Oireachtas Joint and Select Committees
Thursday, 10 October 2013
Public Accounts Committee
Special Report No. 78 of the Comptroller and Auditor General: Matters Arising out of Education Audits (Resumed)
10:10 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are now dealing with Special Report No. 78 of the Comptroller and Auditor General: Matters Arising out of Education Audits (resumed). Before we begin, I again remind members, witnesses and those in the Visitors Gallery to turn off all mobile phones as the interference from them affects the sound quality and broadcast transmission of the meeting.
Witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House, or an official by name or in such a way as to make him or her identifiable.
Members are reminded of the provisions within Standing Order 163 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.
I welcome Mr. Seán Ó Foghlú, Secretary General of the Department of Education and Skills, and ask him to introduce his officials.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask Mr. Tom Boland to introduce his officials.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call on the Comptroller and Auditor General to introduce the report.
Mr. Seamus McCarthy:
Given the lapse of time since the special report was previously considered by the committee, I will briefly outline the matters relevant to today's proceedings.
The overall objective of the special report was to raise a number of general issues arising from my office's audits of third level institutions. Examples of those matters arising in individual third level institutions were given. Three matters, in particular, were raised regarding Waterford Institute of Technology.
The first matter raised in the special report concerning the institute was control failures regarding the expenses incurred by the office of the president of the institute. Lapses in control were identified in the course of the audit of the 2009-10 financial statements. These included insufficient details provided of goods and services acquired or payments made using a corporate credit card allocated to the president, the absence of evidence of the business purpose of goods and services purchased, the use of the credit card to purchase gifts, and an instance where subsistence appeared to have been paid in respect of a period during which restaurant meals and room service had also been charged to the credit card. Subsequent to the audit, the chairman of the governing authority commissioned an in-depth review of the non-pay expenses incurred by the office of the president and an interim report was produced in May 2011. A further review, concentrating on spending in the period 2009 to 2011, was commissioned and this was reported on in December 2012. I understand the president of the institute will update the committee on the actions taken by the institute in response to these reports.
The special report also considered the relationship between third level education institutions and associated fundraising foundations, which are generally established as independent entities. Normally, funding is expected to flow from the foundations to the associated institutions, but in the course of audit a number of instances were noted where institutions' funds were paid instead to the foundations.
In the case of Waterford Institute of Technology, a limited company was established in 2005 to raise funds for the institute. In 2007 the institute transferred funding of €400,000 to the foundation to meet set-up and initial operating costs. The funds were sourced from a donation by AIB to support the institute's programme for widening participation in education. In 2008 the institute provided the foundation with an additional €150,000. At the end of 2008 the total amount provided for the foundation had been substantially spent. Ultimately, the foundation failed to raise significant funds for the institute and its activities have since ceased.
The primary issue raised in the special report relevant to the institute relates to the operation of a number of companies established to provide a range of ancillary services such as student accommodation, catering, sports and recreational activities and retail outlets. The scale of operation of the companies expanded over time and they had delivered a number of major capital projects. The group of companies received substantial block funding from the institute, linked with the institute's income from annual student contributions and a banking franchise. While a note to the institute's financial statements gives summary information on the companies' operations, their results were not consolidated with those of the institute. Based on the nature and pattern of interaction between the institute and the companies, we concluded that they were part of the normal services typically provided on the campuses of third level institutions and that they should be included in consolidated accounts produced by the institute.
Following the last meeting of the committee, the Minister for Education and Skills commissioned a statutory inspection to review the relationship between the institute and the companies. The report of the inspector was published in July 2013. I note that the inspector has recommended that the companies be restructured as subsidiaries of the institute and that the institute should then produce consolidated financial statements for the group.
I wish to mention the status of the audit of the institute's financial statements. The institute suspended finalisation of the financial statements for 2010-11 while the various investigations were being undertaken. In addition, the audits of the 2011 financial statements of the ancillary companies were not completed until May 2013.
Therefore, the institute could not produce the related disclosure note. Resolution of an accounting issue with the Higher Education Authority also contributed to delay. The institute adopted the financial statements on 26 September. I cleared the accounts on 4 October subject to resolution of some residual issues with the institute. The fieldwork for the audit of the institute's 2012 financial statements has been completed by my office. However, the results of the audits of the 2012 financial statements of the ancillary companies are awaited.
10:20 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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At our last meeting we asked for one opening statement which would deal with all of the issues raised and I understand that Dr. Neavyn will give that statement. I invite you to do that now.
