Mr. Seamus McCarthy:

When the representatives of the University of Limerick were last before the committee on 9 May 2024, I outlined the key financial results for the 2021-2022 year of account. I do not propose to repeat that presentation this morning. It is regrettable that the audited financial statements for the 2022-2023 year of account are not yet available for the committee. I completed my review of the audit work around mid-June, and cleared the accounts for signing, subject to a number of issues, including two proposed impairments, being finalised. I am waiting for the university to present final accounts approved by the governing authority, so that I can present my report on the 2022-2023 year of account.

Members will recall there have been a number of well-publicised control and governance issues in the University of Limerick in recent years. This and the previous committee inquired repeatedly about issues raised by whistleblowers and about the way concerns raised had been dealt with. In 2018, I presented a special report on the way the university had handled aspects of remuneration of certain senior staff members. Issues reported included higher-than-normal awards of professional added years for pension purposes; the admission of staff of a subsidiary company to the University of Limerick’s pension scheme; and the circumstances of the award of severance terms to two former staff members. In the latter case, we found that the university had previously misrepresented the terms of the severance deals to my office, to the committee and to the Department of further and higher education. In audit certificates in recent years, I have also drawn attention to issues such as non–compliant procurement; senior management overriding of controls; and a severance arrangement with a former president, which the university argued was not a severance. Some of the issues referenced triggered inquiries and reports commissioned by the university into its governance and controls. All of this provides a relevant context for consideration of the special report on the university’s acquisitions of property in Limerick city.

I commenced the special report being considered by the committee today because of the constraints around publication of the KPMG report commissioned by the university into the 2019 acquisition at Honan’s Quay. As part of that, we reviewed the 2022-2023 Rhebogue acquisition to establish whether better processes had been implemented. In April 2019, the university applied to the Higher Education Authority for capital funding towards the development of a premises in the centre of Limerick city. This included a proposal to purchase a site for the development in the city’s opera quarter at an estimated cost of €3 million. However, the university instead approved the purchase of a property at the nearby Honan’s Quay for over €8 million. As we found no evidence of any additional benefits to be gained by the purchase of the Honan’s Quay property compared to that at the opera quarter that would warrant the increased purchase cost, it is difficult to see how that purchase represented value for money.

The university did not obtain a formal valuation report on the property prior to purchase. This was contrary to provisions of the public spending code. Nevertheless, it was represented to the university’s governing authority that a valuation report had been obtained and the governing authority did not request the valuation report.

An independent valuation of the Honan’s Quay property in 2023 concluded the university had paid around one third more than the market value in 2019, even allowing for any special interest it might have in the property.

The university has proposed that a €3 million impairment charge, or write-down loss, be recognised in its 2022-2023 annual financial statements. A key concern is that, more than five years on, the university remains without a clear development and funding plan for the Honan’s Quay property.

The university was approached by a developer in late 2021 regarding a proposal for the construction of houses on a site in Rhebogue which would be either leased or sold to the University for use as student accommodation. Despite the adoption of new property acquisition procedures by the university following the Honan’s Quay acquisition, there were significant failures in the due diligence associated with the Rhebogue development. Prior to the purchase, planning advice from relevant professionals was not conclusive, but the university did not seek clarification from the local authority. In December 2023, the university received a warning letter from Limerick City and County Council stating that the change of use to student accommodation without planning permission may represent an unauthorised development. At the time I was signing the report, this matter had not been resolved.

In March 2022, the university commissioned formal valuation reports to provide the open market value of the Rhebogue properties. In August 2022, the purchase price proposed to the governing authority was based on the net rental yield method for valuing property. Even though the accommodation was generally configured as a standard housing development, information on the sales price comparison method for valuing property was not provided to the governing authority, and this would have yielded a much lower valuation.

The university signed a contract to purchase the houses in August 2022 that required only a peppercorn deposit. It concluded the purchase on 10 October 2023, at a cost of €11.4 million, representing an average purchase price of almost €572,000 per house. The university failed to identify that the purchase was also liable to stamp duty, resulting in an additional cost of over €1 million. A March 2024 independent valuation of the Rhebogue property indicates that the university probably paid significantly more than it should have. The university has proposed to recognise an asset impairment charge of €5.2 million in its 2022-23 annual financial statements.

The report makes recommendations for improvements in the university’s property acquisition policies, procedures and controls. These have been accepted by the university and now need to be properly and effectively implemented.