Committee Reports > List of Committees > Dáil > 1999 > Committee of Public Accounts > Third Interim Report on the 1997 Appropriation Accounts

DÁIL ÉIREANN

COMMITTEE OF PUBLIC ACCOUNTS

THIRD INTERIM REPORT

1997 ANNUAL REPORT OF THE COMPTROLLER AND AUDITOR GENERAL AND APPROPRIATION ACCOUNTS:

VOTE 31 - DEPARTMENT OF AGRICULTURE & FOOD

AND

THE IRISH INTERVENTION AGENCY

ANNUAL FINANCIAL STATEMENTS 1994

TABLE OF CONTENTS

ORDERS OF REFERENCE

1.STANDING ORDER AND TERMS OF REFERENCE - FIRST REPORT OF THE STANDING SUB-COMMITTEE ON DÁIL REFORM ON ESTABLISHEMENT OF COMMITTEES IN THE 28th DÁIL

Standing Order 149

“(1)There shall stand established, following the reassembly of the Dáil subsequent to a General Election, a Standing Committee, to be known as the Committee of Public Accounts, to examine and report to the Dáil upon:

(a)the accounts showing the appropriation of the sums granted by the Dáil to meet the public expenditure and such other accounts as they see fit, (not being accounts of persons included in the Second Schedule of the Comptroller and Auditor General (Amendment) Act, 1993) which are audited by the Comptroller and Auditor General and presented to the Dáil, together with any reports by the Comptroller and Auditor General thereon:

Provided that in relation to accounts other than Appropriation Accounts, only accounts for a financial year beginning not earlier than 1 January 1994, shall be examined by the Committee:

(b)the Comptroller and Auditor General’s reports on his or her examinations of economy, efficiency, effectiveness evaluation systems, procedures and practices; and

(c)other reports carried out by the Comptroller and Auditor General under the Act.

(2)The Committee may suggest alterations and improvements in the form of the Estimates submitted to the Dáil.

(3)The Committee may proceed with its examination of an account or a report of the Comptroller and Auditor General at any time after that account or report is presented to Dáil Éireann and

(4)The Committee shall have the following powers:

(a)power to send for persons, papers and records as defined in Standing Order 79;

(b)power to take oral and written evidence as defined in Standing Order 78A(1)

(c)power to engage consultants as defined in Standing Order 78A(8); and

(d)power to travel as defined in Standing Order 78A(9).

(5)Every report which the Committee proposes to make shall, on adoption by the Committee, be laid before the Dáil forthwith whereupon the Committee shall be empowered to print and publish such report together with such related documents as it thinks fit.

(6)The Committee shall present an annual progress report to Dáil Éireann on its activities and plans.

(7)The Committee shall refrain from-

(a)enquiring into in public session, or publishing, confidential information regarding the activities and plans of a Government Department or Office, or of a body which is subject to audit, examination or inspection by the Comptroller and Auditor General, if so requested either by a member of the Government, or the body concerned; and

(b)enquiring into the merits of a policy or policies of the Government or a member of the Government or the merits of the objectives of such policies.

(8)The Committee may, without prejudice to the independence of the Comptroller and Auditor General in determining the work to be carried out by his or her Office or the manner in which it is carried out, in private communication, make such suggestions to the Comptroller and Auditor General regarding that work as it see fit.

(9)The Committee shall consist of twelve members, none of whom shall be a member of the Government or a Minister of State, and four of whom shall constitute a quorum. The Committee shall be constituted so as to be impartially representative of the Dáil”.

Motion setting up the Committee of Public Accounts

14/10/97

“Go ndéanfar de bhun Bhuan-Ordú Uimh. 149 de na Buan-Orduithe i dtaobh Gnó Phoiblí, an Coiste um Chuntais Phoiblí a cheapadh.

That, in pursuance of Standing Order No. 149 of the Standing Orders relative to Public Business, the Committee of Public Accounts be appointed.”

Motion appointing Members of the Committee of Public Accounts

16/10/97

“go ndéanfar na comhaltaí seo a leanas a cheapadh ar an gCoiste um Chuntais Phoiblí:—

that the following members be appointed to the Committee of Public Accounts:—

Deputies Seán Ardagh, Beverly Cooper-Flynn, John Dennehy, Seán Doherty, Bernard J. Durkan, Denis Foley, Thomas Gildea, Conor Lenihan, Pádraig McCormack, Jim Mitchell, Pat Rabbitte and Emmet Stagg”

Motion appointing Deputy Michael Bell in substitution for Deputy Emmet Stagg

20/11/97

“go ndéanfar an Teachta Emmet Stagg a urscaoileadh ón gCoiste um Chuntais Phoiblí agus go gceapfar an Teachta Micheál de Bheil ina ionad;

that Deputy Emmet Stagg be discharged from the Committee of Public Accounts and Deputy Michael Bell be appointed in substitution for him”

OBSERVATIONS

Following the Committee’s examination of Vote 31 - Department of Agriculture and Food - of the 1997 Annual Report of the Comptroller and Auditor General and Appropriation Accounts and the 1994 Financial Statements of the Irish Intervention Agency, following the recommendation of the Committee, the Department of Finance decided that a systems review of the Department of Agriculture and Food be carried out. The terms of reference of this review are contained in the Appendix (correspondence dated 19 January 1999).

This report is an interim one and will be followed by a further report upon the satisfactory conclusion of the matters raised.

REPORT ADOPTED

REPORT ADOPTED BY COMMITTEE:

___________________________

Jim Mitchell T.D.

Chairman

28 January 1999

PROCEEDINGS OF COMMITTEE

DÉARDAOIN 3 Nollaig 1998

THURSDAY 3 December 1998

1.Chruinnigh an Coiste ar 11.15 a.m.

2.Comhaltaí i Láthair:-

Na Teachtaí S. Mistéal (i gCeannas),

Ardachaidh, Cooper-Ní Fhlionn,

Ó Foghlú MacDhurcáin,MacGiolla Dé,

Ó Luineacháin, Ó Coinín

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú Chuntais Leithreasa 1997.

Athchromadh ar bhreithniú na gCuntas

Leithreasa don bhliain 1997. Cuireadh na cuntais seo a leanas ar athló:-

An Roinn Talmhaíochta agus Bia

5.Finnéithe a Ceistíodh:-

S. Ó Maoileoin (Ard-Rúnaí, An Roinn Talmhaíochata agus Bia), S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).

6.Athlá.

Chuaigh an Coiste ar athló ar 1.30 p.m. sine die.

1.The Committee met at 11.15 a.m.

2.Members Present:-

Deputies J. Mitchell (in the Chair),

Ardagh, Cooper-Flynn, Foley, Durkan, Gildea, Lenihan, Rabbitte

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1997.

Consideration of Appropriation Accounts for the year 1997 was resumed. The following Accounts were adjourned:-

Department of Agriculture and Food

5.Witnesses Examined:-

Mr John Malone (Secretary General, Dept. Agriculture and Food), Mr. J Purcell (Comptroller and Auditor General).

6.Adjournment.

The Committee adjourned at 1.30 p.m. sine die.

DÉ MÁIRT 5 Eanáir 1999

TUESDAY 5 January 1999

1.Chruinnigh an Coiste ar 2.05 p.m.

2.Comhaltaí i Láthair:-

Na Teachtaí S. Mistéal (i gCeannas),

Ardachaidh, de Bheil, Cooper-Ní Fhlionn,

Ó Duinneacha, Ó Dochartaigh, MacDhurcáin, Ó

Foghlú, MacGiolla Dé, Ó Luineacháin, MacCormaic, Ó Coinín.

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú Chuntais Leithreasa 1997.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1997. Cuireadh na cuntais seo a leanas ar athló:-

An Roinn Talmhaíochta agus Bia.

Breithniú ar Ráitis Airgeadais 1994

Rinne an Coiste breithniú agus chuir sé na Ráitis Airgeadais seo a leanas do 1994 ar athló:-

Gníomnhaireacht Idirghabhála na hÉireann

5.Finnéithe a Ceistíodh:-

S. Ó Maoileoin (Ard-Rúnaí, An Roinn Talmhaíochta agus Bia), S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).

6.Athlá.

Chuaigh an Coiste ar athló ar 6.30 p.m.go dtí 11.00 a.m. Déardaoin 7 Eanair 1999.

1.The Committee met at 2.05p.m.

2.Members Present:-

Deputies J. Mitchell (in the Chair), Ardagh, Bell Cooper-Flynn, Dennehy,Doherty,Durkan,Foley,Gildea, Lenihan,McCormack,Rabbitte

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1997.

Consideration of Appropriation Accounts for the year 1997 was resumed. The following Accounts were adjourned:-

Department of Agriculture and Food

Consideration of Financial Statements 1994 -

The Committee deliberated and adjourned consideration of the following Financial Statements 1994:

Irish Intervention Agency

5.Witnesses Examined:-

Mr John Malone (Secretary General Dept. Agriculture and Food), Mr. J Purcell (Comptroller and Auditor General).

6.Adjournment.

The Committee adjourned at 6.30 p.m. until 11.00 a.m. on Thursday 7 January 1999.

DÉARDAOIN 21 Eanáir 1999

THURSDAY 21 January 1999

1.Chruinnigh an Coiste ar 11.10 a.m.

2.Comhaltaí i Láthair:-

Na Teachtaí S. Mistéal (i gCeannas),

Ardachaidh, de Bheil, Cooper-Ní Fhlionn,

Ó Dochartaigh, MacDhurcáin,

Ó Foghlú, MacGiolla Dé, Ó Luineacháin,

Ó Coinín

3.Chuaigh an Coiste i suí príobháideach.

Rinne an Coiste breithniú.

Chuaigh an Coiste i suí poiblí.

4.Breithniú Chuntais Leithreasa 1997.

Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1997. Cuireadh na cuntais seo a leanas ar athló:-

An Roinn Talmhaíochta agus Bia

Breithniú ar Ráitis Airgeadais 1994

Rinne an Coiste breithniú agus chuir sé na Ráitis Airgeadais seo a leanas do 1994 ar athló:-

Gníomhaireacht Idirghabhála na hÉireann

5.Finnéithe a Ceistíodh:-

S. Ó Maoileon (Ard-Rúnaí, An Roinn Talmhaíochta agus Bia), S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).

6.Athlá.

Chuaigh an Coiste ar athló ar 1.35 p.m. go dtí 5.00p.m. Dé Céadaoin 27 Eanáir 1999

1.The Committee met at 11.10 a.m.

2.Members Present:-

Deputies J. Mitchell (in the Chair), Ardagh, Bell, Cooper-Flynn, Doherty, Durkan, Foley, Gildea, Lenihan, Rabbitte

3.The Committee went into private session.

The Committee deliberated.

The Committee went into public session.

4.Consideration of Appropriation Accounts 1997.

Consideration of Appropriation Accounts for the year 1997 was resumed. The following Accounts were adjourned:-

Department of Agriculture and Food

Consideration of Financial Statements 1994 -

The Committee deliberated and adjourned consideration of the following Financial Statements 1994:

Irish Intervention Agency

5.Witnesses Examined:-

Mr John Malone (Secretary General Dept. Agriculture and Food) Mr. J Purcell (Comptroller and Auditor General).

6.Adjournment.

The Committee adjourned at 1.35 p.m. until 5.00 p.m. on Wednesday 27 January 1999.

DÉARDAOIN 28 Eanáir 1999

THURSDAY 28 January 1999

1.Chruinnigh an Coiste ar 10. 05a.m.

2.Comhaltaí i Láthair:-

Na Teachtaí S. Mistéal,(i gCeannas),

Ardachaidh, Ó Duinneacha, Ó Dochartaigh,

MacDhurcáin, Ó Foghlú, MacGiolla Dé, Ó Luineacháin, Mac Cormaic, Ó Coinín.

3.Chuaigh an Coiste i suí príobháideach.

4.Dréacht den Tríú Tuarascáil Eatramhach ón gCoiste um Chuntais Phoiblí ar na Cuntais Leithreasa, 1997.

Chuir an Cathaoirleach an Dréacht den Tríú Tuarascáil Eatramhach faoi bhráid an Choiste chun a breithnithe.

Aontaíodh an Dréacht den Tríú Tuarascáil Eatramhach.

Ordaíodh: Tuairisciú don Dáil dá réir sin.

1.The Committee met at 10. 05a.m.

2.Members Present:-

Deputies J. Mitchell (in the Chair),

Ardagh, Dennehy, Doherty, Durkan, Foley,

Gildea, Lenihan, McCormack, Rabbitte.

3.The Committee went into private session.

4.Draft Third Interim Report of the Committee of Public Accounts on the Appropriation Accounts 1997.

The Chairman brought forward the Draft Third Interim Report for consideration.

Draft Third Interim Report agreed to.

Ordered: To report to the Dáil accordingly.

MINUTES OF EVIDENCE - EDITED

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin, 3 Nollaig 1998.

Thursday, 3 December 1998.

The Committee met at 11.10 a.m.

MEMBERS PRESENT

DEPUTY JIM MITCHELL IN THE CHAIR.

The Committee met in private session at 11.10 a.m.

Public session commenced at 11.15 a.m.

Chairman: The Department of Agriculture and Food is a hardy annual, there are more paragraphs about it every year than about any other Department. This year is an improvement in that there are only four paragraphs, but we have circulated all the paragraphs since 1990 and I believe we cannot let this go - we must do something to make this Department get its act together. We will have hearings until 1 p.m., adjourn until another day, and then make proposals for what to do about it.

Vote 31 - Department of Agriculture and Food.

Chairman: Today we will deal with the 1997 Report of the Comptroller and Auditor General and Appropriation Accounts, Vote 31, Department of Agriculture and Food. The attention of Members and witnesses is drawn to the provisions of section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, and the rights and duties enshrined therein.

I welcome Mr. John Malone, Secretary General, Department of Agriculture and Food.

Mr. John Malone, Secretary General, Department of Agriculture and Food, called and examined.

Mr. Malone: Accompanying me are Denis Byrne, Tom Arnold, John Fox, Marian Byrne, Andy McGarrigle and Richard Healy from the Department of Agriculture and Food. Also present are Niall McSweeney and Ronan Fox from the Department of Finance.

Chairman: I propose to take paragraphs 32 and 33 to start with.

Mr. Purcell: Paragraph 32 is an introductory text in which I have outlined the scale of expenditure in 1997 in Ireland under the Common Agricultural Policy and refer to the control arrangements in place for checking expenditure is in order. Apart from the Department’s own controls and checks by the EU Commission and other EU institutions, this involves certification of the annual claim on the EU by Arthur Anderson, a well known firm of accountants, and the work of the internal audit unit which is guided by a broadly based statutory audit committee. I place a certain reliance on these two sources of assurance where appropriate in the course of my work.

Paragraph 33 deals with the results of my staff’s examination of area aid payments. It is quite a long paragraph and I will try to briefly summarise the main points I raise in it. On a general level the certifying accountants, Arthur Anderson, report that at the beginning of 1998 there were certain major weaknesses in the administration of area aid applications which required the immediate attention of senior management. This confirmed earlier misgivings I had which were reported to the committee last year. The accounting officer has taken the criticisms on board and the paragraph gives details of the remedial action which the Department has taken to meet the concerns expressed. He sees this as part of a process of continuous refinement of the control procedures which are necessary to establish a proper framework for the effective administration of area aid related payments. He also points out that other EU member states have had problems in implementing the underlying land parcel identification system and that the Commission had allowed a certain degree of latitude because of these difficulties. All this is true and I accept the Department was dealing with new technology within tight time constraints. However, my review of the operation concluded that if proper care had been taken, particularly in establishing controls over the scanning process in the early stages, some of the difficulties could certainly have been averted. As the Committee will recall from last year, there were also problems with the digitising of maps which support the applications.

From an accountability point of view, the main manifestation of the control weaknesses was that incorrect payments were made. The accounting officer assured me arrangements had been made to undertake a systematic recalculation of headage and premium payments made in respect of 1996 and 1997 applications where there were apparent discrepancies between the information furnished by claimants and that recorded on the Department’s databases. As I understand it that exercise is not yet complete, but the cases investigated so far have brought to light overpayments totalling over £750,000. I stress that the exercise is not complete and that it is therefore difficult to calculate what the ultimate total of overpayments will be.

Mr. Malone: The Committee and the C&AG will be aware that this has been an extremely complex and difficult area. From last year’s discussion the committee will recall that it involves one million land parcels and 132,000 individual applications. The application of the land parcel identification system brought us into completely new territory, both in terms of applying schemes and technology.

We had the added problem that the period within which the payments can be made is relatively short, being effectively in September, October and November. Therefore, there is a culmination of pressure coming from a series of different points.

We have acknowledged and accepted, as we did last year, that there were difficulties and weakness and we have set about addressing and eliminating the weaknesses. For the benefit of the Committee I should add that the land parcel identification system was initially based on ordinance survey maps which were out of date in many cases.

In facing the issues it was necessary to address a number of factors. Firstly, we had to address the application and use of the technology. Secondly, we had to address the use of the controls and operation of the schemes. Thirdly, we had the added difficulty that these payments are extremely important for farm incomes, constituting roughly 50 per cent of farm incomes. Consequently, there is considerable pressure on the Department to ensure payments are made on time, particularly under the conditions set out in the farmers’ charter.

In the light of the report of the consultants, Arthur Anderson, where particular faults were identified, we initiated a plan to deal with the problems. In the course of this year the area aid unit has been totally reorganised and broken into distinct work areas.

Considerable effort has been devoted to improving both the application and use of technology, and the evidence is there to see that this year considerable improvements have been achieved. All the payments made so far this year have been made on the basis of claims that are fully processed. The level of payment we have is 94 per cent of cases; if that is compared with this time last year numerically, it is roughly double the number we had.

Our strategy was to reorganise substantially and to address the weaknesses identified, and then to ensure that the 1998 situation did not add to the problems; we did not want to carry problems from 1996, 1997 and 1998. All payments made in 1998 have been made on the basis that they are fully processed. At the same time we are in the process of dealing with the backlog the Comptroller and Auditor General referred to in relation to 1997 and 1997. We are focusing very strongly on the backlog and on having it dealt with by early next year.

Deputy Rabbitte: I thank Mr. Malone for the extensive documentation that he has furnished us with since we last spoke to him. Are you happy with the functioning of the information technology system as it now stands?

Mr. Malone: On a general basis, yes. We feel that the functioning of the IT could be improved further; I am not arguing that it is perfect. We have the problem of two databases. The data from the mapping system is captured on one system and then has to be transferred to another system. This year we have put a lot of effort into ensuring that the two databases were kept totally synchronised, and I feel we have improved considerably, but there is possibly further progress to be made, particularly as technology improves.

Deputy Rabbitte: How many individual applications are there? Is it 132,000?

Mr. Malone: There are almost 1 million land parcels and 132,000 individual applications. It is an enormous process.

Deputy Rabbitte: The identification of 27,000 applications in 1996 for the area of land claimed was greater than that recorded on the LPIS. That seems a very high proportion.

Mr. Malone: On one level, yes, but it can be explained that people are operating on the basis of Ordinance Survey maps, some of which are almost a century old. One is comparing that then with aerial photography carried out by the Department. Boundaries can change over time, as can the shapes of individual farms. We also have the phenomenon of farmers taking conacre, particularly in the cereal sector. In 1996 there were 90,000 changes to the maps that had been submitted the previous year.

Deputy Rabbitte: What is your interaction with the Ordinance Survey? It is remarkable that the Ordinance Survey is out of date; is that body doing anything to change that?

Mr. Malone: I do not want what I have said to be interpreted as a criticism of the Ordinance Survey. The situation was that maps were in the hands of individual farmers that they might have got 20, 50 or even 100 years previously. Most farmers would have a map of their farm, but it could be out of date. It is not a criticism of the Ordinance Survey per se. That problem has been largely resolved, because we have aerial maps that we have matched against farmers’ submissions. This is not a problem any longer. From now on there will be problems if farmers change their applications from one year to the next by buying new land or taking it on conacre.

Deputy Rabbitte: The farmer would not be out of date in respect of his total farm. That would be defined in his deeds and so on. You are referring to the amount in respect of which he might apply.

Mr. Malone: There is that for a start. With each application we must seal the boundary of the farm so that the boundary comes up on screen. If one has individual plots of land or if the boundary was a river that changed course, as I have seen in cases, an aerial photograph will show something different and one must match the two.

Deputy Rabbitte: Does this mean we have a modern record of every farm in the country, and at the push of a button segments of farms can be identified?

Mr. Malone: Yes. We have very considerable data on any farm that would submit a claim.

Deputy Rabbitte: What about the comment on page 63 of the Comptroller and Auditor General that the Department had not, by April 1998, revalidated claims to ensure payment discrepancies were corrected? An example is given of a recalculation exercise by the Comptroller’s staff on a very small number - 46 claims - and based on that small sample, likely overpayments of £61,000 were revealed. If that sample was in any way typical there would be very serious payment discrepancies.

Mr. Malone: Revalidation is not complete yet. The choice we had in 1996 and 1997 was to fail to make those payments or to seek a concession from the European Commission, which we sought and got, that the payments could be made on the basis of the application provided the difference was no greater than 3 per cent. To date we have recovered £600,000. It is not a fair exercise to extrapolate from the figure quoted because it depends on the size of the application. There is a mix of big, medium and small farms. The Comptroller has indicated that he does not know the total figure, and neither do we, to be quite honest. There is only one way out of that, and that is to go through all the cases systematically. That is why it was so important not to build up a problem in 1998 so that instead of carrying two problems one would be carrying three. We have put in a huge effort, and we have achieved a lot of success in getting the 1998 payments out in order. We are now working through the 1996 and 1997 payments, and if there was an overpayment we will claim that back from the next cheque going out to the farmers. Deputies will be aware that we sent out a significant amount of payments.

Deputy Rabbitte: What about the deficiencies in controls over the scanning process that the Comptroller commented on?

Mr. Malone: The scanning process was a particular problem. We had to get a system that would capture all the information; prior to that we had been using a bureau punching system. The scanning process was necessary to capture the information so that one had the data in a way that allowed the claim to be processed. There is no denying that there were difficulties with the process, some of which were due to the fault of the process itself; there was a fault with the ink. Some was attributable to the quality of the documents sent in. We were trying to scan documents that were not necessarily in the best shape. We will carry out a thorough review at the end of the year as to whether we will continue with the scanning process or use another one. It is about capturing the information in a way that one can process.

Mr. Rabbitte: I wish to examine Mr. Malone on some of the documents submitted to the Committee by the Department. Is that in order?

Chairman: No. It is not relevant to this paragraph. I will come back to the Deputy.

Deputy C. Lenihan: If I understand it correctly, the total figure is £0.75 million in terms of the recalculation exercise. Is that right?

Mr. Malone: Yes, I apologise. I used the figure of £600,000. The figure changes from one day to the next but it is £784,000.

Deputy C. Lenihan: So far discovered.

Mr. Malone: Yes.

Deputy C. Lenihan: Does Mr. Malone have any assessment of how high the figure will go? Will it go much higher given the number of applications? Is there any internal estimate?

Mr. Malone: We have a figure internally of £1.16 million. However, we cannot be certain until we go through each claim. For example, if there is an application related to an amount of land, it can happen that the individual farmer has enough land to sustain the application. We do not know until we go systematically through each case. We literally have to go through each case and this is time consuming and painstaking.

Deputy C. Lenihan: When did the review start?

Mr. Malone: As is well known, we had difficulties making payments in 1996 and 1997. In relation to 1996, we had 27,000 cases. In relation to 1997, we had the order of 30,000 cases. We got a concession from the European Commission to make payments on the basis of the application. We have been working our way back through these cases. They break down into two categories, arable and forage. Arable relates to cereals while forage relates to grassland.

In relation to the arable category for 1996, just 3,000 cases remain from a total of 17,000 cases. We have processed 14,000 cases. We are in the process of finalising a computer programme to try to deal with the forage cases. In relation to the arable category for 1997, only 2,728 cases remain. There is also the phenomenon that as one clears cases in 1998, one can unlock whatever the problem was in relation to 1996 and 1997. Genuinely, it is not possible to give a figure. It will be determined in some cases that there was not an overpayment. In other cases a small overpayment may have been made while in others it will be determined that a bigger overpayment was made. An average figure cannot be used.

Mr. C. Lenihan: What is Mr. Malone’s estimate of the number of overpayment cases that will arise from 1998? There were 27,000 cases in 1996 and 30,000 cases in 1997.

Mr. Malone: We do not envisage that we will have any overpayment cases in 1998. We are going through the system and no payment is made unless the claim is fully processed.

Deputy C. Lenihan: What is the total number of applications for 1996 and 1997?

Mr. Malone: 132,000 each year.

Deputy C. Lenihan: As a percentage, 30,000 is very high.

Mr. Malone: It is not necessarily an overpayment. It is a discrepancy between what is available to us through our digitising process and the map the farmer submitted. One cannot infer that there is automatically overpayments relating to 30,000 cases.

Deputy C. Lenihan: What can one infer?

Mr. Malone: Some cases can be easily explained, but one must go through the system.

Deputy C. Lenihan: Does Mr. Malone have any estimate for actual overpayments?

Mr. Malone: No. That is the point. Until one goes through each individual case, one cannot make an estimate. I am not trying to avoid the question. That is the position.

Deputy C. Lenihan: In terms of the discrepancies, can Mr. Malone give any break down of the discovered cases? Perhaps it is naïve to ask, but from the thousands of applications has a farmer ever come to the Department and said that it had overpaid him?

Mr. Malone: It has happened.

Deputy C. Lenihan: How many cases would the Department have had of farmers contacting it and saying they had been overpaid and wanted to repay the money?

Mr. Malone: I would speculate that there have not been too many. In fairness, the farmer would have submitted his application and map in good faith. We would have done our digitising on the basis of the information available. We would have compared the two maps and there would have been a discrepancy. In some instances it might be the fault of the map submitted by the farmer. In others, there might be a perfectly simple explanation. In many cases, because it does not relate to a total map of the farm and it involves a series of different plots of land, one is trying to find a home for particular plots of lands.

Deputy C. Lenihan: Does Mr. Malone have any estimate of people making fraudulent applications?

Mr. Malone: No. That is not the argument. The argument is that there is a discrepancy between the application and the information available to us.

Deputy C. Lenihan: So there is no question of fraud.

Mr. Malone: I cannot say.

Deputy C. Lenihan: Mr. Malone could say whether the Department has discovered any such cases.

Mr. Malone: We have not uncovered any cases of fraud so far.

Deputy C. Lenihan: There are none.

Mr. Malone: It is not essentially a problem of fraud. It is a problem of administering a scheme.

Deputy C. Lenihan: There are scanning systems in supermarkets, etc. What went wrong with the scanning system? It never appeared to be operational.

Mr. Malone: It is slightly different from the system in supermarkets. One is scanning an application with information that is handwritten. One can have a problem with the quality of the document. In fairness, there was a problem with the scanning system itself in relation to drop out ink. This related to the boundary of the farm. We also had the disadvantage that the one facility we did not have was time. We were under pressure to get the system up and running and make the payments, which are vitally important to farm incomes. We did not have the luxury of doing a trial and error exercise.

Deputy C. Lenihan: What was the system? Did the Department put it out to tender? Was a reputable computer company involved?

Mr. Malone: Yes. It went through all the procedures.

Deputy C. Lenihan: What was the name of the company?

Mr. Malone: It was a company called Softco.

Deputy C. Lenihan: Is it an Irish company?

Mr. Malone: Yes.

Deputy C. Lenihan: How much was the contract to supply the scanning system which lost ink worth?

Mr. Malone: I do not have that detail to hand, but I can get the full details of the contract for the Deputy. There is no problem in that regard.

Deputy C. Lenihan: Was any effort made to recoup money from the contract for the failure of the system?

Mr. Malone: In fairness to everybody, we were trying to have a system that dealt with a huge volume of applications, many of which had problems in terms of the quality of the documents. It was not comparable to the normal scanning system where one scans a bar code. We were trying to capture the information. There may be a misunderstanding that the system was the payment system. That is not the case. It was the system to capture the information.

Deputy C. Lenihan: How much did the system cost to buy?

Mr. Malone: I do not have that detail to hand, but I speculate that it was a lot.

Deputy C. Lenihan: Was it hundreds of thousands of pounds?

Mr. Malone: Yes, at the very least.

Deputy C. Lenihan: A very large sum was spent on machinery that somehow failed to capture the information.

Mr. Malone: There were deficiencies in the system. The system did not fail. In the vast bulk of cases it worked but the Comptroller and Auditor General identified problems with it.

Deputy C. Lenihan: Is Mr. Malone saying that the technology worked but people did not input the information correctly?

Mr. Malone: The technology did not work in each case.

Deputy C. Lenihan: Was there a flaw with the technology because of the volume of the work or the people inputting the material? Did the technology fail because the right system was not bought or implemented correctly?

Mr. Malone: The principal problem was the quality of the data being input. There was hand written material and the quality of some of the documents was not the best because it involved old maps, etc.

The system was extended beyond its limits. We were under time pressure and we had to get it up and running. We went through all the procedures, but it would be unfair to lay the blame totally at the feet of the system. There were a number of factors, including the fact that it had difficulty reading figures, even handwritten ones. It is not comparable with a normal bar coding system in a supermarket.

Deputy C. Lenihan: Is it like a postal sorting system?

Mr. Malone: Yes.

Deputy C. Lenihan: It had problems identifying handwritten figures. That is an ink problem rather than a technology one.

Mr. Malone: It is a mix of everything. It is the limitations of the technology and the quality of the raw material it is being asked to process.

Deputy C. Lenihan: Has that system been upgraded since or has it been scrapped?

Mr. Malone: We have not scrapped the system. We improved its quality control substantially and we learned from the experience of 1996 and 1997. We tried to get the data inputted properly and in better shape. This year we will have a fairly comprehensive review of the experience and decide where we go from there. We want a system which will capture the information quickly and accurately and then allow the application to be processed and dealt with.

Deputy C. Lenihan: I represent an urban constituency where many people believe that farmers are ripping off the State in their mapping applications. Can Mr. Malone reassure us that the failure in the system has not led to an increase in fraud under this scheme?

Mr. Malone: I can give that reassurance. One cannot categorically state there is no fraud because it is a reality. Most farmers feel that the difficulties in the system prevented them from getting what they regarded as their just entitlements in 1996 and 1997. Our performance has been substantially better in 1998 and we have resolved many of the problems.

Deputy C. Lenihan: What is the average delay in making these payments to farmers?

Mr. Malone: The farmer must have his application submitted by 15 May. Depending on the schemes, periods are set out in the regulations before which we cannot commence payment. We cannot commence payment in June or July. A number of the payments commence in September, while others commence in October. As I said earlier, we have made approximately 94 per cent of the payments at present. We have until June next year to make payments in many of the schemes. Our performance in making payments is as good as in any member state of the European Union.

Deputy C. Lenihan: The Department regards itself as a body which offers a service to farmers to get their entitlements to EU support, which represents 50 per cent of their income. Is there a target time within which the Department likes to deliver those payments?

Mr. Malone: There is a farmers charter setting out the dates. Two months is generally the target time.

Deputy C. Lenihan: The Department sets a target of two months to deliver the cheques.

Mr. Malone: Yes. We are helped by the farming organisations. We have met most, but not all the targets.

Deputy C. Lenihan: Mr. Malone said farmers are complaining about delays. What type of delays are they experiencing?

Mr. Malone: The normal paying date is 1 November. We have until the end of December to make the payments in many schemes. We have made over 90 per cent of the payments at present. We can get the payments out within days in some schemes, particularly those relating to ewe premiums.

Deputy C. Lenihan: The average is 90 per cent.

Mr. Malone: Our record will stand up in that regard.

Deputy C. Lenihan: That is reassuring.

Deputy Foley: Mr. Malone said the Department received 132,000 claims, yet there are 135,000 farms. Do 3,000 farms not make claims?

Mr. Malone: Some farms do not make claims. One must look at the definition of a farm. A small number of farms are outside the premium system.

Deputy Foley: There was a detailed work plan for the clearance of the backlog of 1996 and 1997 applications, together with a system for monitoring progress. Has that backlog been cleared?

Mr. Malone: We have two backlogs, one from 1996 and the other from 1997. The 1996 backlog breaks into two categories - arable and forage. There are a total of 17,000 cases in the arable category, of which 14,000 have been cleared.

Deputy Foley: There are 3,000 cases outstanding.

Mr. Malone: Yes. We are in the process of preparing an IT programme to process cases in the forage category. As regards 1997, there are now only 2,728 cases due to be processed. As regards forage applications, 10,000 cases have been cleared with another 20,000 yet to be finalised.

Deputy Foley: I congratulate the Department on its success. Is the Department fully computerised in terms of payments?

Mr. Malone: Yes. We make the odd manual payment, although we do not like doing that.

Deputy Foley: When a manual payment is made, is it registered in the computer at a later stage?

Mr. Malone: It goes into our accounts system. If there is a particular problem with a payment, a system must be set up manually. The vast bulk of our payments, 99 per cent, are done by computer.

Deputy Foley: Why is that figure not 100 per cent?

Mr. Malone: Because there could be an unforeseen problem with an individual case and we might just be making one payment. It is not worth writing a programme for that. It is the exception rather than the rule.

Deputy Foley: Over the past few years there were major problems with payments. Does the Department do cross-checks now?

Mr. Malone: Yes. We have made progress on a number of headings since we last appeared before this Committee. We have established a client database so we have a centralised client registration unit. It was important that we identified each of our customers as a client, whether it was a farmer or processor. We are now making full use of the Bandon database. As animals are born, they are identified and registered in a central system. We have the advantage that we are able to cross-check applications against the animal database. We are also building up the centralised client database.

Deputy Foley: Mr. Malone mentioned registration. What happens if tags are lost?

Mr. Malone: There is a double tagging system. Normally, only one tag falls out and the farmer is advised to apply for a replacement tag. It is a requirement of schemes that where animals are presented for slaughter, they must be properly identified and have two tags. The fallout rate is low, a percentage point of a percentage point. We are happy with the way the tagging system has worked.

Deputy Foley: Is the Department satisfied with its internal audit system?

Mr. Malone: We have strengthened our internal audit system considerably in recent years.

There are two issues. First, you need an effective internal audit system. Second, you must make use, recognise and take on board the findings of internal audits. We have substantially improved our internal audit. We also have the advice of an audit committee who primarily consist of people who have expertise in auditing in large companies. They advise us as well. Our internal audit unit would be highly regarded by the European Commission.

Deputy Foley: There are major problems at the moment with area aid. Some farmers who qualified last year find they have problems this year and they have been asked to submit further maps. Is there a reason for this?

Mr. Malone: Yes, this is part of the problem that we have been discussing in relation to the backlogs for 1996 and 1997 that there can be discrepancies in maps. You are talking about identifying plots of land. You also have situations where farmers take on extra land. They might rent extra land and have to submit an application. We have reduced the figure substantially. The situation is that out of roughly 132,000 applications around 7,000 cases need to be finally clarified.

Deputy Foley: It is worthwhile to know that it is as low as 7,000 cases.

People have experienced major problems when contacting Hume House. They were not taking telephone calls for some considerable time.

