Committee Reports > List of Committees > Dáil > 1997 > Committee of Public Accounts > Report No. 03 - Value for money examinations

COMMITTEE OF PUBLIC ACCOUNTS

Third Report on Value for Money Examinations

Introduction

Section 9 of the Comptroller and Auditor General (Amendment) 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 operations. To this end, a specific section had been established in the Office of the C&AG for the purpose of examining expenditure to establish to what extent 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 149 relative to Public Business, to examine the reports, if so presented, and report thereon to Dáil Éireann. The following report is the third 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 seventeen examinations have been completed and presented by the relevant Minister to the Dáil. The following report is as a result of the Committee of the 27th Dáil’s final consideration of three of these examinations.

1. PLANNING OF SECOND LEVEL SCHOOL ACCOMMODATION

[Report No. 10 - PN No. 3067]

1.1 Background

The provision of school accommodation involves a large amount of public expenditure (£39m on the second level school building programme in 1995) and is of immediate and real interest to all of those involved in the education sector and also to the general public. The VFM report on the Planning Of Second Level School Accommodation is the result of an examination of how the provision of second level school accommodation is planned and managed by the Department of Education.

Although more than £150 million has been spent on second level school building projects in recent years, there are still many approved projects awaiting funding. The high level of demand for new or refurbished accommodation is likely to persist into the future, even though enrolment levels are expected to fall significantly. It has been suggested that falling enrolments will give rise to pressure for school amalgamations to facilitate schools in offering an appropriate broad curriculum to pupils. As a result, there is a critical need to ensure that the resources which are available for school building are allocated for the most deserving cases on a timely basis in order to maximise value for money.

Historically, the Department of Education has worked on a partnership basis with the local communities and promoters in the provision of second level education which has been largely successful in delivering a good quality educational service. A consequence of this policy is that the major impetus for the provision of school accommodation has come from pressure from local promoters. While agreeing that the local input was of great importance, the C&AG was of the view that it should be complemented by a more strategic approach on the part of the Department which would enable emerging accommodation problems in individual school catchment areas to be identified before they become acute. A pro-active approach would allow the full range of options, including the possibility of school amalgamations, to be considered and planned for in a timely way.

A number of developments had indicated that the Department was currently taking a more strategic approach in relation to second level accommodation. A recently established commission had a remit to comprehensively review school accommodation needs and to develop new policies in relation to the provision of accommodation. The proposed establishment of regional education boards was expected to change the role of the Department’s planning and building unit and was under examination by external consultants at the time of the Committee’s examination.

In drawing up his report, a number of areas had been identified by the C&AG where changes in existing procedures could strengthen the Department’s planning activities. The report noted that, in a number of cases, there had been extensions to recently built schools which, on the face of it, might suggest the original planning was not what it should have been. In this regard the Department had pointed out to the C&AG that in some cases, accommodation was provided on a phased basis due to budgetary constraints.

In the past, the Committee had discussed on a number of occasions the State’s financial interests in grant-aided property being disposed of and had retained considerable interest in the issue. The Report recalled that school authorities receiving grant assistance were required to undertake to refund the unexpired value of any grant received if the buildings ceased to be used for educational purposes. The total value of the Minister’s interests in grant aided school property was not known and the C&AG suggested that it might help to protect that interest if a proposed inventory of school accommodation included information on the unexpired value of grants for each school.

1.2 The Department’s Response

The Committee was told by the C&AG that the Department had responded very positively to the suggestions made and had, as a result, announced significant developments along the lines recommended. Examples were cited where work was under way in developing a points based prioritisation system to clearly identify the relative priority of each school accommodation project. Among other initiatives the Department had developed a computer system, which was expected to help it to assess its operational efficiency and the Department was also making arrangements to assemble a comprehensive inventory of school buildings as well as examining the feasibility of introducing a system for monitoring school occupancy levels.

(i) Information gathering

In evidence, the Accounting Officer told the Committee that, in response to the Report the Department was refining the manner in which it presented budgetary information on the school building programme. In future, one of the elements would be to present the budgetary information on a project by project basis which would show the number of school places being provided or replaced.

