Mr. Seamus McCarthy:

Vote 26 for the Department of Education and Skills is the third largest of the Votes, accounting for 17.5% of overall gross Voted expenditure in 2012. The appropriation account indicates gross expenditure of €8.6 billion in 2012. Salaries and pensions accounted for more than three quarters of current expenditure, with approximately 93,500 whole-time equivalent staff in the sector. Capital services expenditure amounted to just over €450 million.

The school transport service is also funded from Vote 26. Payments for the service amounted to almost €169 million in 2012. This includes a sum of €150 million paid to Bus Éireann which, under a long-standing arrangement with the Department, manages the provision of most school transport, using a combination of services contracted in from private bus operators and vehicles in its own fleet. The remaining €19 million was spent on direct school transport grants and school bus escort payments.

The national training fund was established in 2000 as a ring-fenced fund designed primarily to support the training of those in employment and those who wished to take up employment. When the fund was established, there was a shortage of skilled labour in certain key economic sectors. The fund is resourced mainly by a levy on employers of 0.7% of reckonable earnings of certain categories of employee. The income of the fund from the levy in 2012 was €299 million, down slightly on the figure for 2011. The other main recurrent source of funding is European Social Fund, ESF, receipts which tend to vary significantly from year to year. In 2011 some €80 million was received, including €24 million in final refunds relating to ESF programme activity from 2000 to 2006. No ESF funding was received in 2012, but €32 million was received early in 2013. Approximately three quarters of the expenditure in 2012 was on training programmes for those seeking employment. Most of the remaining expenditure was on providing training for and the upskilling of those already in employment.

The main beneficiary of the national training fund in 2012 was FÁS which received a total of €297 million. In addition, the Department paid FÁS almost €12 million from the Vote for its training and integration support activity. Payments to FÁS from the Vote amounting to €23 million were provided for in the Estimate in subhead G2, but when the Department identified potential budget difficulties for the Vote, it stopped the Vote payments to FÁS. To compensate, it increased the provision from the fund by just over €9 million. Subsequently, when it became clear that there would be a substantial surplus in the Vote, the fund was reimbursed by that amount, paid also from subhead G2. I drew attention to this in the chapter on Vote accounting because the circumstances were not consistent with the principle that Vote holders should manage expenditure within the spending limits set by Dáil Éireann for the Vote, while meeting all legitimate liabilities that arise in the year.

In the comprehensive review of expenditure the expenditure ceiling set for the Department for 2012 comprehended both the Voted spending allocation and the national training fund expenditure allocation. This, in effect, makes the Vote and the fund a single account for budget management purposes. Because the Vote and the fund are accounted for separately, significant intra-account transactions should be clearly disclosed in both accounts. The Accounting Officer has undertaken to do this in the future.

Better transparency of the cost of public services could also be achieved if all payments for specific services issued from a single funding source. Rather than making parallel payments to payees from multiple sources, Exchequer support for the target activities of a departmental fund, if required, could be achieved by voting a grant payment to the relevant fund. For example, this is what happens with the Social Insurance Fund subsidy paid from the Vote for the Department of Social Protection.

Chapter 12 deals with the control of expenditure on the education sector public private partnership projects, PPPs, that were at an operational stage in 2012. It considers the adequacy of controls in place in respect of the key contract elements of price indexation, service performance and benchmarking. At the end of 2012 cumulative expenditure on the five operational PPPs in the education sector was just over €300 million, with outstanding commitments estimated at over €1 billion, and annual expenditure running at almost €50 million. The projects relate to three bundles of primary and post-primary schools, the National Maritime College and the Cork School of Music, both of which are colleges of the Cork Institute of Technology. The Department of Education and Skills is the contracting authority for all of the PPP projects and costs are borne in the Vote. Towards the end of 2012 the National Development Finance Agency took on some of the contract management functions for the school bundles previously undertaken by the Department. The college contracts are jointly managed by the Department and the institute. At the request of the Department, the agency carried out a review of the indexation calculations submitted by the respective PPP companies during 2012 for each of the five contracts. Errors were noted in the invoicing for both colleges, amounting to a potential overcharging of €43,000. The chapter recommended that all future payment indexation calculations on all projects should be reviewed by the agency and that the Department should satisfy itself that calculations for prior years were correct and that no overpayments had been made.

Schools PPP companies are required to submit monthly performance reports to the agency, outlining activities in the previous month. These reviews are circulated to each school principal for confirmation that all service failures that may have occurred are included and that the dates regarding the handling of service requests are correct. When service failures occur, the agency ensures the appropriate deduction, if any, is made for the next monthly unitary charge payment. Up to the end of 2012, deductions totalling just over €1 million had been made from payments to the schools PPP companies. Our examination found several instances in 2012 where individual schools had not responded to the request from the agency for confirmation that the monthly performance monitoring report was complete and accurate. As payments to the PPP companies were not delayed in these cases, non-response from the schools is, effectively, being treated as confirmation that the performance report is correct. The chapter recommended that the Department remind schools of the importance of providing formal feedback on the monthly performance monitoring reports in order to ensure contracted services are being delivered and that deductions, where appropriate, are applied.

Benchmarking and market testing are used in PPP contracts as a means of ensuring the contracting authority continues to receive value for money over the life of the contract. I reported in chapter 3 how an exercise of this kind had been undertaken by the Courts Service in relation to the Criminal Courts of Justice PPP and that significant financial savings had been achieved as a result. For the PPP projects in the education sector, the options of benchmarking and market testing were available in the fifth year of operation and will be available every five years thereafter, but the examination found that the Department had decided not to invoke these provisions. We found no documentary evidence of any detailed analysis supporting the decisions to forgo the benchmarking opportunities. The chapter recommended that in the future the Department formally consider whether savings could potentially be delivered by way of benchmarking and market testing. Reasons for proceeding, or not proceeding, with benchmarking should also be documented.