Mr. Malone: Hume House is a unit dedicated to making payments. We had a fairly stark choice to make. Either we got the staff to focus on making payment or focus on receiving telephone calls. I do not want it to be interpreted that we were trying to cut back or be delinquent on our customer relations. For a period we had to get people to focus on making payments and it was important that the best use was made of the staff and the resource. We took the view for good or for bad that the best use was in having these people concentrating on payments and on making those payments. We have re-opened the telephone system in Hume House so it is now available to take calls again.

Deputy Foley: That is very welcome.

Mr. Malone: We regret having to close down the telephone system. At the end of the day the important thing was to get the payments out.

Deputy Foley: What is the total figure for payments made by your Department on average?

Mr. Malone: We process about £2 billion. The direct payments total would be about £1 billion. So far this year we have paid out £776 million. It is difficult. We make over £1 million in individual payments.

Deputy Foley: As we are discussing payments is it a fact that 20 per cent of farmers are receiving 80 per cent of all total payments?

Mr. Malone: The figure is not that extreme. Obviously the nature of the system is that the payment is related to animals. It is related to area so that the more animals and area you have then the bigger the level of payment. I am speaking slightly off the top of my head but I think it is more of the order of 70/30. The 80/20 rule does not apply totally. It is also important to bear in mind that there is a very wide spread of payments. The fact that over 130,000 farmers are getting payments means that there is a very wide spread of them.

Deputy Foley: Would it be nearer to a 75/25 ratio?

Mr. Malone: The last time I looked at the figure it was probably nearer 70/30 than 75/35 but I can get the exact figure for you.

Deputy Foley: If that is the position do you have any suggestions from your Department to rectify that situation in fairness to the smaller farmers?

Mr. Malone: The whole payment system will come up for review under Agenda 2000. Part of the proposals in Agenda 2000 will be to have upper limits on the level of payment. It is probably also inevitable that the payments system will be looked at. It is important to remember that the overall payments systems are favourable to Irish agriculture. For example, with 6 per cent of the production we get 12 per cent of the payments. I think you have to look at two aspects of that. A rebalancing of the payments - I am not arguing that there is not a case for a rebalancing of the payments - does not necessarily mean that the small farmers will get more. It could well be that the people currently at the top level will get less. It is an exercise we have to watch very carefully.

At the same time I accept that there is a point, at the end of the day what you are trying to do is support family farms and try to ensure that people have a decent income. You get the extremes of large sums given out to large operators. The Agenda 2000 proposals will address that.

Deputy Foley: Will you be making any suggestions?

Mr. Malone: As we have indicated at the moment in the negotiations we are not against the concept of upper limits. Within that you have to be careful as to where they fall and where they apply.

Deputy Foley: You pay out in excess of £100 million and of that sum £70 million is going to 30 per cent of farmers whereas 70 per cent of farmers qualify for £30 million.

You have mentioned a substantial amount of overpayments. When do you anticipate having the overpayments finalised?

Mr. Malone: Our intention will be to do a balancing act at the next payment. The balancing payments will be issued in April or May 1999. We intend to have that exercise finalised and then we can do the balancing exercise when the balancing payments are going out.

Deputy Foley: You mentioned that 1 November is payments day and that you already have in excess of 90 per cent of the payments made for the current year. Is that a record?

Mr. Malone: Yes, particularly since the land parcel identification system was introduced. It is by far our best performance and bears no comparison with what happened last year or the year previously.

Deputy Foley: I compliment you on that because it is very appropriate this year in view of the crisis that farmers have been faced with. That is an excellent record for your Department.

Deputy Durkan: Are we taking the Vote or the Comptroller and Auditor General’s report for 1997 or are we taking the two together?

Chairman: We are dealing with paragraphs 32 and 33 of the Comptroller and Auditor General’s report.

Deputy Durkan: Unfortunately, my questions relate to a further paragraph.

Deputy Ardagh: I am delighted to see that 94 per cent of the payments have been fully processed and paid out for 1998. I am also delighted that the figure is double that of last year. It is a great improvement and must be recognised.

If I can get back to what Deputy Foley was talking about in relation to farmers and the amount paid out. As you know yesterday’s budget means that 80,000 people in receipt of incomes of less than £100 per week will get out of the tax net. How many of those 80,000 people are farmers?

Mr. Malone: It is difficult to give precise figures.

Deputy Ardagh: I accept that.

Mr. Malone: However if we tackle it from another way and look at it at present, there are approximately 7,000 farmers claiming small farmers’ assistance. It is estimated in the context of the new package announced yesterday to support farm incomes, that another 13,000 will be added to that. I speculate that we are probably talking about an overall figure 20,000

Deputy Ardagh: Approximately 20,000?

Mr. Malone: Approximately 20,000. It is important to recognise that this year has been a very difficult year for farm incomes. If the Deputy had asked me this question last year or the previous year, perhaps the answer would have been different. The problem this year is due to income difficulties in farming. Some farmers, possibly those that do not have off-farm income from other employment, have fallen into a category in which they would not otherwise have been included.

Deputy Ardagh: Being an urban Deputy, I cannot figure out why 20,000 farmers would continue in business with an income of less than £100 a week. I know there are a number of shop keepers and tradesmen who could not afford to keep that up. How come that number of farmers can afford to live on less than £100 a week.

Mr. Malone: First, people are leaving farming. The number of people in farming is decreasing every year. Second, one has to consider the type of people involved and, without being disrespectful, their alternative job opportunities. Also, there is a phenomenon in this country of attachment to the land. The particular problem this year - leaving aside the figure of 7,000 I mentioned earlier - is that there is a category of people who have income difficulties who would not normally have income difficulties. We are hoping this is a once-off and markets will pick up, cattle and pig meat prices will improve and they will return to their former situation.

The numbers in agriculture are decreasing. People are getting out of farming. In particular this is a difficulty concerning young people which is the real acid test. Much of that is explained by the fact that there are other alternatives. It is not a bad thing. They view agriculture as a career just like any other rather than as a vocation, and decide there are better things which they want to do and have an easier lifestyle. Trying to ensure there is a reasonable inflow of young people is probably the biggest issue and challenge.

Deputy Ardagh: Would Mr. Malone agree that young people - that is the children of current farmers - will not be satisfied with that type of income when they see the incomes which are achievable by other young people, taking into account of course that children of farmers are generally able to get into third level education and receive grants? They are able to achieve a standard of education that would not be normally achievable by many of my constituents or many of the constituents of Deputies Lenihan and Rabbitte. Surely they would be unhappy with the level of income they could hope to achieve out of the farm which their parents have worked for years.

Mr. Malone: Yes. That is a problem. The farming community in general make good use of the education system. It is becoming obvious. They see the income situation and decide to pursue an alternative career. There are a number of measures in place to encourage people to come in. There is a scheme known as the installation aid whereby support is available for young farmers taking over a holding. They obviously must have a certain level of education.

There is also a scheme which has probably now exceeded our expectations. That is the farm retirement scheme. There are almost 10,000 farmers in this scheme. At various times over past decades we tried to get a farm retirement scheme going. The uptake on this scheme is an indication of what is now happening. An advantage of the scheme is that the farm must be handed over. The farmer does not simply retire and leave the farm there. That is improving the structure and hopefully the age profile.

Deputy Ardagh: Mr. Malone stated that approximately 50 per cent of farm incomes derive from payments made by the Department. On that basis, what is the projection for 1998 of the total amount of payments to which he referred?

Mr. Malone: In rough figures £1 billion. Farm income can be broken into three major components. Direct payments are £1 billion. There is another £1 billion from the market. There is also off-farm income which is unrelated to direct payments. I speculate it would amount to approximately £2 billion.

Deputy Ardagh: If the income for 132,000 farmers is approximately £2 billion, I am trying to figure out what the average farm income is for those 132,000.

Mr. Malone: The average farm income is approximately £10,000 but there are huge variations within that.

Deputy Ardagh: What is the maximum payment made to a single farmer?

Mr. Malone: That depends on the scheme involved.

Deputy Ardagh: I realise that some farmers may receive two payments, maybe more.

Mr. Malone: Perhaps I can circulate a document. I can give the top payments. For cattle headage, the top payment would £3,360 per farm. For sheep headage the top payment would be £2,400. For the extensification premium which is related to arable land, it is £21,996 and for the suckler cow premium it is £48,800.

Deputy Ardagh: Would a lot of cows be involved there?

Mr. Malone: Yes. For the special beef premium it is £17,062 and for the ewe premium it is £48,248.

Deputy Ardagh: How much?

Mr. Malone: £48,248.

Interruptions.

Mr. Malone: The top slaughter premium was £392,239.

Deputy Ardagh: Could Mr. Malone repeat that?

Mr. Malone: It was £392,239 for the slaughter premium.

Deputy Ardagh: What type of farmer would get £392,239?

Mr. Malone: The slaughter premium is paid on animals at slaughter. There is no limit on the number. It is a once-off payment to overcome the seasonal problem we had in beef production so it is paid in the early months of the year to encourage farmers to present their animals for slaughter.

Deputy Ardagh: Is this to a factory?

Mr. Malone: Yes it is to a factory. It has to be. It is paid at the point of slaughter. They would be people operating large so-called feed-lots. They buy and accumulate animals. I speculate that the top payment under this heading would be to factory owners or operators with their own feed-lots who have bought and accumulated animals

Deputy Ardagh: So they are out of the ordinary?

Mr. Malone: They are not ordinary by any stretch of the imagination.

Deputy Rabbitte: Do they ever accumulate animals they should not accumulate?

Mr. Malone: We have no evidence of that. These animals have to inspected at slaughter and the whole thing must be properly documented. Normally they would go around marts and buy animals of a certain age, fatten them, put them on meal feeding and slaughter them in the early part of the year.

There was a big problem with seasonality in the Irish Beef Industry where a lot of cattle were presented for slaughter.

Deputy Ardagh: So there are no stray cattle?

Mr. Malone: I do not think so. We have seized cattle. We have put a lot of effort into this, particularly now that the new identification system has strengthened our hand. The arable aid scheme amounts to £202,603.

Deputy Ardagh: What type of entrepreneurial farmer are we talking about?

Mr. Malone: A very large cereal farmer.

Deputy Ardagh: One single large cereal farmer?

Mr. Malone: The next largest payment is £200,735.

Deputy Ardagh: How many payments would be in excess of £50,000?

Mr. Malone: I do not have that information. I have a list from 1 to 10. No. 10 is £136,932.

Deputy Ardagh: Certain counties in the south east are looking for Objective One status. In what region is that recipient?

Mr. Malone: I do not have that information but I will find out. It would be fair to suggest that it is in a recognised cereal area.

Deputy Ardagh: It would not be in the mountains in Deputy Foley’s area.

Mr. Malone: The Deputy asked about suckler cows. It would be 342 suckler cows.

Deputy Ardagh: To achieve 48,000?

Mr. Malone: In relation to sheep it would be 1,608 sheep.

Deputy Ardagh: Some 1,608 ewes? Then lambs and rams are added.

Mr. Malone: I can circulate the information.

Deputy Ardagh: What is the average amount paid to farmers?

Deputy Rabbitte: Does the Deputy still think it is a bad lifestyle?

Deputy Ardagh: I am getting to like it.

Mr. Malone: The average payment is over £5,000.

Deputy Ardagh: That is where you got the average of £10,000?

Mr. Malone: Yes.

Deputy Ardagh: In relation to the LPIS, this seems to be a sophisticated system. What percentage of land is allocated to a farm on which an application has been made to the Department of Agriculture and Food? Is there a significant amount of land on which no claim has been made?

Mr. Malone: I do not have the precise figure. A small number of farmers would apply under these premia. For example, specialised dairy farmers do not fit into that category. A farmer who has a farm with under 15 livestock units, which is small, is not bound by the area aid application.

Deputy Ardagh: What percentage of land is being -------

Mr. Malone: Virtually 90 per cent of farming land.

Deputy Ardagh: What percentage of land is made up of farming land? Presumably a person with 1,600 ewes would have approximately 2,000--------

Mr. Malone: He would have access to a commonage. Commonage is difficult to control.

Deputy Ardagh: How is commonage controlled?

Mr. Malone: We must find the various people who have use of the commonage. In a number of instances commonage can be divided. There was a tradition in the past of dividing commonage. We must look at the commonage and the farmers to make applications relating to that commonage and determine a total. We must ensure that there are not excess animals in the commonage. By nature commonages tend to be low density farming. There is requirement that the density must not be higher than 1.4 livestock units per hectare. It is a difficult area but I believe we have a grip on it.

There is now a scheme to try to encourage people to reduce numbers of sheep in commonages and in mountains where there has been over-grazing. Great numbers of sheep on mountains damage the environment. There is a scheme in place to encourage farmers to reduce numbers by 30 per cent.

Deputy Ardagh: Mr. Malone referred to a list in relation to payments to farmers. I presume the list is prepared for this meeting. Could it be given to the clerk to distribute it.

The question of customer service was mentioned. I understand the need to ensure that payments are made. I am concerned that the level of customer service by the Department is not adequate. Mr. Malone mentioned prioritising staff. How will you ensure a level of service to the public which is in line with what is expected in this day and age. The customer expect certain standards to be applied in all organisations. They are applied in the Department of Social Welfare. When will they be applied in the Department of Agriculture and Food?

Mr. Malone: We recognise that the people we deal with are clients. Some 132,000 people apply under some schemes. We have clients such as beef exporters, processors and so on. We have a large number of clients. We have invested a lot of time and effort in trying to improve customer relations. The first problem is that we are decentralised. There are local offices in each county. Seventy five per cent of the Department is decentralised at the moment. When decentralisation to Wexford is finalised the figure will be 82 per cent. This means 82 per cent of the staff of the Department work outside of head office.

We introduced a farmer’s charters in 1995 which set out deadlines within which payments could be made. That was unique at the time. We were the first Department to introduce this method. We were certainly the first Department to do this in the context of direct payments to farmers. At the moment we are talking about figures in the order of 90 per cent. In other member states some of these payments will not commence until the beginning of next year. While we are not perfect, we have moved a considerable distance.

Deputy Ardagh: Are you happy with the level of customer service:

Mr. Malone: No, I am not.

Deputy Ardagh: How will you improve it?

Mr. Malone: We are trying to simplify forms. Many application forms were intimidating. We have invested a lot of time and effort in trying to improve forms. We discussed this matter in another committee chaired by Deputy Roche. People attended from Brussels in relation to our application form under these premia schemes. Our application forms are regarded as among the most readable and user-friendly in Europe. Every year we consult with the farm organisations before the campaign. We must strike a right balance. One must not encourage fraud and must get the right information that the application is genuine. We have tried to make the application user-friendly. We also provide help sheets to advise the farmer on how to fill out the application properly.

Second, we try to work on the basis of pre-printed applications. In other words, we try to get to the point. It is a little like taxing one’s car. We give them the information. We ask is that information up to date. If it is, the person just ticks the appropriate box. If there is a change, the person indicates the change.

Third, we are trying to make better use of bar-coding. Because of the new system of ear tags we can capture that information and avoid under some if not all schemes a requirement for the farmer to fill out each individual ear tag - this can be time consuming and on many occasions this can be where the mistakes are made.

Deputy Ardagh: It is face to face contact which concerns me where somebody has a problem and he or she wants to be able to contact the Department. They want to contact somebody who will be friendly and who will react and take up the matter within the Department. How can the Department bring that about?

Mr. Malone: There are many calls and demands. For instance, the Department’s telephone systems are probably open longer than those in most Departments. The telephone system in the Department is open from some time after 7 a.m. until 7 p.m.

Deputy Ardagh: Deputy Foley stated that one could not get through to Hume House.

Mr. Malone: I explained that we shut down Hume House for a particular reason because the system was being bombarded with telephone calls. We felt that if you get the payments out, you will stop the telephone calls. The record shows that at the end of the day the herd owner wants the payment. We only did that for a few weeks.

We also have a committee. We have prepared a customer service document. I take the point that we are judged on initial contact. We use a procedure which applies across the Civil Service, that is, people are treated courteously, officials identify themselves and are not anonymous, we have a good telephone system to which one can get through, and the telephone lines are open at reasonable hours. We also introduced the system by which calls can be made at the reduced rate although they are not free.

Importantly, we are trying to improve the facilities in the local offices because there is a need for private offices in which farmers can discuss their business with the official dealing with the matter. We have put in place a programme to try to upgrade our local offices.

The other thing is that we issue a vast amount of advisory material explaining schemes and helping people in filling out applications because if they are filled out correctly, it avoids problems for us further down the line.

Chairman: The Deputy has strayed into general areas. I want to dispose of this paragraph. Deputy Ardagh, have you any other question on this paragraph?

Deputy Ardagh: With regard to the backlog, the Comptroller and Auditor General listed 46 cases in his statistical sample in which there was over payment of £61,000. That represents in excess of nearly £1,500 per case. Yet Mr. Malone stated that 14,000 of those cases have been cleared at a cost of £784,000. There is a large discrepancy between the average of the sample of the Comptroller and Auditor General and the figure which is being put forward by Mr. Malone.

Mr. Malone: It is explained to a degree by the table which has been circulated. There are big, medium and small farmers. One cannot extrapolate an average figure. In the vast number of the cases there is no overpayment and the discrepancy between the maps submitted and the information available can be explained.

Deputy Ardagh: From the Comptroller and Auditor General’s point of view there is a discrepancy.

Mr. Purcell: There is no difference in a way in what the accounting officer is saying and what is stated in the report. I do not extrapolate this in the report for the good reason that it would be exceedingly difficult to get the kind of representative sample which would enable you to do that. In a sense the selection would have been targeted in a way to show that there was a substantial problem. To be fair to the Department, it has taken that on board and carried out this full revalidation exercise.

Deputy Ardagh: Did Mr. Purcell choose certain cases in arriving at those 46 cases?

Mr. Purcell: Yes. I would not claim it was a worse scenario case study. There would have been a certain amount of targeting to show that there was a serious problem.

Deputy Ardagh: How many consulting assignments were involved in relation to the FEOGA operations?

Mr. Malone: There was a specific consultancy in relation to the area aid unit because clearly there was a problem which had been identified.

Deputy Ardagh: Will Mr. Malone give the cost of each of the assignments also?

Mr. Malone: The cost off the top of my head of the consultancy done on the area aid unit was of the order of £30,000 or £31,000. What we required there was a detailed work plan to help us to work our way out of this problem, to break down the backlog, to put in place a better system, and essentially to give the staff in the unit a plan to which they could work and an understand that if they worked to that plan, they would break the back of the problem and deliver a better service this year.

Deputy Ardagh: Is that the Arthur Andersen consultancy?

Mr. Malone: It was, as it happened, conducted by Arthur Andersen but there is another process called accreditation where Arthur Andersen effectively conduct an independent audit on the Department’s systems. It is part of our accreditation process with the European Commission. In other words, if the European Commission is not satisfied with our system and performance, it will refuse to accredit us as the intervention agency. The system of getting independent certification of our systems was introduced. Arthur Andersen got that through a tender procedure. The Comptroller and Auditor General has relied partly on that.

Deputy Ardagh: The Comptroller and Auditor General initially stated that there were major weaknesses found in that particular consultancy assignment. What were those major weaknesses and how have they been overcome?

Mr. Malone: First, it accredited us. In other words, the consultants signed a certificate to the effect that overall our systems were satisfactory and that was accepted in Brussels. However, within the report they identified fault lines, as they would describe them.

Deputy Ardagh: Fault lines?

Mr. Malone: Yes.

Deputy Ardagh: That is a nice term.

Mr. Malone: Faults in the system. It is important that one looks at the overall system as distinct from the specifics. We found it valuable, to be quite honest. One of the areas of which they were critical was the area aid unit.

Deputy Ardagh: As a result of that, did they receive a further consultancy assignment?

Mr. Malone: We decided we had to do something about the area aid unit. We received a great deal of criticism last year because it was perceived that we were not delivering the service or the payments. We put a specific consultancy out to tender.

Mr. Ardagh: Did that occur in any other areas of major weakness identified by Arthur Andersen?

Mr. Malone: A number of years ago prior to its becoming involved in the accreditation exercise, it was involved in a consultancy on our behalf in the intervention beef area where we had problems. It formulated a plan for us.

Deputy Ardagh: Did it receive another consultancy on foot of that?

Mr. Malone: Yes. We are heavier users of consultancies than I would like. I have a list of them with me and many of them are in the IT area.

Deputy Ardagh: Could we have a list of those consultancies?

Mr. Malone: Yes.

Deputy Gildea: Is there a problem from the point of view of farmers with underpayments?

Chairman: Only in Donegal.

Mr. Malone: Not that we are of. It can happen and I do not deny it. Normally a claim is made on a certain number of animals and, if there is a discrepancy between the area of land on the map and the area of land available to us, we must try to resolve it. It is rare there are underpayments although they have happened. It might be that we decided to disallow an animal or it was wrongly excluded. In such a situation where a farmer feels hard done by, there is an appeals unit in the Department to which they can appeal the decisions. It is a group of officials different from those who processed the claim and made the original decision. It is open to an individual who feels he has been underpaid to use the appeals system.

Deputy Gildea: You said over 90 per cent of payments have been made at this point. Would the remainder who still await payment be still awaiting payment for 1997 and even 1996?

Mr. Malone: Not necessarily. We would be surprised if that were the case. It is like any scheme. When the bulk of payments are made, the more difficult cases remain. There is always a percentage of claims which are never paid. It is a general rule of thumb for schemes that there is always a percentage of applications which do not stand up to investigation. We have written to the remaining 7,000 people telling them what is the problem. We have written to almost all of them so we are waiting for them to reply and clarify a certain query or give additional information.

Deputy Gildea: Would some of them have also had a problem last year resulting in non-payment which means they would be waiting two or three years?

Mr. Malone: As a general rule, no. There can be the odd individual who is ineligible.

Deputy Gildea: How many applications are in hand at present for installation aid?

Mr. Malone: The installation aid scheme was suspended in August 1997. The new scheme has not yet opened so we have yet to receive new applications.

Deputy Cooper-Flynn: I have a problem with the land parcel identification system in terms of quick payments, especially in Mayo. The EU allowed a little flexibility in 1996 so that, where people’s parcels of land did not correspond exactly with aerial photographs within a margin of 3 per cent, payments were allowed to be made. The problem now is that the EU insists on strict enforcement of that regulation. As a result, payments have been slower. That there have been so many applications may also have added to the problem. The public does not fully understand the reason for the delay, which is that, while the EU allowed flexibility in previous years, it is not doing so now. I would like to hear your opinion on that.

People find the forms too complex. Has anything been done in the Department to simplify the application forms? Furthermore, the penalties imposed by the Department are too severe for the crime or error committed by farmers. While I recognise an appeals system is in place, for a farmer to lose one or two years’ payments for a small error on a form seems very unfair. It can sometimes amount to £10,000 of a penalty. Where in the criminal system is a fine of £10,000 imposed for a relatively small error? Does the Department have any say in the penalties or are they dictated by the EU?

Mr. Malone: It has been indicated in the Comptroller and Auditor General’s report that a certain amount of discretion was given in the early years of the land parcel identification system. It had been hoped to introduce it a number of years ago as a formal legal requirement of the payments but the Commission recognised it could not be operated realistically for the years in question. The point has now been reached where we have had a number of years’ experience of the LPIS under our belts so we are now required to apply it rigorously. I do not believe it to have been a problem in delaying payments this year. The evidence exists and we have already discussed it that the record in processing and issuing payments has been good.

These schemes are by nature complex. If one applies on the basis of animals of ten months or 22 months, with different schemes for different categories of animals, and one must then comply with stocking densities and submit a map of the farm, that is by its by nature a complex system. Simpler systems could be devised which would be a payment related to area and which disregarded animals, but that would not suit agriculture in this country. We have put a great deal of time and effort into simplifying the forms. Compared with other member states, our forms are regarded as being within the user-friendly category. We consult with the farm organisations before we issue the forms each year. We try to issue as much pre-printed information as possible to minimise the chances of unnecessary errors.

The penalties are severe but they depend on the misdemeanours. The extent of penalties is sometimes overstated. Less than 2 per cent of overall applications are penalised.

Deputy Cooper-Flynn: Unfortunately, that 2 per cent comes to our doors.

Mr. Malone: That is probably true. A large number of them are late applications and there is a system for those whereby they are penalised within a threshold of 1 per cent for each day they are late. There are also two categories of penalty where an applicant is excluded for one or two years. The latter is a penalty for a deliberate misrepresentation, which is the deliberate submission of a claim which does not stand up.

Two years is the penalty for a deliberate misrepresentation, a claim submitted knowingly which does not stand up. There can be no arguing about that. There could be comparisons with the criminal system but if you are to run a system properly there must be a proper deterrent. I do have some sympathy for the category in between where people can be excluded for a year for a misdemeanour which would not fit into the category of fraud. These penalties are set down under European regulations and we have no discretion over them. As I said, there must be some sort of penalty system otherwise you will not be able to run the measures in a way which will protect public funds.

There is, however, an appeals system. If the herd owner feels that we have interpreted the matter wrongly and he has other evidence, he can use that appeals system. Other than understanding that there is a depth of people who are on the receiving end of the penalty, to a degree the extent of the problem is overstated.

Deputy Cooper Flynn: The number of payments being made to the Department of Agriculture and Food is extremely high. The only comparable Department is the Department of Social, Community and Family Affairs. I have found the staff of the Department very co-operative.

Chairman: We will move on to paragraph 34, disallowances by the EU Commission.

Mr. Purcell: This paragraph summarises the EU disallowances which were charged to the Vote in 1997. The disallowances, at £4.67 million, were quite small in the context of FEOGA expenditure in Ireland. They fall into three broad categories.

There are items arising from the 1993 clearance of accounts. The main component there is a £1 million penalty arising from inspections under the EU premium scheme. There are penalties of £1.46 million imposed because the Department could not meet EU deadlines for payment under the various subsidy schemes, a recurring theme in the discussions so far. In that context I should say that I have completed a report on the efficiency of the administration of payments in grant and premium schemes. That will be published soon but, without pre-empting it, I can say that the Department does not come out badly in that respect. That was reflected this morning in the percentages which the accounting officer has furnished to the committee. The last category of those disallowances relates to adjustments mainly comprising stock losses on beef intervention which date back to 1992.

The committee might also wish to note that the Department lost its appeal against disallowances totalling £68.7 million imposed by the Commission on foot of deficiencies in control over beef intervention activity and improper tendering procedures for the purchase of intervention beef. This was charged to the Vote in 1996 and the final decision in this case was given by the European Court of Justice on 1 October.

Chairman: It is 12.55 p.m. and this is a significant issue. I will allow Deputies Rabbitte and Ardagh to pose questions. We will not adjourn on this today.

Deputy Durkan: I deferred to other speakers in relation to the previous paragraph on the basis that we were sticking to it. We did not stick to the paragraph.

Chairman: We will be more rigid this time.

Deputy Rabbitte: Could I clarify a point? The Comptroller and Auditor General has commented that the performance in the paragraph under consideration is a big improvement on previous years. I thought, however, that the Government made a decision in 1995 that you were not to operate the FEOGA guarantee fund at all.

Mr. Malone: There was a Government decision in March 1996, and a number of decisions were made; the reorganisation of the Department of Agriculture involved the establishment of an operationally autonomous unit for FEOGA payments, reporting to a director appointed through open competition, who would be an accounting officer managing a separate Vote reporting directly to the Public Accounts Committee in this regard.

Deputy Rabbitte: What happened to it?

Mr. Malone: There were a number of issues. There was a change of Government.

Deputy Rabbitte: What does the change of Government have to do with it?

Mr. Malone: The programme for the new Government had a slight variation on the establishment of the FEOGA agency but it also proposed the establishment of a food safety authority, which had an impact on the Department.

Deputy Rabbitte: There was a Cabinet decision to remove this from the Department of Agriculture. Was that decision reversed?

Mr. Malone: Not that I am aware.

Deputy Rabbitte: Is that not the position which should have been implemented?

Mr. Malone: Yes. Looked at purely in the context of the Cabinet decision, the answer is yes.

Deputy Rabbitte: Purely in the context of the Cabinet decision, the Cabinet makes the decisions, does it not?

Mr. Malone: Yes, but this is not as easy an issue as it looks.

Deputy Rabbitte: Did the beef tribunal recommend that it should be removed from the Department of Agriculture?

Mr. Malone: No. The beef tribunal did not make that recommendation.

Deputy Rabbitte: But the Cabinet decided that it should be removed?

Mr. Malone: It depends how you read the decision. The Cabinet talked about the establishment of an autonomous unit. The Department, of its own volition, had done quite a lot of reorganisational work. We proposed that we would establish a large unit which would deal with payments, not just intervention payments but the entire range of schemes. It would have involved 1,500 staff. We would have identified the areas which would be subsumed by that unit. Effectively it means the unit would be broken up into three pillars.

In the programme for the current Government there was a proposal which impacted on this area - the establishment of a food safety authority. The Food Safety Authority has been established and it has service contracts with staff in the Department who would have been in the FEOGA unit.

Deputy Rabbitte: I am sure it is complex and I do not want to drag this out but whatever the complexities in the argument they should have been submitted to the Cabinet through the Minister of the time. The Government of the land decided that this business should be taken out from under the aegis of your Department. That decision has not been implemented and I am asking you why not.

Mr. Malone: This is a matter for the Government to decide.

Deputy Rabbitte: The Government did decide. I am asking if any Government since then decided to undo that decision.

Mr. Malone: No.

Deputy Rabbitte: Who decided to undo it?

Mr. Malone: Nobody decided to undo it.

Deputy Rabbitte: You are still administering it.

Mr. Malone: Yes but I can only administer what I am charged with administering. This was not a decision for me to implement. It brings in broader issues. We have to be looked at in the context of our record.

I am not denying that there were difficulties in 1990 and 1991. However, we have learnt our lessons and substantially changed the operation of the intervention system. We have brought in a more rigorous control system and the evidence is there that our record stands up.

Deputy Rabbitte: I wish to refer to a note which appeared in a former report to the C&AG. The point was recorded that on 31 December 1993 the total expenditure met by the Department exceeded the amount received from FEOGA by £246.9 million. How can this be explained? What does this shortfall mean? It has appeared as different figures in various reports of the C&AG at the height of intervention and so on. However, it was £246.9 million in that year. What does this mean? Why was there a shortfall and what does that mean?

Mr. Malone: I do not have the advantage of having the figure in front of me but as far as I recall -

Deputy Rabbitte: I am just asking about the concept. It has appeared in successive reports.

Mr. Malone: As far as I understand it is the cumulative figure related to borrowing for the intervention agency. We recouped a particular rate of interest from Brussels. As it happened, the rate of interest prevailing in this country at which we could borrow was higher.

Deputy Rabbitte: In other words, on the management of the FEOGA funds for that given year, we lost £246.9 million.

Mr. Malone: No. As far as I know it goes back over 20 years. It relates to the cost of borrowing. We have to borrow at whatever rate we can.

Deputy Rabbitte: We are talking about the record. We lost £250 million, albeit over 20 years, if it was and we need to get that checked. However, there was a shortfall in the management of the funds on behalf of FEOGA.

Mr. Malone: I do not accept that it was a shortfall in the management. Costs arise and one has to borrow money. The nature of the intervention system and the way it operates in member states is that we have to borrow money. The sad reality was that interest rates in this country, particularly during the 1980s, were much higher than interests elsewhere. We were given costs from Brussels at set rates.

Deputy Rabbitte: Would we not be better off with an autonomous agency making those decisions with the assistance of the NTMA?

Mr. Malone: We have looked at the idea and there was never any problem -

Deputy Rabbitte: We are talking about £250 million which is an awful lot of money.

Mr. Malone: Putting it as money lost in the context of management is unfair. It relates to interest rates in this country which were much higher than interest rates anywhere else. That was part of Government policy at the time. My own view is whether an autonomous body or anyone else was running this scheme, one would have the same problem.

Deputy Lenihan: Is this an interest bill?

Mr. Malone: No, it is costs being recouped. One borrows money, one incurs a charge and recoups from Brussels at a set rate. There was a difference between the costs we were incurring and what Brussels was recouping. The reality is that whoever was running the scheme would have the same problem as this was a factor of costs in Ireland at that time. It is well known that we had a high cost economy. I cannot accept that it is a criticism of the management of intervention schemes.

Deputy Rabbitte: I will take out the emotive word “management”, if it is regarded as such, and substitute “operation”. It is a simple mathematical fact that in the operation of the scheme we lost that amount of money. Is that not right?

Mr. Malone: No, that is an unfair way of putting it. It is not the operation of the scheme -

Chairman: Can the Comptroller and Auditor General clarify this matter?

Mr. Purcell: The Deputy is quoting from the 1993 report. At that stage we included information in the report to give some idea of the performance of the FEOGA operations. That was the difference between what the Department had paid out and what it had recouped from the EU. At that stage it had gone up to something in the order of £246 million. That would include the kinds of things referred to by the Accounting Officer such as differences in interest rates; the interest rates at which the Department was able to borrow and the interest subsidy it received from the EU.

It also would include other incidental costs such as transport and storage costs and so on met, in the first place, by the Department and recouped at particular rates from the EU. In some cases we might get more than we paid under arrangements at the time. To a certain degree it would reflect on the management. If expenditure was disallowed it would show that.

It might help the committee to say that we stopped producing material in that form because, under the Comptroller and Auditor General (Amendment) Act, 1993, the Department is obliged to produce a FEOGA account for audit. There have been difficulties in that area which I have referred to at the committee before. One would see a full accounting for the moneys paid out and received. I think the last audited account for that is 1994 but I am subject to correction. That was only certified last year but there seems to be a continuing difficulty within the Department in producing accounts for audit on the FEOGA operations.

Deputy Lenihan: Does the C&AG see this figure as a loss in the operation of the programme?

Mr. Purcell: To a certain extent it is, but it also includes the kinds of things spoken of by the Accounting Officer.

Chairman: Why is there this difficulty referred to by the C&AG?

Mr. Malone: This is on the composite account. It is a difficult exercise. As far as I know the 1995 account has been submitted to the C&AG, but I am open to correction on that point.

Chairman: Has that account been received?

Mr. Purcell: Yes, I was referring to the actual certification. I have only certified one of those accounts and that was for 1994. There had been difficulties producing the accounts for 1995, 1996 and 1997. At this stage we should be up to speed on that if everything was going swimmingly.

Chairman: I was going to propose to the committee that we look at this whole FEOGA question in detail and suggest that we put aside two days for that exercise - Tuesday, 5th January and Tuesday 12th January at 2 p.m. These are major areas which have gone on and on for too long and the committee has a duty to bring this to a head.

Deputy Rabbitte: In that case I will defer. I have a number of questions on which I would like clarification.

Chairman: Do you wish to raise any other quick questions?

Deputy Rabbitte: Yes. Since Mr. Malone was last here, the case known as Emerald Meats has been resolved. Is that right?

Mr. Malone: Yes.

Deputy Rabbitte: This relates to licences under the GATT for the importation of beef into the EU from third countries. Is that right?

Mr. Malone: Yes. This case goes back -

Deputy Rabbitte: We do not have much time but is that a fair description?

Mr. Malone: Yes. There was a disagreement -

Deputy Rabbitte: And in 1989 the rules were changed. The Commission itself took over the allocation of the licences. Is that right?

Mr. Malone: Broadly yes, except, technically, the Commission did not take over the allocation of the licences. The system was that the licences had to be allocated in accordance with EU rules.

Deputy Rabbitte: The EU essential rule that they ought to be allocated on the basis of who the traditional importers were. Is that the phrase?

Mr. Malone: That is correct.