The deficit in information in relation to ongoing projects had shown the Department how information technology projects in relation to school accommodation could be best planned. To this end, the planning and building unit’s personnel had developed a computer system which was an application of the basic systems in the Department. The system was not very accessible or useful and, as a result, as part of the process of transferring the planning and building unit to Tullamore a new system was being developed which would allow comprehensive tracking of the details relating to all the building projects from the moment an application is submitted to the Department until an agreed final account is paid.

The Accounting Officer explained that there were a number of features in the system which allowed the recording of matters which had never been recorded in the past. The Committee was told that in the new system, when enrolment projections are approved they must be confirmed and input into the system before the project goes to construction. In addition, accommodation details were to be recorded, which would provide the Department with the number of pupil places in the new accommodation. He pointed out that there was a link between this system and the proposal to set up an inventory of accommodation, particularly as a range of financial and construction type details could also be included in the system as required.

(ii) Maintenance and Upkeep of Schools

In relation to the maintenance of schools, the Accounting Officer stated that the approach on the maintenance of primary schools was one of providing a new capitation grant-based system and that schools would be given funding to manage their maintenance programmes on a decentralised basis. He stated that a similar programme could also be run for second level schools, although there were no such plans at the time of the examination.

The Accounting Officer agreed that some of the accommodation was below standard but stated that much of the pre-fabricated buildings in use now were of a much higher standard than had been the case in the seventies. He pointed out that a great deal of the capital stock in the second level sector was very old, some dating back to the early part of this century and to the previous century. The Department of Finance was of the view that since pupil numbers were projected to fall in second level schools, the demand for school building would soon cease. The Department of Education disagreed for three reasons:-

Work in relation to each of these areas was ongoing and the Department hoped that progress would be made.

(iii) Inventory of Existing Schools

In providing an inventory of existing accommodation, the Accounting Officer pointed out that it would be very costly to provide an inventory of school accommodation (approximately £500 for each of 700 schools), however he stated that technology in the area was very advanced and that a new information system was being put in place in the Department that would address this issue. He believed that the prospect for the future was much more satisfactory.

(iv) Prioritisation of Needs

A commission on school accommodation needs had been recently established and its purpose had been described in the White Papers on Education as follows:-

Its work was ongoing.

In relation to deciding the schools particularly in need of new and improved accommodation, projects were prioritised in certain categories i.e. essential and very urgent projects, replacement of bad accommodation, desirable but less urgent projects and major projects which have not yet been prioritised. The system was assessment based rather than a quantified one and was not based on the premise “he who shouts the loudest gets the most”. The Accounting Officer also stated that one of the issues raised by the Comptroller and Auditor General was the desirability of having a more explicit quantitative system and the Department had recognised the value of that and were examining it.

1.3 Closure of Grant-Aided Schools

The value of the Minister’s interest in grant aided schools was discussed and the Committee again referred to the situation where grant aided schools closed and the interest of the Minister in the properties was neither acknowledged or compensated. In response, the Accounting Officer stated that, in relation to Primary Schools, the Department were adopting the approach of agreeing a proportion of the value of the building with the managers which would protect the Department’s interest in the event that the building was no longer required for school purposes. He admitted that the approach had attractions in relation to second level as it appeared to lead to a fair outcome for all concerned. However, there was a complication in that grant-aiding second level buildings began only in 1967 with the introduction of the free education scheme. As a result, the historical record of State involvement in school buildings differed in relation to second level. The system was currently one where there was a negotiation between the managers and the Department as to the amount of grant to be repaid in the event of the building no longer being used as a school.

He agreed that it was in everybody’s interest to put this matter on a more systematic basis but that the situation was complicated. Although second level school closures were not commonplace, of the schools that did close, most had been built before the introduction of free secondary education. In those cases, the argument had been advanced by the owners, religious orders in most instances, that they had built the schools out of their own resources and that a refund would not arise. In addition, sites were generally not State owned. If the Department was to decide on the residual value of the building as against the amount of grant aid paid by the Department, the owners would argue that the variation in rates over the period had to be taken into account.

