Mr. Seamus McCarthy:

I will give an overview of the report. Some of the issues that arise are matters for this morning's second session with the HSE and the Department of Health rather than SIPTU.

The social partnership model in the management of public sector bodies aimed to achieve improved co-operation between management and staff in addressing challenges in the delivery of public services and to modernise the practice of industrial relations in the public sector. To achieve this, a number of collaborative arrangements were put in place to identify required training and development and oversee their delivery. The initiatives implemented for the health sector included the health service national partnership forum, which was established in 1999, and the SKILL programme, which commenced in 2004. Similar partnership arrangements were put in place in the local authority sector, including the local authority national partnership advisory group, which was established in 1999.

Previous reports from my office looked at the partnership arrangements in the health sector and found weaknesses in the way public funds had been administered. In the course of those examinations, it was found that there had been substantial payments of public money from multiple sources into a bank account called the SIPTU national health and local authority levy fund account. Following concerns expressed at a meeting of the committee about the operation of this fund, I undertook an inspection of its accounts. Before I outline the key findings of the inspection, I want to comment briefly on the availability of relevant records about the transactions on the fund. The fund bank account was established in late 1998 by a senior SIPTU official, who acted as the fund administrator, and a health sector employee who was a SIPTU member. Formal SIPTU approval for the establishment of the fund bank account was not sought. Fund transactions were not processed through SIPTU's financial system. SIPTU took control of the fund bank account in 2010 and subsequently closed it. The fund administrator did not put in place a formal system of accounting for fund transactions. Bank records were available for movements on the account from January 2002.

SIPTU arranged for annual financial statements to be compiled retrospectively from the bank records. These statements were made available in full to the inspection team. To supplement those records, the inspection team verified a sample of payments through direct confirmation by identified suppliers and individuals. The team also examined the records of funds allocated and payments made in the public bodies that provided money to the fund. We asked the fund administrator for a copy of a report prepared by a firm of accountants on his own behalf and for any supporting documentation. He declined to make them available to the inspection team. The inspection found that public money totalling €4.15 million was available to the fund in the period from 2002 to 2009. Funding of approximately €1 million was returned to State bodies between late 2010 and December 2012. Accordingly, the net cost to taxpayers of the operations of the fund between 2002 and 2011 was approximately €3.15 million.

Concerns were expressed by the HSE about the destination of some public money paid over to the fund. Records of the issues from public bodies and receipts by the fund prior to 2002 are incomplete. The inspection team found no evidence of misappropriation of public money issued to the fund in that period. It also found that all of the public money identified as having been issued by public bodies in the period from 2002 to 2009 was lodged to the fund. The inspection team found that the funding bodies had not specified clearly the purposes for which most of the funding was provided. The lack of specific direction as to how the money should be used allowed a degree of flexibility by the fund administrator in responding to demands, so long as they were within overall partnership objectives.

Public money was provided to the fund through a complex chain of funding transfers. This created a risk that there would be confusion among the funding bodies about responsibility for ensuring adequate oversight and accountability. In the event, there was no effective oversight or formal accountability for the fund's operations. Most of the public funding was made available in advance of expenditure, in the form of grants. There were instances in which grant funding was provided just before the end of the year. This could indicate that funding bodies used the fund as a mechanism to avoid surrender of unused partnership funding. This resulted in the fund's building up a cash balance that was significantly in excess of its immediate business needs.

Between 2002 and 2009, approximately €2.2 million was spent on training programmes and grants. This type of expenditure is consistent with the broad partnership objectives stated by funders. However, the inspection found significant amounts of expenditure which were less clearly within the scope of those objectives, such as expenditure on marketing and promotion, travel and accommodation, and hospitality. In some instances, employees of public bodies engaged in foreign travel that was arranged and paid for from the fund. Such arrangements are inappropriate because they bypass internal controls on the charging of and accountability for foreign travel expenditure incurred by public employees. Details of those trips were discussed by the committee at a previous hearing.

In addition, the inspection team identified transactions relating to further foreign travel, the details of which are presented in the report in figure 3.3. The expenditure involved is approximately €46,000 and comprises mainly credit card payments for flights and accommodation. The precise number of trips cannot be determined because, in most cases, the credit card statements record the dates when payments were made, which may or may not coincide with the dates of travel. The fund administrators stated that most of these trips had a legitimate business purpose, but did not give details. No documentary evidence was available which enabled us to determine the purpose of those trips, or how they related to the work of the fund. The examination found that significant refunds were made to the fund account by individuals, especially in 2010 after concern emerged about the fund's operations. This included refunds for the expenses of persons who had accompanied officials on trips. Due to the incompleteness of the records, the inspection team was not able to match these to specific payments, or to conclude whether all refunds due were repaid.

While the relevant public bodies failed to put service level agreements in place with the fund administrator, or to implement appropriate control and accountability arrangements, the fund administrator had an obligation to manage properly the public money entrusted to him. At a minimum, he should have kept sufficient and appropriate books of accounts to make it possible to determine in a timely way how each element of funding had been used and what balance, if any, remained. He should also have sought clarification from the relevant funder if he had any doubts about the appropriateness of proposed expenditure. Furthermore, he should have reviewed the adequacy of the arrangements in place when the level of annual funding received doubled in 2003 and again in 2004 and in 2007.

The development and operation of the fund raises a number of issues of general concern in relation to the administration of grant funding by public bodies. The report sets out a number of recommendations designed to improve control over, and accountability for, State grants. The Department of Public Expenditure and Reform has indicated that it accepts the recommendations and proposes to progress them through a joint working group between the Department and my office.