Deputy Rabbitte: The traditional importer has been found by the court to be Emerald Meats. Is that right?

Mr. Malone: That is the case, yes.

Deputy Rabbitte: The Department, over the years when this case was being prosecuted had contended that the licences in question were the property of about 11 different meat companies. Is that right?

Mr. Malone: There was a disagreement between Emerald Meats and the processors. The Deputy is right that it hinged around the definition of who the importer was.

Deputy Rabbitte: Was it a disagreement between Emerald Meats and the processors? Did the Department present a document to Brussels which was in fact a fabrication and excluded Emerald as being the traditional importer and decreed that the other 11 companies had the quotas between them?

Mr. Malone: The position is that there was a disagreement in 1990 between Emerald and the meat processors as to who, under the changed system, these licences should be allocated to. The Department found itself in the role of adjudicator.

Deputy Rabbitte: I have the document here and it can be circulated. The Department submitted this to Brussels and contrived to omit Emerald Meats who had been the importer and to whom the companies concerned had sold their quotas over the years in favour of giving it to a number of other companies predominantly in the Goodman group. Is that right?

Mr. Malone: Not entirely, no.

Deputy Rabbitte: Did Mr. Justice Costello say in his judgment when discussing this particular bogus document that was submitted by your officials to Brussels that it was “a travesty of the true position”?

Mr. Malone: In that particular aspect, yes. In fairness, the Costello judgment was 93 pages. It hinged around a disagreement as to who should be designated as the importer. It is acknowledged and understood that Emerald had been importing the meat but that they had been purchasing the licences from the processors. The system changed in 1990. There was an argument as to who should be regarded as the importer. The Department decided, as it happens wrongly, that the processors should be regarded as the importers. They gave the licences to a number of companies, included in that were Goodman companies. The majority of companies were not Goodman companies.

Deputy Rabbitte: Did the Department make the case to Brussels for the quotas to be allocated to those companies? Those companies never sought them. You submitted documents to Brussels for them. This has been through every court in the land and has gone to the Supreme Court. Your predecessor defended it as there being a prospect of success on your part eventually in the courts. It has now been disposed of in the courts and you were found on every legal ground that you adduced. Not only were specific damages decided, but the court decided that general damages have yet to be assessed. Is that the fact of the matter?

Mr. Malone: Yes, it is the fact but I have to insist there was a disagreement.

Deputy Rabbitte: Of course there was a disagreement. I am trying to find out from you the motivation. Why would the Department and its officials become involved in submitting documents to Brussels that they knew to be bogus in terms of the traditional position here and continue, at the expense of the taxpayer, to fight that through every court in the land, even though Mr. Justice Egan made very clear in his judgment that you ought not to appeal it? Despite that you proceeded to appeal it. Mr. Justice Egan said the Department will not win an appeal.

Chairman: Is it true that the Department knowingly submitted bogus documents to Brussels?

Mr. Malone: It is the case as far as I understand it that certain aspects of the documents submitted in 1990 were not factually correct. However - and I do not want to hide behind the argument of complexity - it is a much more complex issue than that. It was an argument between Emerald and the meat processors. The Department got itself into the role of adjudicator. We made a decision. I accept that decision was wrong in law - it was found to be wrong in the High Court. It was appealed to the Supreme Court. I accept fully that on appeal -

Deputy Rabbitte: We have been through a great deal of discussion this morning and Mr. Malone has repeatedly said these matters are complex. I accept they are complex. However, can you tell me what is complex about this? This was a simple matter, of, under the GATT agreement, us being entitled to import a small amount of beef into this country from Third countries, the commission changing the rules to require that this be done in accordance with whoever traditionally imported said beef and on that basis, granting the licences. Your Department decided to furnish documents to Brussels that denied that the traditional importer imported the beef. The courts found it did.

Deputy Ardagh: We have no background information on this. Deputy Rabbitte and the Secretary General are talking about something of which we have no notice.

Chairman: It was the subject of a court decision in the past few weeks.

Deputy C. Lenihan: It has been suggested to the Secretary General that he deliberately contrived to deceive Brussels. That is a question put by Deputy Rabbitte which needs to be answered comprehensively or refuted if it is not true. The Secretary General is entitled to reply to that as the charge has been made that he or officials in his Department deliberately attempted to deceive.

Chairman: I put that question and you said that part of the submission was factually incorrect. Was it deliberately factually incorrect?

Mr. Malone: I have no evidence. These events happened in 1990. The decisions took place in January 1990. I have no evidence there was a deliberate attempt to mislead Brussels. It is certainly the case, and I acknowledge it that in the judgment, reference was made to the fact that information supplied to Brussels was factually incorrect. I do not accept the argument that this was a simple issue. It was a very precise and detailed legal argument as to who was regarded as the importer. The difficulty was the Emerald had been purchasing the licences from the processors in the period prior to 1990. The view the Department took, which was wrong in law and I admit that, was that the processors were still the titular holders of the licence, which meant that the fact that one sold the licence did not mean did not remain the titular holder. In the court, the judgment acknowledged, and there is a reference to the fact, that the concept of an agent is a mixed question in fact and in law. One cannot make light of the point that there was a 93 page judgment.

Deputy Rabbitte: How much have you paid Emerald Meats?

Mr. Malone: In rough figures, about a £1 million Damages and costs were paid.

Deputy Rabbitte: General damages have yet to be assessed.

Mr. Malone: The issue of general damages goes back to the High Court.

Chairman: The High Court has yet to assess that.

Mr. Malone: Yes.

Deputy Rabbitte: Can I ask you about a letter of 1990 seeking indemnity? An official of your Department wrote to these companies seeking to be indemnified against the costs? Mr. Dowling, on a couple of occasions and Ministers in the House told us about this over the past number of years. We were first told about it eight years ago in the House.

Mr. Malone: There are two issues arising from costs - the costs of the court case which were adjudicated as 50 per cent to the Department and 50 per cent to the meat processors.

Deputy Rabbitte: That was a decision by Mr. Justice Costello.

Mr. Malone: It follows on from that but it was only activated in the context of the final decision coming from the Supreme Court. That is the number one issue we have to deal with.

That is out main priority.

Deputy Rabbitte: What does 50 per cent mean in this situation?

Mr. Malone: It means 50 per cent of the costs.

Deputy Rabbitte: Does it mean 50 per cent of both sides’ costs?

Mr. Malone: There is a total bill for costs which we have paid and we want 50 per cent of that.

Chairman: How much have you paid?

Mr. Malone: We have paid approximately £374,000 in costs in addition to interest of £164,000.

Chairman: That is approximately £540,000 in total.

Mr. Malone: We are seeking 50 per cent of that.

Chairman: From whom?

Mr. Malone: From the meat processors involved in the case.

Chairman: Have they indicated they will pay it?

Mr. Malone: We feel they have to pay it. The costs issue was only finalised recently and our lawyers are talking to lawyers for the meat processors in an attempt to resolve matters.

Deputy Rabbitte: Does the £540,000 figure include your costs?

Mr. Malone: Our costs are borne by the Attorney General.

Deputy Rabbitte: Why should we not seek to recoup 50 per cent of the costs paid by the taxpayer which arose out of the folly of prosecuting in the first instance?

Mr. Malone: If we could do that, we would.

Deputy Rabbitte: Why is there a reluctance to do that?

Mr. Malone: There is no reluctance. As far as I am aware, the legal costs were costs in relation to Emerald Meats.

Deputy Rabbitte: Surely the defendant has legal costs as well as the plaintiff in any case which goes before the courts?

Mr. Malone: The court adjudicated on the £374,000 and the £164,000.

Deputy Rabbitte: The court judgement did not state that; it referred to 50 per cent of the legal costs.

Mr. Malone: I do not believe that is the case.

Chairman: I believe we need to obtain more documentation on this issue in order to pursue it. The matter has only been resolved recently in the courts and replies previously given to this Committee have been called into question. Further clarification is required. With the agreement of Members, we will resume questioning on this issue on 5 January. In the interim, we can decide what documentation we require. We may, for instance, require a copy of the court ruling.

I suggest we should also examine all aspects of the FEOGA situation, including the failure to implement the Government decision. Have Members any other questions on this issue today?

Deputy Durkan: I will wait until the next occasion.

Chairman: I have correspondence from Deputy O’Malley on this issue and promised to inform him when it arose. I trust Members do not have any objection to Deputy O’Malley being called as a witness if he wishes to come before the Committee? Is that agreed? Agreed.

Deputy Cooper-Flynn: Is the issue of whether the Cabinet decision was implemented not a policy matter? Does it come within this Committee’s remit?

Chairman: If a decision has been made, it is logical to ask why it has not been implemented. If the Cabinet decided to reverse the decision, that would be a policy matter.

Deputy Conor Lenihan: Deputy Cooper-Flynn is pointing to the fact there has been a change of Government and the current Government may decide to do things differently. With respect, I do not believe Mr. Malone is responsible in this regard.

Chairman: As I understand it, the current Government has not reversed the decision; the decision just has not been implemented. If the Government decides to do something and we discover in two or three years’ time that the Department ignored it and consequential losses occurred-----

Deputy C. Lenihan: That is a matter for the Minister to examine, not this Committee.

Chairman: This Committee has every right to inquire why Cabinet decisions have not been implemented, especially if they could give rise to losses in the FEOGA area.

Deputy Cooper-Flynn: What evidence have we seen of that? The Secretary-General has explained that a different approach is being taken by the current Government in relation to the setting up of the food authority. Clearly, this matter has been discussed. The Secretary-General takes his instructions from the Minister and is acting in accordance with the current Minister’s policy.

Deputy C. Lenihan: Deputy Cooper-Flynn’s point is an important one. The Chairman is implying that the departmental officials are conspiring against the Minister. Mr. Malone’s explanation points in a different direction.

Chairman: The purpose of this Committee is to ask questions; we are here to elicit information. We have elicited that a Cabinet decision was taken to set up a separate and autonomous institution.

Deputy Cooper-Flynn: I am not aware of any such decision. Deputy Rabbitte raised the matter but I have no documentation on it. If such a decision was taken, I would like to see a copy of it.

Deputy Rabbitte: The Deputy could not expect to get that unless she was elevated to a Cabinet position.

Deputy Cooper-Flynn: I appreciate that and thank the Deputy for reminding me of it. I would like to know if we are going to discuss this issue at a meeting without Members being privy to the information.

Chairman: A Cabinet decision was taken to set up an autonomous institution to administer the FEOGA grant. Is that correct?

Mr. Malone: It was decided to set up an autonomous executive unit.

Chairman: It was also stated that the decision has not been implemented. Is that correct?

Mr. Malone: Yes.

Chairman: Further, it was stated the decision has not been reversed. Is that correct?

Mr. Malone: Yes. There is a provision in the current programme for Government which refers to a slightly different body, not solely in relation to a food safety authority but one which would deal with all payments. We have the Government decision of 1996 and the commitment in the current programme for Government.

Deputy Durkan: Deputy Rabbitte asked a number of questions, the replies to which clearly identified a particular policy - the policy to be followed by a Department until such time as it is changed. Policy change can occur in two ways. I presume it is not permissible for the administrative staff in the Department to make policy changes without consulting a Minister or Minister of State. There is no latitude for anyone to make a policy change without receiving authorization to do so. A Department in which there is evidence of lax operations over a number of years is the last place we should seek to change policy through a nod and a wink as opposed precise statutory legislation. That would be a dangerous departure.

Deputy C. Lenihan: I find it offensive that the Chairman is essentially suggesting that the departmental officials have conspired or are conspiring against the Minister or a Cabinet decision. Mr. Malone has set the matter out clearly; a decision was made in 1996 and there was an election in 1997 after which there was a change of Government - perhaps some Members do not like that. Any new Government has the prerogative to change the emphasis of a decision. The Deputy is setting up a show trial here and that is not fair to the civil servants sitting across the table from him.

Chairman: It is a long tradition of this Committee that we do not get involved in political issues. I regret Deputy Lenihan’s comments and they will not deter me from inquiring as to why a Cabinet decision has not been implemented. If the Government reversed the decision, that would be the end of the matter.

Deputy C. Lenihan: The Chairman should write to the Minister to ascertain that.

Chairman: The Deputy is well aware the Committee does not write to Ministers or become involved in the sort of political issues he is trying to raise. He is out of order.

Deputy C. Lenihan: It is the Chairman who is out of order, not me.

Chairman: The FEOGA grants have been of concern to this Committee for years. Now we learn a Cabinet decision, which may have improved the position, was not implemented, and that decision has not been reversed. During the discussion until 5 January, as agreed by the Committee-----

Deputy C. Lenihan: Can the Secretary-General clarify this? Has there been no reversal of the decision?

Deputy Durkan: Is it being ignored?

Deputy C. Lenihan: It is a simple question and I presume he has the information. The new Minister has different priorities, is that right?

Chairman: There is no indication of that.

Deputy C. Lenihan: The Secretary-General said a few minutes ago there was a change of Government-----

Deputy Cooper-Flynn: This is a bit unfair. The reason backbenchers are on this Committee is that we are not sitting in Cabinet and are not privy to decisions taken, so this gives us an opportunity to put questions to officials. Today, Deputy Rabbitte introduced something which the rest of us knew nothing about, and in my opinion the Secretary-General has given a perfectly reasonable response. He is not making policy or decisions, he is implementing the instructions of his Minister and the Government, which is a policy matter and outside the remit of this Committee.

Deputy C. Lenihan: You are coat-trailing outside your remit, Chairman.

Chairman: Deputy Lenihan, what you have just said is completely out of order. This Committee has an enviable reputation for being completely politically detached, and I have rigidly adhered to that on every occasion. I will not be put off from inquiring into what I think is part of the remit of this Committee by what I think are silly allegations of that sort.

Deputy C. Lenihan: It is not a silly allegation, it is a valid suggestion, as valid as your right to inquire. I have a right to be heard here-----

Chairman: You have been given that right.

Deputy C. Lenihan: -----and I will not have my view, as a Member of this Committee, dismissed in that way. You are out of order on this issue, Chairman.

Deputy Cooper-Flynn: No allegations have been made against the Chair in this instance and, as always, I compliment you on how questioning is approached here, usually not from a party perspective. I simply ask that you think about the matter before the next meeting.

Deputy Rabbitte: There is a parliamentary reply on the record of the House advising of the decision to set up this autonomous unit, it was reported in the Irish Independent on 10 May 1996, from my memory.

Deputy Cooper-Flynn: The Deputy has a good memory if he can recall the exact date.

Deputy Rabbitte: I have a pretty good memory.

Chairman: I adjourn consideration of this issue until 5 January.

The Committee adjourned at 1.35 p.m.

COMMITTEE OF PUBLIC ACCOUNTS

Dé Máirt, 5 Eanáir 1999.

Tuesday, 5 January 1999.

The Committee met at 2:20 p.m.

MEMBERS PRESENT

DEPUTY J. MITCHELL IN THE CHAIR.

PUBLIC SESSION.

1997 Annual Report of the Comptroller and Auditor General and Appropriation Accounts (resumed).

Vote 31 - Department of Agriculture and Food.

Mr. J. Meade (Secretary and Director of Audit) called and examined.

Mr. J. Malone (Secretary General, Department of Agriculture and Food) called and examined.

Acting Chairman (Mr. Foley): We are in public session and we are taking the 1997 Annual Report of the Comptroller and Auditor General and Appropriate Accounts (resumed), Vote 31: Department of Agriculture and Food. Mr. Joe Meade is standing in for the Comptroller and Auditor General who is unable to be with us today. I welcome Mr. Malone and perhaps he will introduce his officials.

Mr. Malone: Starting on my far right, I am accompanied by Mr. Richard Healy, Ms Marion Byrne, Mr. Tom Arnold, Mr. Denis Byrne, Mr. John Fox, Mr. Michael Sheridan and Mr. Martin Fraser, all of the Department of Agriculture and Food. Also here are Mr. Niall McSweeney and Mr. Kevin Cardiff from the Department of Finance.

Acting Chairman (Mr. Foley): We will start with paragraph 36 which deals with redeployed staff.

Mr. J. Meade: Paragraph 36 refers to the closure of the Dublin and Cork District Milk Boards in December 1994. Consequent on the EU Commission’s view that their milk regulatory activities were contrary to EU competition policy. The winding up of the boards was extremely difficult as it involved selling off the ancilliary businesses of the boards and making arrangements for the 130 or so full-time staff. Fifty of the staff took voluntary early retirement and the vast number of the rest took up employment with the two companies which bought the businesses of the District Milk Boards. These staff were guaranteed the option of redeploying to the public service at a salary level on a similar basis to their previous milk board salary in the event of their subsequently being made redundant by the new owners.

Unfortunately, that is what happened. The new owners began to make staff redundant from mid-1995 and up to July last, 47 staff had been let go. Only 18 of the former milk board staff were in the employ of the new owners at that stage. That is the background to this paragraph. As I see it, there are two main issues from the point of view of public finances. First, there was a certain tardiness in assigning duties to those who opted to return to the public service. Twenty of these staff were being paid by the Department while not gainfully employed for periods of up to two and a half years. The salary expenditure would have been of the order of £500,000. Most have since been reassigned to duties in the Department. However, there is a small residual problem.

The second issue concerns an agreement with the new owners that they would pay redundancy compensation at the going rate to any staff they might make redundant. The staff would hand over this money to the Department as one of their conditions of redeployment. However, the companies only paid the statutory rate to those they made redundant. Although the redundancy cheques were handed over by the redeployed staff, the Department did not cash them as it felt the companies had sold it short under the agreement. My information is that claims totalling almost £2.4 million have been made against the two companies. Perhaps it would be more appropriate for the Committee to hear about this and what action is being taken from the Accounting Officer.

Acting Chairman: Before calling witnesses I am obliged to read the following information for the benefit of Committee Members. Witnesses should be made aware that they do not enjoy absolute privilege and should be appraised as follows:

Witnesses’ attention is drawn to the fact that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to persons who are identified in the course of the Committee’s proceedings. These rights include: the right to give evidence; the right to produce or send documents to the Committee; the right to appear before the Committee either in person or through a representative; the right to make a written and oral submission; the right to request the Committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the Committee.

Persons being invited before the Committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of these rights and provided with a transcript of the relevant part of the Committee’s proceedings if the Committee considers it appropriate in the interests of justice.

Mr. Malone: As Mr. Meade indicated, this situation arose from the winding-up of the Dublin and Cork District Milk Boards which had been in existence since the 1930s. Their winding-up arose because of the fact that their core activity, the regulation of the supply of milk to the Dublin and Cork markets was found to be contrary to European legislation. The difficulty arose because the milk boards had, over the years, become involved in a range of different activities relating to AI, milk recording etc. The issue at hand was the disposal of those activities.

Essentially, there were two options. One was to sell the boards on relatively easy payment terms on the basis that the staff would be kept on by the new owner. In the event, that situation was not acceptable to the staff or any prospective owner. They then had to be sold as going concerns on the market but with an element of protection built in for the staff.

Protection for the staff was negotiated at central level. At the central review committee the staff argued, and it was accepted, that in the event of their being made redundant, they would have the right to be taken into the public service. All this must be judged against the fact that when the concerns were put up for sale a figure of £2.6 million was achieved.

As Mr. Meade has indicated, the new owners quickly made a number of the staff redundant. The difficulty was that even though this was a central issue, it fell to the Department of Agriculture and Food to find employment for these staff. The added difficulty was the fact that there was no immediate procedure under which they could be taken onto the staff of the Department. In essence, there are three ways in which staff can be taken on - through open competition, in the public interest or through what are called “excluding orders”. The process of finalising the excluding orders, which was done through the Civil Service Commission, proved to be complex and tedious. That explains the delay in finding employment for the staff immediately after they were made redundant.

A total of 47 staff have now been made redundant, 22 at the end of 1997 and 25 in 1998. The process of the excluding orders has now been finalised and all but five of the staff who are not covered by the excluding orders - the view of the Civil Service Commission is that it will be extremely difficult to cover them by the excluding order process - are now in gainful employment in the Department.

The second issue was the redundancy payment. As part of the agreement with the new owners, we indicated that in the event of people being made redundant, redundancy payment at the going rate should be paid. In the event, the new owners paid redundancy at the minimum rate. Legal proceedings have been served on them as has a statement of claim for approximately £2 million, which is the Department’s calculation.

Deputy Gildea: Under whose authority were the milk boards’ personnel? Was it the Department of Agriculture and Food?

Mr. Malone: They were the staff of what would be termed a semi-State body under the aegis of the Department of Agriculture and Food. There was an unavoidable situation. The milk boards had to be wound up and the winding up of the core activity of the milk board meant that the ancillary activities effectively had to be disposed of. We could no longer retain, as legal entities, either the Dublin or the Cork milk boards. The situation which now prevails is the result of a sequence of events which followed from the core activities of the milk boards being found to be contrary to EU competition law.

Deputy Gildea: Were the ancillary activities the main reason for them being wound up?

Mr. Malone: No. The main reason for them being wound up was that they regulated the supply of milk in the Dublin and Cork areas. There were clearly defined geographic regions from which milk could be supplied. The concept of excluding milk on a geographic basis is contrary to the spirit of the European Union. Therefore, the concept of the milk boards was no longer valid in European law. Consequently, the system had to be changed.

The National Milk Agency, a somewhat looser organisation composed of processors and producers, was established. It monitors the supply of liquid milk for human consumption on the national market - the two milk boards simply regulated the supply in the Dublin and Cork markets - to ensure an even supply all year round.

Deputy Gildea: The employees seem to have got a raw deal initially from the new owners. Was there any protection clause built into the sale for the benefit of the staff?

Mr. Malone: There was and this is the nub of the problem. It essentially sought to protect the rights and the conditions of these staff in the event of them being made redundant. They were made redundant. This issue had been negotiated at central union level through the central review committee. The unions involved made it clear that they wanted rights and guarantees for these people in the event of their being made redundant. They were made redundant and the guarantee was called in.

Deputy Gildea: When the guarantee was called in why was it so difficult to re-employ the staff within the Department?

Mr. Malone: There are three ways of recruiting staff to the Department. The first is through open competition, which is the normal way of recruiting Civil Service staff. That was not an option in this case. The second option was to recruit them in the public interest but everybody was reluctant to do that. The third process, through exclusion orders, is slightly more complex. It means, in effect, that an exception is made. Legally and technically it is a difficult exercise and it took some time to get it through in this case. It was done through the Civil Service Commission and while that was happening these people were not in full employment. However, we have resolved the issue now. Due to the fact that we sorted out the situation in relation to 1997, we were immediately able to take into the Department the 25 people who were made redundant in 1998.

Deputy Gildea: You mentioned a claim of £2.4 million against the new owners.

Mr. Malone: It is a claim of about £2.4 million; we have not totally finalised it. It is made up of what we see as the difference between the minimum redundancy, which was paid, and redundancy at the going rate. The legal proceedings have just been instituted so it will be some time before they come before a court.

Deputy Gildea: You referred to the new owners. What are their names?

Mr. Malone: It is an organisation called Progressive Genetics. It is a well established AI organisation.

Deputy Ardagh: What were the ancillary activities of the milk boards that made them so valuable that the proceeds of their sale exceeded £4.3 million?

Mr. Malone: They had built up a large artificial insemination service in the Cork and Leinster regions, which are well developed milk producing regions. They also had AI centres and were involved in progeny testing. The primary activity was the AI service which had a large number of clients.

Deputy Ardagh: Has that business continued to prosper over the last few years?

Mr. Malone: It has. In the initial stages the business found the going difficult enough but I understand that in its most recent year Progressive Genetics has made a profit. However, it is fair to say there were teething problems. The AI business is highly competitive.

Deputy Ardagh: Is Progressive Genetics a public or privately owned company?

Mr. Malone: It is a co-operative.

Deputy Ardagh: A co-operative?

Mr. Malone Yes.

Deputy Ardagh: Are the accounts published?

Mr. Malone: Yes, they are.

Deputy Ardagh: Have you seen the recent accounts?

Mr. Malone: I have not. The company is co-operative which is totally disconnected from the Department. I am aware of how it is doing. I have not seen the accounts personally but we have more than a passing interest in how it is doing.

Deputy Ardagh: Now it is doing so well, does the Department intend going after them for moneys which could be perceived to be due from them?

Mr. Malone: The intention is that we will go to court if necessary.

Deputy Ardagh: How much is the difference?

Mr. Malone: We reckon £2 million is the difference between what it would have paid as the minimum redundancy and what would be regarded as the statutory redundancy.

Deputy Ardagh: Is that £2 million agreed by Progressive Genetics?

Mr. Malone: No. It appears to have taken a deliberate decision to pay the minimum redundancy. We were clear all along that the agreement was for redundancy at the going rate and we intend to pursue the issue to ensure that aspect of the sale of these activities to Progressive Genetics is honoured.

Deputy Ardagh: It says in the report that as part of the conditions of sale, the new owners were to pay redundancy at the going rate, as you say. Are those conditions of sale part of the legal contract for sale?

Mr. Malone: All of this was done openly. There was a contract with lawyers involved. We are clear on this.

Deputy Ardagh: How do you decided what the going rate is? How do you figure that it is around £2 million? What was the difference between the going rate and the minimum statutory rate at the time?

Mr. Malone: I can get you those figures but the brief which I have, based on our calculation of what would be the normal rate of redundancy and the minimum rate ----

Deputy Ardagh: You are looking for £2 million. Do you know what the statutory minimum entitlement was and if it was paid?

Mr. Malone: I do not have those figures to hand. You have to understand that these were staff who would have had long service and would have built up considerable redundancy rights.

Deputy Ardagh: So the milk boards were effectively artificial insemination units?

Mr. Malone: Their primary activity was regulating the supply of milk to Dublin and Cork. Their origins go back to the 1930s. The concern at that time was that there could be seasonal shortages of milk in the cities. There was a register of milk producers and processors, geographic areas, a minimum producer price, a maximum retail price. The whole regime was tightly regulated. Bonuses were paid for winter milk production to encourage the supply of milk during the winter.

It was found that concept was contrary to European law because effectively it meant that unless you were within a specified geographic area - broadly part of Leinster - you could not supply milk to Dublin. It was obvious that sooner or later that would fall foul of European legislation and it did. There was no choice but to dismantle the legislation and the milk boards as they stood. The issue then was what was to be done with the ancillary activities the boards were involved in. The view was that they should be sold on the market for the best price possible. The rights of the workers had to be protected and that issue was negotiated as central to that.

Deputy Ardagh: Who took over the function of the milk regulation after the disbandment of the milk boards?

Mr. Malone: The concept of milk regulation per se no longer stood up in European law. An organisation called the National Milk Agency has been established. That agency is a much looser organisation. Essentially it is made up of processors and producers and its core function would be to satisfy itself that there is an adequate supply of milk available for the domestic drinking market. The arrangements are there to supply that market and there is a reasonable price structure in place to ensure a sufficient supply of milk.

Deputy Ardagh: One would have thought that competition within the industry would have created the necessary regulation to ensure the supply of milk. The competition to supply the supermarkets is very intense between all the co-ops around the country. For many years I believed, although I am not in the farming business, that there was a surplus of milk. Would it not be the case that those functions within the milk boards were redundant for many years before they were disbanded by the EU?

Mr. Malone: Yes, but you have to look at both sides of the equation. In relation to the processing sector you are right, the Dublin market is highly competitive, as indeed a number of other markets would be, but you have to be certain that there is an adequate supply throughout the year, during the winter in particular when you are not producing milk from grass. Milk production in this country is highly seasonal. The danger would be that you could run short of milk. It is to ensure the production base exists.

Deputy Ardagh: Are there any other bodies within the Department which regulate supply of commodities which would be redundant?

Mr. Malone: The milk boards were the only two which we had. For some reason the situation which developed in the UK, where there was a large number of regulatory bodies of that kind, did not develop here. There were comparable bodies in the UK - the milk marketing boards.

Deputy Ardagh: What was the total number of man-years of people who were effectively not gainfully employed until they were redeployed by the Department?

Mr. Malone: Essentially the difficulty arose with the first group of staff. There was no problem with the most recent redundancies of 25 of the staff who were made redundant in 1998. The difficulty arose with the original 17 staff. As I recall, they were not all made redundant at the same time but probably over a two year period.

Deputy Ardagh: Mr. Meade suggested there were 20 members of staff made redundant over two and a half years.

Mr. Malone: I am not arguing with the figures but there were three people contemplating retirement.

Deputy Ardagh: There are not other man-years involved?

Mr. Malone: No.

Deputy Durkan: Returning to the redundancy arrangement, the new owners were required to pay redundancy compensation at the going rate. Why did they go back on that? What was the nature of the agreement entered into if they withdrew from that situation subsequent to their take over?

Mr. Malone: They would have to answer that for themselves but I suspect that when they took over they wanted to make it as efficient as possible.

They looked at the staffing arrangements. As I indicated, the AI business is highly competitive. It is also highly seasonal. There is a trend now towards having people on contract rather than in full-time employment. I also suspect that their financial situation was probably fairly tight certainly in the initial stages having been a reasonably newly established co-operative and having paid the price they paid. Although it is not for me to answer completely, I suspect that the main difficulty would have been a tight financial situation.

Deputy Durkan: Was the Department of Agriculture and Food a party to the agreement with the new owners regarding the staff who were due to be redeployed or made redundant?

Mr. Malone: It was written into the conditions of sale but the agreement was negotiated at central level.

Deputy Durkan: So the Department was a party to it.

Mr. Malone: Yes, but I would argue that the Government was a party to it in the sense that this was agreed at central negotiating level.

Deputy Durkan: And with the Department of Finance?

Mr. Malone: And the Department of Finance, yes.

Deputy Durkan: The new owners bought the operation with certain conditions attached which they did not honour subsequently.

Mr. Malone: Yes, that is our view.

Deputy Durkan: It is a rather unusual business arrangement that after the sale went through, one party - in this case, the purchaser - decided to welsh on part of the deal. What provisions did the Department put in place in anticipation of such a manoeuvre given, by Mr. Malone’s own admission, that the new owners were in a tight financial situation? After all, they were not forced to buy the milk board concerns. I presume they did so freely in the open market.

Mr. Malone: That is true. However, equally one must look at it in the context of different options. The first point is that it was not an option for the State to hold onto these activities. By far the best option was disposal.

The second point is that, as I mentioned earlier, the rights and situation of the staff had to be protected. It is fair to say that we did possibly anticipate a small number of redundancies. However, we have been greatly surprised by the number and extent of the redundancies. With the possibility of redundancies in mind - it is also fair to say that the staff had this possibility in mind - this provision was written into the conditions of sale. The only way of ensuring that this commitment is honoured is to institute legal proceedings.

Deputy Durkan: Now?

Mr. Malone: Yes. We have started the legal proceedings.

Deputy Durkan: How serious is the Department about them?

Mr. Malone: We are quite serious.

Deputy Durkan: In the period from mid-1995 to May 1998, just under £500,000 has been paid in salaries from the Vote to redeployed staff. The Department of Finance was forced to pay the staff because there had been non-compliance with the conditions of sale previously. Is that correct?

Mr. Malone: It is more complex than that. We had to take them legally onto the employment of the Department. We had three options. The first was an open competition, which was not a runner. The second was in the public interest, which was not desirable, and the third option was exclusion orders. This provision is rarely availed of and must be done through the Civil Service Commission. We were not totally in the driving seat on this issue. Once we got the process of the exclusion orders sorted out, we were able to apply it fairly quickly for the second wave of redundancies. The problem arose in relation to the first wave.

Deputy Durkan: I am aware of that. However, I am unclear about the conditions that were put into the sale, if any. What was the value of those conditions when the transfer of assets took place? For example, why did the new owners readily assume that they could decide to welsh on the agreement entered into freely previously? Did the Department say that it knew they were buying a pig in a poke and could have problems down the road and hence its need to pick up the tab for £500,000 at a later stage?

Mr. Malone: We had it written in as a condition of sale. Second, when the people were being made redundant, we put the new owners on notice about our position.

Deputy Durkan: What clause did the Department have that it could enforce at that stage?

Mr. Malone: This is the difficulty. One could refuse to accept these people into the Department. However, one would then have staff who, through no fault of their own, were made redundant and effectively left high and dry. Obviously, we felt that we had to honour our side of the bargain. We have refused to accept the minimum redundancy. We have refused to accept those payments. We are looking for the going rate.

Deputy Durkan: For example, regarding the conditions of sale, what conditions did the Department impose to ensure the enforcement of the terms of the sale?

Mr. Malone: It was a condition of the sale that in the event of people being made redundant, redundancy at the going rate would have to be paid to the Department.

Deputy Durkan: They signed that contract.

Mr. Malone: Yes.

Deputy Durkan: What excuse did they make afterwards when they decided to ignore that clause?

Mr. Malone: They really did not make any excuses. Essentially, they offered us the minimum redundancy. The position now is that it is between lawyers on both sides.

Deputy Durkan: The problem in this area may recur in terms of Departments or agencies being involved in a transfer of assets of that nature. It appears that if the precedent as set out in this case is allowed, it will be open to anybody purchasing assets from such a company to decide to welsh on whatever arrangements are entered into in relation to staff at a later stage and to do so with impunity. If, as it appears in this instance, it is difficult to challenge that, it could create a problem for staff in other agencies. It will create a reluctance on their part to enter into any such agreements and I sympathise fully with them. There is no sense entering an agreement if there is no intention of keeping it or if the circumstances change afterwards. Everybody who enters a commercial arrangement may find themselves in changed circumstances afterwards.

Will the Department of Finance indicate its involvement in the agreement which was entered into regarding the transfer of assets, whether it indicated any reservations relating to the possible difficulty with enforcement of the conditions of sale and how it viewed the situation as it developed afterwards where £500,000 rightly had to be paid to staff?

Mr. Niall McSweeney, Principal Officer, Department of Finance, called and examined.

Mr. McSweeney: The situation has been explained in some detail by the Secretary General of the Department of Agriculture and Food. The Department of Finance was involved at all stages in the decision to dispose of the Milk Boards and the mechanisms involved. It was very much aware of the sort of situations and risks that could have been run.

With regard to the particular contract arrangements, it was built into the contract that the new owners would have to pay redundancy at the going rate as distinct from the statutory rate. While there was no particular enforcement provision, legal action is now being taken on the basis that this contract was not complied with by the new purchasers. We were aware of the risks but nonetheless a binding commitment was made and this can be taken up at a legal level. It is not a lost cause at this stage. It will depend on the outcome of the legal proceedings. The contract was signed in full knowledge that the company would have to meet its obligations if necessary by law when they did not comply with what was in the contract.

My colleague will answer concerning the redeployment.

Mr. Kevin Cardiff, Principal Officer, Department of Finance, called and examined.

Mr. Cardiff: As has been said, the position at the time of the sale was that the Departments of Finance and Agriculture and Food ensured that the sale conditions stated that there were two protections in the event that these people were made redundant. First, that the redundancy package was to be at the going rate and, second, that the people concerned were to have a right of access back to the public service.

When they were made redundant from the companies concerned, it was clear that, notwithstanding that the Department of Agriculture and Food did not have a mechanism for taking them on board and giving them useful work immediately, they had been given a guarantee at the time that the company was sold that they would be employed. In the event that they had not been taken straight back, it would have been reneging on the State’s guarantee to the staff and not just on the companies’ guarantees. It is for that reason that it was important that those people be brought onto the payroll straight away.