The final argument put forward by the schools was that where a school was grant aided 30 years ago, the grant might have been in respect of a relatively minor part of the total structure and in terms of the education provided and the usage of the school, the State had got full value, a position which was not accepted by the Department, who would prefer to apply a formula and a rule of thumb to the situation.

1.4 Conclusion

The Committee welcomes the Value for Money report on this matter, particularly in view of its interest. It is pleased that the Department has acted in such a positive manner to the C&AG’s findings. It understands the difficulties facing the Department with so many projects still awaiting funding but expects that the changes being made will result in better use of its resources and improved accommodation standards.

The Committee urges the Department to sort out the situation in relation to the Department’s interest in closed schools and urges all those concerned to come to an arrangement that will be fair to both the taxpayer and the schools concerned.

The Committee will keep the matter under review and requests the Accounting Officer to respond to it before the end of the year regarding progress on the proposed changes.

2. NATIONAL MUSEUM AT COLLINS BARRACKS

[Report No. 11 - PN No. 3068]

2.1 Background

In December 1988, the Government decided to close Collins Barracks as a military installation and although numerous efforts were made by the Department of Defence to sell the property for a satisfactory price, the attempts failed. In 1993, it was decided not to proceed with the sale but instead, following a recommendation by an interdepartmental group, to develop a National Museum Facility at Collins Barracks. A report prepared by the Office of Public Works (OPW) stated that all the National Museum’s requirements for extra accommodation could be met in a development at Collins Barracks.

The Collins Barracks project is one of the most important developments for the major cultural institutions of this country. It was expected to transform the National Museum, which has laboured for many years to display and conserve important national collections under less than ideal conditions. As well as meeting many of the museum’s accommodation needs, the project also solved the problem of finding an appropriate use for an important complex of 18th and 19th century buildings which were in need of repair and refurbishment. The development of the new museum was being undertaken in two phases and the final cost of the total development is likely to be over £30 million. The Report of the C&AG examined how the project was managed up to mid-1996.

The C&AG pointed out that the physical conversion of the existing buildings to the purpose intended had been singularly successful and that the Report should be viewed in that context.

One of the principal requirements when contemplating the provision of a major capital facility was to consider the total cost of the development. The estimated ongoing running costs had to be factored into the equation in order to establish the expected final cost - an approach which is set out in Department of Finance guidelines. He discovered, however, that the guidelines were not applied, presumably on the basis that there had been a budgetary policy decision to spend £10 million in 1994 on the building and renovation work and also uncertainty as to the level of funding. The absence of an overall plan for the development had not been an issue that had been inadvertently overlooked, as its absence had been reported by the interim board as far back as May 1994.

There was also an inordinate delay in developing the exhibition design. The process had started in August 1994 but as no agreement had been reached by September 1995, a firm of specialist design consultants was engaged to assist in securing speedier action. Nevertheless, the first display was not expected to open until September 1997.

The timeframe for the overall project was also reported to be extending. The OPW indicated that phase 2 design and building work would take up to five years to complete and thereafter, further time would be required to complete the installation of an exhibition. At the time of the examination, it was not clear if the likely timeframe would have any effect on the availability of EU funds under the Operational Programme for Tourism 1994-99.

There was also a question mark over the adequacy of the costings of some elements of the project. In one instance, it had been envisaged that work on the external treatment of approximately 15,000 square metres of buildings would cost £1.5 million. However, as £2.1 million had already been spent on treating only 6,900 square metres, the final figure will be a multiple of the estimate. In addition, it was thought that landscaping, site works and exhibition fit-out would cost more than was originally envisaged.

The C&AG stated that, while the money did not appear to have been spent badly, his concern was with the overall planning of the project and particularly that the requirements in relation to staffing etc. were not fully examined when money was being allocated.

2.2 The Department’s Response

In evidence, the Accounting Officer from the Department of Arts Culture and the Gaeltacht explained that, for some time, there had been a need for extra accommodation in the National Museum in order that its responsibilities, both to conserve and to make available to the Irish public an important part of its heritage, could be adequately fulfilled. He pointed out that the report of the C&AG had recognised that need and also that the conversion work carried out to date was successful. In carrying out the current project not only would the cultural heritage need be met, the project would also have significant economic benefits.