Dr. Ruaidhrí Neavyn:
This is a detailed statement to cover the issues that were discussed at the last meeting. Waterford Institute of Technology welcomes the opportunity to advise the Committee of Public Accounts, PAC, on matters referred to in the special report of the Comptroller and Auditor General and accepts the conclusions reached in the report.
I wish to focus on three items: specific transactions relating to flights and expenditure in the office of the former president, the financial consolidation of companies providing services to WIT and the report that the Minister issued under section 20 of the Institutes of Technology Acts on the relationship between Waterford Institute of Technology and companies providing campus services to it.
I will set out the nature of specific transactions relating to flights. At the meetings of 27 September 2012 and 4 October 2012 the PAC raised several queries in respect of chartered flights. Since then, the institute has completed an internal review of expenditure on flights in the office of the former president. As part of the expenditure review, the institute examined available documentation and made contact with and received responses from the former president, the former chairman, Dr. Jim Port, Bell Airways, Fewer Harrington & Partners and Deloitte. As a result of this review I can confirm that two invoices were paid for flights connected to the institute's application for university designation under section 9 of the Universities Act and a review of the application performed by Dr. Jim Port. The first invoice was for a one-way flight from Waterford to Dublin for a group of four on 20 March 2007. The flight was connected to Dr. Port's review of the institute as part of the application for university designation and the trip taken by him and others at WIT to a meeting of Members of the Oireachtas and senior Government officials. The invoice came from a third party, Fewer Harrington & Partners rather than the providers, Bell Airways. I am unable to provide a complete explanation for this because Mr. Fewer is now deceased. However, I have been informed that he was a shareholder of Bell Airways Limited and I can only assume he was involved in that capacity. I confirm that the invoice was authorised for payment by the former president and amounted to €769.56.
The second invoice was received directly from the providers, Bell Airways, and was for a chartered return flight between Bristol Filton and Dublin on 29 June 2007. The flight was authorised for payment by the former chairman and former president and was arranged to transport Dr. Jim Port to a meeting with the then Taoiseach in Dublin following the completion of Dr. Port's report on the institute's application for university designation. This invoice was for €4,200.
The current governing body of the institute believes that the specific transactions relating to flights were unnecessary and did not represent good value for money, that the procurement and authorisation processes adopted were inappropriate and that the information available regarding these flights was insufficient and inadequate.
At the PAC meeting of 4 October 2012, the members expressed concern about the accuracy of the first Deloitte report, specifically relating to flights. Following the PAC meeting, the institute sought written clarification from Deloitte on how this apparent error had occurred. In a detailed response Deloitte advised that it had raised a query with the former president about why the invoice for €4,200 did not refer to Waterford if it was a flight from Waterford to Dublin. The former president advised that the aeroplane may have had to be positioned from Bristol Filton to undertake a flight and this explanation was accepted by Deloitte. I apologise to members that full information relating to the flights was not available at the time of the last hearing and I wish to provide the following clarification. Queries regarding flights were first raised at the committee hearing of 27 September 2012. At that time I was aware of only one invoice for a flight to the value of €4,200. The institute understood that this related to the one-way flight on 20 March 2007 for a group from Waterford, including Dr. Port, to travel from Waterford to Dublin for a meeting with Members of the Oireachtas and senior Government officials, that is, the first flight described previously. Following the PAC meeting of 27 September 2012 and subsequent communication with the Comptroller and Auditor General, the institute performed a further review of invoices paid by the office of the former president with a view to identifying any further invoices for flights provided by Bell Airways.
On the afternoon prior to the appearance of the HEA and the Department of Education and Science at the Committee of Public Accounts on 4 October the institute located the second third-party invoice from Fewer Harrington & Partners which related to a flight from Waterford to Dublin. The institute contacted the Comptroller and Auditor General and the Department of Education and Science regarding this invoice and immediately forwarded the information to the Department of Education and Science, the HEA and the PAC on the advice of the Comptroller and Auditor General. The institute accepts that the information was provided at short notice and regrets that the members did not have the full information available to them prior to the commencement of the meeting on 4 October 2012.
