efficiently and effectively and that it will ensure that all contributions are collected in future and in good time.

2.6 CERT

2.6.1Staffing

In 1992, the staff complement of CERT Limited (CERT) was 116 which was made up of an authorised permanent staffing level of 72 and 44 staff employed on a long term contract basis. The Minister for Labour conveyed sanction in October 1992 for 19 additional permanent staff, increasing the authorised permanent staff level to 91. The sanction also stated that the Minister for Finance had expressed concern that CERT had engaged additional staff on a contract basis without authorisation and that such a situation should not recur. However, the problem continued.

The Committee was told that the issue had its origins in the 1980s, when CERT’s request for extra staff was ignored. Subsequently, and without permission, it appointed staff on a long-term contract basis to deliver its expanded range of services. The matter came to a head in October 1992, when the Department of Finance, following various submissions and reviews, finally sanctioned a staff complement of 91. CERT appealed the Department’s decision and engaged consultants to support its view and to carry out further reviews.

CERT continued to employ approximately 116 staff and its operating strategy was based on this number. It persisted in making its case but the Department of Tourism and Trade insisted that 91 was the number of people who should be employed. However, as a result of a meeting with the Department in May 1996, CERT accepted the situation and instituted a fundamental review of its operations based on the lower staff numbers, the results of which were not yet available at the time of the examination.

In evidence, the Director of CERT told the Committee that, when set up, CERT’s role was largely one of co-ordinating training. In the mid to late eighties, circumstances involving the growth in the industry, a change in Government policy, including priority for young people and unemployed adults, had forced it to become more involved in the delivery of training than was originally envisaged which meant that CERT was required to undertake direct training by leasing centres countrywide. At the time of the examination, CERT was providing direct tourism related training for, approximately, 1,600 unemployed adults in relation to which, the employment take up is around 89 to 90 per cent. This has led to a number of problems in terms of staffing resources.

In evidence, the representative from the Department of Tourism and Trade explained that the issue, which had been ongoing for over five years, had long preceded the establishment of his Department. The total staff number for CERT had been set by the Department of Finance having considered various reports and assessments. The figure of 91 had been conveyed to CERT at the start of the Department’s involvement and a constructive dialogue had been maintained with CERT since. The Department was of the view that, from discussions with CERT and a fairly close familiarity with the management of the Tourism Operational Programme, CERT could achieve its tasks with 91 or 92 permanent staff and that the permanent figure on offer was sufficient for the organisation. The Department had met CERT a number of times, particularly since May 1996, and had impressed on it the need for quick and effective action to meet the overall number. Discussions in relation to the issue were ongoing.

Although the Committee has a certain amount of sympathy with CERT in so far as it was required to expand its range of services and to the extent that it was understaffed in trying to do so. However, it cannot accept a situation where a State funded organisation wilfully ignores the directive of its parent department, no matter what the circumstances. Considering the time frame of the matter, the Committee expects CERT to comply with the sanction as soon as possible and would like to be kept informed of progress in relation to the matter.

3.1ACCOUNTS NOTED

The C&AG’s Report in relation to the following organisations was also noted and the Minutes of Evidence are published herewith: