Dr. Ruaidhrí Neavyn:

This is a detailed statement to cover the issues that were discussed at the last meeting. Waterford Institute of Technology welcomes the opportunity to advise the Committee of Public Accounts, PAC, on matters referred to in the special report of the Comptroller and Auditor General and accepts the conclusions reached in the report.

I wish to focus on three items: specific transactions relating to flights and expenditure in the office of the former president, the financial consolidation of companies providing services to WIT and the report that the Minister issued under section 20 of the Institutes of Technology Acts on the relationship between Waterford Institute of Technology and companies providing campus services to it.

I will set out the nature of specific transactions relating to flights. At the meetings of 27 September 2012 and 4 October 2012 the PAC raised several queries in respect of chartered flights. Since then, the institute has completed an internal review of expenditure on flights in the office of the former president. As part of the expenditure review, the institute examined available documentation and made contact with and received responses from the former president, the former chairman, Dr. Jim Port, Bell Airways, Fewer Harrington & Partners and Deloitte. As a result of this review I can confirm that two invoices were paid for flights connected to the institute's application for university designation under section 9 of the Universities Act and a review of the application performed by Dr. Jim Port. The first invoice was for a one-way flight from Waterford to Dublin for a group of four on 20 March 2007. The flight was connected to Dr. Port's review of the institute as part of the application for university designation and the trip taken by him and others at WIT to a meeting of Members of the Oireachtas and senior Government officials. The invoice came from a third party, Fewer Harrington & Partners rather than the providers, Bell Airways. I am unable to provide a complete explanation for this because Mr. Fewer is now deceased. However, I have been informed that he was a shareholder of Bell Airways Limited and I can only assume he was involved in that capacity. I confirm that the invoice was authorised for payment by the former president and amounted to €769.56.

The second invoice was received directly from the providers, Bell Airways, and was for a chartered return flight between Bristol Filton and Dublin on 29 June 2007. The flight was authorised for payment by the former chairman and former president and was arranged to transport Dr. Jim Port to a meeting with the then Taoiseach in Dublin following the completion of Dr. Port's report on the institute's application for university designation. This invoice was for €4,200.

The current governing body of the institute believes that the specific transactions relating to flights were unnecessary and did not represent good value for money, that the procurement and authorisation processes adopted were inappropriate and that the information available regarding these flights was insufficient and inadequate.

At the PAC meeting of 4 October 2012, the members expressed concern about the accuracy of the first Deloitte report, specifically relating to flights. Following the PAC meeting, the institute sought written clarification from Deloitte on how this apparent error had occurred. In a detailed response Deloitte advised that it had raised a query with the former president about why the invoice for €4,200 did not refer to Waterford if it was a flight from Waterford to Dublin. The former president advised that the aeroplane may have had to be positioned from Bristol Filton to undertake a flight and this explanation was accepted by Deloitte. I apologise to members that full information relating to the flights was not available at the time of the last hearing and I wish to provide the following clarification. Queries regarding flights were first raised at the committee hearing of 27 September 2012. At that time I was aware of only one invoice for a flight to the value of €4,200. The institute understood that this related to the one-way flight on 20 March 2007 for a group from Waterford, including Dr. Port, to travel from Waterford to Dublin for a meeting with Members of the Oireachtas and senior Government officials, that is, the first flight described previously. Following the PAC meeting of 27 September 2012 and subsequent communication with the Comptroller and Auditor General, the institute performed a further review of invoices paid by the office of the former president with a view to identifying any further invoices for flights provided by Bell Airways.

On the afternoon prior to the appearance of the HEA and the Department of Education and Science at the Committee of Public Accounts on 4 October the institute located the second third-party invoice from Fewer Harrington & Partners which related to a flight from Waterford to Dublin. The institute contacted the Comptroller and Auditor General and the Department of Education and Science regarding this invoice and immediately forwarded the information to the Department of Education and Science, the HEA and the PAC on the advice of the Comptroller and Auditor General. The institute accepts that the information was provided at short notice and regrets that the members did not have the full information available to them prior to the commencement of the meeting on 4 October 2012.

In March 2011 the institute received a freedom of information request regarding expenditure in the office of the president. Following the release of this information and discussions with the HEA in April 2011, the institute requested Deloitte to perform a review of non-pay expenses in the office of the president for the period January 2004 to March 2011. The report, commonly referred to as Deloitte one, confirms that breaches in institute policies and procedures occurred. Specific deficiencies identified included: breaches of institute policies on hospitality, travel and credit card usage; lack of an appropriate co-ordination process; insufficient reporting in respect of expenditure; in some instances, a lack of appropriate tender processes; and inadequate review of expenditure internally and externally. However, breaches were confined to the office of the president as a further review of internal financial controls throughout the institute did not identify any issues which caused concerns to the audit committee.