We are not happy with the delay. We have worked with the Department of Agriculture and Food to minimise this in the future. The later redundancies were dealt with in a much quicker fashion. We would hope that the legal action will yield a result.

Deputy Durkan: May I draw to the committee’s attention the third paragraph on page 70 which states that the Department received the redundancy payments cheques from the staff but has refused to cash them on the grounds that the agreement obviously was not in accordance with the rationalisation of the agreement. The cheques are now out of date.

Mr. Malone: That was a choice we had to face. We did not want to compromise our position. We were aware that if we did not cash the cheques, sooner or later they would go out of date. I would emphasise that our obligation was to ensure that -

Deputy Durkan: Were the cheques to the value of £1 million?

Mr. Malone: I do not think it is as high as £1 million. My information is that the figure is of the order of about £300,000. The position was that we had to ensure that the assets were disposed of properly and prudently and that we got proper value for the assets. The second situation as has been described is that the staff were anxious that their rights as public servants would be protected. These were staff with long service and the redundancies happened relatively quickly after the new owners took over.

Deputy Durkan: Within what space of time?

Mr. Malone: Literally within a matter of months.

Acting Chairman: Were the staff covered with regard to redundancy in the contract? Was that inserted in the contract?

Mr. Malone: Yes.

Acting Chairman: Everything was covered in the contract.

Mr. Malone: Yes.

Deputy Dennehy: As regards the £300,000 or whatever the figure was, would it have been better to take half a pint rather than have no milk? It is a luxury which the Department can afford but a private trader would have taken the money and challenged the remainder of the bill. Was it a wise judgment to leave £300,000 behind?

Mr. Malone: I do not think so. We want to establish the issue of principle. We were worried that when the first wave of redundancies happened there would be further redundancies. We did not want to compromise our position or encourage more redundancies. Even with the benefit of hindsight, it was the right decision to make.

Deputy Dennehy: It was a decision the Secretary General had to call. As regards the period 1995-98 when the people were on the books but were not being redeployed and did not engage in departmental work, this cost £500,000. Will that money be included in the compensation being sought in the court case?

Mr. Malone: That is unlikely. There will be a difficulty in the sense that the issue at hand is the difference in the redundancy payments. The difficulty in relation to sorting out the process of the excluding order - I would emphasise that this was difficult as there were not many precedents for taking people into the Civil Service on that basis - was a difficulty involving ourselves, the Department of Finance and the Civil Service Commission. Realistically we cannot hold the new owners responsible for it.

Deputy Dennehy: In that context and looking at the difficulties, was this the first experience of deregulation under EU regulations? Was this our first shot at it or the first shot across our bows?

Mr. Malone: In so far as the Department of Agriculture and Food was involved, it was the first. It was also our first experience of disposing of assets and we were very anxious to proceed prudently and carefully. We got a considerable amount of advice as we took each step.

Deputy Dennehy: Who would have initiated this exercise? Was it a challenge from national suppliers outside the zone or from the EU?

Mr. Malone: Essentially it was a challenge from outside the regions. Equally it is fair to say that the EU would have been looking at organisations such as this. It had also been looking at the milk marketing boards in the UK. As has been said, this was inevitable given the nature and structure of these organisations.

Deputy Dennehy: Bearing in mind the experience, could the same happen again? There is now a national group which is loosely constituted. Just because they take in the whole country, they still regulate on a seasonal basis. Could there be a challenge from the North or elsewhere? If suppliers elsewhere could supply milk at a different time of the year are we still open to a challenge?

Mr. Malone: Not really. We have tried to get around that. Milk comes in from outside the jurisdiction. It is not very much but it has avoided the exclusion zones which was the big difficulty with the Dublin and Cork boards.

Deputy Dennehy: Is the North included in this?

Mr. Malone: No, but milk can and does come in.

Deputy Dennehy: Can it come in freely and at any time of the year?

Mr. Malone: Yes.

Deputy Dennehy: At the moment it would be governed by the prices available.

Mr. Malone: It is purely a competition element at this stage. Broadly speaking, liquid milk tends to stay within national boundaries. Transporting it is an expensive process as 80 per cent of it is water.

Deputy Dennehy: As is the case in other non-EU states, would regulatory boards be prohibited here? Could we not set up a board for chicken control or production?

Mr. Malone: No. The whole concept has been found to be at variance with competition law.

Deputy Dennehy: So it is only the practical difficulties of transportation.

Mr. Malone: Yes. It is not worth the bother of setting up these kinds of organisations.

Deputy Bell: I find the whole procedure as outlined by the Secretary General very difficult to understand. Deputy Rabbitte was responsible for negotiating hundreds of redundancy and early retirement packages at local and national level over many years. To say the least, the procedure as outlined has left me with some difficulty. The first thing I would like to see before making up my mind is a copy of the contract signed between the Department and the parties concerned.

The normal redundancy procedure is that the employer who is selling or closing an establishment would have the responsibility for payment of the statutory payment and the claiming of the statutory entitlement back from the department of labour.

On top of that, a payment would be due to the workers as negotiated by the trade union or trade unions representing the workers in that employment. The outgoing employer would have full responsibility for the payment of the total sum.

In terms of what would happen between the outgoing employer and the employer taking over, there is a statutory responsibility under the redundancy Acts which provides for the employer taking over the employment of the people who will be displaced in that they have a statutory responsibility under the redundancy Acts to cover in full the entitlement of those workers.

I have never heard the terminology used in a contract of redundancy or early retirement of the going rate. The employer would, in conjunction with the trade union, draw up a contract for each employee to be displaced setting down and quantifying for each employee the statutory entitlement, what they would get for each year of service after that, how pensions would be covered and outlining social welfare or any other benefits which might accrue to them if they are not redeployed. I never heard of a situation where the employer taking over had responsibility for the payment of the statutory entitlement. The outgoing employer is under statute the one responsible for reclaiming the statutory rebate from the redundancy fund in the Department of Enterprise, Trade and Employment.

I ask that we get a copy of the contract between the trade unions and the two Departments involved and a copy, if one exists, of the entitlements of each displaced employee and to know if that was written down in contract on behalf of each of the employees. It is only on the basis of that being provided that one can decide the statutory entitlements. They are very technical questions which may require further consideration. As the senior trade union official in the Dáil, what we have been told does not make sense.

Mr. Malone: I can provide the Committee with a copy of the contract and more details on the redundancy provisions. An important point is that the new owners took these over as going concerns. The staff were not made redundant at the point of sale and became employees of the new owners. At a certain stage, albeit in some cases relatively soon, they were made redundant when they were employees of the new owners. It is reasonable that the new owners, who were the only ones who could take the decision whether to make them redundant or not, would carry some responsibility.

On the second issue, the main trade union involved was SIPTU. As I indicated, this was negotiated centrally and was part of PESP, the agreement at the time. The union took the view - I think with justification - that there could not be compulsory redundancies in the public service. Essentially, what the staff wanted was that in the event of new owners taking over and if somewhere down the road the situation changed their position would be protected, which is what happened. As I indicated, we did not expect - although we probably anticipated some redundancies - the scale and number of redundancies or the speed with which they happened. This was an unusual situation anyway, as I indicated, and was the first time we were involved in deregulating a body and disposing of assets which had been there since the 1930s.

Deputy Bell: That is somewhat different to my interpretation of what you said initially and that is why I thought it would be advisable to tease it out. What I understand now is that the incoming employer accepted liability for the payment in full. That is normal procedure. The question which would decide this issue is what happened in relation to the contract vis-à-vis each of the employees concerned. Were they not told in writing what the full entitlement would be? Were they not told the new employer would have full responsibility for their service, their pensions and other entitlements which they might have accrued in their initial employment? Were they not given a written indication of the payment because there is a statutory responsibility under the redundancy Acts that payment is made when and not after employment ceases? Employees would get their P45s or P60s or both and the redundancy forms, R2 and R1, on which their entitlement would be stated. That would be their statutory entitlement only.

Mr. Malone: As I indicated earlier, I can provide some more details to the Committee. There were many detailed negotiations involving the trade unions and foremost on their minds was the protection of the interests of the staff. I am not aware whether each individual situation was covered, but I can check. The point is that the staff on being made redundant wished to avail of the right to continue employment in the broad public service and, consequently, they did not get the redundancy. In fairness, redundancy was not really an issue for them because they wanted a continuation of employment, and that part of the agreement was honoured. I fully accept that it is unusual but there was, effectively, a discussion about redundancy between a new employer and what might be broadly termed the former employer.

Deputy Bell: I ask that the Committee be given copies of the contract and any other relevant documentation issued to the employees by way of an indication as to their entitlements.

DEPUTY J. MITCHELL TOOK THE CHAIR

Chairman: Is that request agreed by the Committee? Agreed.

Deputy McCormack: Was it clearly anticipated that there would be up to 50 redundancies?

Mr. Malone: No, we envisaged a small number.

Deputy McCormack: Which party insisted on the insertion of the redundancy clause?

Mr. Malone: We did as we felt it was a sensible provision bearing in mind what was involved, that this was becoming a more competitive business and that seasonal employment was becoming the norm. We were somewhat worried that there might be some redundancies so we wanted that provision written into the conditions of sale.

Deputy McCormack: Were these redundant workers replaced by the new company?

Mr. Malone: As far as I know, they were not replaced in all cases. The new company is a co-operative but is a private company, so it does not report to us. Some of the redundancies would have been wastage while in other cases, permanent people would have been replaced by people on contract.

Deputy McCormack: How many people were employed before the sale?

Mr. Malone: Over 78 staff transferred to the new employers on the sale of the former business. As nine of these were seasonal employees one could say that 69 employees transferred to the new owner though with the option of redeployment.

Deputy McCormack: Yes, but what I am trying to establish is whether those 69 or 78 staff members were fully and gainfully employed before the sale.

Mr. Malone: Yes, they would have mainly been AI inseminators and 69 were permanent employees. The other nine were seasonal employees.

Deputy McCormack: I know that they were permanent, but were they fully and gainfully employed? Was the work there for them before the sale? After the sale the new company was obviously able to carry out the work with far fewer employees given that it made up to 50 of them redundant.

Mr. Malone: One could argue that. That was a decision the new company had to take. It would depend on whether one wanted to use permanent or seasonal people. More permanent people would be needed, though the nature of that business is changing anyway. It is probably a fair point that some redundancies would have been inevitable anyway.

Deputy McCormack: What would the provisions have been if redundancies had been sought before the sale?

Mr. Malone: That would have been a matter for the then employees, who would have been--

Deputy McCormack: But would there have been any agreement or terms of employment relating to redundancies before the sale?

Mr. Malone: These were permanent employees and were part of the public sector, though working in a semi-State body. I am not aware that there was any policy of forced redundancies contemplated by either the Dublin or Cork Milk Boards when they existed.

Deputy McCormack: I am trying to establish whether these employees would have gotten the same redundancy terms if the sale never took place as Mr. Malone assumes they got after the sale.

Mr. Malone: I think so, yes. In the current situation they are not the people getting the redundancy, as they are employed by the Department of Agriculture and Food. In the event of this not happening and the milk boards continuing in existence and deciding to make people redundant, I speculate that they would have had to pay more than the statutory minimum.

Deputy McCormack: The new owners offered the minimum redundancy. What was the total figure offered?

Mr. Malone: It amounts to £317,000.

Deputy McCormack: How was that arrived at?

Mr. Malone: I can get a breakdown, but it is the basic statutory redundancy.

Deputy McCormack: There is a big difference between over £2 million and £300,000. I would be anxious to establish what makes up the difference of approximately £1.78 million.

Mr. Malone: What makes up the difference is approximately four weeks pay per year of service, and a lot of these people would have had very considerable service, and that amounts to approximately £1.7 million.

Chairman: We move now to paragraph 34, which is the reason we have invited Deputy Des O’Malley to the Committee because of his correspondence on this matter.

I ask the Comptroller and Auditor General’s office to reintroduce this paragraph and I will allow Deputy O’Malley to make an introductory statement and then take questions. I will then allow the Secretary General to comment on anything Deputy O’Malley has said, and then Deputy O’Malley will make a concluding statement.

I remind the Committee that we are dealing with the 1997 Annual Report of the Comptroller and Auditor General and the Appropriation Accounts, Vote 31 of the Department of Agriculture and Food (Resumed) as well as FEOGA, the Irish intervention agency. Witnesses should be made aware that they do not enjoy absolute privilege and should be apprised as follows: Members’ and witnesses’ attention should be drawn to the fact that as of 2 August 1998 section 10 of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to persons identified in the course of the Committee’s proceedings. Those rights include the right to give evidence, the right to produce or send documents to the Committee, the right to appear before the Committee either in person or through a representative, the right to make a written and oral submission, the right to request the Committee to direct the attendance of witnesses and the production of documents and the right to cross-examine witnesses. For the most part these rights may only be exercised with the consent of the Committee. Persons invited before the Committee are made aware of these rights, and any persons identified in the course of proceedings who are not present may have to be made aware of these rights and provided with a transcript of the relevant part of the Committee’s proceedings if the Committee considers it appropriate in the interests of justice. Notwithstanding this provision in the new legislation, I remind Members of the long standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House or against an official either by name or in such a way as to make him or her identifiable. I welcome Deputy O’Malley.

Deputy O’Malley: Thank you, Chairman.

Chairman: Your invitation arises out of your letter to me of 16 April, copies of which have been circulated, in which you also circulated copies of the Advocate General’s ruling in case C238/96.

Mr. Meade: Expenditure on the payment of direct production and marketing subsidies such as export refunds, production aids, aids to private storage and premia schemes is funded by borrowings undertaken of the Minister for Agriculture and Food and then recovered from FEOGA after an average period of six weeks. The cost of this borrowing is met by the Vote and the EU provided a subsidy up to 1995 towards the cost of such borrowings. Expenditure on market intervention is also incurred by the Department in buying and storing of specified agricultural products in accordance with EU regulations and is also financed by borrowings which are repaid when the produce is sold. Any profits on sales are credited to FEOGA and any losses are met by FEOGA. The cost of transport, handling, storage and financial costs are met by the Vote, and FEOGA contributes towards those costs at standard rates, the amounts received being also brought to account as appropriations in aid of the Vote.

Each year the Department submits a detailed claim to the EU itemising all expenditure incurred and amounts received on behalf of FEOGA. The EU, having carried out selected audits of the expenditure and receipts declared, gives a view as to the correctness of the transactions, and, arising from this, it determines what adjustments, if any, should be made. If these adjustments involve disallowances of expenditure, they give rise to a charge on the Vote, although where the amounts disallowed are later received from individual traders they are brought to account in the Vote.

Until 1992 disallowances were usually of relatively modest proportions. However, significant disallowances were imposed by the EU in respect of the 1989 claim and other claims since then. These included penalties for inadequate checks at customs, which was later overruled, a special fine for inadequate intervention beef controls and tendering in 1990 and 1992, and a penalty for late payment of certain premia schemes. The Vote must therefore meet shortfalls in EU recoupment for intervention costs, for FEOGA financial charges and for any amounts disallowed.

The situation from 1973 to 1998 can be summarised as follows: the Vote has met £300 million in a shortfall in the recoupment of incidental expenses of intervention, financial charges for FEOGA borrowing, including £46.3 million in borrowing charges not met by the EU since 1995. Since 1973, amounts disallowed by the EU and not recovered amount to £99 million, including the £69 million special beef fine and £9 million for late payment of premia schemes. Approximately £20 billion in FEOGA payments have been made in the same period, and the overall cost to the Exchequer has amounted to 2 per cent of FEOGA expenditure over the 25 years of EU membership.

The Minister in his role as the intervention agency is responsible under S. I. No. 24, 1973, for the preparation of financial statements in respect of the agency. It is the responsibility of the Comptroller and Auditor-General under section 5 of the Comptroller and Auditor-General (Amendment) Act, 1993, to audit those financial statements and report on them. The accounts for 1994 were certified by the Comptroller and Auditor-General in April 1997. The 1995 accounts were presented for audit in September 1998. The audit is well advanced and subject to satisfactory responses to normal audit queries raised it should be certified by the end of February. The Department hopes to have the 1996, 1997 and 1998 accounts presented for audit at an early date in 1999. I felt today it was appropriate to summarise the overall position rather than just confining it solely to the 1997 paragraph.

Chairman: It has been very helpful.

Deputy Rabbitte: Mr. Meade said that the disallowances were relatively modest until some year.

Mr. Meade: I said up until 1992 for the 1989 claim year.

Chairman: What is the delay in the 1996 and 1997 FEOGA accounts?

Mr. Malone: If I understand correctly, you are talking about what is called the composite account. There is the annual appropriation account and the annual FEOGA account. We are fully up to date on both, but in the context of new legislation in relation to the Comptroller and Auditor-General there was a provision for the Comptroller and Auditor-General auditing FEOGA expenditure. The difficulty involved is that this essentially created a new situation where a new type of account had to be provided. The information existed either in the appropriation account or the annual FEOGA account. It is necessary to synchronise two different sets of accounts and accounting years. One is an annual account starting on 1 January and ending on 31 December; the other ends on 15 October. There are different accounting procedures. The 1994 account has been cleared. The 1995 account is with the Comptroller and Auditor-General and we intend to have the remaining accounts with him over the coming months. It has been necessary for us to acquire professional accounting expertise because essentially it is a new type of account for which no real precedent existed in this country.

Chairman: Presumably, it is a new type of account since 1994, which is five years ago.

Mr. Malone: With regard to the 1994 account, there were discussions between ourselves and the Comptroller and Auditor-General as to what exactly should go into this account, how it should be approached. The Comptroller and Auditor-General gave some assistance. He provided some of his staff to assist us with the formulation of the 1994 account. Some experience has been learned from that. I do not deny that there is some catching up to do but I emphasise that it is essentially full information that exists in two different accounts, the annual and FEOGA accounts and we are fully up to date on the FEOGA account.

Chairman: It is entirely unsatisfactory that the Comptroller and Auditor-General does not yet have the 1996 account and this Committee does not yet have the 1995 account. We are between three and four years behind. That is not satisfactory, especially in an area where questions are raised continuously. When will these accounts be provided to the Comptroller and Auditor-General?

Mr. Malone: We hope to have the 1996 account by the end of January and the 1997 and 1998 accounts in the coming months. We are determined to have this process finished by mid-year.

Chairman: What about future years?

Mr. Malone: We will have learned then essentially that it was designing a formation. I think the Comptroller and Auditor-General would agree that this was new territory for him and us in the sense that we were preparing a composite account, which is a mixture of two accounts, the national appropriation account and the FEOGA account, which has been submitted on time to the European Union. One is trying to synchronise different accounting years and accounting systems. Once we get the model and procedure in place, obviously it gets easier. We have acquired a professional accountant to help.

Chairman: Will we deal with the 1999 accounts in 2000 or will it be 2003?

Mr. Malone: I hope the Committee will deal with them in 2000. Having got up to date, there is no reason then why we should not stay up to date.

Deputy Rabbitte: Did the Department tell the Committee on a number of occasions and confirm in a letter on 10 July 1998 that there were no outstanding accounts from any agency under the aegis of the Department?

Chairman: Yes, I was surprised to learn that that letter was inaccurate. I wrote to the Secretary-General. He wrote back on the 16 December 1998.

Deputy Rabbitte: What is the answer?

Chairman: It is a very long answer and the correspondence should be circulated. We were told at the time that there were no outstanding accounts and the Committee will recall that one week or two later it was discovered that another account was tabled in the Dáil without the Committee being told. It was then discovered that there were other accounts under this heading. I wrote to the Secretary General on 8 December and the reply has already been circulated.

Deputy Rabbitte: Mr. Malone stated in the letter that there were no outstanding accounts for any agency under the aegis of his Department. Two days later we found that the account of the most significant agency, that administers approximately £2 billion on average per year, were laid before the House and three further accounts were outstanding. How are the two reconciled?

Mr. Malone: First, there was no intention to mislead. Second, we interpreted the letter and the reply we sent related to bodies under the aegis of the Department. The question was fairly specific about accounts and statements which have been audited by the Comptroller and Auditor-General.

Deputy Rabbitte: Is this agency under the aegis of the Department?

Mr. Malone: We interpreted as we have a number of semi-State bodies under the aegis of the Department. We checked and the nine bodies were totally up to date. The second part of the question was accounts which had been cleared-----

Deputy Rabbitte: How could Mr. Malone understand that the most significant agency under the aegis of the Department, which was the subject of controversy over seven or eight years, relates to some quango under the Department?

Mr. Malone: The letter is right. The letter from the committee on 6 April 1998 asked a specific question. It asked about accounts and financial statements which have been audited by the Comptroller and Auditor-General and submitted to him by bodies and agencies under the aegis of their Department and office. First, we took that letter to apply to bodies. We have nine bodies under the aegis of the Department. We checked those bodies and all had submitted their accounts on time.

Deputy Rabbitte: Mr. Malone probably did indeed take it to mean that but we will never get anywhere with his Department while he continues to pedantically and semantically interpret letters when what we were talking about is as plain as the nose on your face and we received a letter stating that they had been laid before the Houses.

Mr. Malone: The second point is that we are fully up to date in relation to the annual account and the FEOGA account. I explained earlier that this relates to what is called a “composite account”, which is a hybrid. The position is that the account that had been cleared by the Comptroller and Auditor General was laid before the Houses of the Oireachtas. We were not sitting on any account that had been cleared by the Comptroller and Auditor General.

Deputy Rabbitte: We were trying to discover if the accounts were up to date. The Chairman has established that they are four years in arrears but Mr. Malone wrote a letter which stated “We are satisfied that all accounts have been laid before the Dáil and there are none lagging behind”. What meaning are ordinary elected amadáns such as ourselves supposed to take from that statement?

Mr. Malone: Can I read the opening sentence? “Arising from matters discussed at this meeting, it was decided that the committee should write to Accounting Officers regarding the timely laying before the Dáil of accounts and financial statements which have been audited by the Comptroller and Auditor General and submitted to them by bodies and agencies under the aegis of the Department.” I believe it was quite clear that what was required were accounts that had been submitted to the Department, which had been cleared by the Comptroller and Auditor General and which had not been laid before the House. I think that is a perfectly reasonable and sensible interpretation of the letter.

Chairman: I beg to differ. I will outline the chronology of this matter for the Secretary General. The committee wrote to him on 6 April last year requesting the information. We sent a reminder on 27 April but we did not receive a reply until a further reminder was sent on 29 June. It seems that either the Secretary General is contemptuous or careless of the committee’s requests for information. When that information finally arrived it was incomplete to say the least.

Mr. Malone: I am surprised that the Chairman would state that we were contemptuous.

Chairman: Why then did the Secretary General not reply to our letters? The committee expects accounting officers to deal promptly with its requests.

Mr. Malone: The first letter was mislaid. We do not have a copy of the second letter. The letter of 29 June was replied to within days and I would insist that the reply we gave to that letter was accurate. The issue of the composite account was well known and it was discussed by the Comptroller and Auditor General and ourselves. There was no advantage to us or no point in our giving an inaccurate reply because if we were behind, we were behind. It was new territory because it arose from new legislation. I would insist that there was nothing to be gained in our giving an inaccurate reply to what we saw as a fairly straight and clear cut letter.

Deputy Rabbitte: The legislation was not new on 10 July 1998, it was introduced in 1993.

Mr. Malone: That is true. I acknowledge that point. However, an interpretation is being put on this which is totally unjustified.

Deputy Rabbitte: We have a job to do in terms of teasing out information relating to the accounts. When we ask a question, we expect it to be answered. We wrote to Mr. Malone, he replied and we understood, from that reply, that there was no annual report or account outstanding from any agency under the aegis of the Department. However, we have now discovered information to the contrary.

Mr. Malone: I am sorry if that is the case. However, I have re-read the correspondence and I believe the reply we provided was accurate. The interpretation I took from it - I believe most other people would take the same interpretation - would be that it referred to bodies reporting to the Department that had submitted accounts which were cleared by the Comptroller and Auditor General and which had not been submitted. We checked that situation and we were up to date. Whether responsibility for the FEOGA account rests with that body, which is under our aegis, or with ourselves is a moot point. In any event, the accounts that had been cleared by the Comptroller and Auditor General had been submitted. Therefore, we were not holding any account. If it is a different question such as were we behind on accounts, I freely acknowledge that we are behind on the composite account. However, there are valid and understandable reasons why that is the case. We submit the annual account to Brussels on time. Our performance in respect of submitting the annual FEOGA account would be among the best of any of the member states. We have procedures in place to get up to date on the composite account which is a new type of account. We will be fully up to date by the middle of this year.

Deputy Ardagh: The idea behind our requesting information from the various Departments, whether they were behind or not, was to discover which accounts were in arrears. With regard to the first letter written to the Departments, if we were seeking accounts that had already been submitted to the Comptroller and Auditor General we would not have needed to write to the various Departments because we could have inquired of the C&AG with regard to the accounts that had been submitted to and cleared by him. The purpose our investigation was to discover which accounts had not been submitted to or cleared by the Comptroller and Auditor General to see if there were accounts relating to years prior to 1996 which remained in Departments, which had not been submitted to the Comptroller and Auditor General but which, under normal circumstances, would be so submitted because they are the accounts this committee is responsible for examining. That was the reasoning behind the letter sent to the various Departments.

Mr. Malone stated that the first letter sent to him was mislaid. Does the secretariat possess a copy of that letter?

Chairman: Or the second letter?

Mr. Malone: Yes, we subsequently got it.

Chairman: Incidentally, that letter was sent to every Department.

Deputy Ardagh: Was it stated in that letter that only information relating to those accounts that had been submitted to and cleared by the Comptroller and Auditor General should be provided?

Chairman: The paragraph quoted by the Secretary General is correct. However, there is a second paragraph which should also be read. In fact, I will read the entire letter.

6 April 1998

Dear Mr. Malone,

I refer to a meeting of this Committee held on 26 March, 1998.

Arising from matters discussed at this meeting, it was decided that the Committee should write to Accounting Officers regarding the issue of the timely laying before the Dáil of accounts/financial statements which have been audited by the Comptroller and Auditor General and submitted to them by Bodies/Agencies under the aegis of their Department/Office. It is the opinion of the Committee that all such accounts/financial statements received should be laid before the Dáil within three months from the date of receipt.

Specifically, the Committee has decided to request appropriate Accounting Officers to indicate the accounts/financial statements in this respect which are in their possession but have yet to be laid before the Dáil, together with the date of receipt by them of the accounts/financial statements involved. I am to request that you supply this information as it applies to your Department/Office by 26 June, 1998.

Deputy Ardagh: Whereas the English may not be correct, it is clear that the committee was seeking information regarding any accounts that were auditable by the Comptroller and Auditor General which were outstanding. I accept that one can place a meaning on that letter if one adopts a technical approach. However, if one looked at it and asked what was required by the Committee of Public Accounts, it would be obvious that we were seeking any outstanding accounts which would be auditable by the Comptroller and Auditor General. It is incredible that the entire Department of Agriculture and Food could adopt the view now being adopted by the Secretary General.

Chairman: It is also incredible that two letters were mislaid. Every other Department responded to the initial letter. That underlines why there have been 50 paragraphs in the C&AG’s reports in respect of this Department during the past decade. In eight years 49 or 50 paragraphs have been included in the reports or notes have attached been to the accounts. That is a cause of great alarm. I do not believe the committee can pass over these accounts this year as it has done in the past by merely upbraiding the Department. We are going to have to take further action and we will discuss that matter further next week.

Deputy Cooper-Flynn: May I clarify one point? Do I understand that the letter was sent to all Departments by the Chairman?

Chairman: Yes, it was sent to each Department by the Clerk to the Committee.

Deputy Cooper-Flynn: Was it not as a result of matters which arose at an earlier meeting that it came to our attention that accounts which had been cleared by the Comptroller and Auditor General were not been laid before the Houses?

Chairman: Yes, in some cases.

Deputy Cooper-Flynn: Was it not as a result of that that we took a decision to write to all Departments to ensure that it did not happen again?

Chairman: Yes.

Deputy Cooper-Flynn: If I remember correctly, the experience of a number of Departments was particularly bad in this area.

I do not remember the Department of Agriculture and Food being one of those but I would be open to clarification on that. That letter was not written for any other reason.

Chairman: It was written because, exactly as the Deputy has stated, we discovered that the Department of Education and Science had not tabled reports.

Deputy Cooper-Flynn: That is correct.

Chairman: When we wrote to the Department we discovered that it had maybe 100 hundred more reports of different agencies.

Deputy Cooper-Flynn: All of which had been cleared by the auditor.

Chairman: Then we decided that we would write to all Departments. That is the background to it.

Deputy Cooper-Flynn: Is it not fair to say that we were in fact talking about accounts which had been cleared by the auditor?

Chairman: No. Technically, you could say that in terms of the letter, but what we were clearly looking for was were there any delayed accounts. We did not receive a reply to the first two letters. We received a reply to the next letter, dated 10 July, stating all accounts had been tabled. Then we discovered on that day that another account had been tabled before the Dáil, of which I take a poor view.

We will leave that aspect of it for the moment.

Deputy Durkan: What procedure is followed in a Department when a request of this nature is received?

Mr. Malone: It is normally received in my office. The Department has a system of registering documentation from the Committee. It is normally sent to the Department’s accounts division. It is a large Department and the appropriate information is sought from the division involved, and a reply is prepared and submitted.

The Department takes seriously requests for information from the Committee. It was not a case of trying to avoid giving information. We interpreted it in what we thought was a far and reasonable way, that it related to accounts which had been audited by the Comptroller and Auditor General, that we were either holding those accounts or had failed to lay them before the Dáil. We checked with the nine semi-State bodies reporting. They were up to date. We reported accordingly. We did not see the composite account as coming into that category, particularly because the account which had been audited by the Comptroller and Auditor General had been submitted to the Dáil.

As has been stated, the 1995 account has not been audited by the Comptroller and Auditor General. Consequently, we are not in a position either to submit it to the Committee or to lay it before the Dáil.

It would have been quite easy for us - there was no advantage - to add a sentence, if we thought that was what was wanted, setting out the position on the composite account.

Deputy Durkan: Does Mr. Malone think it is odd? The first letter was not received.

Mr. Malone: The first letter was received. It was mislaid somewhere within the system. There was a telephone call on the same day, a reminder. My understand is that there were two letters. There was a letter of 6 April and there was a letter of 29 June. I have no copy of the letter in between.

Deputy Durkan: Does Mr. Malone think that is a little odd?

Mr. Malone: Yes. However, the letter may not have reached the Department.

Deputy Durkan: Does he feel, given the importance of providing the accounts, whether composite or otherwise, in due order within a reasonable time, that it is sufficiently important to warrant a little more alacrity than that which was displayed in this particular case?

Mr. Malone: I regret the delay in submitting the reply. This year the Department put much emphasis in ensuring that the bodies reporting to us submitted their accounts on time, and I think we would have a good record in that regard. We have a good record in relation to the appropriation account. We have a good record in relation to the FEOGA account. There is a particular problem relating to the format of the composite account. We had nothing to hide. The interpretation that we were deliberately being either pedantic, as has been stated, or evasive is not justified.

Deputy Durkan: We do not know yet because there are outstanding accounts for 1996, 1997 and 1998, and we hope to have them in 1999. Is that correct?

Mr. Malone: Yes.

Deputy Durkan: Therefore, we are not up to date.

Mr. Malone: I have acknowledged that. I am not disputing that.

Deputy Durkan: We will not know. This is fundamental to what the Committee is all about. We, as a Committee, will not know the reasons, if any, valid or otherwise, for the Department’s failure to respond to letters which were sent by the Committee so what Mr. Malone says is not entirely true. Hopefully, the Department will have four years’ accounts ready in mid-1999 and by the year 2000 the Department should have the accounts of 1999.

Mr. Malone: In fairness, this is a completely new account.

Chairman: It is new since 1994.

Mr. Malone: Yes, but the format, the composition, synchronising two different accounting years, and synchronising different systems is quite complex.

Chairman: I am glad the Department of Agriculture and Food is not in charge of the euro or the task 2000 - the world would stop.

Deputy Cooper-Flynn: Exactly what information is presented in the composite account which we do not know already?

Mr. Malone: There are two accounts: the annual appropriation account and the annual FEOGA account, which must be submitted to Brussels by the middle of February for the proceeding year. The composite account is essentially an amalgam of the two accounts. It puts the FEOGA account into a financial year similar to the appropriation account, in other words, a year ending on 31 December as distinct from 15 October. It will give information in relation to stocks, movement of product and expenditure. Essentially, the information is there already but the account pulls it from two different systems, two different dates, two different accounting procedures, and from a mixture of cash and accruals. The Government accounting system is a cash system. The FEOGA accounting system is slightly different. Technically, it is quite complex.

Deputy Cooper-Flynn: I can appreciate the complexities in terms of doing it but, apart from using the same calendar dates, will it tell us anything sensational which we do not know already?

Mr. Malone: I do not think so. I am not arguing. It is information to which the Committee is entitled. The Department must prepare it. We have a legal obligation to prepare it and we are fully focused on it. We have hired a professional accountant and we are going to get on with it.

Chairman: Does the legal requirement to provide the accounts stipulate a deadline for the accounts?

Mr. Malone: No. It is a very broad provision in the 1993 amendment Act. It does not set a deadline, a format or a style. It is quite an open provision. This has been part of the problem.

Chairman: The 1994 account was signed off by the Comptroller and Auditor General on 21 April 1997 and submitted to the Department on that day. Departments are given three months to table these reports, which is fair too long anyway. In fact, it took six months. It was not tabled until 15 October. This suggests a general slackness and disregard for timetables in the Department.

Mr. Malone: There was some confusion as to who would submit it. This was an account which was prepared jointly by the Comptroller and Auditor General and the Department. We actually received the help of the Comptroller and Auditor General to prepare it.

Chairman: We are not pleased about the situation and I do not think you should be either, but we will revert to it when we come to summarise on this issue.

Deputy Desmond J. O’Malley called and examined.

Chairman: I welcome Deputy O’Malley to the Committee. Deputy O’Malley, you wrote to me on 26 April.

I wish to afford you an opportunity of raising, as briefly as you can, the issue which you raised in that correspondence. Then I will ask members of the Committee to put questions to you. When you have finished being questioned by members of the Committee I will allow the Secretary General of the Department to comment on what you have had to say. I will then allow you to contribute one final time.

Deputy O’Malley: I will try to deal briefly with the matters I referred to in my letter of 16 April and some related matters which I think have become clearer since.

There is a shortfall of something in excess of £250 million on the Feoga beef account. It is particularly noteworthy that in the first ten years in which this account was operated it accumulated a shortfall of £28 million but in the next ten years it accumulated a shortfall of £220 million, giving a total of approximately £250 million. It is noteworthy that in the second ten years the rate of loss was about ten times greater than it was in the first ten years. That may be explained partly by the fact that the level of activity was higher, but certainly the ability to lose money was alarmingly higher during the second ten year period. We only have definite figures up to 1994. We do not have them beyond that date.

The second heading that I referred to concerned the fines, or disallowances as they are officially called, that were imposed. At that time I said there were fines of about £100 million. Part of that was subsequently lifted by the Commission and it left a fine of £71.9 million, which is what is referred to in the 1994 Intervention Agency accounts that you have just been discussing. The total accumulated disallowances based on that up to and including the 1994 accounts, even though they have since been disallowed and ruled on by the courts, was £119.8 million.