In March 2011 the institute received a freedom of information request regarding expenditure in the office of the president. Following the release of this information and discussions with the HEA in April 2011, the institute requested Deloitte to perform a review of non-pay expenses in the office of the president for the period January 2004 to March 2011. The report, commonly referred to as Deloitte one, confirms that breaches in institute policies and procedures occurred. Specific deficiencies identified included: breaches of institute policies on hospitality, travel and credit card usage; lack of an appropriate co-ordination process; insufficient reporting in respect of expenditure; in some instances, a lack of appropriate tender processes; and inadequate review of expenditure internally and externally. However, breaches were confined to the office of the president as a further review of internal financial controls throughout the institute did not identify any issues which caused concerns to the audit committee.
Following completion of the first Deloitte report, the institute commissioned Deloitte to perform a second more detailed review of expenditure for the period January 2009 to May 2011. This report, commonly known as Deloitte two report, was completed in December 2012 following significant discussion by the governing body, the audit committee, Deloitte and the institute's legal advisers. The purpose of this report was to identify whether for the period in question expenditure was incurred in accordance with the institute's procurement procedures, whether the expenditure was institute-related, whether it represented value for money and whether there was any evidence of expenditure giving rise to a personal benefit for the former president. This report clearly identifies areas of expenditure where the former president may have received benefit. On foot of this, in May 2013 the institute completed a detailed internal review of non-pay expenditure in the office of the president for the extended period from 1 January 2007 to 31 May 2011.
This review focused on identifying any evidence of personal benefit in the specific expenses categories identified by the second Deloitte report. This period was selected as it is the limit allowed under the Statute of Limitations should the institute seek to make a claim against the former president. The result of this expanded review was communicated to the governing body, the audit committee, the institute's legal advisers and the former president through his legal advisers. As a result of this examination, the institute has issued High Court proceedings against the former president for reimbursement of expenditure. As this now a legal case I have been advised not to provide any further detail except to reassure Deputies that the matter is being pursued to the fullest possible extent. The governing body believes that the level and nature of expenditure incurred by the office of the former president during the period investigated was unreasonable and in many instances did not represent good value for money. The consistent breaching of procedures and lack of controls was unacceptable. The failure of internal and external systems to identify and flag this level and type of expenditure is also of concern to the governing body. Financial reporting to the governing body or its audit and finance committees did not at any stage give an indication of aberrant spending by the former president. The audit committee, which has oversight of the internal audit function, did recommend in 2009 that the application of expenses policy should be reviewed as part of the internal audit plan. This recommendation was not implemented as the committee was advised by management that this would be reviewed as part of an upcoming Comptroller and Auditor General audit.
In concluding this matter I am keen to point out the steps taken by the institute to address the specific in issues to ensure they do not recur. These include: the significant reduction in the budget of the office of the president, from a peak of €630,000 in 2008 to €140,000 in 2013; the budget of the office is pre-approved by the governing body and expenditure is reviewed biannually by the governing body; the institute's policies on hospitality, travel, credit card usage and mobile telephones have been reviewed, updated and reissued institute-wide; Waterford Institute of Technology internal corporate cards have been withdrawn; an appropriate co-authorisation process has been introduced whereby all orders issued by the president's office require co-authorisation; tendering processes are used in all cases where it is deemed appropriate; a complete review of expenditure has been conducted for 2007 to 2011, and a claim for reimbursement has been served against the former president; foreign travel by the president is pre-approved by the governing body; and the governing body has proposed the introduction of the whistleblower charter to facilitate disclosure of inappropriate expenditure in future - this will require input and agreement at a national level.
In the report to the Minister issued under section 20 of the Institutes of Technology Acts, reference was made to the financial consolidation of Diverse Campus Services Limited. In June 2012 the governing body of the institute approved pursuing the consolidation of DCS companies as subsidiaries of WIT under new governance and management arrangements following recommendations made in the Comptroller and Auditor General report, Matters Arising out of Education Audits, February 2012 and the Grant Thornton report, Review of the WIT Development Committee, its activities, financial controls and governance structures since its establishment, of June 2012.
The consolidation process proved to be particularly complex, given the existing financial arrangements of Diverse Campus Services Limited, DCS, including borrowings and other commitments connected to the Carriganore sports complex, the Manor Village student accommodation and existing debt. This was compounded by information deficits given the nature and duration of the relationship between DCS and Waterford Institute of Technology, WIT.
