Mr. Seamus McCarthy:

The key areas of responsibility of the Department of Foreign Affairs and Trade include foreign policy advice and co-ordination, promotion of Ireland's economic interests abroad, management of the country's development aid programme and the provision of passport and consular services for Irish citizens. The activities and running costs of the Department are funded under Vote 27 and Vote 28.

Gross expenditure under Vote 28 for Foreign Affairs and Trade amounted to €208 million in 2012.Administration subheads accounted for just over 70% of that expenditure. The largest element of this was the salary costs of some 1,260 staff which came to €77 million. Office premises expenses of €22 million included costs associated with Ireland’s network of embassies and missions abroad. The bulk of the non-administrative expenditure related to contributions to international organisations and grants for support services for Irish emigrants. Receipts into the Vote comprised mainly fees related to issue of passports and visas, and other consular services.
The net supply grant for the Vote in 2012 was €182.2 million. The outturn for the year was €160.4 million. The surplus of over €21 million was liable for surrender to the Exchequer.
In the course of audit it was noted that the Department paid Ireland’s subscriptions for membership of the UN for both 2012 and 2013 in 2012. The invoice for the 2013 subscription, amounting to $10.65 million, was issued on 27 December 2012, with 30 days to pay. Full payment was made on 31 December 2012.
Members may wish to note that the Department of Public Expenditure and Reform’s public finance proceduresrequire that payments charged to appropriation accounts should be made only where a liability has matured for payment. This principle is designed to ensure that the accounts properly present payments that have come in course of payment in the year of account. The rules also state that Departments should take optimum advantage of credit terms when making payments. If that payment to the UN had not been made so promptly, the amount liable for surrender from the Vote would have been €8.1 million higher.
Vote 27 for international co-operation is administered by the Department’s development co-operation division and funds the majority of Ireland’s programme of assistance to developing countries. Spending under that Vote came to €509 million, accounting for over 80% of the development aid provided by Ireland in 2012.
Chapter 13 was compiled to provide an overview of Ireland’s official development assistance programme, and of how it is delivered, monitored and reported. The total programme spend in 2012 was €629 million. As the committee is aware, the UN has a long-standing target for developed countries to contribute development aid equivalent to 0.7% of GNP annually. Ireland’s programme expenditure was 0.47% of GNP in 2012, down from a peak level of 0.59%. Only five countries met or exceeded the UN target in 2012.
Development aid is channelled through a variety of partner organisations including Government bodies, non-governmental organisations, civil society organisations and multilateral aid agencies. The delivery channel used in each partner country depends on the type of assistance required and the political and administrative conditions that exist in the country.
Given the nature of development aid and the context in which it is delivered, the risk of fraud, corruption and misappropriation will always be significant factors to be taken into account in devising an aid delivery strategy. For that reason, the chapter examines the key controls in operation in respect of the development aid programme.
The Department has in place a specialist evaluation and audit unit that aims to provide assurance that funds are used for their intended purpose and that value for money is achieved. The primary focus of the unit’s audit work is on assessment of the appropriateness and reliability of the accounting and financial management systems of the partner organisations through which aid is delivered. The work of the unit is overseen by the Department’s Audit Committee.
A key element of the Irish Aid programme is targeted delivery of assistance to a small number of selected partner countries.Since 2011, the unit has carried out formal assessments of the public financial management systems in the partner countries. These assessments encompass all elements of governance, including accounting, auditing, reporting and local parliamentary oversight, and with a particular emphasis on assessing the status, independence and capacity of the national audit office. The policy is to carry out two such assessments during each five year strategic plan for partner countries. The first assessment is carried out at the planning stage, concentrating on the risks associated with channelling funds through government systems. The second assessment is carried out at the mid-point of the five year plan, focusing in particular on any changes to the public financial management environment.
Audit coverage in regard to annual expenditure in partner countries is achieved through a combination of work carried out by the Department’s own internal auditors, audits commissioned by Irish Aid or by partner organisations, and reports produced by national audit offices in recipient countries. The Department examines all the audit reports as they become available to identify issues relevant to Irish aid expenditure, but the reports vary in content, approach and timing. As a result it can be challenging to compile a comprehensive and timely view of how well Irish funding is controlled and applied.
The evaluation and audit unit also carries out formal evaluations of aid programmes on a cyclical basis, co-ordinated with its strategic planning and with formal procedures to track and follow up on recommendations. Formal evaluations were completed in 2012 of the country strategy papers for Ethiopia, Lesotho and South Africa.
Following on from the identification in October 2012 of misappropriation of €11.6 million in donor funding in Uganda, including €4 million from Irish Aid, the chapter also considered the effectiveness of the Department’s control systems in that country, and its response to the case.
The misappropriation came to public attention through a report of the Ugandan Auditor General. We concluded that, given the Department’s presence on the ground in Uganda and the scope for information sharing with other donors, the Department should have been aware of concerns in regard to funding provided through government systems prior to the publication of the auditor general’s report.
More generally, there appears to be scope for improvement in the Department’s capacity to identify early signs of a deteriorating risk environment in a partner country. For that purpose, I recommended that the Department should implement a risk dashboard system for key partner countries, based on key risk indicators. This should assist the Department to identify emerging risks and to take appropriate action at an early stage.
Since the discovery of the fraud in Uganda, the Department has undertaken a number of initiatives aimed at improving the controls in key partner countries. Those initiatives included carrying out a review of the systems in place in all partner countries and appointing a chief risk officer within the Department. At an overall level, the Department’s response to the fraud in Uganda appears to have been appropriate and proportionate. The Department was refunded the full amount of the loss by the Government of Uganda, before the end of 2012.