The cost benefit analysis carried out by external consultants for submission together with the application for Structural Fund assistance to the European Commission, had concluded that the project should achieve an economic rate of return in tourism terms of between 12 and 16 per cent, depending on the tourist number assumptions made. No project could be expected to run completely smoothly and, although the Accounting Officer did not fully agree with all the findings or emphasis of the report, he agreed that a number of aspects required attention if the development at Collins Barracks was to proceed as effectively and efficiently as possible. He assured the Committee that the problematic aspects of the project, particularly those identified by the C&AG, were in the process of being addressed.

(i) Phase 2

The Committee was told that detailed planning for phase 2 of the development was underway. External consultants were working with museum staff to draw up a detailed specific functional brief for all aspects of this phase, which was expected to reflect the construction budget available. It was also expected to develop an exhibition strategy for the exhibitions planned for phase 2. Once completed, the brief would form the basis of the detailed design work and would allow the various other costs, such as exhibition fit-out, to be estimated. This step was a necessary one in preparing a detailed long-term strategic plan.

The need to strengthen the museum’s staffing resources both in the context of the Collins’ Barracks project and more generally was also being addressed to some extent. Six new key posts had been created and were in the process of being filled. One of the functions of the most senior of these posts at Principal Officer level, Head of Services, was to co-ordinate all museum aspects of the Collins’ Barracks project. Three new clerical support staff had been put in place and arrangements were being made to recruit 23 attendant staff, who were expected to deal with the public visiting the new facility.

In relation to the first phase of the project, the Committee was told that a folklife furniture exhibition was to take place which was to include material from the total folklife collection, the remainder of which is to be exhibited in Turlough Park, near Castlebar in County Mayo.

(ii) Other possible locations

In response to a suggestion that the Museum should have been relocated to a new purpose built site, rather than to a barracks that required total refurbishment, the Accounting Officer stated that

it had always been envisaged that the museum would continue in Kildare Street and Merrion Street but that an additional facility was also required. A number of different locations were suggested but it was ultimately decided that Collins Barracks was the best, particularly in view of the fact that it was a listed building for which the Government was anxious to find a use. In addition, a cost benefit analysis had been carried out in relation to an application for European funds and had concluded that to store the museum’s artifacts in proper leased accommodation would have cost £11.5 million at today’s rates. The Accounting Officer believed that the figure had to be offset against the capital costs of any new development and that it put the cost in some perspective.

The Accounting Officer from the Office of Public Works further explained that, although a green field site might have been a much cheaper option, in choosing Collins Barracks the Government was dealing with two policies at once - housing the museum and renovating an 18th century building, which was an expensive project. The original OPW plans involved the expenditure of some £65 million, but had included construction and a very high level of finish on the older buildings and was rejected. The buildings were instead being developed to the standard of the Hunt Museum in Limerick city which, in his view, was reasonable to meet the objectives of housing the museum and preserving the old buildings.

2.3 Staffing

The Committee was told that the Management Services Unit of the Department of Finance had examined the existing staffing needs of the museum and the additional staffing received as a result of the Collins Barracks project. It had recommended the creation of 97 new posts, in addition to the 74 staff already employed. At the time of the examination only a small number of temporary posts had been obtained and, although a certain number of posts had been filled and were being shared between Kildare Street and Collins Barracks, the Department had been left short of what had been identified by the Department of Finance as being the real requirements of the museum if it were to be fully and properly staffed.

The representative from the Department of Finance stated, in response, that the Management Services examination of the project had, in fact, commenced some time after the decision to reconstitute Collins Barracks as a national museum was taken and that to that extent, the Department had not been left short. In addition, he pointed out that the fact that the Management Services Unit had recommended a certain level of staffing did not necessarily mean it was to be provided. Indeed, the Management Services’ reports contained a statement to the effect that any recommendations made in the report were subject to additional considerations including budgetary constraints, Civil Service staff number constraints and Government policy. In issuing its recommendations the Management Services Unit never reflected the control and constraints of the Department of Finance. Discussions in relation to staffing were ongoing.