Following completion of the first Deloitte report, the institute commissioned Deloitte to perform a second more detailed review of expenditure for the period January 2009 to May 2011. This report, commonly known as Deloitte two report, was completed in December 2012 following significant discussion by the governing body, the audit committee, Deloitte and the institute's legal advisers. The purpose of this report was to identify whether for the period in question expenditure was incurred in accordance with the institute's procurement procedures, whether the expenditure was institute-related, whether it represented value for money and whether there was any evidence of expenditure giving rise to a personal benefit for the former president. This report clearly identifies areas of expenditure where the former president may have received benefit. On foot of this, in May 2013 the institute completed a detailed internal review of non-pay expenditure in the office of the president for the extended period from 1 January 2007 to 31 May 2011.

This review focused on identifying any evidence of personal benefit in the specific expenses categories identified by the second Deloitte report. This period was selected as it is the limit allowed under the Statute of Limitations should the institute seek to make a claim against the former president. The result of this expanded review was communicated to the governing body, the audit committee, the institute's legal advisers and the former president through his legal advisers. As a result of this examination, the institute has issued High Court proceedings against the former president for reimbursement of expenditure. As this now a legal case I have been advised not to provide any further detail except to reassure Deputies that the matter is being pursued to the fullest possible extent. The governing body believes that the level and nature of expenditure incurred by the office of the former president during the period investigated was unreasonable and in many instances did not represent good value for money. The consistent breaching of procedures and lack of controls was unacceptable. The failure of internal and external systems to identify and flag this level and type of expenditure is also of concern to the governing body. Financial reporting to the governing body or its audit and finance committees did not at any stage give an indication of aberrant spending by the former president. The audit committee, which has oversight of the internal audit function, did recommend in 2009 that the application of expenses policy should be reviewed as part of the internal audit plan. This recommendation was not implemented as the committee was advised by management that this would be reviewed as part of an upcoming Comptroller and Auditor General audit.

In concluding this matter I am keen to point out the steps taken by the institute to address the specific in issues to ensure they do not recur. These include: the significant reduction in the budget of the office of the president, from a peak of €630,000 in 2008 to €140,000 in 2013; the budget of the office is pre-approved by the governing body and expenditure is reviewed biannually by the governing body; the institute's policies on hospitality, travel, credit card usage and mobile telephones have been reviewed, updated and reissued institute-wide; Waterford Institute of Technology internal corporate cards have been withdrawn; an appropriate co-authorisation process has been introduced whereby all orders issued by the president's office require co-authorisation; tendering processes are used in all cases where it is deemed appropriate; a complete review of expenditure has been conducted for 2007 to 2011, and a claim for reimbursement has been served against the former president; foreign travel by the president is pre-approved by the governing body; and the governing body has proposed the introduction of the whistleblower charter to facilitate disclosure of inappropriate expenditure in future - this will require input and agreement at a national level.

In the report to the Minister issued under section 20 of the Institutes of Technology Acts, reference was made to the financial consolidation of Diverse Campus Services Limited. In June 2012 the governing body of the institute approved pursuing the consolidation of DCS companies as subsidiaries of WIT under new governance and management arrangements following recommendations made in the Comptroller and Auditor General report, Matters Arising out of Education Audits, February 2012 and the Grant Thornton report, Review of the WIT Development Committee, its activities, financial controls and governance structures since its establishment, of June 2012.

The consolidation process proved to be particularly complex, given the existing financial arrangements of Diverse Campus Services Limited, DCS, including borrowings and other commitments connected to the Carriganore sports complex, the Manor Village student accommodation and existing debt. This was compounded by information deficits given the nature and duration of the relationship between DCS and Waterford Institute of Technology, WIT.

In October 2012, in the absence of the institute having the resources, authority or powers to resolve matters regarding the debt issues associated with the financial consolidation of DCS, the institute sought direct assistance from the Higher Education Authority, HEA, and the Department of Education and Skills. In mid-November 2012, in the interest of achieving full clarity and resolving the matter, the Minister, in consultation with the HEA, initiated a statutory inspection under section 20 of the Institutes of Technology Acts into the relationship between Waterford Institute of Technology and companies providing campus services to it. The institute accepted the need for this intervention and co-operated fully with the inspection process. Mr. Dermot Quigley began the inspection in November 2012.