In October 2012, in the absence of the institute having the resources, authority or powers to resolve matters regarding the debt issues associated with the financial consolidation of DCS, the institute sought direct assistance from the Higher Education Authority, HEA, and the Department of Education and Skills. In mid-November 2012, in the interest of achieving full clarity and resolving the matter, the Minister, in consultation with the HEA, initiated a statutory inspection under section 20 of the Institutes of Technology Acts into the relationship between Waterford Institute of Technology and companies providing campus services to it. The institute accepted the need for this intervention and co-operated fully with the inspection process. Mr. Dermot Quigley began the inspection in November 2012.
In June 2013, Mr. Quigley provided a final report to the Minister for Education and Skills recommending the recommencement of the financial consolidation of WIT and DCS. The institute welcomes Mr. Quigley’s report and believes it to be fair, balanced and accurate. The report provides clear direction to enable the regularisation of the relationship between the institute and the companies, and includes the following points and recommendations. In the first instance, the institute should immediately reactivate the steps required for the acquisition and restructuring of the DCS companies as subsidiaries of WIT. Moreover, there was no evidence or suggestion of any misappropriation of funds. It was noted that the relationship between the companies and the institute is unique and while the arrangements may have been well motivated, it is not considered appropriate. A number of governance issues must be addressed and in that regard, the institute will perform a review of its own effectiveness and compliance with the code of governance applied to the institutes of technology. Another recommendation concerned the sanctioning of €10 million from the capital budget this year to acquire the Manor Village student accommodation and complete the Carriganore sports complex. Finally, the financial resources generated by the companies have undoubtedly assisted with the impressive development of the institute and have provided major benefits for students and staff. It is important to note that this report relates solely to the relationship between the institute and the companies in question and does not relate to the academic reputation or day-to-day operations of its academic programmes, which are highly regarded and respected both nationally and internationally.
The institute has taken the following actions to implement the recommendations of the Quigley report. First, the governing body has approved the implementation of the recommendations of the report and has appointed an internal project co-ordinator to oversee its implementation. The project co-ordinator will be assisted in this work by legal consultants, Arthur Cox; governance consultants, Deloitte's, planning and financial consultants, Grant Thornton and human resources experts in IBEC. A detailed project plan and a supporting communications plan have been approved in consultation with WIT, DCS, the HEA and the external advisers. Briefings have also been provided to WIT and DCS staff regarding the proposed steps to be taken in this process. As for project management and reporting, the institute has provided weekly updates on progress to the HEA in conjunction with conference calls between all relevant parties. The institute has also provided an interim progress report to the board of the HEA and a detailed progress report to the Minister for Education and Skills as requested by Mr. Quigley in his report. As of 1 October 2013, the sole member of DCS is the institute and its nominees. The membership of the DCS board of directors has been changed to members of WIT and the first meeting of the new board is due to be held on 18 October 2013. Furthermore, the retention of charitable status, where appropriate, has been confirmed and a full review and amendment of its memorandum and articles of association is under way. This has been a complex process, and the scale of this task can be reflected in the DCS structure comprising seven companies, 26 operating units, more than 160 employees, a turnover of approximately €12 million and fixed assets of more than €20 million. The formal process for the discontinuation of the development committee is under way and arrangements for the distribution of finance under the disbursement agreement of 1998 have ceased. In this regard, the governing body has approved the establishment of and populated the appropriate groups for implementation of the HEA’s framework of good practices in respect of student services, which will become the principal advisory body for the distribution of funds to support the delivery of student services and related activities. A legal and financial review of DCS borrowings and commitments has commenced and is focused on the development of a financial plan and model for the continued viability of the company structure and the retention and completion of capital assets, namely Manor Village and the Carriganore sports complex. Of particular relevance to this review is the repayment schedule for funds provided by the Department of Education and Skills.
The work yet to be completed by the new company structure includes a review of governance arrangements in line with the code of good practice for institutes of technology, a review of operations of the companies and its management structure, the implementation of service level agreements in association with WIT, a review of the relationship between DCS and One Card Solutions and, in association with WIT, the financial consolidation of the accounts of both parties. The institute is targeting a completion date of September 2014 for this work.
I wish to point out that the institute has experienced difficult times in the past three years and has been obliged to deal with a number of significant and unique financial, governance and reputational issues which are largely legacy-related. The institute is confident the actions it has taken will ensure the bringing of closure to these issues and will allow it to refocus all its efforts on the continued development of its proud reputation in academic achievement. To demonstrate some of those achievements, I note the institute has produced approximately 60,000 highly qualified graduates since its foundation in 1970. It offers approximately 250 courses across six schools and disciplines ranging from business to the humanities and from science to engineering. It has a learner population approaching 10,000, making it the largest provider of higher education in the south east and one of the largest in the country. It currently is the institute of technology ranked first with regard to research funding and outperforms a number of the existing universities in this regard. Based on its track record to date, it is poised to become a technological university, along with its partner institute of technology in Carlow, as it moves forward with the second stage of the university designation process.