It is noteworthy that in the first eight years the system operated, from 1980 to 1987, inclusive - I am quoting from the Comptroller and Auditor General’s report of 1988 - the total cumulative disallowances were £76,000. Suddenly from 1988 onwards - which is the year when things began to hum in the beef industry, if you recall - the rate of disallowance increased alarmingly. For the next eight years, instead of £76,000 we had almost £120 million.

There are various other disallowances. My calculations are based on the 1994 accounts, which I received last night, incidentally. They were not available to me until last night and I stayed up later than usual to read them. I calculate, for example, that the loss arising from irregularities in dealing with a fire at Ballyhaunis or Ballaghaderreen, in February 1992, when a cold store, for which the Department was responsible, was destroyed by fire, is £32,769,000. The Department was obliged to have that insured but there seems to be some doubt about the insurance because seven years have now passed and I understand there has not been any recovery on that yet, unless it was recovered very recently.

There are various other places where money is outstanding or where there has been a shortfall in the Department’s dealings with public funds, whether they are Irish or European Union ones. The point I made to you in my letter is that I have been pressing for a number of years that where sums have been lost due to irregularities or negligence or fraud, all of which enter into different aspects of these matters, they should be recovered by the Department. Notwithstanding a struggle over many years, I have found it very hard to get the Department to make any recoverability. At a meeting of this Committee on 6 April 1995, I put it to the then Accounting Officer that he should be recovering a lot of these sums and his answer was, “I would prefer if the issue of recoverability were dealt with on a different occasion”. That was my experience during the four years I was a member of this Committee during the 27th Dáil. I found it very difficult to get the Department of Agriculture and Food to deal with these matters. It was extraordinarily reluctant to take steps for recovery. Indeed, its very reluctance gave rise to the specific fines of £71.9 million imposed on Ireland.

Article 8 of regulation 729 of 1970, which is the one that governs beef intervention, makes it clear that the obligation is on the competent authority of the member state, that is the Minister for Agriculture and Food and his Department, to recover amounts lost by irregularity, negligence or fraud. There is a let out in Article 8 which I think is very generous on the part of the Community. Paragraph 2 of Article 8 states that

In the absence of total recovery [in other words, if a member state fails to make total recovery] the financial consequences of irregularities or negligence shall be borne by the Community, with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the member state.

It is evident, therefore, from a reading of the Article; the special report of the Court of Auditors, No. 1 of 1997; and from the opinion of the Advocate General in the case of Ireland versus the Commission, which was the case about the fines, that no effort was made to recover these sums. Therefore, the fines were not imposed because irregularities, negligence and frauds took place. The regulations assume that certain people in the beef trade, not just in Ireland but throughout the Community, will involve themselves in irregularities. The fines were imposed because of the failure of the Department of Agriculture and Food to make any effort - not even any reasonable effort, but any effort - to recover the sums that were lost by these irregularities of processors in the industry.

We end up with a situation where the Irish taxpayer is fined £71.9 million for that precise failure by the Department and the Minister. However, it is not as if all this money just went down the drain, was frittered away in some way or washed out into the ocean. The moneys concerned that were lost to Community funds as a result of irregularities enriched certain people.

The moneys which enriched those people through their own irregularities and which the Department did not do anything about or seek to recover were allowed to be kept by them. It seems doubly wrong that the taxpayer who is innocent should have to pay £71.9 million and at the same time those who benefited from the irregularities are allowed to retain their ill-gotten gains. Not alone is there a penalty on the innocent taxpayer but there is an unjust enrichment of people who are not entitled to certain funds.

As far as I can see no efforts have been made to recover the amounts lost. For example, as a microcosm of the broader picture, where one is talking about very large sums of money, in AIBP Rathkeale, County Limerick, approximately £2 million worth of beef was stolen. It was the property of the European Commission and stolen from it. It was resold on the domestic commercial market and I tried on a number of occasions at the Committee to get the Accounting Officer to institute proceedings because it was a very clear and simple case but he seemed very reluctant to do it and finally told me that proceedings had been instituted. It transpired afterwards that they had not.

Apparently, there was a mix-up between himself and the Minister, who gave a different reply in the House. The view of one of them was that if it was sent to the Chief State Solicitor for advice, that amounted to instituting proceedings. The question asked was whether proceedings had been instituted. Finally, they were instituted some years ago after I had raised the matter at this Committee four or five times. To the best of my knowledge, even though the case is absolutely clear cut, no recovery was made in respect of that nor was any effort made to get at or penalise in any way the beneficiary from those thefts. Rather criminal proceedings were taken against people who were not beneficiaries but employees of the company concerned, in some cases junior employees.

It was made abundantly clear in court and accepted by everyone, including the State, that none of the employees charged with fraud had benefited in any way nor could they, but, nonetheless, they were charged. Some pleaded guilty; those who did not were acquitted with very strong words from Mr. Justice Moriarty, who gave a direction at the end of the State case that it was a disgrace that they had been charged and prosecuted because it was evident from the evidence that not alone was one of the men who pleaded not guilty clearly not guilty but he was the subject of a very considerable wrong because his name had been forged, perhaps as many as several hundred times on departmental documents or documents for submission to the Department by an official from the Department so that the company would benefit.

It has since come to my notice that it was not just the one official who was referred to in that trial who forged an employee’s signature. It has come to light that there is now a second official. I inquired where were the two officials who carried out this activity and was informed that both had been promoted. I regret that is typical of the attitude of the Department in matters such as this. A grave injustice was done to this man who was prosecuted and I venture to think that an injustice may have been done to others, even though they pleaded guilty. What is particularly galling, unjust and unacceptable is the fact that the person who benefited in Rathkeale alone over a year or so to the tune of £2 million has never been charged with anything nor has one penny been recovered from him by the Department.

Rathkeale is lucky or unlucky in that certain things came to light because certain people were prepared to stand up and be counted. What happened there is typical of what went on in many factories between 1988 and 1992 and, unfortunately, these practices do not seem to have ceased because last year three more people were convicted of further malpractices of a very serious nature in Rathkeale. One was an employee of the company who was dismissed because the owner always has somebody to take the rap for him. He got three months in jail and was fined £500. What was going on was described by the District Justice who heard the case as utter greed. The person concerned was not going to benefit from it but the owner of the factory.

I deplore the studied, continued, deliberate reluctance to recover large sums due which has gone on over a very long period. Arising from one of these court cases, I came across a memorandum signed by Mr. Gerry Cody of the trade mechanisms section of the Department where he strongly recommended, for example, that recovery be made. I recall on an earlier occasion coming across a similar memorandum from Ms Brid Cannon in the Department recommending that recovery be made from those who had benefited. In each case they were overruled by their superiors and no steps were taken. When dealing with one of the proposed fines due in 1994 Mr. Cody said:

My own conclusion is that the Commission will not disallow the total £32 million, but in a worse case scenario may disallow 5 per cent or 10 per cent of this amount. Given the fact that the certificates presented by Bureau Veritas would not in any circumstances be acceptable to this Department nowadays we should consider living with that level of disallowance and recovering same either from AIBP or B.V. or both.

No steps were taken to recover from either company.

Bureau Veritas is a saga in itself. The Department accepted Bureau Veritas certificates even though many of them had been altered. They are known to be fraudulent which was why Mr. Cody said that the Department would not “nowadays” - 1994 - dream of accepting of accepting any such certificate. It was also the conclusion of the beef tribunal that they had no credibility. However, large sums of money, in terms of securities, which were lodged via banks for export refunds were released to certain beneficiaries based on these certificates even though they were known to be of little value.

£17 million was released as recently as two years ago. The difficulty with the release of securities is that once released if the Department is reluctant, as it obviously is, to pursue these people the chances of recovering any money are gone whereas if one holds the security one can at least forfeit it. The forfeiting of securities by the Department has been very limited in spite of the fact that it has been drawn to their attention on numerous occasions that certain very strange things happened.

I do not want to go into too much detail on the Bureau Veritas matter but I am available to discuss it if the committee so wishes. These certificates are, of course, only secondary proofs and should not be accepted if primary proofs are available. We are told, a bit glibly, by the Department that primary proofs were not available. I believe they were. Primary proofs are Iraqi customs documentation which were freely available up to January 1991 when the Gulf War began. That War commenced in August 1990 with the invasion of Kuwait by Iraq but that did not disturb matters in Baghdad. Baghdad was disturbed by the successful attempt by the allies to free Kuwait in January 1991.

Primary proofs were not provided by certain exporters to Iraq prior to January 1991 because such exports did not take place. It would be impossible to produce Iraqi customs documentation in respect of imports into that country if they did not take place. There is evidence to support that supposition because some of the meat on which export refunds were paid has turned up in the last year or two in, of all places, the Canary Islands. Export refunds were paid on the basis that it was exported to Iraq or a similar third country. This is a huge field and I am only pointing to the tips of some of the icebergs that exist.

The Committee when considering matters of this kind should not ignore the Emerald Meats case which by comparison with the hundreds of millions of pounds we are dealing with elsewhere is small. That case resulted in the loss of only a few million pounds and is, unfortunately, typical of the attitude taken by the Department of Agriculture and Food. A gross injustice was done to that company. They suffered for seven years before finally getting justice. Even though the Department has, according to the Minister, 11 indemnities from companies in respect of the damages it had to pay to Emerald Meats for the wrongful actions against them for the benefit of a major beef processor in this country they have made no attempt to recover on foot of those indemnities. Again, the taxpayer must pay. What happened in Emerald Meats happened in the month of January 1990 which is precisely nine years ago this week. It is not a major case, we are only talking about £2 million or £3 million or a bit more when the general damages are assessed but the taxpayer will have to pay. Not alone will the taxpayer pay for the negligence, breach of duty and irregularities of the Department of Agriculture and Food but those who were unlawfully enriched by the Department’s improper actions are allowed, yet again, to retain the benefit of that unlawful enrichment.

That concludes what I have to say in relation to a few items that have arisen. I thought that one way of remedying this - as did the European Commission - was that FEOGA funds be administered, as they are in many countries, by an agency other than the Minister and Department of Agriculture and Food. The last Government took that view and made a decision on 12 March 1996 to that effect. That decision has not yet been implemented. That is a pity. It would provide us with some comfort for the future if it was implemented and we had an entirely independent administration of these funds done from an accountancy point of view rather than by people who feel it is part of their duty to be close to the processing end of the beef industry. I hope that decision, which has never been amended in any way and which is now two years and ten months old, will be implemented. It would be an indication of good faith to the European Union and to the long suffering Irish taxpayer.

Deputy Rabbitte: Deputy O’Malley largely breaks down the figures into three different areas. He posited a figure of £250 million shortfall on FEOGA. Mr. Meade brought us up to date on that matter though he mentioned a figure of £300 million between 1973 and 1998.

Chairman: Perhaps Mr. Meade might recall that for us.

Mr. Meade: I will clarify two points. There is the ordinary amount which will be met from FEOGA such as the difference between the store charges paid for storing beef and the amount paid by the EU and handling charges and the rate of interest for which borrowings have to be made and are recouped six weeks later. The total amount is £300 million from 1973 to 1998. Furthermore, £99 million has been disallowed since 1973 to end of 1998 where the EU found matters were not kosher. That included the £71 million fine plus amounts for late payment of premium etc.

Deputy C. Lenihan: Is that 2 per cent of the total amount?

Mr. Meade: When you add £300 million and £99 million and the fact that £20 billion has been paid in FEOGA amounts from 1973 to 1998 the amount borne by the Exchequer amounts to 2 per cent of the total amount of FEOGA payments made in Ireland since 1973 to 1998.

Deputy C. Lenihan: Could you clarify that again?

Mr. Meade: A sum of £399 million has been met by the Exchequer either in amounts disallowed or the normal amounts which required to be met where the amount recouped by the EU in financial charges and storage charges etc. is less than the cost. £400 million over £20 billion comes out 2 per cent.

Deputy Rabbitte: So, whether we are taking the figure of £250 million or £300 million that is the ballpark of the first category. Deputy O’Malley’s second category is what he calls fines and in Euro jargon is called “disallowances”.

You referred to the specific one of £71.9 million. Mr. Meade said taking all things into account that could be updated to £99 million. That is the second distinct category and in the third category is the Ballaghaderreen fire. If memory serves me right that was a situation where premiums had been paid to the broker but the broker never passed them on to the insurer who may have been French and as a result of that the factory was not on cover. Arising from that the taxpayer was liable for this £32 million. Do you recall that at all?

Deputy O’Malley: I do. The fire took place in February 1992 and the Department claims it paid the broker which I am sure it did. The company says it is not on cover which suggests that it did not receive the premium. We were told by the previous Accounting Officer that the Department had instituted proceedings but it still does not seem to have come to a head or a decision. For a claim arising out of a fire seven years ago this is an unusual length of time.

Deputy Rabbitte: We will come back to that with the Department. I do not want to take up the Committee’s time now. When I raised this in the Dail at the time the Department rubbished the story.

Deputy O’Malley: Even if it was on cover the Department had not covered it for enough according to the Commission. The beef was worth £30 million but the cover was for only £21 million. I think the Department has already had to pay for it in full or if not, it certainly had to pay the difference.

Deputy Rabbitte: In total we are talking in the order of £430 million while the funds were administered under the Department of Agriculture.

Deputy O’Malley: Yes under those headings.

Deputy Rabbitte: Can I put it to you that it is not fair to take the three categories as being similar. Is it not fair to the Department to say that the loss from the FEOGA fund is through incompetence and mismanagement as distinct from the second category where the fines were imposed for negligence on the part of the Department and apparently collusion? Is that not a fair distinction to make?

Deputy O’Malley: I think it is. I am not sure whether you can apply that distinction to every detail of each one of them. In general there is a far higher degree of culpability in regard to what you have called the second category, the fine or disallowance category because that was a studied continuous refusal to make any effort to recover the amounts that had been irregularly obtained by certain people. Some of what is in the first category could be put down to bad luck or bad judgment or just lack of experience in dealing with matters of that kind.

Deputy Rabbitte: Do you agree that the acceleration in the rate of loss, to take your own division of the second ten years as compared to the first ten years, extraordinary?

Deputy O’Malley: It is and that strangely enough happens in both of these categories. There is a huge acceleration of loss. In the first category it is ten times higher in the second ten years. In the second category it is about 1,000 times higher.

Chairman: What two categories are you talking about?

Deputy O’Malley: The first category is the one that Mr. Meade classified as the general accumulated shortfall in FEOGA funds of about £300 million. The second category relates to disallowances which are fines imposed for failure to deal with irregularities.

Deputy Rabbitte: If I could refer to the explanation given by the Accounting Officer on the last day in response to a question on this from me. He said “It relates to interest rates in the country which were much higher than interest rates anywhere else.” On study of the subject since I think he probably meant exchange rates but we will have the opportunity to hear him on that later. Do you want to make a comment on that?

Deputy O’Malley: The then Accounting Officer cannot have it both ways. He was complaining that our interest rates were higher than they were in certain other countries which undoubtedly they were but then they went on to borrow in various foreign currencies including, rather unusually in things like Yen. The interest rates on borrowings in Yen were always very low for instance in the region of 2 or 3 per cent. What they lost on the swings they made up on the roundabout or vice versa. That argument was a little bit disingenuous in that sense. I put it to him that if his liabilities were in Irish pounds, would he not be better to borrow in Irish pounds. I think they came back to that view in the end. There were changes in policy. I made a suggestion that perhaps if the NTMA had handled that aspect of things it might have been better.

Deputy Rabbitte: On the second category you referred to Article 8 of the European Regulation 729.70 which states as follows:

“The Member States in accordance with national provisions laid down by law, regulation or administrative account shall take the measures necessary to satisfy themselves that transactions financed by the fund are actually carried out and executed correctly, prevent and deal with irregularities and, thirdly recover sums lost as a result of irregularities or negligence.”

Deputy O’Malley are you saying that the Department did not comply with any of those three imperatives? The first one was to satisfy themselves that transactions financed by the fund are actually carried out and executed correctly.

Deputy O’Malley: I would say there was a failure in all three but the most identifiable failure was the third one which was the obligation - and it is an obligation because it states “shall take the measures necessary to recover sums lost as a result of irregularities or negligence”.

Deputy Rabbitte: You say that where monies have been lost due to irregularities that if the member state had made a reasonable effort to recover the moneys lost that the outcome would be that the European Union would bear the cost and not the member state or taxpayer.

Deputy O’Malley: That is correct. That is what paragraph 2 states of the same Article.

Deputy Rabbitte: I do not have paragraph 2.

Deputy O’Malley: Paragraph 2 states “In the absence of total recovery the financial consequences of irregularities or negligence shall be borne by the Community with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the member states.”

Deputy Rabbitte: So if reasonable effort had been made to recover these monies we, the taxpayer would not have been hit for £71.9 million.

Deputy O’Malley: That is correct.

Deputy Rabbitte: Does it not similarly reach the conclusion that the reason the Department did not seek recoverability or had not sought recoverability up to now is that they are admitting the second part of that particular regulation which states that except in cases where the member state itself or the authority itself was responsible?

Deputy O’Malley: The second part of it states “With the exception of the consequences of irregularities or negligence attributable to the administrative authorities or other bodies of the member states.” They now find themselves in the position that not having taken steps to recover the sums lost they come within the exception to the general rule which is that the Community will bear the loss involved. The Community assumes that there will be frauds and irregularities anyway.

Deputy Rabbitte: In your view, can this Committee reach any other conclusion - that they are in that category and the reason they have not pursued recoverability is that they themselves have been responsible for incurring it in the first place?

Deputy O’Malley: They have not been responsible in the first place but they have been responsible for not taking action to recover sums that were lost because of irregularities in the course of intervention activities.

Deputy Rabbitte: Mr. Dowling, the previous accounting officer, told this Committee on 6 April 1995, “At the end of the day, the Government will have to take a view on how the matter is to be dealt with, whether it is by way of recoverability or otherwise.” I understood, reading the file, that this meant that Mr. Dowling was holding out to the Committee the prospect that we would indeed seek recoverability. What has been a constant theme - I know from being in a different position than the one I am in now - is that one cannot do anything until the appeal is decided in Brussels. However, once it is decided in Brussels, Mr. Dowling seemed to be holding out the prospect of recoverability - this is typical of more informal discussions which took place between senior officials in the Department of Agriculture and certain Ministers in the rainbow Government.

At the end of the day, the Government will have to take a view on how the matter is to be dealt with, whether it is by way of recoverability or not. Is that not what Mr. Dowling was intending to convey to us - that recoverability was very much under consideration?

Deputy O’Malley: On one occasion - I am not sure whether it was that day, I quoted the date to you earlier - he said he did not want to deal with the question of recoverability that day. He usually said that recoverability - the issue was raised with him on many occasions at this Committee - was for the future. When one pressed him to start recovering, there was always some portion of some court case still outstanding. Of course we could not do anything until that was over. The result is that we are now eight, nine and ten years after some of the events we are discussing. Our ability to recover is prejudiced by the delay which has been allowed to arise. I will not put it any stronger than that because I hope we will still recover. However, there would have to be a clear change, not just of policy, but of attitude and determination on the part of the Department, if we are to be successful.

Deputy Rabbitte: You referred to the Rathkeale case, which was pretty open and shut - theft of product from the European Union, for which there were convictions. Am I confusing two matters? Was it in respect of that case or a different one that it was established that an official of the Department had forged documents?

Deputy O’Malley: It was in respect of one of the two earlier Rathkeale cases. There have been three in all - the most recent in 1996, where they were introducing unstamped carcasses into Rathkeale for the purpose of putting them into the human consumption chain, even though they had not been killed there, or under veterinary supervision or in a licensed premises. They were unstamped but somehow stamps became available to subsequently stamp them.

Deputy Rabbitte: What about the second official?

Deputy O’Malley: That relates to one of the two earlier cases in Rathkeale which took place mainly between 1989 and 1991. One of them related to canning. The officials I am talking about were not involved in the canning case but in a different one where certain activities were taking place relating to intervention beef.

The canning case was the most blatant of all and took place at the time of the changeover in Russia, or the then Soviet Union, when the communist Government came to an end and there were huge difficulties distributing food there that winter. The commission in Brussels decided to make a gift of a large amount of beef which was in intervention and which they could not sell anyway to the Russian people. However, the Russians were unable to take the carcasses because they had no proper refrigeration equipment. They asked the commission to can the beef for them and to send it to them in cans as it was the only way they could distribute it throughout Russia. The commission agreed to that and advertised for tenders from canning factories within the community. Rathkeale was successful in getting a canning tender for £3 million worth of beef, perhaps a bit more - a couple of thousand tonnes.

A great number of choice cuts were taken from intervention beef - steaks etc. and other parts were substituted, such as hearts for example.

Chairman: So instead of a can of beef they got a can of worms.

Deputy Rabbitte: This is reminiscent of the other case to which Deputy O’Malley referred - the Emerald case where documents were also fabricated and submitted to Brussels, purporting to inform on the traditional position as regards the importation of beef under the GATT agreement, into this jurisdiction.

Deputy O’Malley: It is. Obviously, the wrong information was given by the Department to the commission in Brussels because the Department did not support the application of what was called the “traditional” importer. It supported the application of non-importers who were processors.

Deputy Rabbitte: Do you know of any other case of alteration or forgery of documents involving the Department of Agriculture and Food?

Deputy O’Malley: Yes, it is quite widespread. I had a personal experience in November 1989 when I was Minister for Industry and Commerce. I received a letter from a beef processor who was complaining because I was proposing to void his export credit insurance policy. He asked why I was voiding it, as the Government and the Department of Agriculture knew all about it. He enclosed a veterinary certificate as proof that they knew what was going on. In those days I was not familiar with veterinary certificates so I sent it on to the Department of Agriculture. I got an acknowledgement that it had received it, but I never got any more.

It came to light at the end of the Beef Tribunal, at the end of 1992, that this certificate sent to me had been forged in a very material way. The Department of Agriculture was aware of this for three years but never informed me. The effect of the forgery was to make it clear to anyone looking at it, who knew it was forged, that the beef it covered was intervention beef. If I had known that at the time - when a very large action had been taken against me by a beef processor, it would have been a very strong defence for the State. However, the State was left unprotected.

Chairman: With what consequences?

Deputy O’Malley: No consequences yet. Happily, one of the fortunate consequences of the Beef Tribunal was that it came to light that this forgery had taken place. That made people very suspicious. At least the State now knows about it. However, the State did not know between 1989 and 1992.

Deputy Rabbitte: That is the same issue, but is it separate from the CBF document that was adduced in evidence at the Beef Tribunal where a critical paragraph about the origin of beef was altered by an official in the Department of Agriculture?

Deputy O’Malley: It is entirely separate. The actual effect of the two things is the same. In each case it was an attempt by the Department of Agriculture to conceal the fact that was known to them, but not known to the Department of Industry and Commerce who was dealing with export credit insurance, that

Most of the beef being exported in 1988 and 1989, with the benefit of these policies and with the benefit of export refunds and finance guarantees, was intervention beef.

Deputy Rabbitte: Will you explain briefly the import of the alteration of a paragraph in the CBF report on the origin of that huge amount of beef?

Deputy O’Malley: A CBF official - I think it was Mr. Moore if memory serves - was asked to prepare a briefing for Deputy Brennan who was then the Minister of State at the Department of Industry and Commerce. He was going to Baghdad on a trade mission and he was asked to deal with beef among other things while he was in Baghdad. The CBF brief prepared for Deputy Brennan, and sent in the first instance to the Department of Agriculture, made it clear that most of the beef going to Iraq was coming out of intervention. That paragraph was taken out by an official in the Department of Agriculture and the remainder of the briefing was sent on. The Minister of State went to Baghdad without knowledge of this.

If it had become generally known at the time that a large proportion of the beef going to Iraq was coming out of intervention, it would have been impossible for anybody to justify giving export credit insurance cover because the sale of the beef concerned was of no benefit to the Irish farmer. The farmer had already been paid for it by the Commission, which had bought it a year or two earlier.

Deputy Rabbitte: Do you know anything about his career trajectory since then? Was he disciplined?

Deputy O’Malley: I believe the official concerned was promoted.

Deputy Rabbitte: Have there been other promotions in the Department for people who have been associated with this type of document alteration?

Deputy O’Malley: I believe there have. There is certainly one common theme - there has been no effort to take disciplinary steps against any official at any level. I am not talking here about very junior officials. Some of the decisions that were made in respect of some of these matters were made, of necessity, at a senior level.

Deputy Rabbitte: You have been a Minister in a number of Governments. What is your view about the alteration and forging of documents in a Department? With what gravity do you view it?

Deputy O’Malley: I imagine that in every Department it would be viewed as a reprehensible activity. However, when I and others put it to the previous Accounting Officer in the Department of Agriculture, he was able to say that the changing of dates and so forth was done to clarify matters or to avoid somebody losing something he might otherwise lose.

Deputy Rabbitte: Are you ascribing the admitted alterations in the documents relating to the Bureau Veritas matter to officials within the Department?

Deputy O’Malley: No. I do not believe that they altered the Bureau Veritas documents. However, I believe that certain other documents were altered within the Department.

Deputy Rabbitte: And these alterations were admitted during your time as a member of this Committee?

Deputy O’Malley: Some of them were.

Deputy Rabbitte: What is the net import of that?

Deputy O’Malley: They vary of course-----

Deputy Rabbitte: In the case of those mentioned, what was the import of taking secondary proofs?

Deputy O’Malley: They are the Bureau Veritas ones which, as Mr. Cody says, would not be accepted now. In 1994 they would not have been accepted under any circumstances by the Department. The effect of accepting the secondary proofs was to allow the payment of export refunds on this beef even though the beef in certain instances might not have been eligible for the payment of full export refunds. It also seems to have led in more recent times to the release of securities which, in my view, the Department would have been wiser not to release. It might effectively be losing its only opportunity to recover some of the moneys that should be recovered for the public purse, be it the Irish Exchequer or the European Union exchequer.

Deputy Rabbitte: Your net point is that the processors who benefited over a decade from these malfeasances have never paid back anything to the Exchequer and, in so far as you know, no action for recovery has been initiated against them, notwithstanding the imperative under Article 8 of the relevant regulation of the European Union.

Deputy O’Malley: There was forfeiture of some securities. In that sense, they paid back some of what was involved. However, where the securities had been released, there was no action taken by the Department to secure any return of the moneys concerned even though it became obvious that moneys were wrongly paid in certain instances.

Deputy Rabbitte: Do you know or are you just guessing what informed the previous Government’s decision to take this entire matter from under the aegis of the Department of Agriculture?

Deputy O’Malley: I am only guessing this but I heard on the grapevine that there was a certain amount of informal pressure from the Commission in Brussels. That would seem to be borne out by the two documents to which I referred earlier. One is the report of the Court of Auditors which is particularly scathing about Ireland. The other is the opinion of the Advocate General in the appeal of the Department.

The Advocate General, for example, draws to the court’s attention the fact that the Commission could have disallowed 100 per cent of the expenditure in certain instances and by implication seems to suggest that it should have. By implication he is critical of certain parts of the Commission for having couched the disallowance too low given the flagrancy of the breaches.

Deputy Rabbitte: Chairman, would it be in order to ask the Secretary General of the Department to furnish us with the document? My understanding of Government procedure is that whatever decision was made by the Cabinet on 11 March 1996 would have been furnished to the Secretary General of the Department of Agriculture by rote from the secretary to the Cabinet. That would record the terms of the decision made.

I have found my contemporaneous note of it which said that the decision involved “the establishment of an operationally autonomous executive unit for all FEOGA payments reporting to a director recruited by open competition who would be an accounting officer managing a separate Vote reporting directly to the Committee of Public Accounts”. Would it be in order to find out, for our next meeting, whether that coincides with the official record?

Chairman: It is not in order now. In fairness, I want to allow the Secretary General to make a statement as I indicated at the beginning. I will consider the situation then.

Deputy Rabbitte: I will conclude by asking Deputy O’Malley a final question. What conclusion do you draw from this? Is the main purpose of your attendance before the Committee to ensure that such a separate, autonomous agency is established, given the historical track record, to administer these substantial payments in the future?

Deputy O’Malley: In so far as I have a purpose in being here, it is not to allow these things to die which they might do in the normal course of events. It is also to try to improve the situation in the future. The Government decision of March 1996 should be implemented.

My other major concern is to seek recoverability for two reasons: to reimburse the taxpayer and to ensure that those who have improperly and unlawfully benefited themselves are not allowed to retain that benefit when the taxpayer has to pay up for them.

Subsequent to that, the question of why the Department or some of its officials allowed this situation to continue must be considered. Why did more senior officers not take action against junior officers? Was it because the more junior officers could claim that the more senior officers knew about what was going on? Why was action not taken at a senior level to rectify some of the obvious deficiencies in the manner in which things were administered?

Deputy C. Lenihan: In relation to negligence and breach of duty on behalf of the Department, I am curious to find out from the Comptroller and Auditor General’s representative what he makes of the suggestions by Deputy O’Malley in relation to recoverability that there has been a significant loss to the taxpayer as a result of the issues which he raised. Does he view it as a significant loss due to not instigating a procedure to recover these moneys.

In the context of the 2 per cent under the whole period of the scheme, how does that compare to European figures? Is it the case that Ireland is losing more money than elsewhere?

Mr. Meade: In relation to recoverability, when matters are tied up with legal problems, it can be a slow process. The Department has taken legal advice and is, where appropriate, taking legal action. I am sure that the Secretary General will be able to give more details about the action which will be taken but all matters, including the £70 million fine and the £20 million fine following the fire in Ballaghadereen, are the subject of ongoing legal matters and are being kept in mind by our office.

As the Chairman said at the start, since 1989 most of these matters have been referred to in the annual report of the Comptroller and Auditor General. In fact, in the 1987 report, matters which gave rise to the Beef Tribunal were referred to in the Comptroller and Auditor General’s report and were brought to public accountability. The audit functions are two fold: to check that accounts are accurate and to ensure that matters which are not being properly administered are being brought to public accountability. That is being done.

As regards the 2 per cent, the Department of Agriculture and Food has circulated a paper giving an outline of how it compares with other countries. Apart from the £70 million fine, the Department has varied from being first to fifth or sixth position after the fine. If we compare ourselves with the UK or France, where there is roughly the same level of FEOGA agriculture expenditure rates, the Department comes out well over the 25 year period. I do not have the finer points of detail on this.

For a period I was a staff member of the European Court of Auditors and it is fair to say that all administrations have had problems at some stage with the administration of FEOGA funds. Many of the FEOGA schemes are not the easiest to administer. That is not to say that I approve of malfeasance - where malfeasance has arisen it must be followed through - but some of the problems are in the way the EU regulations are drafted and the whole decision making process. Some matters are taken out of national administrations and laid down by Brussels and vice versa. The whole area, unfortunately, and this has been admitted in the EU and two special anti-fraud units have been set up as a result over the last ten years, lends itself to malfeasance on occasion.

Deputy C. Lenihan: You are saying that the Department’s administration of the scheme over 25 years, in your view, has been good and that is backed up by European comparisons. There is not significantly more loss to the taxpayer on a domestic or European loss, as a result of the maladministration of this scheme when compared to other countries in Europe with similar sized FEOGA schemes to operate.

Mr. Meade: As I said when giving evidence at the Beef Tribunal, it is not the function of the auditor to express an opinion as to how good or bad Ireland is compared to other countries. All I can do is quote the facts and they relate that over the 25 year period, 2 per cent for the total amount, or 0.5 per cent for disallowances, has been met by the Irish Exchequer out of the total spending. Compared to other countries of a similar nature, we are not the worst.

It does not matter, however, whether we are the worst or the second best. Malfeasance of any kind must be deplored and action must taken by administrations to find out why it happened, to ensure that it will not happen again and procedures put into place to remedy the situation. Whether it is £100 million or £10,000, any penny of taxpayers money, European or Irish, which is badly administered is to be deplored.

Deputy C. Lenihan: When you say that we have been placed in either first or fifth position, what does that mean? How many countries are involved?

Mr. Meade: There are 15 countries.

Deputy C. Lenihan: So we are in the top five in terms of the administration of this scheme?

Mr. Meade: These are figures which have been produced by the Department of Agriculture and Food. I will let them answer that question. I can only go on the figures. I do not give an opinion on whether it is good or bad.

Deputy C. Lenihan: These are facts which stand up to auditors.

Mr. Meade: Auditors always deal in facts and that is how it should be.

Deputy C. Lenihan: You are happy that the statistics are reliable?

Mr. Meade: I have no reason to discount them. These are published statistics. Each year following the FEOGA clearance position the EU, publishes a table for each country of the total claim and how much was disallowed. From now on it will be converted to euro and it is possible to work out the percentages from that. The percentages which I saw this morning produced by the Department of Agriculture and Food would say they were in a certain range. The Secretary General will be able to give that in more detail.

Deputy Durkan: In respect of the Government decision of March 1996, relating to the establishment of an agency to administer FEOGA, why would anyone wish to delay implementation of that decision?

Deputy O’Malley: Departments, to a greater or lesser extent, tend to be protective of their own turf. Most of them react badly to any loss of jurisdiction.

Deputy Durkan: Would it not have percolated through a Department that, in the event of the Government making a decision, the decision of Government would carry considerable weight and would determine policy? What was your experience in Government ministries? Will Departments follow the directives of Government in terms of policy?

Deputy O’Malley: Legally they have to. The Government is elected, the Department is not. The Government is responsible to the people. It makes decisions and those decisions must be implemented. It is known that Departments which disagree with certain decisions tend to drag their feet but the foot dragging in this case has gone on for a long time.

Deputy Durkan: In this case the decision has still not been implemented.

Deputy O’Malley: No.

Deputy Durkan: You mentioned the substitution of good quality cuts of meat in a canning contract to Russia. What was the reaction from the Russians at the time?

Deputy O’Malley: I do not think the Russians knew about it until after they had eaten the meat.

Deputy Durkan: It was only after they opened the can that they discovered its contents.

Deputy O’Malley: This only came to light a year or two later. I would say that meat was consumed at an early stage after it arrived in Russia.

Deputy Durkan: Would such a policy be severely and seriously injurious to the good name of any exporting country, given that type of activity?

Deputy O’Malley: Of course it would, yes.

Deputy Durkan: Is the Deputy aware of any reaction since? Has anything happened since which might illustrate that fact further?

Deputy O’Malley: I am not aware of any reaction. As the Deputy is aware, there have been problems in the Russian market. I understand the Russians stated that they were caused by the incidence of BSE in Ireland. It was not due to what happened in regard to that canning contract - at least that was not stated publicly. Perhaps it was stated privately in Russia by some people who feel strongly about it.

Deputy Durkan: In any event the Russian contracts at present are a very small reflection of the potential a couple of years ago.

Deputy O’Malley: They are much smaller than they might be. We are told the primary reason for that is the BSE problem.

Deputy Durkan: The issue of the names which were forged is very serious. To what extent has there been any investigation in relation to that allegation by the Department? If a person in a Department forges somebody’s name, there are serious consequences. To the Deputy’s knowledge, what, if any, investigation took place in the Department of Agriculture and Food into that situation?

Deputy O’Malley: I cannot say what went on within the Department. I am sure the Deputy could ask the Secretary General that question. However, what had been happening was uncovered outside the Department. It came to light, for example, in the beef tribunal and it has come to light since. The man whose name was forged and who, very wrongly in my view and in that of Mr. Justice Moriarty, was charged with fraud was called Mr. Larry Kelly. He has since instituted proceedings against the Department for malicious prosecution among other things. His name was forged by two officials of the Department and rather incredibly the innocent party whose name was forged was prosecuted for a criminal offence and the two who carried out the forgery were not only not prosecuted but I understand promoted in the Department.

