Mr. Tom Boland:

The special report of the Comptroller and Auditor General on matters arising out of education audits is a valuable review of some important elements of expenditure and control in higher education. In considering the report and in preparing for our meeting today with the committee, two principal considerations were uppermost in our minds. First, the collective responsibility of higher education institutions and relevant Government departments and agencies to secure maximum return for State investment in higher education and, second, the importance of positioning the sector to make the maximum contribution possible to economic recovery and future growth.

We have provided a detailed brief to the committee. It may be somewhat long but we felt that the issues required the fullest background and explanation and I hope the brief has achieved that. I do not intend to deal with the issues in any great detail in this opening statement but in the interests of ensuring the best use of time, I will focus on three areas in particular. Obviously, I and my colleagues are available to answer any questions members of the committee may have.

The Comptroller and Auditor General has raised issues relating to the treatment of cash balances and to treasury management in the institutions. Specifically, the report asks whether there is a case for reviewing the State's wider treasury management policy. The report also noted that any such review would need to take account of the return to the institutions, the impact on the banking system, as well as the level of Government borrowing. The HEA is entirely open to such a review. It is relevant to note that the Department of Public Expenditure and Reform is considering the issue of treasury management generally. In addition, it is also relevant for the committee to note that in respect of the higher education sector, the HEA met the National Treasury Management Agency in February of this year to discuss whether there are immediate opportunities for NTMA to manage cash balances for the institutions. Arising from that meeting it was clear that the existing arrangements of higher education institutions are significantly better than those which the NTMA would be able to offer. However, it is important to note that we will keep the situation under review as will the institutions themselves, in order to ensure that if opportunities arise or circumstances change, then these are exploited.

More generally, I would like to comment on the issue of the level of cash balances in the sector. I wish to emphasise that cash balances are not equivalent to surpluses and do not in any sense imply an over-funded system. The balances represent cash holdings of the institutions at a point in time, arising from a variety of sources. We have set that out in more detail in our background briefing. As it happens, the date on which the Comptroller and Auditor General's report is based is the time when cash balances are particularly high, that is, September. Our own analysis shows that much of the cash in place is committed against current and future liabilities. Examples would include moneys that are ring-fenced for requirements such as pension liabilities, as mentioned by the Comptroller and Auditor General. Another example is funds put aside to meet future liabilities from section 843 developments, where capital projects were undertaken in partnership with private developers, on the basis that the institutions would purchase assets at a specified future time. In addition, I would ask the committee to have regard for the fact that higher education institutions, as complex organisations, need to hold certain levels of cash to ensure that salaries and other liabilities are met in a timely way and that opportunities that arise can be exploited. The provision of upfront funding for research activity is also essential.

As a general rule, the advice to the HEA from an expert group on the issue was to the effect that up to 60 days worth of cash is necessary to enable higher education institutions to operate effectively and prudently. The committee should also note that we are not just discussing cash balances that arise from public funds. Some 40% or thereabouts of the income of higher education institutions comes from non-Exchequer sources, a very positive situation which is very much to be encouraged. The HEA has been alert to excessive cash balances. To address the situation in so far as funds allocated by the HEA are concerned, we have slowed down funding transfers to higher education institutions to take account of cash flows by rescheduling core grant and fee payments and having much stricter payment arrangements for PRTLI projects. Arrangements have also been put in place to facilitate the payment of the student contribution in two instalments. These have all reduced the amount of cash in the system at any one time and will have an ongoing impact in that regard. We will continue to monitor the situation and in addition, it is worth noting that the Department of Education and Skills and the HEA are considering the issue of the payment of research funding in advance and how that can be dealt with in the context of cash balances. This will require consultation with a range of government agencies and Departments.

I will now move on to the findings of the Comptroller and Auditor General in relation to Waterford Institute of Technology. The report notes that there were failures of control in certain aspects of the operation of the institute, specifically in the office of president. The report also notes that the institute has recognised these failures and put in place new control mechanisms to address this. The HEA agrees fully with the conclusions of the Comptroller and Auditor General. It is very disappointing when failures of this kind are identified, to say the least. On the other hand, the fact that they are identified demonstrates that, taken together, the full suite of control and accountability measures do work to identify and remedy failures. Failures of this kind also prompt the accountable bodies - the governing bodies and the HEA for instance - to look again at how systems can be revised and reformed. Apart from the cost of the failures themselves, a greater cost would be that we fail to learn the lessons when these situations arise.

In response to the situation in Waterford Institute of Technology, the HEA contacted all the other institutes to ensure that the appropriate controls, so deficient - and identified as being deficient - in Waterford, were in place and fully operational. We understand that the detailed arrangements vary across the institutes, but I can assure the committee that we are satisfied that appropriate controls are now in place. We are considering whether there would be value in requiring a consistent approach across the entire system and whether that would be practical. The committee should also note that such measures are in place within an accountability and control environment that includes legislative responsibilities, accountability to this committee, internal audit arrangements, audit by the Comptroller and Auditor General, as well as an agreed code of governance which sets out a comprehensive approach to the treatment of issues such as financial controls, risk management, accountability and transparency. Robust processes and systems combined with constant vigilance, regular reviews of processes and procedures and prompt reaction to any failures are key components of an effective accountability and control system.

The committee has, at a previous meeting, dealt in detail with the issue of unauthorised allowances. I hope today that I can assure members that the matter has been dealt with in a satisfactory way. Allowances have stopped, a recurrence of such payments will not arise and the matter has been brought to a conclusion in a way that underlines the seriousness with which both the HEA and the Department and Skills view the issue, without further jeopardising a difficult funding situation in the universities or damaging the quality of the student experience.