Mr. Seamus McCarthy:

The Waterford Institute of Technology financial statements before the committee today relate to the academic year ending on 31 August 2013. The audit was completed in June of this year. Delays in the production of audited financial statements have also occurred in previous years, related in part to a complex set of issues affecting the institute, which the committee has previously examined. Unusually among the institutes of technology, Waterford Institute of Technology set up a number of companies in the 1990s to provide a range of ancillary services such as student accommodation, catering, sporting and recreation activities and retail outlets. These companies are grouped as Diverse Campus Services Limited. The scale of operation of the companies expanded over time and they undertook a number of major capital projects. Diverse Campus Services receives substantial block funding each year from the institute. A note to the institute’s financial statements gives summary information about the companies’ operations, but their results are not consolidated with those of the institute. Based on the nature and pattern of interaction between the institute and the companies, we concluded they are part of the normal services typically provided on the campuses of third level institutions and they should be included in consolidated accounts produced by the institute.

In November 2012, the Minister for Education and Skills commissioned Mr. Dermot Quigley to undertake a statutory inspection to review the relationship between the institute and the companies. His report was published in July 2013. He recommended that the companies should be restructured as subsidiaries of the institute and that the institute should then produce consolidated financial statements for the group. This process has been ongoing. The income and expenditure account shows the institute had income of €84.7 million in 2012-13. Expenditure for the year amounted to just under €85 million, including a transfer of €3.3 million to Diverse Campus Services. This left the institute with an operating deficit of approximately €300,000 for the year. Note 26 to the financial statements acknowledges that the institute has incurred operating deficits for three consecutive years and discloses the rationale for the governing body’s belief that it is appropriate to prepare the financial statements on a going concern basis. I have drawn attention to this note in the audit certificate.

The audit certificate also draws attention to three disclosures about governance issues included in the statement on internal control, relating to non-compliance by the institute with the code of governance of Irish institutes of technology. First, the governing body did not carry out a comprehensive review of the effectiveness of the system of internal controls in respect of the year of accounts, as it is required to do. Second, the institute’s audit committee did not issue an annual report to the governing body until September 2014 due to the committee’s concerns about the timely provision to it of key information. Finally, there were four areas of expenditure with a total value of €524,000 where public procurement rules were not complied with. As a consequence of delays experienced on the 2012-13 audit, we were unable to commence fieldwork in respect of the 2013-14 financial statements until July of this year. The institute is carrying out some additional analysis in relation to issues raised during the audit and has indicated that it expects to respond to the audit queries early in 2016. Assuming we are satisfied with the responses, I hope the financial statements can be certified before Easter. I expect they will reflect full consolidation of the Diverse Campus Services companies.

The consolidated income and expenditure account for Cork Institute of Technology for the 2013-14 year shows an operating deficit of €126,000 for the year ended 31 August 2014. This compares to a surplus of over €1.4 million in the previous year. The institute’s income for the 2013-14 financial year was €98.6 million. The institute incurred expenditure of €98.7 million in the year, with staff costs accounting for €64.2 million or 65% of the total. I issued a clear audit opinion in relation to the 2013-14 financial statements. In March 2014, my office received anonymous correspondence containing a large number of allegations in regard to Cork Institute of Technology. Similar correspondence was received by the Committee of Public Accounts at that time. In view of the breadth of the allegations, my office sent a copy of the correspondence to the chairman of the governing body of Cork Institute of Technology, rather than to the president, who is the accountable person. We sent copies of the correspondence to the president of the institute, the Department of Education and Skills and the Higher Education Authority. We asked to be kept informed about the actions proposed to investigate the allegations. Following a tender process, the institute appointed KPMG in October 2014 to investigate the allegations. We were informed by the institute in December 2014 that the investigation had been completed and that a full detailed report would issue in due course.

On 22 December 2014, my office received additional correspondence, apparently from the same anonymous source. This contained further allegations and repeated some of the allegations raised in the March 2014 correspondence. We sent a copy of the new correspondence to Cork Institute of Technology, the Department and the Higher Education Authority. On 2 April 2015, we received a letter from the chairman of the institute’s governing body indicating that the audit committee had finalised its review of the allegations made in the anonymous correspondence and of KPMG’s findings from its investigations. The letter enclosed a copy of KPMG’s report. KPMG counted a total of 196 allegations made in the two sets of correspondence. It concluded that 66 allegations were repetition of other allegations, 33 allegations did not contain sufficient information to allow investigation and the remaining 97 allegations had been adequately addressed by explanations and documentary evidence provided by the institute. KPMG reported that it had found no evidence of wrongdoing in relation to the allegations but it did identify a small number of control improvement opportunities in regard to three of them.

While carrying out the audit of Cork Institute of Technology’s 2013-14 financial statements, my office assessed the appropriateness of the institute’s response to the allegations made and reviewed KPMG's report and findings. We concluded that the institute's response to the allegations was prompt. We were satisfied that the investigation carried out by KPMG was appropriate and adequate. We saw no reason to disagree with the conclusions it reached. We concluded that the control weaknesses identified by KPMG in its review of three of the allegations were in the nature of management point letters, which we are following up during the audit of the 2014-15 financial statements. I concluded that there was no requirement for me to report formally to Dáil Éireann in regard to the issues raised in the anonymous correspondence.