Deputy Durkan: The Deputy mentioned the disappearance of £2 million worth of beef from the records of an AIBP factory in the south-east. What happened in that regard? The Deputy used the phrase “stolen from the Commission”.

Deputy O’Malley: I was talking about the Rathkeale factory, not the south-east. It was the south-west

Deputy Durkan: My apologies. What was the upshot of that case? What happened afterwards?

Deputy O’Malley: The evidence given at the time was that it was sold on the commercial market.

Deputy Durkan: Who were the beneficiaries?

Deputy O’Malley: The beneficiaries were the owners of the factory. They were paid commercial prices for it.

Deputy Durkan: In the Deputy’s opinion, were the checking procedures of the Department of Agriculture and Food able to detect such a practice?

Deputy O’Malley: I would have thought some of its officials would have seen it going on. The evidence given at the criminal trial was that there were officials there who were watching it.

Deputy Durkan: The Deputy mentioned meat exports to Iraq which subsequently turned up in the Canary Islands. Is that correct?

Deputy O’Malley: Much of it turned up in various places, some of it in Poland, some in Romania. Some of it turned up in the last couple of years in the Canary Islands.

Deputy Durkan: On what basis could that have been done? Those contracts were meat contracts to Iraq since 1991.

Deputy O’Malley: No, it was pre-1990. As far as I know, there were not any deliveries in Iraq after early 1990

Deputy Durkan: I presume they were paid for by way of insurance export guarantees.

Deputy O’Malley: They were not paid for by way of insurance. I made sure of that. However, they were relatively liberally paid for by way of export refunds by the Commission. One would not be sure whether the ultimate customer paid any contribution. One would have to follow each consignment of meat to know.

Deputy Durkan: Would the Department of Agriculture and Food have been aware of procedures where that type of practice could occur? In the Deputy’s opinion, would it have been bound by EU responsibilities to the Commission to take some action? It appears extraordinary that somebody could export meat to one country having been paid for it by other means and then for the meat to arrive in a different country in a different era and for a person to be paid for it by somebody else.

Deputy O’Malley: Very probably the payment was not by the Iraqis in many of these cases. Evidence now suggests that they rejected much of the meat because, for example, it was not killed in accordance with the Hal-Al method or it was not slaughtered within 90 days of delivery to the premises of the purchaser although that was the contract. We now know that would not have been the case in respect of a very high proportion of the meat because it came out of intervention. Beef might have been in intervention for a relatively short period, such as a few months, but much of it would have been in intervention for three or four years. Some of it might have been in intervention for longer.

Deputy Durkan: Theoretically, some of that beef could still be in the circuit somewhere.

Deputy O’Malley: Yes, it could be somewhere. The last bit I heard of was in the Canary Islands. There was some publicity to that effect a couple of years ago.

Deputy Durkan: It appears inconceivable that the procedures being followed by the Department were incapable of stamping out that type of duplication.

In relation to the Ballaghaderreen matter, there is a possible loss of £32 million to the State if mitigation is not successful allegedly due to under insurance. What is the position regarding the legislation passed in relation to the responsibilities imposed on intermediaries? The Deputy may also have some interest in this aspect. Is that situation covered in terms of the intermediary accepting responsibility on behalf of the primary concern having allegedly received the payment from the Department? Surely this would cover the situation if the legislation deals with it.

Deputy O’Malley: The Insurance Act, 1989, deals with the regulation of intermediaries - brokers in this case. We should be careful here because I cannot say for definite whether the broker passed on the premium to the company. I do not know. I understand he claims he did and perhaps he did do so. However, it is unsatisfactory that the matter has not been resolved one way or another after seven years.

That is totally unsatisfactory. Fire claims are normally dealt with in a matter of months. If this meat was owned by the factory involved, Halal, rather than by the Commission under the managment of the Department, if it was someone’s private property they would have moved very rapidly. No one could stand the loss of such a large amount for such a long period. Unfortunately, there has not been any swift movement.

Deputy Durkan: It would appear that the Commission is deemed to be a soft target.

Deputy O’Malley: I do not know but there is a long delay unfortunately.

Chairman: The questions raised by Deputy O’Malley have been of public concern for many years. They span a long number of years in which there have been successive changes of Government. Why do you think different Governments have not been able to come to grips with the problems in the Department of Agriculture and Food?

Deputy O’Malley: I do not know. I had hopes that things were beginning to move in March 1996 but the fact is that it seems to be a difficult Department with which to deal. I could speculate about certain matters but perhaps it would be better not to do so here.

Chairman: In my previous term as Chairman of this committee, I was concerned about the Department of Agriculture and Food under several headings, not just those we are addressing at this moment. For instance, the committee has been exercised for many years about the failure to eradicate bovine TB, despite hundreds of millions of pounds of expenditure. I hope the committee will be more successful in eradicating the malpractices in the Department then the Department has been in relation to bovine TB. This has happened continuously, regardless of what Government was in office. Is there a lack of political or administrative will to deal with these problems? Have you any opinion on that?

Deputy O’Malley: A succession of Ministers have not been as assertive as they should have been. That applies to more than one Minister. I do not know why that should be so. A Minister that was prepared to suffer a certain amount of personal discomfort for a while would better serve the public interest.

Chairman: Is it a job you would like?

Deputy O’Malley: I am gone beyond all of that. I did my bit several times.

Chairman: I want to offer the Secretary General an opportunity to respond. I intend to return to this subject in a week or two having issued the transcripts to the Secretary General and allowing him time to make a line by line comment on Deputy O’Malley’s testimony, including the reply to questions. Would you like to make a general comment now.

Mr. Malone: Given the number of points raised, I would welcome the opportunity to reply on a point by point basis. However, in fairness, there are a number of general points I would like to make and pick up on a number of broad issues that have been made which I feel have been unfairly presented and give an unfair impression of the Department.

First, I wish to deal with the overall costs of running intervention. We have circulated a paper. I do not know if Members had an opportunity to see the paper. It was circulated this morning so there was probably not much time. When referring to the £300 million, one is talking about running costs. The terminology of losses has been used fairly frequently. Regardless of who runs intervention, whether it is the Department of Agriculture and Food or an agency, the issue of running costs would have arisen. That is explained by a number of reasons. The Commission recoups the running costs of intervention. It is made up of technical costs, such as freezing and storing, and financial costs. Member states are responsible for providing the initial capital to pay for the intervention purchases and the recoupment is made on the basis of standard charges and standard interest rates. Those interest rates are based on European averages and, in certain cases, have been based on the lower averages of the lower cost member states.

Between 1973 and 1988, the Commission operated a system of paying advances. After 1988, due to budgetary pressures, this was changed to a system where the member state pre-finances and the EU reimburses after the event. If one is in a member state which has higher costs, whether they be interest charges, transport charges or whatever, and one is recouped at a standard amount, there are going to be losses. We can give more elaborate details to the committee on this point.

The issue of borrowing has been raised. The Department undertook its own borrowing on foot of a Government decision. It was Government policy at the time that, effectively, borrowing for intervention purposes should not influence the domestic money market. Inevitably we were forced into a situation where we had to borrow abroad. There were two devaluations on which we lost. That issue has been gone into in some detail by the Comptroller and Auditor General. It is true to say, and this is borne out by the report, that in other years we gained by virtue of borrowing in foreign currencies such as the yen.

In more recent years, borrowing has gone back to the domestic market as much of the pressure on interest rates and the market generally has abated. I would labour the point that we were operating under Government policy and instructions.

The second area I wish to refer to -

Chairman: Were Government instructions to deal with where or how the Department borrowed?

Mr. Malone: Yes, the Government indicated how we borrowed. We were to borrow in foreign currency.

Chairman: Those decisions were made elsewhere.

Mr. Malone: It was up to us to take our chances. The point arose on the previous day and it might be no harm to clear it up. A process has been put in place of transferring this borrowing to the NTMA. As we speak, the NTMA organised the borrowing for intervention purposes. The intention is to give the total borrowing to the NTMA. This requires legislation. There are discussions involving the Department of Finance, the Attorney General and ourselves. What is needed is a basis to do that. There is no resistance and no problem with that area of activity going to the NTMA.

I also wish to refer to disallowances. We have given the figure of £99 million in the paper we circulated. The brunt of this concerned disallowances regarding intervention in 1990 and 1991. The system was overloaded as 1.4 million cattle were taken into intervention in those two years - the equivalent of almost 500,000 tonnes of beef. The sad reality was that a volume of product was taken in with which the system was not able to cope.

The question is, should we have refused to take that product in. Had we refused, the beef market and cattle prices would have collapsed. Deputy O’Malley outlined the scenario which prevailed. The situation in relation to Iran/Iraq was very unstable. BSE had also appeared on the horizon at that stage. We were left with the choice of taking in the product and overloading the system or simply rejecting the product and causing severe consequences for farmers and the industry generally.

What was found or imposed in relation to the disallowances - it is important this point is cleared up - was a systems failure in that the system, as operated, did not provide proper and sufficient protection for Community funding and disallowances were applied. There is a system of general disallowances of 2 per cent, 5 per cent or 10 per cent. Some 10 per cent was imposed for one year and 5 per cent for the subsequent year in recognition of changes and improvements we had put in place. An important point to understand is what was at issue in the disallowances. I do not accept the suggestion that had we proceeded with specific recoveries, the disallowances would not have taken place because in my view, they would have.

The next point with which I will deal is important and relates to what we did about the situation. The implication seems to be that we sat still, did nothing and did not react, particularly to the findings and to what emerged from the beef tribunal. It must be recognised that the beef tribunal lasted for almost two years and was one of the most exhaustive investigations ever carried out. It went through a range of issues and instances in the most excruciating detail.

Around the same time as the beef tribunal, we put in place a range of improvements which, for example, consisted of the setting up of a special beef controls division, changing the intervention rules and beef being deboned on a different site from where animals were brought in for slaughter. In particular, we brought in a system of unannounced inspections because one of the criticisms which had been made was that we were too reliant on permanent supervision. We have carried out hundreds of unannounced inspections. In any given year, we could carry out 200 or 300 unannounced inspections.

There were two main findings or recommendations from the beef tribunal. The first was that we controlled the product at the point of weighing, which we have administered. The second was that we retained all the meat, which we have done as well. We reacted fully to the findings of the beef tribunal, which is an important point to recognise.

On the issue of recoveries, the impression has been created that we are somehow reluctant or do not wish to proceed with recoveries. Article 8 - I think Deputy O’Malley will acknowledge this - is a fairly broad statement in the sense that it states member states shall recover sums lost as a result of irregularities. It is unusual that there are no detailed rules because many Commission regulations set out not only what one is to do, but how one is to go about it.

It is important to note that an irregularity is defined in another regulation as an infringement by an economic operator. It means that one must have a specific irregularity. It is also important to note that in March 1995 when the issue of the fines was coming to a head, a recoveries group was set up to look at the question of recoveries and the options. A range of ideas were considered. Those who examined that consisted of people from the Department of Agriculture and Food, the Department of Finance and from the Attorney General’s Office with an independent legal adviser. The option of a general levy, for example, was considered and was found to be a legal impossibility because of a case which had taken place in Italy a number of years ago. The issue of imposing a levy on particular companies was also considered and again that was found not to be legally possible. The reality is that recoveries get us into a situation where we must go after specific instances, issues and circumstances.

We must proceed in accordance with Irish law and the normal rules of evidence. We are pursuing three cases, in particular, which arise in the main from the beef tribunal. Proceedings have been instituted as regards Shannon Meats and we hope that case will come before the courts this year. The case of Rathkeale was outlined in detail and I hope it will come before the courts this year. We have also instituted proceedings in relation to the issue of yields and the full yield of intervention meat not being put forward. Legal proceedings have been instituted against seven companies in that regard which are, in the main, seven Goodman companies.

I also emphasise the point that much of the information and data used or which will be used to pursue the cases is on the basis of investigations and checks carried out by the Department. A reading of the beef tribunal report would indicate that in many of the issues which came to a head and to the fore were on the basis of checks and documentation taken or seized by the Department of Agriculture and Food.

I refer to references to the Government decision of March 1996 and a reference an operationally autonomous unit. That Government decision covered a number of issues, including changing the legislation in relation to the protection of Community funds. It also talked about increasing the level of charges for meat inspection fees, reorganising the Department of Agriculture and Food, setting up an operationally autonomous unit for FEOGA payments, the creation of an anti-fraud unit and about the rotation of staff in meat factories. That decision was not ignored by the Department.

The position is that we also had on hand at that time another Government decision which talked about decentralising the Department of Agriculture and Food and decentralising somewhere in the region of 300 staff to Wexford. As it happened - it predated the decision by Government - staff identified for decentralisation were mainly staff in the FEOGA unit. We set about ensuring the transfer to Wexford would take place. That caused difficulties because a small number of staff in the Department were interested in the transfer and it meant we had to recruit or bring in something like 250 people from Departments who were interested in moving to Wexford.

There was no pressure of which I am aware from the European Commission to establish this autonomous unit. We were under considerable pressure from Brussels and our independent auditors, who carry out the accreditation of our intervention arrangements, to ensure the operation and transfer to Wexford took place smoothly and that it did not in any way jeopardise Community funding. We had to proceed with the transfer to Wexford because the decision had been taken and the building was under construction.

At the same time, we commenced work and identified the areas that would go into the executive unit. Subsequent to that - Deputy Rabbitte raised this matter the last day - there was a change in Government. In the programme for Government there is a proposal--

Deputy Rabbitte: In fairness, Mr. Malone raised that matter.

Mr. Malone: I raised it.

Deputy Rabbitte: You offered it as the explanation for the decision.

Mr. Malone: The position is that that decision talked about setting up a payments area that would cover both FEOGA payments and general payments - the direct payments made to farmers. The unit being talked about is a much larger one with many more staff; it would no longer simply be a unit in Wexford but would cover a much larger area of expenditure.

A further complication was the fact that the Government took a decision to establish the Food Safety Authority, and that body impacts on the staff of the Department of Agriculture and Food, as a lot of the public health work done by our veterinary staff comes under the remit of that body. The Government was anxious to proceed with the establishment of the Food Safety Authority and we had to wait to see what the outcome of the process was, as if staff had to be transferred to that authority some of those staff would have been intended for the FEOGA unit. The position has now been clarified with the Food Safety Authority; there will be service contracts with that body, so the way is now clear to proceed. The intention is that the Minister will submit a memorandum to Government over the next few weeks--

Chairman: On the establishment of this unit?

Mr. Malone: Yes. I would labour the point that we had not ignored the Government decision. We reviewed this at least twice a month in the Department and it was a physical impossibility to set up a unit and at the same time send several hundred staff to Wexford. We had no choice but to await the outcome of the Food Safety Authority, but the Minister will be submitting proposals to Government soon. We are quite well advanced in the preparation of our ideas. A draft memorandum has been prepared and will be circulated to other Departments for observations.

There has been no pressure from the Commission that I am aware of to establish this unit. In fact, the Commission official who gave evidence to the Beef Tribunal was non-committal on the issue, taking the view that it was a matter for the member state.

The Emerald case was referred to, and the facts of that case are fairly well known. There was a disagreement in 1990 - conflicting claims on the Department in relation to licenses for the importation of GATT meat. That situation arose out of a change in European regulations, and if that change had not occurred I think the difficulty would not have arisen. The issue at the heart of the dispute was who should be regarded as the traditional importer. The Department took the view that the processors should be regarded as the traditional importer in relation to two thirds of the licenses, while it regarded Emerald as the eligible applicant for one third of the licenses. Why did the Department take that decision? There were a number of reasons: one was that the system had been put in place in 1985 on foot a policy decision in the Department to give the value of these licenses to the meat processors - people who added value and created employment. The second consideration was that the intention at the time appeared to be that the regulation would not change the situation dramatically, and that there would be a fairly seamless transition from the situation that prevailed in earlier years. The whole issue hinged on a fairly narrow legal point: who should be regarded as the traditional importer and Emerald’s right to a license. The High Court finding is well known; the Department’s decision was regarded as wrong. That was confirmed when the decision was appealed to the Supreme Court.

Deputy Durkan: Who appealed to the Supreme Court?

Mr. Malone: Ourselves and the meat processors appealed to the Supreme Court?

Deputy C. Lenihan: On a point of information, when the Department took the view about the traditional importer aspect, did the Attorney General of the time give advice?

Mr. Malone: Yes--

Chairman: We will let Mr. Malone finish.

Mr. Malone: This decision has been strongly criticised. Motivation has been attributed which is not justified. Anybody can make a wrong decision, and this looked like the right decision at the time, though it was proven to be wrong in law. Where we are open to criticism, and what I do not defend, is the fact that we did not give Emerald a fair hearing at the time and we did not listen to their side of the story. Good procedures were not followed, and the Department allowed itself to make a decision in a pressurised situation. Essentially, there was one week in which to make a decision between conflicting demands.

A number of issues arose out of the court process, the first being that of legal costs and the meat processors having to carry their share of legal costs. We have been in discussions with the Chief State Solicitor’s office and the lawyers for the meat processors, and agreement has virtually been reached in this matter. In fact they have already paid some of the money; the reason they have not paid it all is that there are a number of processors which are contributing individually.

The second issue is that we are now beginning the whole issue of indemnities, which we are not going to shy away from. I will not go further than that as this might develop into a legal process. I will have to return to specific points relating to specific cases, but a general point was made about exported product turning up in different destinations.

The reality is that the Department has forfeited £11 million in securities from the Goodman group over the past number of years. A number of those forfeitures arise out of the issues that have been discussed. Those forfeitures have also been taken on the basis of acquainting the Government. We have informed the Government of our decisions, what we propose to do and what we have done.

Finally, there have been various references to forging of documentation. The first point relates to how one uses terminology. The Rathkeale situation was referred to in detail by the Beef Tribunal.

There is no denying that an official of the Department inserted the name of another individual on intervention forms. As I understand it, he inserted the name with the knowledge of the individual involved. The tribunal adjudicated on that issue and found two important points: First, that the officials in Rathkeale were seriously overworked, that there was not enough staff on the ground to cope with the volume of product and, second, that there was no collusion.

It has been suggested that the Department was colluding in these misdemeanours. Neither the beef tribunal, nor the Emerald Meats judgment, nor any of the other judgments found instances of collusion where it was alleged against the Department. I reject the idea that we are colluding on an ongoing or even a limited basis with regard to misdemeanour.

A specific issue regarding a veterinary certificate was referred to. The Department provides a considerable amount - thousands - of veterinary certification. Our record in that area is very good. We take veterinary certification very seriously. We were not aware at the time that this was a forged veterinary certificate. This issue arose in the context of the beef tribunal.

Those are the broad points. I would welcome the opportunity to elaborate on some of the more detailed points. However, at a general level, I would insist that, first, the costs that have arisen in relation to intervention are costs that would have arisen regardless of who had responsibility. Second, that we recognised the weaknesses and put in substantial and significant improvements, especially since 1991, and that this has been recognised, both by the EU Commission and the Court of Auditors. The figures or rankings referred to are Commission figures. We presented them, but they are the reality. Third, that we do not condone forgery and collusion. Fourth, that we do not ignore Government decisions.

Chairman: I will adjourn the meeting shortly, but will allow members present to ask one or two brief question if they wish. Are you aware of the concerns of this Committee that your Department has been the subject of 50 paragraphs from the C&AG in the past eight years? Are you aware that no other Department remotely compares with your Department in that respect?

Mr. Malone: I am aware of that. You made the comment on my first appearance before the Committee last year that you wanted no paragraphs this year. Our ambition is not to have to appear before the Committee. I recognise the concern of the Committee and that our record has not been perfect. However, we have recognised our weaknesses and are trying to do something about it. For example, we have strengthened considerably our internal audit unit. We were the first Department to establish an audit committee. We asked an outside individual, a partner in one of the big auditing firms in Dublin, to chair a committee. I fully recognise the concern and where we are coming from in all of this.

Chairman: While we do not have the accounts for 1998 have there been instances of disallowances fines, malpractice?

Mr. Malone: There have been no disallowances since 1992 with regard to export refunds. Speaking from memory, there have been no disallowances regarding intervention since 1993 or 1994. Our record has improved. We have had intervention in 1996, 1997 and 1998.

Chairman: You mentioned that your Department, the Department of Finance and the Office of the Attorney General were represented on the intervention recovery group. Who chairs that group?

Mr. Malone: The group was established with a specific remit. It was chaired by Tom Arnold.

Chairman: Was or is?

Mr. Malone: Was. The group was established at the time of the imposition of the beef fines in 1996. Its purpose was to look especially at options because there were some very attractive options if they could be implemented, for example a general levy.

Chairman: Is the work of the group now completed?

Mr. Malone: It is completed and it has submitted a report. We can give a copy of the report to the Committee if that would be helpful.

Chairman: I would be grateful if that could be supplied before next week’s meeting. The recovery group, which was established for a specific purpose, has been disbanded.

I read in the last few months that there are no rules of ethics in your Department regarding retired officials and who they work for subsequent to working in the Department. Is that correct?

Mr. Malone: Whatever rules apply in our Department would apply across the public service.

Chairman: Are there or have there been instances of former senior officials in your Department negotiating with the Department within a short time of leaving it?

Mr. Malone: I have had not such experience. I can only speak for myself.

Chairman: Are you aware of any?

Mr. Malone: I would have to check. It depends on the context, whether it be negotiating in the beef industry or agriculture, etc.

Chairman: Are any ethical or contractual rules laid down for the future with regard to senior officials of your Department?

Mr. Malone: Whatever rules apply to our Department would have to apply across the public service. I do not believe it would be possible to bind retired officials in my Department by different rules.

Chairman: Would there not be a sense of what is appropriate or proper? Should obvious standards not apply as a general rule as to who senior officials form any Department should involve themselves with immediately or soon after retiring?

Mr. Malone: I am at a loss as to the point you are making.

Chairman: Would you agree that there should be rules?

Mr. Malone: It is something for the Government to decide centrally. There are elaborate provisions regarding rules of ethics and conflict, etc. They apply to civil servants in the Department Agriculture and Food in the same way as they apply to civil servants in any other Department.

Deputy Rabbitte: You explained how things have improved, for example, with regard to disallowances etc. However, you have forgotten information supplied to my colleague, Deputy Gilmore, a couple of weeks ago under the Freedom of Information Act which gives a number of instances of the same old practices still ongoing.

Mr. Malone: You have an advantage on me.

Deputy Rabbitte: I am getting accustomed to that.

Mr. Malone: If you could give me a copy I will-----

Deputy Rabbitte: A document from the EU Commission to Dr. Gaynor refers to slaughter house No. 3, which is Nenagh. It points out that serious deficiencies were found relating to the purpose of the mission. This is a mission that started out to investigate fraud in the Netherlands and found at Nenagh that the health marking procedures were totally unsatisfactory, leading to a large number of unstamped quarters.

Most of the others were incorrectly stamped. Trimming procedures led to the cut off of health marks. The separation between sized carcasses and EU eligible carcasses is non-existent. Traceability is not in place in respect of the age of the bovine slaughtered, although additional guarantees relating to this are given by the veterinary service.

The remainder of those documents make points about AIBP, Nenagh, where verification is being supplied by a veterinary which should not be so provided. There is a small note one can scarcely see at the bottom of the page which states “Court action has been initiated by the Department against three individuals who it is alleged interefered with official health marking.” It is also stated in the document to which I refer that “As a consequence of the draft report and of the report made subsequent to the mission, the Department has initiated disciplinary action against the two senior departmental officers at the plant in question.”

Mr. Malone: As far as I recall, that refers to a situation where allegations arose that some British beef was being laundered through this jurisdiction. The commission carried out an investigation and, in relation to the primary issue, we were totally exonerated and, in fact, complimented. That might not have come through-----

Deputy Rabbitte: Will Mr. Malone confirm that action has been taken against the officials in question?

Mr. Malone: What then happened, as a secondary issue, was that unease or unhappiness arose in respect of the public health controls being pursued in the meat plants to which the Deputy referred. If I recall it correctly, there was no evidence that fraud had taken place but that the circumstances obtaining at these plants were such that fraud could take place. We have taken those points on board. There has been a change of staff at the plant in question and disciplinary procedures are being examined. As Members are aware, there is a code in relation to disciplinary procedures.

Deputy Rabbitte: Mr. Malone’s report states that “the Department has initiated disciplinary action against the two senior departemental officers at the plant.” I understand that a spokesman for the Department informed a journalist yesterday that no disciplinary action has been initiated. Will Mr. Malone clarify the position?

Mr. Malone: The question of disciplinary action was being examined.

Deputy Rabbitte: The report Mr. Malone released to Deputy Gilmore in furtherance of a parliamentary question states that disciplinary action had been initiated and that court action had been initiated against three individuals who it was alleged interefered with official health markings. Will Mr. Malone, as accouning officer, indicate whether these actions have been initiated?

Mr. Malone: I will check the position. I am aware of the background to the situation to which the Deputy referred. However, I will have to check the current position.

Deputy Rabbitte: Does Mr. Malone understand the significance of this? We have been dealing with the matters Deputy O’Malley took us through today for many years. However, the behaviour to which he referred continues to be practiced at the Goodman plant. That document was drawn up for the EU, not for my benefit.

Mr. Malone: I emphasise that I am not defending what happened at the Goodman plant. However, the primary investigation related to the laundering of beef. We were investigated on a number of occasions and our controls were found to be among the best in that regard in Europe.

Chairman: Is it not the case that in the land of the blind the one eyed man is king?

Mr. Malone: That issue as I understand it is that there was an over-use of water, for want of a better term. The situation that prevailed in that plant was that because so much water was being used, the stamps were-----

Deputy Rabbitte: Being removed by the water. Is the Secretary General of the Department of Agriculture and Food stating that he believes that kind of cock and bull story? Is he stating that water can remove markings?

Mr. Malone: If it is applied with sufficient force it will do so.

Deputy Rabbitte: We will return to that matter at a later date.

Chairman: The debate on that matter will be included in the transcripts so it can be addressed by Members in that way.

Deputy Rabbitte: Paragraph 3.5 of the document states that the Department of Agriculture and Food does not mandate its veterinary officers to provide additional and/or commercial certification with regard to the age of animals slaughtered. Is that correct?

Mr. Malone: We provide veterinary certification. Rarely would such certification provide details of the age of an animal.

Deputy Rabbitte: The document states that the Department does not mandate its veterinary officers to provide additional or commercial certification. Is that correct?

Mr. Malone: Yes, commercial certification is a matter for the-----

Deputy Rabbitte: The second sentence reads “In the case in question, AIBP Nenagh, the veterinary officer may have undertaken such additional certification of his own volition.” Is it correct that the Department’s veterinary officer undertook additional certification for commercial purposes of his own volition?

Mr. Malone: This is the issue which must be investigated in the context of the disciplinary situation.

Deputy Rabbitte: The person responsible for compiling this report for the Commission is under the impression that the Department investigated the matter and initiated what he calls “court action”.

Mr. Malone: This relates to the veterinary area.

Deputy Rabbitte: Are none of the Secretary General’s senior eminent colleagues in a position to brief him of the position? I would have thought that this matter is of major importance, particularly having regard to our experience to date, and that one of the Secretary General’s officials must know whether the people carrying out the mission were misled or whether the departmental officials to which the document refers are still working at the plant. Has disciplinary action been taken or court action been intiated?

Mr. Malone: All I can say is that the official is no longer working at the plant.

Deputy Rabbitte: To follow the pattern, has he been promoted in Dublin?

Mr. Malone: No.

Deputy Rabbitte: Where is he?

Mr. Malone: He has retired, as far as I am aware. The Deputy is inquiring about a specific official and I will have to check the situation.

Deputy Rabbitte: Mr. Malone advised the Chairman, in response to his question, about a number of matters dealt with in the Cabinet decision dated 11 March 1996. Did the decision refer to recoverabililty?

Mr. Malone: Not as far as I am aware.

Deputy Rabbitte: Mr. Malone read from a page of text earlier in respect of this matter, perhaps he could refer to it again.

Mr. Malone: Yes. Point No. 4 refers to “The proposal that the Minister will report to the Government periodically on the progress of recoveries arises from irregularities in the meat industry.”

Deputy Rabbitte: That is a remarkably significant point in the context of Deputy O’Malley’s hour long testimony on recoverability. Mr. Malone informed the Chairman about everything covered by the Cabinet decision with the exception of recoverability. It is pure accident that I happened to be present to highlight this matter. If I had not been present, it would never have come to light. Is that not the difficulty we have with the Department on many occasions? Unless we have prior knowledge of or discover something, we can never obtain answers from the Department which outline what is actually taking place.

Mr. Malone: We have reported to the Government. The recoveries group was established and submitted a report to Government.

Deputy Rabbitte: That is not what concerns me.

Mr. Malone: It was an error on my part that I did not refer to recoverability.

Deputy Rabbitte: With regard to the Department’s presentation of the Emerald case, which I entirely dispute and to which I will return at a later date, is it not the case that this was a departmental instituted fraud? This fraud was not carried out by the beef processors, an official of the Department contrived a document which omitted the name of the traditional importer, Emerald, and it was sent to Europe. On the basis of that document, he was cut out of the entire deal.

Mr. Malone: I do not accept that.

Deputy Rabbitte: But I have the document in my possession.

Mr. Malone: The position is that at that time Emerald received one third of the allocation. Secondly, there was a claim - this was not a conflict we brought upon ourselves - from the meat processors that they were entitled to the licences.

Deputy Rabbitte: There was no claim from the beef processors-----

Mr. Malone: There was a claim.

Deputy Rabbitte: -----and they did not claim it before the court; I have the transcripts. It was initiated in the Department. Furthermore, a fax which was sent by Mr. Ventura, counsellor, who is presumably known to Mr. Malone or some of his colleagues, to Mr. Carroll in the Department stated that in his declarations for GATT allocation 1990 Emerald Meats disappeared as an importer for 1987-88 and asked could he have an explanation about this change. They knew that Emerald Meats was the importer. The Department - I do not mean Mr. Malone personally because, despite my anger with his Department, I have no basis for suggesting that he would do anything or colude with anyone along these lines - compiled a document which broke down the allocation amongst 11 other companies, it was submitted to Brussels and Emerald Meats was scrubed in respect of 1987-88. Emerald Meats received an insignificant tonnage allocation in 1989 despite the fact that it was the only importer and under the GATT regulation, under the assumption of this power by the EU for that year, the only traditional importer was Emerald Meats. That was found by Mr. Justice Costello and, subsequently, the Supreme Court.

Mr. Malone: That was the nub of the argument as to who was the traditional importer. In 1985 the licences were given to the meat processors. The situation which developed then was that Emerald Meats purchased those licences; there were transactions between it and the meat processors. There was a formula used, for and on behalf of, to which the court did not find any great substance. The view taken in the Department was that the processors where the holders of the actual licences. The intention, if one goes back to 1985, had been to give them the licences. There are various ways in which one can present situations.

Deputy Rabbitte: Is it not a fact that for the proceeding years Emerald Meats was the only importer?

Mr. Malone: Emerald Meats was the physical importer but the issue came down to who was the titular holder of the licences.

Deputy Rabbitte: Short of Maynooth, there is no Department which comes before this Committee which engages in this kind of language. Mr. Malone used the word “physical”. The Supreme Court found that he was the importer. What more do we want? What does Mr. Malone mean by “physical”? He did not physically import it. His company imported it.

Mr. Malone: Clearly the decision which we took was wrong.

Deputy Rabbitte: What I am trying to find out is: why did somebody in the Department furnish that document to Brussels knowing it to be incorrect. That was clearly established before the court. Anybody can make a mistake. Of course Mr. Malone is right.

Chairman: Who was the most senior official who approved that document going to Brussels?

Mr. Malone: This issue was discussed in beef division. The then principal officer of beef division was involved. There were consultations with the Attorney General’s office. It was not a decision taken lightly.

Deputy Rabbitte: Why was he the then principal officer of the beef division?

Mr. Malone: He is not now the principal officer of the beef division.

Deputy Rabbitte: What is he now?

Mr. Malone: He now works in area aid.

Deputy Rabbitte: What is his rank?

Mr. Malone: He holds the same rank.

Deputy Rabbitte: Is he contemplated for promotion?

Mr. Malone: The system of promotion from principal officer to assistant secretary is the TLAC system?

Deputy Rabbitte: Has he been recently recommended to TLAC for promotion to assistant secretary?

Mr. Malone: He was interviewed by TLAC about a year ago.

Deputy Rabbitte: Did he get a bonus for all of this?

Mr. Malone: He did. The position is that-----

Deputy O’Malley: £3,000.

Mr. Malone: -----this decision was taken back in 1990. We are on the ninth anniversary of it. One must look at an officer’s overall record and performance. One must look at why he took the decision. As the Deputy stated, people can take wrong decisions. It is about why they take the wrong decisions. I have no evidence - I do not think anybody else has evidence - that there was malice or forethought or any effort to victimise Emerald Meats. I accept fully that the company was not properly treated and that better procedures could have been followed but the decision was taken on the assumption that it was the right decision. As it happens, it was the wrong decision.

Chairman: Did he take that decision on his own or did he consult any other officer, in particular a more senior officer?

Mr. Malone: It was not a decision taken totally in isolation by that individual.

Chairman: Did he consult with a more senior officer?

Mr. Malone: He did, as far as I know.

Chairman: Was he the only one party to that?

Mr. Malone: No. He was not the only one involved.

Chairman: Therefore, it was a considered decision of the Department to send false information to the Commission.

Mr. Malone: I do not accept the terminology “false information”. It was a considered decision to send information based on the view that the processors were the holders of the licences and that they were the traditional importers for two-thirds of the applications. For one-third, Emerald Meats was submitted as the traditional importer.

Chairman: Did the courts not state that it was false evidence and the Department knew it was false?

Mr. Malone: The courts stated that we had misapplied. One thing follows from the other. If we had taken the right decision and decided that Emerald Meats was the traditional importer, we would have submitted Emerald for the total number of applications. The list which was submitted followed from the decision which was taken.

Deputy C. Lenihan: Is it correct to assume that the Department took a decision to sent information to Brussels on the basis that it had consulted with the Attorney General, a number of officials had discussed the issue and as a matter of policy it had earlier been decided that the processors were the holders of the licences; and that the Attorney General did not give the Department any information to disabuse it of that? The Department sent that list to Brussels believing that the processors were the licence holders if not, in fact, the importers.

Mr. Malone: That is basically the problem.

Deputy C. Lenihan: The court decided otherwise but at that stage the best advice available to the official and to the other officials who may have been party to it was that the Attorney General was of the view that the other processors were actually the bona fide holders of the licences. Is that correct?

Mr. Malone: Yes.

Deputy Rabbitte: In terms of the court case it is important to record that that is not correct. The Attorney General did not make the decision and, furthermore, there is no minute of the meeting which allegedly took place with a legal assistant in the Attorney General’s office.

Chairman: I will be making certain proposals about all of this in a few moments.

Deputy Durkan: Mr. Malone indicated that good procedures were not followed. That is his personal response having reviewed the case in retrospect. Would that always have been his view, not just after the first court case?

Mr. Malone: No. It would have been my view having reviewed the decision of the court case and the decision of the appeal, and reviewing the issue in total.