10:30 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Dr. Neavyn. May we publish your statement?
Gerald Nash (Louth, Labour)
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Dr. Neavyn and his team are very welcome, as are the other witnesses from the Department and the HEA. I appreciate his taking the time to clear up or at least to attempt to clear up some of the outstanding matters from previous meetings. As Dr. Neavyn himself will acknowledge, this is a sorry chapter in the otherwise proud history of Waterford Institute of Technology and all the members understand his efforts to clear up these legacy matters. In the first instance, may I refer to areas pertaining to the flights to which Dr. Neavyn referred in his presentation? It is worth noting that one can get a flight from Bristol to Dublin for approximately €30 and as far as I can establish, this also was the case in 2007. Moreover, a single train fare would cost one less than €30. This puts the extravagance involved in this regard into some context. Who approved the flights and who in general would approve, co-authorise or co-approve payments involving flights or travel of this nature in the institute at that point?
Gerald Nash (Louth, Labour)
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It was approved by just two individuals, namely, the former president and former chairman.
Gerald Nash (Louth, Labour)
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It was not referred to the executive board, the governing body or anything else.
Gerald Nash (Louth, Labour)
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Okay. In his submission, Dr. Neavyn has provided some additional information on the second invoice, which was connected to Dr. Port's review of the institute and those two flights. Can Dr. Neavyn enlighten me as to what is Fewer Harrington & Partners and what is its connection with the college? I am unclear on this point.
Dr. Ruaidhrí Neavyn:
Fewer Harrington & Partners is an architectural company in Waterford. In the case of Mr. Fewer, I understand he was a member of the board of Bell Airways and I believe I said this in my statement. The company obviously may have done some work for the institute in the past. I do not have information to hand in that regard. However, in respect of the flight, it certainly appears that Bell Airways invoiced Fewer Harrington & Partners for the flight from Waterford to Dublin and that this then was passed onto the institute to the president's office as an invoice from Fewer Harrington Architects.
Gerald Nash (Louth, Labour)
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It is just that there was a lack of completeness of available information at the last meeting. Just before the last meeting, Dr. Neavyn identified that gap and information and identified where that invoice had been. It is of quite some concern to this committee that a complete job was not done in that regard. Some people may deduce there may have been an effort to mislead Deloitte & Touche, for example, in respect of its examination of the issue. Would Dr. Neavyn agree with that assessment or was it a genuine mistake? Was it merely sloppy accounting or was it incompetence?
Dr. Ruaidhrí Neavyn:
To be fair to Deloitte & Touche, that firm would have relied on information it received as part of the Deloitte one report. I understand it questioned in detail the former president with regard to this invoice. He indicated to them that the €4,200 invoice was for a flight from Waterford to Dublin.
Gerald Nash (Louth, Labour)
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The flight was for a bunch of college officials to meet the then Taoiseach, Bertie Ahern. Is that correct?
10:40 am
Gerald Nash (Louth, Labour)
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This did not conform with the institute's travel policy in terms of identifying the best use of resources and ensuring that public transport would be used if that was a cheaper alternative. It did not comply with the institute's policy at that time. The current governing body of the institute believes that the specific transactions relating to flights were unnecessary and did not represent good value for money, that the procurement and authorisation processes adopted were inappropriate and that the information available regarding these flights was insufficient and inadequate.
Gerald Nash (Louth, Labour)
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Was Dr. Neavyn a member of staff of the college at the time under examination?
Gerald Nash (Louth, Labour)
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No. At the time these particular flights were taken.
Gerald Nash (Louth, Labour)
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I assume in any event that this would been the talk of the canteen. It would be highly unusual for institutes of technology to charter flights of that nature. I imagine people would have discussed that this would have been unusual in and around the college not only at official level but during general chitchat at the watercooler. Nobody shouted "stop".
Gerald Nash (Louth, Labour)
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By a financial officer?
Gerald Nash (Louth, Labour)
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That individual was overruled. It was the president directly-----
Gerald Nash (Louth, Labour)
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-----who decided to overrule that.
