Mr. Seamus McCarthy:

The 2019 appropriation account for Vote 11, Office of the Minister for Public Expenditure and Reform, records gross expenditure of €59.5 million. This was divided between two programmes: public expenditure and sectoral policy, costing €18.6 million; and public service management and reform, costing €40.9 million. The latter included significant expenditure in respect of the Office of the Government Chief Information Officer. For 2020, that office has been given its own separate Vote, with a budget of almost €22 million. Vote 11 is consequently significantly smaller for 2020.

At the end of 2019, the Department had underspent by €2 million relative to its budget. Unspent capital funding of €146,000 was carried forward to 2020. The remaining €2 million was liable for surrender back to the Exchequer. I issued a clear audit opinion on the 2019 appropriation account for Vote 11.

Vote 12 is used to pay pensions and retirement lump sums to civil servants and prison officers.Almost 26,400 pensions were in payment at the end of 2019. Pension payments for other public servants are charged, directly or indirectly, to other Votes, including those for education, health, An Garda Síochána and Army pensions. The gross spend on Vote 12 in 2019 amounted to just under €600 million. This represented an increase of 4.4% from 2018. Appropriations-in-aid, mainly comprising employee pension contributions, amounted to €337.7 million in 2019, which was up 34% from 2018. The increase was mainly due to increased employee contributions in respect of the single public service pension scheme. The net result was a surrender at the year end of €110 million in respect of 2019. Again, I issued a clear audit opinion regarding the 2019 appropriation account relating to Vote 12.

Chapter 3 is on Vote accounting and budget management. Vote accounting and budget management is a standard annual report aggregating and summarising the results across all of the appropriation accounts. It is produced because there is no other source of that aggregate information. As the figure, which can now be shown on screen, indicates, there has been a strong upward trend in voted expenditure over recent years. The report indicates that, in 2019, the total gross expenditure for all 42 Votes was €56.9 billion. After deduction of receipts totalling €2.9 billion, the net expenditure for the year was €54 billion.

One of the functions of the Department of Public Expenditure and Reform is the setting of frameworks for financial reporting by public sector bodies and publication of guidance and standards for corporate governance of public bodies. This includes dissemination of an annual circular setting out guidance for Accounting Officers preparing their appropriation accounts.

Members will be aware that appropriation accounts are prepared on a cash basis. This means that receipts and expenditure are recognised in the accounting period they occur. Notes to the appropriation accounts present additional information on the accrual basis, which is used for standard commercial accounting. Note 1 presents an operating cost statement for the Vote and note 2 presents a statement of financial position at the year end. These are intended to be a form of income and expenditure account and balance sheet, respectively.

Chapters 4 and 5, from my 2018 report, deal with accounting issues that affect the appropriation accounts. Chapter 4 deals with accounting for capital assets, that is assets used on a continuing basis and having a useful life of more than one year. The 2018 appropriation accounts recognised capital assets with a net value of €6 billion. Over 80% of this value related to property assets, that is land and buildings, in use.

Current accounting practice by Departments has resulted in gaps in the assets recorded, and inconsistencies in asset valuations and deprecation rates. The report highlights the need for action at a central level to address the lack of coherence caused by deficiencies in the accounting framework and includes a number of recommendations to achieve completeness and greater consistency. The Department has indicated that it will implement the report recommendations in the context of the phased implementation of reforms arising from an assessment of the central government financial reporting framework in Ireland carried out by the OECD in 2019.

The aim of the operating cost statement in note 1 to each of the appropriation accounts is to show the total amount of resources consumed to provide a voted service. As a result of how Votes are structured, some of the related expenses may be charged to different Votes. For example, as mentioned earlier, the pension-related expenses of all civil servants are borne on Vote 12 irrespective of the Department where the pensioners worked. Certain services are also provided by Departments and offices to others on the basis that, as specialists, the provider is able to perform the services most efficiently. Examples are the Office of Public Works, OPW, which provides office accommodation across central government; and the Office of the Government Chief Information Officer, which provides ICT system supports especially for smaller Departments and offices. These are referred to as allied services.

In 2018, the total costs of such allied services was calculated at: €813 million, of which €566 million, or almost 70%, related to superannuation and retirement allowances; and €179 million, or 22%, related to the OPW. The examination found that the accounting policies and guidance issued by the Department for the treatment of allied services did not provide a clear definition of allied service and, as a result, there was inconsistent treatment of these costs. The examination also found that there were deficiencies in the various cost measurement and allocation bases used to calculate allied service cost. For example, the apportionment of pension costs incurred in a year does not reflect standard accrual based accounting for pensions.

My office will continue to assist the Department to develop the accounting policies and guidance for accounting officers to ensure that the accrual based information, presented with appropriation accounts, is appropriate and consistent, and that it facilitates a smooth transition to full accrual accounting for central government, which is a long-term objective of the Department.