2.4 Conclusion

The Committee welcomes the report and is pleased that Collins Barracks is being put to a use that will ensure the use of a national heritage for many years to come. It agrees that it is a very worthwhile project and that a considerable amount of good work has been done to provide the public with something of real value. The delegation from the Committee which had visited the barracks in advance of the examination, was impressed with the facility and looks forward to seeing the finished facility in due course.

Nevertheless, the Committee is of the view that concern must be expressed about the lack of proper planning and management involved in the initial stages of this project and it would like to see the various Departments involved placing greater emphasis on planning and control for the remainder of this project and indeed any future similar projects.

The Committee wishes to be kept informed of progress in relation to the project on a regular basis, until it is completed.

3. PROCUREMENT IN UNIVERSITIES

[Report No. 12 - PN No. 3211]

3.1 Background

The VFM Report on Procurement in Universities resulted from an examination of the procurement practices in the seven universities in the State and was the first occasion that a Value for Money report had been solely devoted to this important area of expenditure.

In Ireland universities spend approximately £76 million on goods and services annually, much of which is funded by way of State grants through the Higher Education Authority (HEA). Despite this they are autonomous bodies and, as a result, the policy and practice of the HEA up to now has been to regard matters such as procurement as being within the internal remit of the universities, and not one of external control.

In recent years there had been a growing consciousness of the potential savings which could be achieved by improved procurement management and practices in the universities. Nevertheless, the examination conducted by the C&AG found wide variations in prices paid for similar items both within and between universities. The Report cited examples of these but it was pointed out that individual comparisons could be limited to the extent that they are based on price factors only and do not take account of quality, quantity and availability considerations. However, the comparisons were valid to the extent that they clearly illustrated the potential for achieving savings through better purchasing arrangements.

The report suggested that the greater use of centralised purchasing or collaborative arrangements would produce significant benefits. These kind of arrangements have proved their worth when they were introduced in UK universities and also in the Irish public and private sectors, where savings of between 5 and 15 per cent were achieved. Indeed the Committee was told that the universities had two such successful arrangements in place in the area of information technology, where special deals were made at more favourable prices and conditions than were previously available.

The report also outlined the best practice in procurement and identified a number of areas where improvements could be made. These covered drawing up clearly defined procurement policies and procedures in all universities. At the date of the report, only two had done so. They also included the generation of regular and comprehensive information to enable management to evaluate the effectiveness of its purchasing function and the undertaking of training of all staff involved in the purchasing area.

Since the publication of the report each university had undertaken to review its procurement practices with a view to making improvements and to report back, within a reasonably short period, to the HEA. They had also agreed to examine the possibility of extending collaborative or centralised purchasing arrangements to areas other than information technology. The improved procurement practices could also be applied to the regional technical colleges and to other offices throughout the public service.

3.2 The Higher Education Authority’s Response

In welcoming the report, the Chief Executive stated that it would provide the colleges with good comparative information which was expected to be useful in considering areas where action is required. He was of the view that the report provided clear signals for potential savings on procurement and not only in areas surveyed or identified in the report.

The HEA had been concerned for some time with the overall budgets and finances of the colleges. The Higher Education Authority Act, 1971, under which the HEA operates, requires the HEA to examine requests for subvention by the State from universities and designated institutions. The authority recommends to the Minister the amounts, both current and capital, which should be provided. When the amount is decided in each year’s Estimates, the authority allocates this money among the institutions taking account of the income they obtain from fees and other sources. Building projects and the capital funding for them are dealt with separately.

Since its establishment on a statutory basis, the authority has developed procedures for considering these requests for funding from the institutions. Each year the universities submit a budget to the authority for its approval which is based on the grant notified to them and their estimates of their income from fees and other sources. He explained that in 1972, the universities had accumulated deficits of approximately 11 per cent of their State income but at the time of the examination they had no deficits on their current budgets. The orderly development of university finances had been accompanied by tremendous developments in respect of the number of students catered for, courses provided, staffing and standard of facilities. However, the increased funding had not matched the increase in student numbers. There had also been major productivity gains over the years.