Gerald Nash (Louth, Labour)
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Dr. Neavyn referenced the fact that High Court proceedings are under way. It seems they are being taken in an effort to ensure there is reimbursement of some expenses that may have been involved that may be defined as having been for the former president's personal benefit. Can Dr. Neavyn outline to the committee what efforts the institute of technology has made to establish the nature of the expenses to be reimbursed, and what efforts have been made to recover those moneys?
Dr. Ruaidhrí Neavyn:
In the first instance, I confirm that we have issued proceedings to the High Court for reimbursement of expenses by the former president. I will give a brief summary of what occurred. In the first instance, the Deloitte one report was to provide an overall view of expenditure in the office of the president in terms of whether there were categories of expenditure in breach of policies and procedure and to identify issues such as of value for money achieved in that respect. A second more detailed study was done in the Deloitte two report specifically looking at a more defined time period in absolute detail in respect of all the invoices and expenditure covering that period. From that study, specific categories of expenditure were identified as having the potential to provide direct benefit to the former president. We consulted widely in regard to that with Deloitte, our legal advisers, the governing body and the audit committee and the view was taken that we needed to perform a full review within the statute of limitations time period, defined as the six year limit, for all expenditure in the office of the president under the headings that were identified in the Deloitte two report as being areas where there could be potential benefit for the president. We compiled that report in that detail and it was forwarded to the former president to seek information and points of clarity from him in the first instance but we received no further points of clarity in return.
Gerald Nash (Louth, Labour)
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From the president?
Dr. Ruaidhrí Neavyn:
We received nothing that would clarify any of the items of expenditure under the headings we examined on which we did not have full information or felt there was any benefit accruing to the former president. Based upon that and not having received any further clarity and having asked for reimbursement of items outside the courts, we pursued a court case. We have taken a case at this stage to reimburse expenditure that we believe was a personal benefit to the former president.
Gerald Nash (Louth, Labour)
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Can Dr. Neavyn give the committee a flavour of the areas to which he is referring? Is it expenditure related to the taking of a business class return flight from Dublin to Chicago in April 2011 when another staff member flew economy class. The then president of the institute flew business class at a cost of nearly €3,400 whereas another staff member flew economy class on a standard ticket that cost approximately €1,000. There is a serious gap there. Have efforts been made to obtain a reimbursement of the difference between the cost of an economy class ticket and a business class ticket for that flight because that additional cost is simply not justified?
Dr. Ruaidhrí Neavyn:
Absolutely. The Deputy has hit the nail on the head. I am conscious that the detailed workings on this are part of the legal case we are taking. I have been advised not to go into too detailed an analysis because we do not want to prejudice the case. The headings basically cover the flights the Deputy mentioned, hospitality costs, subsistence payments, taxi charges, book purchases and other categories identified in the Deloitte two report. I think the Deputy has a copy of the Deloitte two report and those categories are identified in that. I do not want to go into the detailed workings on the claim because that formed the basis of our case but those are the category areas with which we are dealing.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Apologies for interrupting Deputy Nash, but in that instance the person involved was not a staff member but the chairman.
Gerald Nash (Louth, Labour)
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This was the Chicago flight and I think it involved Dr. Ormonde.
Gerald Nash (Louth, Labour)
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Dr. Ormonde accompanied the president.
Gerald Nash (Louth, Labour)
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He flew economy class while the president decided that he would take a business class flight - the chairman was in steerage.
Gerald Nash (Louth, Labour)
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There are a few other matters of interest. A hospitality card was operated by the president. Is it safe to assume there was expenditure in excess of €10,000 on that hospitality card? I assume that was for meals, lunches and so forth on the college campus. Was the professor also receiving money on foot of subsistence claims at the same time?
Dr. Ruaidhrí Neavyn:
The Deputy is going into specific detail on elements of the claim. We are looking at elements of overclaim on subsistence
claims and differences between policy and subsistence claims, and that is the detail of the claim we are making. I can reassure the Deputy that we have examined all those areas and categories. We have fully taken on board the appropriate policies and procedures and, as the Deputy said, we are calculating the difference between what a person would be entitled to and the amount for which that person would claim. We are looking for reimbursement of those moneys and that will include areas of subsistence or expenditure in the office that would be in breach of policy and procedure.
Gerald Nash (Louth, Labour)
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On the Deloitte & Touche two report, there is a question mark over €377,000 of the €952,000 at issue because of insufficient evidence from a value for money point of view, general compliance with WIT policy on procurement procedures and so on, and whether there was personal gain for the president. Is that the case?