In June 2013, Mr. Quigley provided a final report to the Minister for Education and Skills recommending the recommencement of the financial consolidation of WIT and DCS. The institute welcomes Mr. Quigley’s report and believes it to be fair, balanced and accurate. The report provides clear direction to enable the regularisation of the relationship between the institute and the companies, and includes the following points and recommendations. In the first instance, the institute should immediately reactivate the steps required for the acquisition and restructuring of the DCS companies as subsidiaries of WIT. Moreover, there was no evidence or suggestion of any misappropriation of funds. It was noted that the relationship between the companies and the institute is unique and while the arrangements may have been well motivated, it is not considered appropriate. A number of governance issues must be addressed and in that regard, the institute will perform a review of its own effectiveness and compliance with the code of governance applied to the institutes of technology. Another recommendation concerned the sanctioning of €10 million from the capital budget this year to acquire the Manor Village student accommodation and complete the Carriganore sports complex. Finally, the financial resources generated by the companies have undoubtedly assisted with the impressive development of the institute and have provided major benefits for students and staff. It is important to note that this report relates solely to the relationship between the institute and the companies in question and does not relate to the academic reputation or day-to-day operations of its academic programmes, which are highly regarded and respected both nationally and internationally.

The institute has taken the following actions to implement the recommendations of the Quigley report. First, the governing body has approved the implementation of the recommendations of the report and has appointed an internal project co-ordinator to oversee its implementation. The project co-ordinator will be assisted in this work by legal consultants, Arthur Cox; governance consultants, Deloitte's, planning and financial consultants, Grant Thornton and human resources experts in IBEC. A detailed project plan and a supporting communications plan have been approved in consultation with WIT, DCS, the HEA and the external advisers. Briefings have also been provided to WIT and DCS staff regarding the proposed steps to be taken in this process. As for project management and reporting, the institute has provided weekly updates on progress to the HEA in conjunction with conference calls between all relevant parties. The institute has also provided an interim progress report to the board of the HEA and a detailed progress report to the Minister for Education and Skills as requested by Mr. Quigley in his report. As of 1 October 2013, the sole member of DCS is the institute and its nominees. The membership of the DCS board of directors has been changed to members of WIT and the first meeting of the new board is due to be held on 18 October 2013. Furthermore, the retention of charitable status, where appropriate, has been confirmed and a full review and amendment of its memorandum and articles of association is under way. This has been a complex process, and the scale of this task can be reflected in the DCS structure comprising seven companies, 26 operating units, more than 160 employees, a turnover of approximately €12 million and fixed assets of more than €20 million. The formal process for the discontinuation of the development committee is under way and arrangements for the distribution of finance under the disbursement agreement of 1998 have ceased. In this regard, the governing body has approved the establishment of and populated the appropriate groups for implementation of the HEA’s framework of good practices in respect of student services, which will become the principal advisory body for the distribution of funds to support the delivery of student services and related activities. A legal and financial review of DCS borrowings and commitments has commenced and is focused on the development of a financial plan and model for the continued viability of the company structure and the retention and completion of capital assets, namely Manor Village and the Carriganore sports complex. Of particular relevance to this review is the repayment schedule for funds provided by the Department of Education and Skills.

The work yet to be completed by the new company structure includes a review of governance arrangements in line with the code of good practice for institutes of technology, a review of operations of the companies and its management structure, the implementation of service level agreements in association with WIT, a review of the relationship between DCS and One Card Solutions and, in association with WIT, the financial consolidation of the accounts of both parties. The institute is targeting a completion date of September 2014 for this work.

I wish to point out that the institute has experienced difficult times in the past three years and has been obliged to deal with a number of significant and unique financial, governance and reputational issues which are largely legacy-related. The institute is confident the actions it has taken will ensure the bringing of closure to these issues and will allow it to refocus all its efforts on the continued development of its proud reputation in academic achievement. To demonstrate some of those achievements, I note the institute has produced approximately 60,000 highly qualified graduates since its foundation in 1970. It offers approximately 250 courses across six schools and disciplines ranging from business to the humanities and from science to engineering. It has a learner population approaching 10,000, making it the largest provider of higher education in the south east and one of the largest in the country. It currently is the institute of technology ranked first with regard to research funding and outperforms a number of the existing universities in this regard. Based on its track record to date, it is poised to become a technological university, along with its partner institute of technology in Carlow, as it moves forward with the second stage of the university designation process.