Deputy Durkan: If it was Mr. Malone’s opinion, surely others must have had the same opinion or would your’s be the only opinion in the Department which held that good procedure was not followed. More importantly, if there was at least one person of reasonably senior rank at the time who held the view that good procedures were not followed, why did the Department appeal the case?

Mr. Malone: I was not involved in the case.

Deputy Durkan: I am aware of that. I am not suggesting that Mr. Malone was involved.

Mr. Malone: I was not involved in the original decision or the decision to appeal. The decision to appeal was taken on the basis of legal advice. There were a number of items of legal advice which seemed to give good grounds for an appeal, which seemed to suggest that the original decision by Mr. Justice Costello was not correct. That was a considered decision. It was a serious decision.

Deputy Durkan: A foolish one as well.

Mr. Malone: Having considered the legal advice, the decision was taken to appeal.

Deputy Durkan: You mentioned forfeitures by certain people in the beef industry, which were in respect of various indiscretions over a period of years, I presume. Is it possible to obtain a list of the times, years and situations whereby these forfeitures occurred?

Mr. Malone: We can certainly give broad details. I can give you the amounts of the forfeitures and the years in which they took place. I would have to check legally as to whether I can give you the names of the companies or not. It is not that I do not want to do so, but I just want to be sure we can do that legally.

Deputy Durkan: I would be interested to know. For example, a great deal of knowledge is available in the public arena in relation to the beef industry in general. It would be no harm.

Mr. Malone: Provided I can do it.

Chairman: Can do what?

Mr. Malone: Provide a list of forfeitures, the years involved and, if possible, the names of the companies involved.

Chairman: Why could you not give it?

Mr. Malone: I am not saying that I cannot give it. I just want to check the legal position so that I can give the names of the companies.

Chairman: It is absolutely clear that this Committee can send for any document.

Mr. Malone: I assume that I can, so.

Deputy Durkan: I would be grateful if that information could be provided, Chairman.

Chairman: That is so decided.

Deputy C. Lenihan: Deputy O’Malley stressed the point that the first ten years of the scheme were relatively disallowance free, if that is the right term. However, there was a very steep rise in the level of disallowances in the following ten years. Is there any factual explanation for that? Was is because the industry was booming and so much activity was going on? In terms of proportionality, in relation to the two categories of allowance, the point was made that one had risen tenfold while the other had risen one thousand fold. I am keen to find out what the explanation for the very sharp rise was. Maybe you did not address that point in your rebuttal statement.

A few minutes ago I asked you about the consultation in relation to the matter of Emerald Meats. Deputy Rabbitte said the court case suggested otherwise to what you have said. Can I get this right? You did not consult with the Attorney General or the Attorney General’s office. Was there consultation between your officials and the Attorney General’s office before making that decision - that the processors were the legitimate holders of the licences?

Mr. Malone: as I understand it, there were oral consultations with the Attorney General’s office.

Deputy C. Lenihan: Yes, though not with the Attorney General himself. That clarifies the situation.

Mr. Malone: As regards the level of fines, there are two points. The beef fines, as we referred to them, had a major impact on the figures in the context of the years in question. It is also the case that there was an increased level of activity. There was very heavy usage of intervention around the late 1980s and early 1990s. I think there would definitely be a correlation between the level of activity.

Deputy C. Lenihan: Do you not regard the statistical comparison between the first ten years and second ten years of the operation of the scheme as extraordinary?

Mr. Malone: No.

Deputy C. Lenihan: I wanted to clarify the point Deputy O’Malley made - that there was such an inexplicably sharp rise in the level of disallowances in a particular period, which was not there earlier. Are you saying that is explicable or inexplicable?

Mr. Malone: It is explicable. One explanation is the level of activity, but the second explanation is the size of the beef fines. Also, the system changed from what would be called flat rate disallowances. You either have 0, 2, 5 or 10 per cent. These are what were called the Bell group recommendations.

Deputy Rabbitte: I would like to ask one question which I think is important for the record. Deputy Lenihan’s question sought to establish that the Attorney General, or now his office, is responsible for the decision in the case of Emerald Meats. Responsibility for the decision in the case of Emerald Meats rests with the Department, not with the Attorney General’s office. Any reading of the transcript makes that perfectly clear. We now have it that it is oral advice. There is no written note of the meeting that allegedly took place.

Deputy C. Lenihan: There is come confusion.

Deputy Rabbitte: I am not confused anyway, I can assure the Deputy.

Deputy C. Lenihan: Deputy Rabbitte is reading something into my question, slightly. I asked the Secretary General whether he had consulted.

Chairman: I am proposing that we adjourn this hearing, not until next Thursday but until next Tuesday week, for the purpose of allowing time for the transcripts to be provided and commented upon by those interested in doing so. The transcripts will be available from the Editor of Debates by this Thursday. We will follow the precedent of the Revenue Commissioners’ case, whereby we will ask that the responses be on A3 paper, with points of dispute on the right hand side and the transcript on the left, and if they can also be provided on disk.

The Department of Finance has already been asked to stand by to appear before the Committee. I propose that the Committee agrees to have a forensic audit of the Department in view of the number of notes to its accounts over the last eight years, which is continuing. This is a new departure for this Committee, but I do not think we can just kick up a fuss once a year with the Department of Agriculture and Food and do nothing more about it. We are determined that we will stop this appalling record of the Department, involving so many notes to its account. If this was a private company and there were so many notes to its account, a High Court inspector would already have been sent in. That is not an exaggeration. I do not think anybody in the Department of Agriculture and Food, now or in the past, can be proud of it.

The Committee will take no more nonsense, fudging or prevarication. We will take serious action in this respect and we will ask the Department of Finance, especially its public service management section, to intervene in the Department of Agriculture and Food and to report back to this Committee on it. I take it that the Committee will agree with that general proposal.

Because of what I proposed with regard to the timing of the next meeting in relation to the Department of Agriculture and Food, our next meeting will be on Thursday this week, dealing with the Offices of the Attorney General, the Chief State Solicitor and the Director of Public Prosecutions. The Committee has already decided that next Tuesday’s meeting will be at 12 noon. I am proposing that the meeting on the Department of Defence be deferred to Thursday next week, instead of next Tuesday. Next Tuesday we will take the Department of Tourism, Sport and Recreation. On the following Tuesday, this day fortnight, we will take the Department of Agriculture and Food.

Mr. Malone: That causes me a problem, Chairman, in that there is a Council of Agriculture Ministers that day, which I normally attend.

Chairman: Is that on for more than one day?

Mr. Malone: It is a two day meeting that will start on Monday and will continue on Tuesday. Sometimes it goes into Wednesday.

Chairman: We will put the meeting back to Thursday, 21 January. We will bring the meeting on the Department of Environment and Local Government forward to Tuesday, 19 January.

The Committee adjourned at 6.29 p.m.

MINUTES OF EVIDENCE - UNEDITED

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin, 21 Eanáir 1999.

Thursday, 21 January 1999.

The Committee met at 11.30

Members Present

DEPUTY J. MITCHELL in the CHAIR

Chairman: The Committee will resume with the 1997 Annual Report of the Comptroller and Auditor General and Appropriation Accounts: Vote 31 - Department of Agriculture and Food (resumed) and Financial Statements 1994 (resumed) - The Irish Intervention Agency. Witnesses should be made aware that they do not enjoy absolute privilege and should be appraised as follows: Members’ and witnesses attention is drawn to the fact that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act grants certain rights to persons who are identified in the course of committees’ proceedings. These rights include the right to give evidence, the right to produce documents to the Committee, the right to appear before the Committee, either in person or through a representative, the right to make a written and oral submission, the right to request the Committee to direct the attendance of witnesses and the production of documents and the right to cross examine witnesses.

For the most part these rights may only be exercised with the consent of the Committee. Persons being invited before the Committee are made aware of these rights and any persons identified in the course of proceedings who are not present may happen to be made aware of these rights and provided with a transcript with the relevant part of the Committee’s proceedings if the Committee considers it appropriate in the interests of justice. Notwithstanding this provision in the new legislation, I should remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official, either by name or in such a way as to make him or her identifiable.

In the light of our hearings two weeks ago we asked for certain information and afforded certain people an opportunity to comment on the transcripts. In view of the amount of documentation the Committee has not had time to examine this yet. It is not the intention of the Committee to deal with those matters today. We will revert to them in the near future. It is the hope that we will be in a position to put these documents into the public arena within the next weeks so that the hearing is complete.

Today we will deal with the question of the review of the procedures and systems in the Department of Agriculture and Food. I welcome back the Secretary General of the Department, Mr. Malone. Perhaps you would introduce your accompanying officials.

Mr. Malone: Accompanying me are Richard Healy, Marion Byrne, Tom Arnold, Denis Byrne, Michael Sheridan and Kevin Cassidy, all from the Department of Agriculture and Food.

Chairman: I also welcome the Secretary General of the Department of Finance, Mr. Mullarkey, and the Secretary General of the Department of the Public Service, Mr. Hurley. Perhaps you would introduce your accompanying officials.

Mr. Mullarkey: Accompanying me are Marion McSweeney and Eamonn Kearns.

Chairman: Mr. Mullarkey, the Department has received the suggestions of the Committee. Perhaps you would like to make an opening statement.

Mr. Mullarkey: Sir, you raised the question of the Department of Finance undertaking an audit. From what you said on the radio and in subsequent discussion it was clear you had in mind an audit of the systems of control in the Department of Agriculture and Food. We were anxious to respond positively, as we always would to the wishes of the Committee. In all of this, the Department of Agriculture and Food has been very co-operative and forthcoming and has raised no difficulty with our proposals.

The terms of reference as we have circulated them to the Committee, represented the responses decided by the Government to your request. They are framed to focus on what we perceive as your area of concern, which is systems of control within the Department and systems and procedures to prevent fraud, mistakes or whatever.

Under an annual audit systems are audited, at least to an extent. There are a number of ongoing audits in the Department of Agriculture and Food, for example, there is one being undertaken by the C&AG with regard to FEOGA operations. There is an element of systems audit in all of those individual audits. For a variety of reasons, organisations and companies look for special audits of systems of control from time to time. This is what we have tried to frame in response to the wishes of the Committee.

We had a concern about reviewing the systems of control which related to maintaining the focus on control. While a wider remit might have been sought, we were concerned it would deflect the focus and distract from the essential and central issue of control, thus delaying the process. The terms of reference include a requirement on the proposed steering and working groups to examine all relevant aspects of financial management and information technology as they affect control. In the final paragraph of the terms of reference, there is an acknowledgement that the work of the steering group may raise other issues which will subsequently have to be examined. There is no intention to unduly circumscribe the work of the steering group.

A number of points need to be brought to the attention of the Committee. One, the full gamut of the Vote will be involved, not just the FEOGA funds, because different controls and audit regimes apply in various sections of the Vote. Two, the steering group will be expected to suggest recommendations for the future, not just in terms of introducing formulating systems but devising safeguards to ensure those systems are applied. Three, we are aiming at a report, or at least an interim report, within three months. Four, the review will have regard to all ongoing audit activity, to the proceedings of the Committee and what is said at its meetings, and to any other material information available. In so far as the Comptroller and Auditor General represents an element of external professional audit as far as the FEOGA funds are concerned, it would be inappropriate and unnecessary for the steering group to seek to duplicate external professional audit or assessment. However, we see a need to report on what happens in the course of those external audits because they are relevant to the systems of control.

The steering group will be chaired by my predecessor, Mr. Seán Cromien, who has kindly agreed and is prepared to act, assuming the proposal is acceptable to the Committee. The steering group will be interdepartmental involving ourselves and the Department of Agriculture and Food and we would have to have professional external expertise. The legwork for the steering group will be carried out by a working group, again involving the two Departments and external professional expertise, and also involving the Office of the Revenue Commissioners, which is already involved in the audit arrangements in the Department. The report or reports will be submitted to Government by the Minister for Finance and will then be sent to the Chairman of the Committee of Public Accounts. If the reports raise other issues, those will have to addressed in due course. Implementing the reports’ recommendations will be a matter for the Department of Agriculture and Food under the direction of Government.

I cannot say much more on the terms of reference as circulated.

Chairman: Can we get your agreement to circulate this publicly?

Mr. Mullarkey: I assumed I already gave it.

Chairman: No, but I assume it can be circulated to the press. I am grateful for Mr. Mullarkey’s response.

Before I call on the Secretary General of the Department of Agriculture and Food to comment, I point out that the desire and focus of the Committee is mainly for the future. Where we perceive problems or concerns, we want to help resolve them so they do not continue. We have seen dramatic improvements in many Departments of State over the past number of years, such as the Department of Finance, the Attorney General’s Office and especially the Department of Social, Community and Family Affairs. Officials in the Department of Agriculture and Food should not be too depressed. This is a case of the problem being deep-rooted and needing a little outside input. I grateful to the Secretary General who last week mentioned his readiness to take on board such a suggestion. We recognise the vast majority of our public servants are of a hugely high standard. We greatly appreciate that point and it is only fair the Committee should make it.

Mr. Malone: We recognise and understand the concerns of the Committee about the number of paragraphs in the report of the Comptroller and Auditor General over the years. However, these must be judged against the range of activities in which the Department is involved, the variety and complexity of schemes it administers, the levels of expenditure involved and the new style of control arrangements which have been introduced. It will be recalled we devoted a considerable amount of time to discussing such matters as land parcel identification. We will co-operate fully with the workings of the steering group and I assure the Committee we will make all information we have available. We have always acknowledged our systems are not perfect so we look forward to whatever improvements will undoubtedly come from this process.

We have been endeavouring to improve our systems, particularly since the early part of this decade. We have greatly strengthened our internal audit unit, introduced new auditing procedures and changed the way we use our resources and focus our controls. For example, I gave information the last day on how we now conduct a significant amount of unannounced inspections. We have used the accreditation process and have an external audit committee. I hope the Committee accepts that we have made strong and strenuous efforts to identify our weaknesses, to learn from the lessons of the beef fines and the beef tribunal, and to have systems in place which provide adequate protection for the Irish and for the EU taxpayer. We fully acknowledge that the vast amounts of expenditure we handle behoves us to have systems which provide adequate protection.

I wish to comment on two points made at the last meeting. One was a reference to £400 million regarded as lost in the operation of the FEOGA support schemes. Without getting bogged down in detail, I am anxious it is understood that the figure comprises £100 million in disallowances and £300 million regarded as running costs, which were unavoidable because of the nature of the system, the way the support schemes operate and the way member states are reimbursed by the European Commission. My net point is that it was a virtual impossibility, given the cost structure which prevailed in this country and the way payments are reimbursed, to run intervention either at a profit or at zero cost. It is axiomatic that, if intervention is operated, costs will accrue to the Exchequer.

Deputy Rabbitte: Chairman, you asked us not to ask questions today on the substantive issues, although some of us are prepared and ready to do so, because we were dealing with the systems control, a document which we first saw this morning. Now, it appears the Secretary General is going into the substantive issue. If he does, he must open himself to cross examination on it.

Chairman: No, I have already ruled on that. It is only fair that the Secretary General has an opportunity to make a statement.

Deputy Rabbitte: The Secretary General made an elaborate written statement which you said you would publish at the start of this meeting.

Deputy C. Lenihan: Chairman, we agreed in private session-----

Chairman: Order, please. My ruling is that the Secretary General be allowed to complete his statement without interruption. If there are any points of order at that stage, I will take them but members must bear in mind my earlier ruling. I ask the Secretary General to continue.

Deputy Doherty: Were those two points of order in the statement?

Chairman: No further questions. I call on the Secretary General.

Mr. Malone: I was not aware of the earlier ruling. I will not go into points of detail.

I wish to make a further broad point. There was criticism of the Department in the context of a Government decision in 1996. We did not ignore that Government decision and I hope that comes through in the written documentation we sent to the Committee.

The Committee requested information in relation to forfeitures. The Chairman received a considerable volume of material from my Department yesterday. I hope the material conveys that the Department carries out its functions impartially - the amounts of money, as can be seen in the documentation, are considerable - in difficult circumstances and in situations which are not always black and white. I welcome the Chairman’s statement regarding the integrity of the public service.

Chairman: We received a huge volume of documentation from the Department and other sources during the past week. Some of it only arrived this morning and some arrived last night. I have not had time to consider the material and, for that reason, have decided not to deal with it today. We need time to read it. The Committee will be anxious to bring it into a public forum as soon as possible - we hope to make a second interim report to the Dáil next week - to ensure the replies of the Department and others are available to assist us in our subsequent hearings.

Today we will concentrate on the response of the Department of Finance and the Department of Agriculture and Food to the organisational review or systems audit in the Department. Does Deputy Rabbitte have any questions on this issue?

Deputy Rabbitte: It is a little difficult. My understanding was that I would lead the questioning on the substantive issues left over from the last meeting. I only learned this morning that the discussion was confined to the systems review, a document I only received now. I am ready to deal with the substantive issues but it is difficult to respond to this matter.

Mr. Mullarkey, this matter arose from a question I put on 3 December which related to a Cabinet decision which the Committee has established took place on 11 March and which, inter alia, required a semi-autonomous unit to be established to administer FEOGA funding, with a separate Accounting Officer reporting directly to the Committee of Public Accounts. The Committee established, after some difficulty, that the present Government did not alter that decision.

At our most recent meeting Mr. Malone confirmed that it is the intention to proceed with the establishment of that unit. In that context, what do you see as the relevance of the first point of the review? We are concerned with the future administration of substantial funds - there are £2 billion in FEOGA alone - which come to this country annually. How does the first item - review the systems of control employed by the Department of Agriculture and Food and their operation, particularly in relation to FEOGA and including all relevant aspects of financial management and information technology - fit in if there is to be a new independent agency?

Mr. Mullarkey: The fact that there is to be an organisational change by hiving off part of the Department into a separate agency need not imply that it will alter significantly the systems of control. Some details of the system of control might have to be altered on foot of an organisational change but the basic control procedures and control concerns will be the same. The accountability to the Committee of Public Accounts and other areas might give rise to changes but the issues that would be addressed in an audit of the systems of control to prevent either mistakes or fraud would be substantially unchanged, whatever the organisation.

Deputy Rabbitte: At the meeting of 3 December-----

Chairman: Deputy Rabbitte, you referred to 11 March but you did not say what year.

Deputy Rabbitte: The date was 11 March, 1996. On 3 December, the Committee established that the Cabinet had decided to set up this independent agency on 11 March 1996 and that nothing had been done about it since. Mr. Malone told the Committee on 5 January that it was intended to proceed with this decision. Can you corroborate that? What is the timescale for its implementation?

Mr. Mullarkey: Mr. Hurley is handling that issue.

Mr. Hurley: Our understanding is that the Department of Agriculture and Food has almost completed its examination of this matter and expects to circulate, within two weeks, a memorandum for the Government with proposals to respond to that and subsequent Government decisions which would involve reorganisation of other parts of the Department. The memorandum will be circulated in a matter of weeks and will be formally on the Government agenda soon after.

Mr. Malone: I can verify that. We hope to be in a position within the next week to circulate proposals to other Government Departments. I expect the matter to be on the Cabinet agenda within weeks.

Deputy Rabbitte: If the memorandum is being drafted at present and will be with the Cabinet in a couple of weeks, do you still see relevance in this systems review? That will not be incorporated in the memorandum.

Mr. Mullarkey: The relevance of this review will be relatively unaffected. However, I expect the steering group to comment in its report and, presumably, to consult with the Department of Agriculture and Food on the implications of the organisational change for the systems of review. The basic concerns of the systems of control will be relatively unaffected by the organisational change.

Deputy Rabbitte: I am disbarred by the Chairman’s ruling from going into the substantive issue.

Is not the only common sense conclusion which one can draw that if the previous Government wanted to take this out from under the aegis of the Department and the present Government endorsed that decision, that both Governments were unhappy with the way it is being done in recent years?

Mr. Mullarkey: That is implicit in the Committee of Public Accounts requesting a review of systems of control. I took it that was the point of the Committee of Public Accounts requesting this. The implication of setting up a group to look at the systems of control in the Department of Agriculture and Food is that there is a concern and room for improvement in systems of control. That remains the position irrespective of the organisational change.

The type of systems of control about which we are talking about are those which, in the normal course, a strong internal audit section in any organisation would address. Systems of control are broadly the same in that the same principles are there whether it is a commercial or a State organisation, a mix or something in between. The steering group will have to advert to and take on board any implications the reorganisation will have. The central issues will remain substantially the same.

Deputy Rabbitte: Am I right in presuming that the same people down the line will be doing the job but that top management of the new body will be different people?

Mr. Mullarkey: Frankly, I do not know. Until I see the proposals from my Department and the Department of Agriculture and Food, I will not know to what extent this is a restructuring with the existing resources of the Department. I do not know to what extent it could involve a change in management resources.

Deputy Rabbitte: Did the Cabinet decision not say - reporting to a director recruited by open competition who would be an Accounting Officer managing a separate Vote and reporting to the Committee of Public Accounts?

Mr. Mullarkey: I will leave it to the Secretary-General of the Department of -----

Deputy Rabbitte: Does the Department of Finance have a view accepting the reason that both Governments took the decision because they were unhappy about the administration in recent years or that it is implicit in the decision as you put it? Does the Department of Finance not think it is important to have new management of whatever agency comes into being?

Mr. Mullarkey: The Government decision is there and unless there were compelling reasons, the Department of Finance would act on the basis of it being implemented.

Deputy Rabbitte: Does the Department of Finance have any view on it? It will have an opportunity to make comments on the Cabinet memorandum.

Mr. Hurley: Perhaps I could comment. The Government decision which the Deputy quoted is the correct Government decision. It would seem that the Government will now have to consider the memorandum from the Department of Agriculture and Food which will cover the issue of the structures and the transitional questions. It would seem that the extent to which there are different or new posts and that people are not being transferred directly from the Department of Agriculture to senior posts would fall within either the top level appointments commission system or the Civil Service Commission system, which is one of open competition. That would very much depend on the outcome of the Government decision in terms of the structure and staffing of the organisation.

Deputy Rabbitte: But, Mr. Hurley, we have a Government decision and the Secretary-General of your Department’s implicit recognition as to why we are where we are. Does the Department of Finance have a view on who should head up this agency?

Mr. Hurley: The last Government decision related specifically to the director question. The Department would want the agency properly staffed but we will have to see the proposals from the Department of Agriculture and Food in relation to that.

Chairman: Personnel appointments are not a matter for this Committee. The structures in question and the system are but not personnel issues.

Deputy Rabbitte: Mr. Malone, the understanding is that the great preponderance of people currently dealing with the administration of the various schemes and so on would continue to do so. Is that right?

Mr. Malone: The issue to be addressed is obviously the organisation of structure. The Government will have to decide on what is the most appropriate structure. The agency will have a range of schemes and activities so organisationally this is quite a difficult exercise because there are people who carry out a number of different functions - some related to the work of the agency and some not related to its work. It is inevitable that some people currently carrying out functions will carry them out for the new agency.

Decisions will have to be made as regards the splitting of functions. A veterinary officer in a meat factory, for example, has responsibility for public health and for the control of FEOGA schemes. One of the issues to be addressed, for example, is for whom does the veterinary officer work? Does he work for the agency or the organisation which has responsibility for public health? In the context of the new agency, the management structure is an issue which will have to be considered by Government.

It is understood and it would certainly be proposed by us that there would be a separate Vote for the new agency. As Mr. Hurley said, the agency will have its own head and there is a recruitment process in place for such posts. To answer the Deputy’s question, it depends at which level within the agency about which he is talking. To a degree, it will entail a movement of people who, as I said, are carrying out a number of different functions. However, the decision the Government will have to make concerns the overall management structure.

Deputy Rabbitte: If we are two weeks away from presenting a memorandum to Cabinet, there must be some considered views on that. You are publicly quoted in some newspaper or other or the ubiquitous spokesman for the Department has said this would require 400 or 500 extra staff or whatever. Surely that is not the case. We are talking about an arrangement whereby existing people in the Department of Agriculture and Food would do the nitty-gritty down the line. What I am trying to focus on is who will direct them and be responsible for it. Will that be separate and distinct from the Department?

Mr. Malone: It depends on how the unit is established, and this is one of the difficulties. As I explained, there are people who carry out functions of a control nature and who carry out the functions of veterinary inspector, the example which I gave. For whom will that particular veterinary inspector work if it is established in a separate way? It is inevitable that there will be a requirement for additional staff and people dedicated to particular functions.

Deputy Rabbitte: Will it be of the order stated in the reply to Deputy O’Malley in the newspaper of 300 or 400 extra staff?

Mr. Malone: In theory that is possible. It depends exactly on how it is set up. It is understood that the agency will have its own head who will be recruited by competition, that there will be a separate Vote and that the head of the agency will be accountable to this Committee. Our proposals are virtually finalised.

They have not been finally signed off by the Minister yet. The intention is that will be done sometime within the next week. We will be ready to circulate a memorandum to other Departments for observations through the normal process and then it will go to Government. However, in fairness, it is a decision for Government to make.

Deputy Rabbitte: But surely the status, terms and conditions of the employees will be protected. So, what would the 400 people be doing if they did not go to the new agency?

Mr. Malone: To give the example I quoted, if you had a situation where one individual was dedicated to controls who had previously been carrying out other functions. If you had a simple stand alone, totally divorced agency, then who carries out the other functions?

Deputy Rabbitte: Is there not an argument that the public health dimension of it anyway should be quite separate from your Department?

Mr. Malone: This is one of the complications I referred to the last day. The public health dimension is under the control of the Food Safety Authority of Ireland. This was one of the complications and one of the delaying factors.

Deputy Rabbitte: That was borne out in a lot of discussions about whether the Department of Agriculture and Food was the place to have that agency?

Mr. Malone: Yes, and decisions have been taken in that regard.

Deputy Rabbitte: Ought they stand now that we are reviewing the whole situation?

Mr. Malone: Sorry?

Deputy Rabbitte: If you are having this difficulty in splitting the public health role, for example of the category of person we are talking about and their inspection role, maybe it is an opportune time to take the monitoring of public health and ensuring quality to consumers out of the Department of Agriculture and Food’s remit, no?

Mr. Malone: That decision has been taken by the Government. The staff of the Department of Agriculture and Food will be working under contract. There will be service contracts signed - and we are finalising those contracts - to the Food Safety Authority. This gets quite complicated and I am not trying to labour the point.

Deputy Rabbitte: Are there other areas of overlap, other than the one you have mentioned?

Mr. Malone: It depends. This was one of the difficulties as to how you define payments. If you go outside meat factories you go into the area of direct payments, for example. Our field staff do a lot of monitoring for direct payments to farmers but they also run other schemes such as the control of farmyard pollution, farm modernisation and dairy hygiene. That would apply either to agricultural inspectors or officers. They could be carrying out two or three different functions. This is one of the big organisational issues to be addressed. Naturally, staff are concerned as to who exactly they would be working for.

Deputy Rabbitte: Are you satisfied, Mr. Mullarkey, that the agency should still have a relationship with the Department of Agriculture and Food as distinct from reporting to the Department of Finance or the Revenue Commissioners?

Mr. Mullarkey: The spirit of the Government decision, as I understood it, was that the agency would be a separate one reporting to the Minister for Agriculture and Food. I do not see any overriding problem with that.

Deputy Rabbitte: Can I ask you about the role of the National Treasury Management Agency in the matter of the borrowings that have been necessary to fund aspects of the FEOGA scheme down through the years. For some reason the NTMA has never been involved. On 3 December 1998 and on 5 January 1999 Mr. Malone came back to us and said that henceforth it will. However, as Secretary-General of the Department of Finance, can you say why it was not involved in the past? If we have a specialist agency to look after the national debt and various kinds of borrowing requirements, why should the NTMA not have been doing it?

Mr. Mullarkey: First of all, I have to correct you on one point. The NTMA is already managing part of the debt management activities of the FEOGA fund. The proposition is that the remainder of that will be transferred to the NTMA on foot of a provision which is necessary in this year’s Finance Bill. That is the present situation. I do not know why it was not done in the past. I have not researched the papers. I know that over the period from when FEOGA borrowings started, around 1988, the borrowing was managed, before the setting up of the NTMA, by the Department of Agriculture and Food in consultation with the Department of Finance. For whatever reason it is only in the last couple of years that the idea of the transfer has arisen. This was primarily on foot of a value for money audit carried out by the Comptroller and Auditor General, which pointed in the direction of the NTMA. In fairness to the Department of Agriculture and Food, however, it expressed considerable satisfaction with the way the borrowing activities had been managed.

Deputy Rabbitte: You heard Mr. Malone tell us this morning that £100 million of the shortfall is due to losses in exchange transactions as a result of the borrowing requirement to permit the FEOGA fund to be administered as is required. I am curious to know why, while we have a specialist agency for that purpose in the State, the Department of Agriculture and Food did it over the years, even though, presumably, there is no specialist treasury facility within that Department. I am also curious to know whether the Department of Finance, with whom the Department of Agriculture and Food was required to consult, has any view on that.

Mr. Mullarkey: I do not know whether Mr. Malone said the Department had lost £100 million on its debt management activities. That was not the conclusion of the-----

Deputy Rabbitte: I said £100 million of the shortfall was made up of this. That is what Mr. Malone said.

Mr. Mullarkey: The £100 million was due to financing costs. That is different from a loss of £100 million on debt management activities.

Deputy Rabbitte: I was referring to debt management in the sense that that is the NTMA. I am saying that £100 million of the shortfall is due to this particular area of borrowing in terms of losses. I will find Mr. Malone’s actual quotes for you.

Mr. Mullarkey: Yes, I think he said £100 million in terms of financing costs, which were the costs of debt management. That was part of a process of debt management where the Comptroller and Auditor General, in his value for money report, felt that overall the Department of Agriculture and Food had done a fairly good job.

Chairman: Can we seek clarification from the Secretary-General, Mr. Malone, on the £100 million. You mentioned the figure of £100 million. What was that for?

Mr. Malone: To go back to the beginning, in 1983 the Department of Agriculture and Food was entrusted by a Government decision to carry out its own borrowing in consultation with the Department of Finance. The reason for that decision was to keep pressure off the domestic market at the time. I think that was a very sensible decision to take. The costs arise because the Department undertook the borrowing as an intervention agency. The European Commission recouped a certain level of interest rate. For a period, interest rates in Ireland were a good deal higher than interest rates in Europe. The shortfall arose in the recoupment, not necessarily in the debt management process itself.

The Comptroller and Auditor General carried out an exercise and concluded that overall the debt had been managed well and that, compared with borrowing on the domestic market, the gain from the process - taking account of two devaluations that had taken place - was of the order of £60 million.

There has been no resistance from the Department to transferring this process to the NTMA. We consider it a sensible way to go. The borrowing for intervention purposes has been carried out by the NTMA for a number of years now. The difficulty is in transferring the remaining elements. The issue there is creating a legal basis. It is purely a legal issue, not an interorganisational or accounting one.

It creates the legal basis to enable the NTMA to take over this function totally.

Deputy Rabbitte: I am not disputing that in the then public finance conditions that it might not have been a good idea not to source the borrowing domestically. I am not raising that point. I am interested in why the Department of Agriculture was performing the role rather than the agency which was established with expertise in that area.

Chairman: That is really a Finance matter. When was the NTMA set up?

Mr. Mullarkey: 1990.

Chairman: Was this matter considered at that time?

Mr. Mullarkey: I was not involved - I could get you a note on that. The main management of the national debt went straight to the NTMA at that time. In the period since that, there are various areas where the NTMA’s scope to transfer debt or cash management has been under consideration. There are a number of possibilities in terms of day to day cash management - that is under active consideration at the moment. Since the VFM report by the Comptroller and Auditor General this transfer has been under active consideration. There were legal considerations, as Mr. Malone said. There were also matters which had to be sorted out in terms of the implications of the transfer of the debt and of the debt service cost for the general Government deficit and the general Government debt. It could have affected those significantly if the European Statistical Office had treated things in a certain way, which would have implications for our qualifications under the Maastricht criteria. These issues took some time to sort out.

There has been no shortage of willingness on the part of the Department of Finance or the Department of Agriculture and Food to transfer this activity to the NTMA. Part of the activity which could be separated was legislated for in 1997. The Finance Bill will provide for the transfer of the remainder of that activity. Our intention is that that will be transferred with all expedition.

Deputy Rabbitte: I presume Mr. Mullarkey will not comment on the composition of the steering committee. One welcomes the agreement of Mr. Cromien to chair it. Is two officials from the Department of Finance and two officials from the Department of Agriculture and Food with one outside person the best way to do something like this? Is that not too much in-house for the purposes of what we are engaged in?

Mr. Mullarkey: The proposition which came to us was from the Department of Finance. We were pushing our luck by having a former secretary general rather than someone from the Department doing it. However, I know Mr. Cromien will be acceptable to you. We recognise that professional external expertise is necessary. When we get into the work, if it transpires we need more expertise either in the working group or in the steering group, we will consider that positively through the steering group. The Department of Finance will not put any blocks in the way. We felt we were only reflecting the wish of the Committee of Public Accounts when we saw the presence of a number of officials from the Department of Finance. We also felt it would be unrealistic to think of this exercise being carried out without the presence of officials from the Department of Agriculture and Food both in the steering group and the working group.

Deputy Rabbitte: I have no more questions. However, I want to say that it is difficult to question on the basis of the document we received this morning on the systems of the terms of reference, without going into the substantive issues which gave rise to this in the first place. I want to put that on the record as we will have an opportunity in the future.

Chairman: I appreciate that. However, I think it would be wrong to say this is based purely on concerns about FEOGA. It concerns the general administration of the Department.

Deputy C. Lenihan: My question arose in our last examination of the Department of Agriculture and Food and concerns the precise nature and level of disallowances - is that a source of concern to Mr. Mullarkey? Great play was made at our last meeting by Deputy O’Malley and others about the rising level of disallowances in terms of the administration of the scheme.

Chairman: We are straying into an area we are not discussing today. We are here to discuss the systems audit and not its related organisations.

Deputy C. Lenihan: Are we not allowed to discuss to any extent what happened at the last meeting?

Chairman: Passing references will always be allowed if they are easily connected.

Deputy C. Lenihan: Do I understand, Mr. Mullarkey, that this is looking forward rather than looking back, to borrow a phrase from the banks - this review has an eye to the future rather than to the past and that by implication, the record this country, and in particular, the Department, has in relation to the running and operation of this scheme is quite good and ranks with the best in terms of the international supervision of FEOGA funds. Is it not the case that the Department of Agriculture and Food’s record is equal to, if not better than, a number of other comparable European states in terms of the management of this fund?

Mr. Mullarkey: I would not claim to be an expert in this area. I do not question what the Department of Agriculture and Food said in this regard as it is quoting rather than expressing a view of its own. I will not question what it is says in that regard.

Deputy C. Lenihan: I am not questioning the Department of Agriculture and Food in terms of what it says. However, there are objective statistics available at a pan-European level which suggest that as regards our record in terms of administering FEOGA European funds - one in five was mentioned by the Secretary General last week - we are in the top five in terms of the efficiency with which we have administered this scheme in the past. Is that the international yardstick which is available?

Mr. Mullarkey: That seems a valid type of yardstick to take. It does not mean there are any grounds of complacency, which I am sure the Department would acknowledge. The fact that the Department is co-operating fully in this systems review indicates it is not complacent about that level of performance. It wants to eliminate any areas of deficiency and implement possibilities for improvement.