(i) Universities Act, 1997

The Chief Executive explained that the recently enacted Universities Act would underpin the autonomy of the universities with accountability. In that context, he was of the view that the question of procurement in universities was increasingly one where they would be obliged to consider the effective and efficient use of the resources with which they are provided. Their autonomy is recognised but if they are to use those resources effectively and efficiently, they will be obliged to have regard to procurement. The HEA is hopeful that the report would provide the universities with the opportunity to consider the broad issues raised in respect of procurement, the principle of collaboration between and within institutions and the many detailed observations made by the C & AG.

He also stated that regardless of the provisions in the Act, the universities were considering their management structures in one way or another and while there may not be a procurement department, manager or officer in each university, there would be a person in top management responsible for overall policies in this area. In addition, the internal audit function was developing within the universities and it was expected that internal auditors would, in future, have to look at issues, including procurement and would also ensure that the procedures for procurement were followed. However, although monitoring was one aspect of procurement, the provision of the best possible service of procurement would have to involve a wider set of considerations than those which an internal auditor alone would bring to it.

He agreed, however, that universities should collaborate and work together in this area, particularly if it resulted in savings of funds which could be applied to other important areas of the universities. However, even from discussions with the colleges which had taken place since the publication of the Report, the HEA was aware that some areas were being examined for potential savings and that the colleges were now querying the basis for figures. The Chief Executive expected that progress would be made in relation to realising potential savings before the end of the year.

(ii) Establishment of a Procurement Board

On the suggestion of setting up a procurement board, under the aegis of the HEA, with responsibility for monitoring all procurement within universities, the Chief Executive pointed out that universities were autonomous, independent bodies, which could not be regulated in that way. Procurement policy and action inside colleges was a matter for their governing bodies. However, he admitted that a great deal could and should be done in that regard and that numerous options were outlined in the report. The colleges had built up substantial expertise and knowledge of their business and had the ability to judge the best course of action. Nevertheless the best option would be for them to co-operate.

3.3 General Procurement Policies

In relation to general procurement policies and costs, the Committee was told that, on a comparative basis, Irish universities had produced graduates of world class at a lower cost than universities in Britain. Given the fallout rates in universities in France, Germany, etc., Irish universities were giving value for money in that regard. However, the HEA was aware that, regardless of faults that existed in the system, many of the colleges would query certain findings in the report and question how the figures were obtained. Nevertheless, there was undoubtedly a need for colleges to consider the issues raised in the report, both in terms of specifics and in respect of the general area of procurement, and provide answers. The issue was being addressed in the universities at the request of the HEA and the Minister for Education.

The colleges had all been advised of the procurement procedures put in place by the Department of Finance for the public service and circulated to the HEA, in respect of contracts for goods and services and the Chief Executive believed the procedures were observed by the colleges. In addition the colleges compare information on other cost factors, including the pay which amounts to 70 per cent of the expenditure of the universities. As part of those ongoing collaborative arrangements between the universities, it had been agreed that a working group, which was established in consultation with the HEA, would examine all the individual recommendations of the report to ensure that the procurement potential of such areas, internal centralised approaches and purchasing consortia were realised. In relation to insurance, for example, the finance officers of the universities were meeting every six to eight weeks and the colleges’ insurance arrangements were compared. Three of the colleges use the same broker and two of the other colleges use another company. All colleges are well aware of the different rates.

3.4 Conclusion

The Committee welcomes the value for money report on procurement in universities particularly as it addresses issues which are central to the expenditure of large amounts of funds in the area of third level education. The Committee encourages the HEA and universities to take account of the many recommendations made in the report.

The wide variations in prices paid for similar goods and services clearly illustrates that there is potential for benefits through better procurement arrangements and serious consideration must be given to this, most likely by greater use of centralised purchasing. The Committee believes that lessons learned by UK universities and within the Irish private and public sectors should prove invaluable in this area, particularly if new systems are being set up by the universities.

Jim Mitchell T.D.

Chairman

6 November 1997