Mr. Seamus McCarthy:

There were obviously crossed lines in our communications. Ms Patricia Devlin is the senior auditor who carried out the work on this special report and she is accompanying me today.

The report before the committee was undertaken as a result of financial audit work in a number of public bodies that identified large one-off severance payments. I had a concern that there seemed to be variation in public bodies as to how these should be managed. The examination did not include an assessment of the circumstances giving rise to individual termination agreements and severance payments. The findings in the report are intentionally presented at a level of detail that does not identify individuals. The emphasis is on how cases were handled and not on who received what payments and why.

I might also point out here that severance agreements can include cash amounts or non-cash elements, for example, added years for pension purposes or both. Some schemes of employment include specific provision for severance payments, often reflecting the nature of the employment contract or the expected duration of the work. Outside those formal schemes, severance payments may also arise in a number of situations. For example, there may be cases where an employee's capacity to perform the role becomes limited or where, for whatever reason, the employment relationship has broken down irreconcilably.

In such cases, severance payments may be in the best interests both of the employer and employee. A characteristic of such discretionary severance payments is that the amount paid is over and above what the employee is contractually or statutorily entitled to.

The Department of Public Expenditure and Reform is responsible for policy on public sector pay and employment terms and conditions. Apart from the rules set out on specified approved severance schemes, the Department had not issued any general guidance to public sector entities on severance payments.

I am glad to note that in publishing a revised code of practice for the governance of State bodies in August of this year, the Department included additional guidance relating to termination agreements and severance payments which I expect will clarify matters for public bodies and ensure more consistency of practice in the future.

My examination looked at awards made between 2011 and 2013 under six public service schemes that provide for severance payments. The examination found broad compliance with scheme rules in most cases, with the exception of a scheme for chief executives of State bodies. Two State bodies made severance payments in the form of pension enhancements amounting to more than €1 million in total, without the required prior approval of the Department of Public Expenditure and Reform. Other key findings included that three of the schemes did not provide for maximum amounts payable, severance payments were generally not disclosed in financial statements, and there were deficiencies in documentary evidence on one scheme.

The examination also looked at a number of high-value discretionary severance payments where no formal scheme was in place. We identified 14 such payments made by six public sector bodies in the period 2011 to 2013, amounting to almost €1.5 million. Six of those payments, amounting to more than €540,000, including legal costs, were made by the Central Bank.

In the report, we have set out a good practice framework for public sector bodies making such discretionary severance payments. This was adapted from a framework developed by the office of my New Zealand counterpart. We used the framework to assess how each identified discretionary payment was handled. The assessment resulted in recommendations regarding supporting documentation, the need for external sanction, the use of confidentiality clauses and disclosure requirements. I welcome that the Department’s revised code of practice has addressed these issues.

The Central Bank is in a different position from other public bodies in that, due to its statutory independence, it does not require external sanction for termination agreements and severance payments. I found that the bank had not adopted a standard approach for assessing and determining cases or for approval of the severance awards. In response to the report findings, the bank has implemented a formal procedure on discretionary severance payments which incorporates the good practice outlined in the report.