Deputy C. Lenihan: To reiterate the point, following the coverage relating to our proceedings in the past few weeks, and perhaps by implication, because this review, which has been described as a systems review, is in place, there may be a public impression that there has been widespread or persistent fraud in this scheme as it has operated. I would like Mr. Mullarkey to confirm that the evidence as we know it from statistics gathered by the European authorities show there is not widespread fraud in terms of the administration of this scheme. Is that the case, looking back historically?

Mr. Mullarkey: My experience historically is limited. However, I agree with the Deputy. I welcome the point the Deputy is making about putting any deficiencies in context. The Secretary General of the Department of Finance will appreciate what the Chairman said at the outset. I know that the running of the Committee of Public Accounts is a difficult job and very often is open to criticism. For that reason, I value the positive comments which the Chairman made about the public service.

Deputy C. Lenihan: Was Mr. Mullarkey as surprised as Mr. O’Riordan, who represents the higher Civil Servants, in the context of this systems review, at the previous proceedings of this Committee?

Mr. Mullarkey: I do not think it would be for me to comment.

Deputy C. Lenihan: Perhaps the Secretary General of the Department -

Chairman: I do not think so.

Deputy C. Lenihan: It is an important issue.

Chairman: The Committee has agreed to offer those who have not had an opportunity to come before it as regards the systems audit.

Deputy C. Lenihan: Are we offering Mr. O’Riordan an opportunity to come before the Committee?

Chairman: Yes, that has already been suggested.

Deputy C. Lenihan: It has been suggested that Mr. O’Riordan come before the Committee?

Chairman: Yes. It will be conveyed to him.

Deputy C. Lenihan: That is fine. It is important the message goes out that the Committee-----

Chairman: The Deputy should stick to the matter we are discussing.

Deputy C. Lenihan: It is important the message goes out that the Committee is not biased in its presentation or investigation of issues concerning the Department of Agriculture and Food or other senior civil servants and that we are determined to give everybody their fair share of free speech.

Regarding the other issue, are we to draw the conclusion that this review of the systems will go forward in the context of the Cabinet decision to move to an independent agency?

Mr. Mullarkey: That is the way it is oriented. That was done because we felt that was the concern of the Committee of Public Accounts. We are responding to that. Its purpose is to make an assessment of the current systems of control, to examine the scope, if any, for improvement and to set up a programme for the implementation of those improvements.

Deputy C. Lenihan: It is not a major retrospective, covering issues which may have been raised previously at the beef tribunal and other areas.

Mr. Mullarkey: No. It is to look objectively, with the help of professional expertise, at the systems as they stand in terms of how secure they are, how watertight they are, how they overlap and whether there are any gaps between them, etc. That is the whole spirit of the exercise.

Deputy C. Lenihan: The Department is doing that in response to the Committee’s proceedings of the previous week or two when the Department appeared before it.

Mr. Mullarkey: Yes. We will have regard to any external professional audits or assessments which have been made. We also will have full regard to the concerns expressed at the Committee and elsewhere.

Deputy C. Lenihan: The Department has no particular cause for alarm in its own right. Prior to the Committee’s meeting some weeks ago on this issue, there was no particular concern from a departmental point of view that there should be such a review.

Mr. Mullarkey: The terms of reference are such that the steering group must go into the job with an open mind. They find what they find and report what they find. They will formulate recommendations to address any deficiencies they may identify. There are many systems audits already going on in the Department.

Deputy C. Lenihan: There was no demand internally in the Department for this up to two weeks ago.

Mr. Mullarkey: It is a legitimate exercise for any commercial organisation or Department to examine one’s systems of control. Even when everything is going perfectly, there can be a measure of complacency. There are accountants present who could advise better on this matter than me, but a surprise audit of systems is never misplaced.

Deputy C. Lenihan: Can the Secretary General of the Department of Agriculture and Food give the Committee the context to the 1996 decision and the events which have flowed from it in relation to moving control over this aspect to an independent agency? Two meetings ago Mr. Malone pointed out some circumstances that led to the delay. However, an impression has been created that there has been some unnecessary delay in terms of the implementation of the March 1996 Cabinet decision regarding the scrutiny and overseeing of this scheme. Will Mr. Malone give the Committee a full explanation in that regard?

Mr. Malone: The decision was taken on 11 March 1996. It covered a number of issues. It arose mainly from the decision by the European Commission to impose the beef fines as they were then known. The specific part to which the Deputy is referring is the establishment of an operationally autonomous executive unit for FEOGA payments reporting to a director, etc. The Department at that stage set about identifying the areas of activity. We did a considerable amount of work regarding re-organising the Department overall. Leaving aside this particular decision, there was much merit in any event in having a dedicated payments unit, in other words, that there would be policy and payments units.

At the same time, a complicating factor was a decision that had been taken earlier to decentralise 300 staff from the Department of Agriculture to Johnstown Castle in Wexford. It is difficult to find reasonably large areas of activity that could be decentralised in a reasonably orderly way and without being too disruptive. This means that reasonably large areas of activity had to be identified. As it happened, the area for decentralisation that had been identified earlier was the FEOGA payments unit. There was a decision to establish the autonomous unit and at the same time a decision to decentralise.

The difficulty with the decentralisation was that there was a limited amount of interest among the staff then working in the Department of Agriculture. Effectively, approximately 50 staff were interested in transferring to Wexford. The way the system operates then is that other Departments were circularised, staff there interested in transferring to Wexford were taken into the Department of Agriculture and staff then working in the Department of Agriculture moved out. It was a difficult exercise and the important aspect in all that is that it is not disruptive to the operation of schemes. Bearing in mind that large amounts of money were involved, we were put on notice by the European Commission and the accreditation auditors that they saw it as a very important issue and they wanted it done in an orderly and careful fashion.

The next complicating factor which developed was the commitment in the Action Programme for the Millennium for the incoming Government to set up a dedicated payments agency that was broader than the FEOGA payments unit originally envisaged. This meant that organisationally the whole issue had to be revisited.

The next complicating factor which arose was the decision of the Government to establish a food safety authority, as I referred to earlier. That was seen as a priority of the Government in legislative terms and it had organisational implications for the Department. If it had proceeded in a certain way, it probably could have meant the transfer of staff. If it proceeded in the way in which it did proceed, it meant that staff who would have been identified for this unit would be working under contract for the Food Safety Authority of Ireland. The difficulty we faced was that there were three major organisational issues - decentralisation, our involvement in the Food Safety Authority and the establishment of the unit - with which we had to deal.

Operationally and logistically, it was possible to do all that at the one time. The building was ready in Wexford and the process was in train so we had to proceed with the decentralisation. As I said, the Food Safety Authority was identified as a priority of the Government. The logical thing to do was when the decentralisation had been properly put in place and the picture was clear as regards the Food Safety Authority that we would then proceed with the establishment of the payments agency. That is the sequence of events and what we are doing.

Deputy C. Lenihan: In the context of the review which is about to take place, is Mr. Malone clear in terms of that issue that there is no question of the Department being unduly bureaucratic in terms of its implementation of a Cabinet decision and that it arises principally from other factors which intervened since the decision was made?

Mr. Malone: Mr. Mullarkey indicated the context. It is in response to concerns expressed by this Committee. From the Department’s point of view, we will co-operate fully with the review.

We will co-operate fully with the review. We have not raised any difficulties, something which has been acknowledged. We have never argued that our systems are perfect - no systems are perfect. We feel some good can come from this. It is good and brings added value if systems are examined and suggestions are made as to how they can be improved.

Deputy C. Lenihan: In terms of your understanding of this review which is about to take place, it will not cover any of the subject matter discussed in the past week or two by the committee in substantive terms or, as has been referred to by Deputies Mitchell and Rabbitte, the substantial issue which we are not allowed question you on here today. Your understanding is that the review will not examine those substantive issues, be it the Cabinet decision of 1996 or the generalised and unsubstantiated allegations of collusion, etc., with people in the industry. Is this the understanding of the Secretary General?

Mr. Malone: The terms of the review is a decision for the Government, something which has been agreed. The organisational issue should be decided upon by the Government and proposals are being circulated in this regard. We are co-operating with the review. We did not have an active involvement in its establishment. The review will be forward looking. If it examines systems and control arrangements and makes recommendations for improvement, the group will obviously have to be guided by the experience to date of the systems currently in place.

Deputy C. Lenihan: Out of curiosity, is it the case that Mr. O’Riordan’s comments in today’s Irish Times reflect thinking in the Department among officials in the context of frustrations and disappointments?

Mr. Malone: I will not involve myself with Mr. O’Riordan’s comments. As head of the Department I am aware there has been unease and concern - I will not go beyond that.

Deputy C. Lenihan: In other words he is reflecting the Department’s view.

Deputy Rabbitte: Stick with us Mr. Malone and we will give you the Nobel Prize for industrial relations.

Chairman: Much of the criticism seems to be taken on board personally by the public service, whereas the best officers can be trapped by failures in systems. We are trying to identify if there are failures in systems which are not allowing people to perform and whether there are inadequacies, for instance, in resources. It is wrong that people should take this in any way personally. We want to improve the situation, as has been the case in several other Departments as I mentioned earlier.

Deputy Rabbitte: As a former trade union official I want to dissent from that view. Nobody, including Deputy O’Malley, made any general allegation against the public service. There were specific cases ---

Chairman: I will allow Deputy Rabbitte to contribute later.

Deputy Rabbitte: --- which involved alteration of documents and forgery of documents.

Chairman: Deputy Rabbitte is out of order.

Deputy Rabbitte: I wish to return to this issue.

Chairman: The Deputy will be allowed return to the issue. He has had a long innings and we must allow other Members to contribute.

Deputy Rabbitte: I had a long innings but I did not go into that area.

Chairman: Deputy Rabbitte will be allowed return to the matter at the appropriate time.

Deputy Rabbitte: Before we do any more grovelling and apologising, we ought to put the facts on the table.

Deputy Rabbitte: There are other points of view which have to be heard.

Deputy Durkan: Regarding the systems review and apropos the second last speaker, do the accounting officers accept this committee’s right to ask questions? This question arises from the questions raised by a previous speaker.

Chairman: Of course we have the right to ask questions. The Deputy should ask his next question.

Deputy Durkan: This has never arisen before so I presume it is my right to ask the relevant accounting officers whether they accept the right of the committee to ask questions relative to and arising from the reports of the C&AG.

Mr. Malone: Of course I do, and I do not think I have refused to answer any question or refused to give any information.

Deputy Durkan: I presume the accounting officers also accept the duty of the Committee of Public Accounts, by way of its formation, origin and specific duty in relation to the reports of the C&AG.

Mr. Malone: Yes, of course.

Deputy Durkan: In relation to the review being undertaken ---

Chairman: I am allowing Deputy Durkan five minutes.

Deputy Durkan: It is always a help to the questioner and the person being questioned, Chairman, when the length of time is pointed out before hand. If that happened in a court it would be very easy for the responses to come. I find it offensive to be told when I have asked my question ---

Chairman: I should have said it before you started.

Deputy Durkan: You should have said it to everybody or nobody.

Chairman: We have two lead questioners every week. They are allowed full ---

Deputy Durkan: You should have done that at the beginning.

Chairman: Deputy Durkan, please. You are aware that the committee has made decisions.

Deputy Durkan: I am fully aware of the committee and its decisions.

Chairman: You had five minutes, you now have four minutes.

Deputy Durkan: You can cut it out altogether, Chairman, if you wish. I do not mind. The precise situation is this: I will not sit hear listening to everybody else speak and then be curtailed by the Chairman. The Chairman’s intervening and telling me this when he did not do so at the beginning of the meeting is an offence to me and undermines my rights as a Member of the committee. Can I now continue with my questions?

Chairman: The Deputy has three minutes.

Deputy Durkan: I did not intend asking more than one question, but since the Chairman is so objectionable about it, I will pursue my questions.

I wish to ask the accounting officers what triggered the systems review which is now taking place.

Mr. Mullarkey: The systems review was requested by the Chairman of the Committee of Public Accounts in light of the proceedings and discussion at the committee. As is always the case, the Department of Finance and the Department of Agriculture and Food responded positively to the wishes of the Committee of Public Accounts.

Deputy Durkan: So the points raised previously by the Committee of Public Accounts are the issues which caused the concern which ultimately culminated in the setting up of the review?

Mr. Mullarkey: They raised in the mind of the Chairman possible defects in the systems of control and led to his request that the Department undertake an audit of systems.

Deputy Durkan: It says the review should have regard to the outcome of relevant proceedings in the courts. What proceedings does this refer to?

Mr. Mullarkey: Any court proceedings which have taken place or are in the course of taking place. I am not an expert in legal proceedings.

Deputy Durkan: Does it take into account decisions already arrived at in the courts? Will it take into account issues currently before the courts and undecided?

Mr. Mullarkey: Yes, in so far as there is anything in the courts which would lead to concern about the systems of control in operation in the Department. The focus is on systems of control and anything which sheds light on the adequacy of them will be of concern to the steering group and the working group.

Deputy Durkan: So the group will draw on the information compiled arising from cases which have already gone through the courts and cases pending before the courts?

Mr. Mullarkey: Whether the word “draw” is used, I assume that in so far as any evidence or proceedings which contain any indications of weaknesses in systems of control, full regard will be had to it.

Deputy Durkan: Thank you, Chairman.

Deputy Foley: Was it the Department of Agriculture and Food or the Department of Finance that initiated the setting up of the systems review?

Mr. Mullarkey: It was neither - it was the chairman of the Public Accounts Committee.

Deputy Foley: He raised it first but which Department then took the initiative?

Mr. Mullarkey: We took the initiative, in terms of seeking to clarify with the chairman what he had in mind. We reflected on the proposal from the Public Accounts Committee. We tried to clear in our own heads what was envisaged and how it might be done in the most focused and helpful way for the committee. We confirmed, in a general way, with the chairman the road we were thinking of.

We did not consult the Department of Agriculture and Food but we told it what our intentions were. Far from raising any objections, it generally wanted to accommodate and respond to the committee. Its view was that it had no fault to find with what we were proposing. That is how this proposal developed. We then put together a proposal and submitted it to the Government. The Government then cleared the terms of reference.

Deputy Foley: What expertise was obtained or utilised in drawing up the systems review?

Mr. Mullarkey: We have a couple of professional accountants in the Department and we consulted one them. We also have an accounting section in the Department which is generally familiar with accounting concepts and developments. We utilised the resources of that section. In our arrogance, we also used our own common sense, to some extent, in putting together this proposal.

Deputy Foley: It states in the document that the review will have regard to matters referred to in the annual report of the Comptroller and Auditor General. Will the remit be extended to other relevant matters?

Mr. Mullarkey: Yes. It can be taken that anything which is relevant will be seen as coming within the remit of the steering group. It states earlier in the document that we will be involved in all relevant aspects of financial management and information technologies. A later section of the terms of the reference talks about the possibility that the report of the steering group may raise other issues. Anything which is relevant to systems of control - which we understand to be the focus of concern here - will be included in the deliberations of the steering group.

Deputy Foley: Will this systems review take into account points raised by Mr. Seán O’Riordain in his letter of 20 January to the chairman, referring to Civil Service witnesses and their constitutional rights?

Mr. Mullarkey: In general, I would not common on that. I have not had a chance to study it but if there was anything in that letter which would shed light on control issues, that would also be taken into account.

Deputy Foley: However, is it not fundamental to the working of the systems review to have the full support of the Civil Service witnesses, by covering their constitutional rights and having them protected?

Mr. Mullarkey: I have difficulty relating that issue to the systems of control. I would prefer, in the interests of the expedition of the work of the group, for the focus of the group to be held as tightly possible on control issues and control systems.

Deputy Foley: Do Mr. Malone and Mr. Mullarkey have any problem with the setting up of the steering group?

Mr. Malone: None whatsoever.

Mr. Mullarkey: No.

Deputy Foley: Thank you.

Deputy Ardagh: This systems review really derives from the operations of the Department of Agriculture and Food prior to my time in the Dáil. It seems to go back to the beef tribunal, which took place from 1991 to 1994 and produced a 700 page report. Not being here that long and not having the same political background as my colleague on my right, or not being as long in the Dáil as Deputies Rabbitte and Durkan, to me, going over the beef tribunal is like going over the Civil War arguments. I want to ensure that, in the future, the Department of Agriculture and Food will adopt the highest possible standards of management and control to ensure that efficiency, effectiveness and good value for money is obtained by the people.

Leaving aside the beef tribunal and addressing the situation from 1995 onwards, what improvements in the controls of financial management and information technology does Mr. Malone expect the systems review team to find? Can he enumerate the significant improvements, if any, which occurred after the beef tribunal?

Mr. Malone: First, we totally reappraised our approach to controls in the light of the beef tribunal. It was clear from the beef tribunal that the system had got overloaded and that we had not deployed our resources to the best effect. In fact, during the beef tribunal we had changed our system of applying controls with, for example, less reliance on permanent supervision and more reliance on unannounced inspections.

Second, we greatly strengthened our internal audit unit. It would now be regarded as quite strong and would stand up quite favourably to comparable internal audit units in other Departments.

The third initiative was the accreditation process. This was an initiative taken by the European Commission, whereby for organisations to operate as intervention agencies they had to be accredited by an independent auditor; in other words, an independent audit was done on the system. We are in our third year of the accreditation process. We feel we have gained quite considerably from that process. We are recognised by the European Commission as one of the member states in which the accreditation process has probably worked best - Commission officials would say that openly.

That process has enabled us to look at our overall systems to see where the major, intermediate and minor weaknesses exist. Having identified those problems in the accreditation process, it is our task to adjust those problems and take remedial action to ensure those problems do not arise in the following year. We have reacted quite well to that process.

The other initiative we have taken is to set up an audit committee. Its members are primarily outsiders and it is chaired by a partner in of the big accounting firms in Dublin. It has members with expertise of systems in large organisations - one of the issues we must look at is getting advice from experts who have experience of large systems.

We get advice and expertise from individuals who have the knowledge of large systems. At the same time we have been upgrading our information technology capabilities. There are some new schemes and controls, and on my first appearance we spent some time discussing direct payments to farmers, the area aid unit and land parcel identification. We have brought quite a lot of new technology on board. I have not been arguing that our system is perfect - it is not - but we have substantially improved it since the early 1990s. We have taken lessons on board and the review we are talking about now will look at the systems we have put in place, see if they are adequate and if they can be further improved or if there are any areas in which we are deficient. I would argue quite strongly that since the experience of the Beef Tribunal we have improved our systems.

Deputy Ardagh: Would it be possible for the Department, rather than looking at this as an examination or test to get over, to have the team go in with knowledge of the most modern techniques? That team could be used as extra professional staff, who can be very difficult to come by at times. That team could help the Department to take another step in the management techniques that may be in use in other countries, which would improve the effectiveness of the financial management and information technology areas. The Department should not look on this as a test or system review only, but as an opportunity to improve the system.

Mr. Mullarkey: I appreciate what the Deputy is trying to achieve, but there are two phases in this matter. In formulating this I felt the Public Accounts Committee was looking for an external assessment of the systems of control and what, if anything, needed to be done. It was then envisaged that there would be a follow through. If we had come up with a proposition along the Deputy’s lines it would have been seen as being too in-house within the Department. I would like to think that when the external assessment is carried out, with the aid of people in the Department, and we have reported to the Public Accounts Committee, if there is a programme of implementation to be followed our Department will look, with the Department of Agriculture and Food, at whatever resources are needed to implement that. There will be a clear implementation programme required and set out by the steering group which will be primarily the responsibility of the Department of Agriculture and Food, whereas in so far as it is appropriate the Department of Finance will support them in that with external expertise, if that is needed.

Deputy Ardagh: I want to be sure that any recommendation for change or improvement is not looked upon by the Department as a weakness and that it is used in a positive way to improve the management methods within the Department.

Mr. Mullarkey: I have no problem with that. I said earlier that we feel good will come from this exercise, so we do not see it as a test but as a way of looking at our system to see how they can be improved. I agree that we should use the best expertise, management and control systems available.

The substantial presence of the Department of Agriculture and Food at the steering group and working group levels means that that Department would have a real sense of ownership of any recommendations from the group.

Deputy Ardagh: I accept that and it is a good point regarding the make up of the groups. The steering group has the assistance of the working group comprising of officials of both Departments and the Revenue Commissioners. Why are the Revenue Commissioners included in the working group? I hope it is not true that they were put in on the basis that including them in this review meant that if the farmers got worried about the Revenue coming down on them as a result of the review, be it on the head of the Chairman of the Public Accounts Committee. That is devious thinking, but I want to be assured that that was not the case. Also, why are the Revenue Commissioners involved?

Mr. Mullarkey: I am unsure of the background, but the primary reason is that the Revenue Commissioners are already involved in audit arrangements within the Department of Agriculture and Food, and it seemed strange to exclude them from this exercise in its entirety when they already had an involvement in the Department supervising audit procedures.

Deputy Ardagh: I understand the Revenue Commissioners coming in to do an audit, whether it be of a PAYE or VAT system. It is unusual to have the Revenue Commissioners do a systems review of financial management, financial controls and information technology.

Chairman: What is the role of the Revenue Commissioners?

Mr. Malone: The Revenue Commissioners would have a day to day involvement in the operation of a number of the FEOGA schemes, particularly in the area of export refunds, for example. Customs would be heavily involved, so we would have quite a lot of day to day contact with the Revenue in that area.

Deputy Cooper-Flynn: Mr. Mullarkey stated that a surprise audit is never misplaced, and I am sure that is true. If one did a surprise audit of any Government Department there would be a benefit to be derived. In this case, however, the only reason the systems review is taking place is because the Public Accounts Committee has asked for it. Did Mr. Mullarkey or the Department of Finance have any concerns about the Department of Agriculture and Food’s systems that would have prompted them to carry out this review without being asked by the Public Accounts Committee?

Mr. Mullarkey: Obviously, the deliberations of the Public Accounts Committee and the Beef Tribunal would have indicated certain concerns about systems of control, but we were already heavily involved with the Department of Agriculture and Food in the audit area before this request. We are generally involved in promoting internal audits and are actively involved with the accreditation group within the Department of Agriculture and Food. We have been working with that Department to improve the whole audit system, where significant attention has already been paid to systems of control. We have been actively involved in the upgrading of the Department of Agriculture and Food’s internal audit procedures.

The new dimension was the request from the Committee of Public Accounts for some form of external assessment.

Deputy Cooper-Flynn: That is the point I am trying to make. In 1994 after the beef tribunal, there was a great strengthening of the internal and external audit systems in the Department of Agriculture and Food. This is borne out by Mr. Mullarkey saying he has been involved on an ongoing basis. Is this systems review necessary or is it a waste of money? Is it a duplication of something already done? Mr. Mullarkey referred to having an external viewpoint. I understand the EU audit team provides such a view. When Mr. Mullarkey has finished his reply, I would like the Secretary General of the Department to tell me the view of the EU audit team of the systems within the Department of Agriculture and Food and if they are seen as good or bad. Does he believe the systems review is a complete duplication of work already carried out by many other groups?

Mr. Mullarkey: The request from the Chairman related to the Vote of the Department as a whole and was not confined to the FEOGA area where much of the audit upgrading has been concentrated. We are not expert in the whole gamut of the Vote, probably mainly in relation to the FEOGA audit. We make clear in the report that we acknowledge that the steering group would not be in the business of duplicating what has already been carried out by external professional auditors or assessors. It would be inappropriate to purport to audit the auditor. However, some areas may have made less progress and done less upgrading in terms of audit and that needs to be identified.

Regarding areas where professional auditing is already in full operation, my reading of the situation was that the request from the Committee of Public Accounts stemmed from a perceived need to have an external reassurance that the auditing in those areas is operating comprehensively. Also, while the Committee is aware of the auditing of the accounts of these organisations, it may not be aware, and I am not fully aware at this stage prior to the examination, to what extent there is a full blown systems audit as distinct from the amount of systems audit which would be a natural part of any ordinary audit. I have seen exclusively systems audits which are somewhat different from ordinary commercial audits or ordinary professional audits. I agree there is an element of stocktaking and reassurance for the Committee of Public Accounts in this where the professional auditing has already taken place, but there are other areas which must be examined which might not be subject to the same intensity of audit. We may have more to discover and to say in those areas.

Deputy Cooper-Flynn: Would it have been appropriate to check the extent to which the existing external audit has examined systems? I read in a report that an external audit committee chaired by a partner of a major consultancy firm and with State involvement in terms of the Department of Finance, the Revenue Commissioners, the Department of Agriculture and Food and semi-States, along with the private sector, was established in 1994 to examine the workings of the Department of Agriculture and Food. Given it is a Department which relies heavily on its systems because of the huge number of payments it makes, I would have thought systems would have formed a large part of an audit.

Mr. Mullarkey: I believe so and there are pointers in that direction from what I have seen from the accreditation process. However, it would have taken time to properly assess everything that was happening. Half the exercise would be identifying the gaps. We would have received a hostile reception from the Committee if we had returned today and started explaining at this stage how much had already been done.

Deputy Cooper-Flynn: It was thought better to jump in straight away and, although the same work might be done again, it would be seen by the Committee that prompt action was being taken which would satisfy it. I accept the point Mr. Mullarkey makes. It is valid.

This question is directed to the Secretary General of the Department of Agriculture and Food. I understand he meets with the EU audit committee on an ongoing basis. What has it said about the Department of Agriculture and Food’s systems controls? Is it happy with them?

Mr. Malone: The accreditation process is a requirement. Unless we satisfy and obtain clearance through the independent audit carried out each year on our systems, the Commission will not allow us act as an agency to make FEOGA payments. That is a requirement and test we must pass each year. The accreditation audit examines our systems. It was a new experience for us and, now that we are in the third year of that audit, we believe we have gained considerably from it.

A number of individual audits independent of that would be conducted on specific schemes or aspects of them. For example, we would be audited by the European Commission, DG6, and by financial control, DG20. We are also audited by the Court of Auditors and the Comptroller and Auditor General. UCLAF, a specific anti-fraud agency, also periodically conducts audits. Cumulatively, the number of audits in any given year in the Department would be substantial and could be up to 20.

It is a question of examining the systems. We believe we have improved and modernised our systems and adjusted them to meet the requirements of the European Commission. If it were not satisfied, it would not have us accredited. However, we are not perfect and no system is perfect. If this exercise shows how our systems can be improved, and I believe it will, that is all to the good.

Deputy Cooper-Flynn: I have no doubt there is benefit to be derived from it. However, my point is that the Department is operating reasonably satisfactorily at present. Otherwise, it would not be allowed to do certain things by the EU on an annual basis. The reason the systems review was called for by the Committee was because of the large level of fines levied against Ireland by the EU, although the Union is apparently satisfied with the Department’s systems. Regarding the fines or disallowances levied against Ireland, are they, in the opinion of the Secretary General, due to systems failures?

Mr. Malone: Yes, to a large degree. I explained the last day that, in 1990 and 1991, we accepted unprecedented amounts of beef into intervention. Over two years we accepted the equivalent of 1.4 million cattle. The system became overloaded because we handled volumes of product we were not capable of handling. While we adjusted the system between 1990 and 1991, I acknowledged that we placed too much reliance on permanent supervision and not enough on surprise or on the spot inspections. The answer to the question is yes, it was a failure of the system.

Deputy Cooper-Flynn: Would Mr. Malone classify that as poor administration?

Mr. Malone: No, I would not. I would classify it as a systems failure.

Chairman: Regarding the proposed separate agency for FEOGA funds, what is the implication of that for parliamentary questions? Will the Minister still answer questions on it in the Dáil?

Mr. Malone: Yes, the intention is that the agency would report to the Minister, so he or she would have political and parliamentary responsibility for it.

Chairman: It would not be like a semi-State body where questions are ruled out of order because of-----

Mr. Malone: I do not think so.

Chairman: If it has that result, it could lead to a diminution of parliamentary accountability.

Mr. Mullarkey: You speak in terms of the head of the agency being an Accounting Officer. It is almost coterminous with the concept of an Accounting Officer that parliamentary questions can be asked.

Chairman: There are Accounting Officers in the Office of the Director of Public Prosecutions and no parliamentary questions can be asked. Perhaps we could have a note on whether there are implications in that regard.

In relation to the reviews, will it be possible for the steering group to seek the comments and observations of staff organisations within the Department and of companies or outside bodies that have many dealings with the Department for their views on the problems and possible solutions?

Mr. Mullarkey: I would be inclined not to circumscribe the work of the steering group. I assume the group will consult with anybody it believes can make an input in terms of ideas. That is something we would encourage because we want to have the widest range of informed views.

Chairman: Some of the documents I received in the last week and which I have had a chance to read in detail suggest that there might be useful input from people who have dealings with the Department. They might be able to suggest better methods of doing certain things.

Mr. Mullarkey: I would encourage the maximum amount of consultation.

Chairman: I am very pleased with this response and with the Department’s openness to this. I hope the review yields the benefits I expect from it. It will take three months and, presumably, a few weeks to get it up and running. The Government will also need time to consider its report. I suggest that the Committee put this issue on the agenda for June to see what progress is made. Is that agreed?

Deputy C. Lenihan: Does that include the substantive issues?

Chairman: No. Is that agreed? Agreed. With regard to other issues, the documentation we have received will be considered by the Committee next week with a view to a third interim report to allow it into a public forum and to enable further discussions to take place. We will decide next week when our next hearings on the other issues, that is, the paragraphs in this year’s report of the Comptroller and Auditor General and related matters, will be held. It will probably be four weeks before we get to it.

Deputy Rabbitte: It was important that you called the shots at this meeting in terms of fairness and so forth but it has been an odd meeting. It was restricted to a piece of paper which we received for the first time this morning and which purports to deal with a number of wider issues about which we could not ask questions. Nevertheless, I accept your decision.

However, a number of remarks were made which reflect unfairly on and misrepresent what was said by Deputy O’Malley. He is not here to defend himself. It is entirely wrong for an impression to be given by this Committee that it has anything to be defensive about in the context of its attitude towards the public service. The Accounting Officers of a large number of Departments and agencies which previously were not within the remit of the Committee come before it every Thursday and sometimes every Tuesday and no allegation has ever been made either against the Committee or against any member of the Committee about unfairness to the public service.

It is wrong to represent Deputy O’Malley’s testimony as constituting generalised and unsubstantiated attacks. He listed and adduced a number of specific matters that were either already in the public domain or were drawn from court cases concerning the issues which this Committee is addressing. Some of them referred to serious instances of proven alteration and forgery of documents and other matters. To find ourselves in a position deriving from that where we have to be defensive about our disposition towards the public service is utter nonsense.

I recognise a well orchestrated campaign when I see one. I received four or five telephone calls during the week from friends of mine, some of them across the political divide, asking me if it was not time to go easy on agriculture and a number of other such matters. I am also aware that people have been meeting with others. It is extraordinary the priority some people give to following the activities of this Committee rather than being in Dublin Castle to follow other matters. I recognise a hole in a ladder when I see it.

Between now and our next meeting, I ask Mr. Malone to go through the transcripts and find one unfair or unjustifiable question I have put to him. We will deal with it on the next date. I repudiate any imputation that I or any member of this Committee put any question which reflected unfairly on the public service. The matters adduced in the Committee must be pursued by the Committee until it receives answers.

Chairman: Nobody put any pressure on me to ease up or go after anything. This Committee does its job without fear or favour and will continue to do so in a fair way.

Deputy C. Lenihan: Some of these comments appear to be directed at me. There is a certain amount of conspiracy theory spinning going on in the Committee. If members of the Committee, particularly Deputy Rabbitte, have been the subject of intimidation or telephone calls from any quarter, they should immediately report it to the Committee on Procedure and Privileges.

Deputy Rabbitte: I said I had received telephone calls from friends.

Deputy C. Lenihan: If this is another effort at rocking the foundations of the State, it will not work. The biggest concern of many members of the Committee is that we are being used as a tool for some individual Deputies who are particularly obsessed by the events and ball of smoke allegations that were made during the beef tribunal. We are not prepared to let this Committee be used and manipulated for that purpose.

Deputy Rabbitte: As you will find out at another forum, an obsession does not mean it is wrong.

Deputy C. Lenihan: Even if it is my concern, it is a proper concern. This Committee should not be manipulated to provide an action replay and major retrospective look at the beef tribunal. That tribunal was a costly affair for taxpayers and many people now doubt that it was a valid exercise at all.

Deputy Foley:Nobody approached me in connection with this meeting today. I referred during my questions to a letter from Seán O’Riordan who represents the staff but I was subject to no pressure from any quarter.

Deputy Durkan: I wish to reiterate what I said earlier. If the impression were to be given at this meeting that the work, scale and focus of questioning in the Committee can be in any way curtailed for whatever reason, the Committee will take a serious backward step.

When I commenced asking questions, which I reached in turn, I was informed by the Chairman that I had five minutes. If there is a clear time limit or period within which a question or questions may be answered, it is much easier for the person to answer the question whoever that may be, and Ministers and former Ministers will be the first to recognise that. It is unfair that the Chairman did not point that out to me at the beginning and that he allowed to subsequent questioners to go on for 15 and 20 minutes, respectively.

Chairman: That is untrue. The Committee made a decision some time ago to which the Deputy was party that it would finish its business by 1.30 p.m. I have to try to be fair to all Members. The Deputy knows it is tradition that we allow the lead questioners a full remit and, therefore, we must limit the time of others.

Deputy Durkan: Obviously, the Chairman has to limit my time.

Deputy Cooper-Flynn: I would like to make a point on Deputy O’Malley’s evidence, and I do not believe I or anyone else on the Committee should feel the need to defend him. When Deputy O’Malley came before this Committee as a witness he knew full well that his evidence would be fairly controversial, would be gone through with a fine-tooth comb and would be subject to much cross examination and questioning from all Members of the Committee. It was my understanding after last week’s meeting when I spoke to the Chairman before I left the room that no questioning would take place after Deputy O’Malley made his statement. I conferred with the Chairman before I left the meeting and he informed me on that occasion that a transcript of Deputy O’Malley evidence would be made available and questions would take place the next day. I was quite surprised, as the Chairman can imagine, to discover that the meeting had gone on until after 6 p.m. with a lot of different evidence being taken and getting into the public domain. Having said that, I accept it happened.

Chairman: It was a misunderstanding. A transcript of the evidence of both the Secretary-General and Deputy O’Malley has been made available to a number of people. Deputy O’Malley will be the subject of further questions from the Committee on his evidence. Some of the points raised querying points raised by Deputy O’Malley can be teased out further. This Committee will do its job without fear or favour and fairly. We should not get too upset that sometimes some people will have comments and criticisms to make. We are in a public forum. As far as I am concerned, it represents interest in the work of this Committee. This is the Committee of Public Accounts and these matters must be aired in public, but we will be fair and effective. I hope we are, in general, doing a good job on behalf of the public because that is our mission.

I thank the witnesses and discharge them. The Committee is adjourned until 5 p.m. next Wednesday when it will meet in Private Session. It will meet on Thursday next at 10 a.m. Consideration of the third interim report of the 1997 Annual Report of the Comptroller and Auditor General - the Department of Agriculture and Food - will be taken in Private Session. We will take the Annual Report of the Comptroller and Auditor General - the Department of Health and Children and the Department of the Taoiseach - in Public Session.

The Committee adjourned at 1.35 p.m.

CORRESPONDENCE / DOCUMENTATION