Mr. Seamus McCarthy:

Given the lapse of time since the special report was previously considered by the committee, I will briefly outline the matters relevant to today's proceedings.

The overall objective of the special report was to raise a number of general issues arising from my office's audits of third level institutions. Examples of those matters arising in individual third level institutions were given. Three matters, in particular, were raised regarding Waterford Institute of Technology.

The first matter raised in the special report concerning the institute was control failures regarding the expenses incurred by the office of the president of the institute. Lapses in control were identified in the course of the audit of the 2009-10 financial statements. These included insufficient details provided of goods and services acquired or payments made using a corporate credit card allocated to the president, the absence of evidence of the business purpose of goods and services purchased, the use of the credit card to purchase gifts, and an instance where subsistence appeared to have been paid in respect of a period during which restaurant meals and room service had also been charged to the credit card. Subsequent to the audit, the chairman of the governing authority commissioned an in-depth review of the non-pay expenses incurred by the office of the president and an interim report was produced in May 2011. A further review, concentrating on spending in the period 2009 to 2011, was commissioned and this was reported on in December 2012. I understand the president of the institute will update the committee on the actions taken by the institute in response to these reports.

The special report also considered the relationship between third level education institutions and associated fundraising foundations, which are generally established as independent entities. Normally, funding is expected to flow from the foundations to the associated institutions, but in the course of audit a number of instances were noted where institutions' funds were paid instead to the foundations.

In the case of Waterford Institute of Technology, a limited company was established in 2005 to raise funds for the institute. In 2007 the institute transferred funding of €400,000 to the foundation to meet set-up and initial operating costs. The funds were sourced from a donation by AIB to support the institute's programme for widening participation in education. In 2008 the institute provided the foundation with an additional €150,000. At the end of 2008 the total amount provided for the foundation had been substantially spent. Ultimately, the foundation failed to raise significant funds for the institute and its activities have since ceased.

The primary issue raised in the special report relevant to the institute relates to the operation of a number of companies established to provide a range of ancillary services such as student accommodation, catering, sports and recreational activities and retail outlets. The scale of operation of the companies expanded over time and they had delivered a number of major capital projects. The group of companies received substantial block funding from the institute, linked with the institute's income from annual student contributions and a banking franchise. While a note to the institute's financial statements gives summary information on the companies' operations, their results were not consolidated with those of the institute. Based on the nature and pattern of interaction between the institute and the companies, we concluded that they were part of the normal services typically provided on the campuses of third level institutions and that they should be included in consolidated accounts produced by the institute.

Following the last meeting of the committee, the Minister for Education and Skills commissioned a statutory inspection to review the relationship between the institute and the companies. The report of the inspector was published in July 2013. I note that the inspector has recommended that the companies be restructured as subsidiaries of the institute and that the institute should then produce consolidated financial statements for the group.

I wish to mention the status of the audit of the institute's financial statements. The institute suspended finalisation of the financial statements for 2010-11 while the various investigations were being undertaken. In addition, the audits of the 2011 financial statements of the ancillary companies were not completed until May 2013.

Therefore, the institute could not produce the related disclosure note. Resolution of an accounting issue with the Higher Education Authority also contributed to delay. The institute adopted the financial statements on 26 September. I cleared the accounts on 4 October subject to resolution of some residual issues with the institute. The fieldwork for the audit of the institute's 2012 financial statements has been completed by my office. However, the results of the audits of the 2012 financial statements of the ancillary companies are awaited.