Gerald Nash (Louth, Labour)
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That is about 38% of the €952,000 at issue.
Gerald Nash (Louth, Labour)
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I just wanted to put that on record.
There was the supply and installation as what is known as a rotogate in the president's office. I would not consider that necessarily to be of personal benefit to the president. That is clear. Rotogate is apparently a type of turnstile and security device. I am not sure whether it was to do with keeping people out or keeping the president in. A sales company supplying rotogate devices indicates it "provides a prestigious yet secure access control solution". Can Dr. Neavyn explain why the installation of a rotogate to the tune of €3,933 would have been needed in the president's office? That amount represented extravagant expenditure for a device of that nature.
Gerald Nash (Louth, Labour)
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What did it involve? Why was a rotogate installed in his office? What was he concerned about?
Gerald Nash (Louth, Labour)
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It is something one might expect to find in a financial institution but not in the president's office in an institute of technology.
10:50 am
Gerald Nash (Louth, Labour)
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Separate, in more ways than one, from the rest of the staff who are simply-----
Gerald Nash (Louth, Labour)
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I wish to raise another couple of points in respect of expenditure. Appendix 3 of the report contains a list of books purchased through the president's office, including: I Never Fancied Him Anyway by Claudia Carroll; Top Tips of the Baby Whisperer; and Mixed Doubles by Jill Mansell. These books appear to fall into the categories of chick lit and family planning and child raising, which is fair enough. However, it is peculiar that they would be procured by the president of an institute of technology. Were they intended as gifts for staff? Have they been placed in WIT's library? Are they being used?
Dr. Ruaidhrí Neavyn:
In the first instance, expenditure on books was reviewed as part of the reimbursement claim. We have carried out an analysis of the books and the number of them that remain in the institute. We have obviously asked the former president to return any books he has in his personal possession and for explanations in respect of books which, effectively, are not within our library. A number of texts were bought as gifts for visiting dignitaries or people from overseas. These were specific books relevant to the history or archive and arts of Waterford. They were, therefore, purchased for gift purposes. The Deputy is correct that a number of other texts which would have been bought for personal use and we have sought to discover their whereabouts and whether we can get the back or be given payment in respect of them.
Gerald Nash (Louth, Labour)
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Some €7,250 was spent on the procurement of fine art during the period to which the review relates. Two pieces of said fine art could not be physically verified, which is a nice way of saying they have disappeared. Is Dr. Neavyn in a position to identify what are those two pieces of art, what is their value and what he believes might be there location?
Gerald Nash (Louth, Labour)
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Is Dr. Neavyn at liberty to indicate to whom that gift was given?
Gerald Nash (Louth, Labour)
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Okay. On the Manor Village student accommodation, which is dealt with in the Quigley report, approximately €7.5 million was required to buy out the investors last month. This matter is referenced on page 11, in section 4. Is Dr. Neavyn in a position to clarify whether anybody associated with Waterford Institute of Technology - whether it is a member of the governing body, the executive board or whatever - was associated with that buy-out? In other words, will he confirm that there were no conflicts of interest whatsoever in the context of the investors and the buy-out?
Gerald Nash (Louth, Labour)
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So no members of the executive board or the governing body or staff were-----
John Deasy (Waterford, Fine Gael)
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Like Deputy Nash, I will begin by thanking the institute for the effort it has made in the context of making full disclosure to the committee. Reference was made to chick lit and other issues. I need to balance such references with the fact that the institute is now ranked first among all the institutes of technology in Ireland in the context of attracting research funding. WIT does some very serious work and when I consider that with which we have been presented, I come to the conclusion that it does not contain a great deal of new information. Basically, it is a rehash of previous reports. I hope we will conclude our deliberations on this matter today because I am not sure whether they are doing anyone any good. This matter is the subject of a High Court case and I am of the view that it should be dealt with in that venue. It is very difficult for the current president of WIT to answer questions about this matter, particularly as he was not on the staff at the time. It is also very difficult for him to understand the mindset which obtained at the institute some years ago. He has been placed in a very difficult position and he cannot answer these questions. Dr. Neavyn has done a very good job in dealing comprehensively with this matter, particularly as he has no responsibility in respect of it. I hope that after today's deliberations the committee will move on.
In view of what I have just said, I wish to shift the focus away from the institute and direct a couple of questions to the Department and the HEA. How rigorous was the oversight function employed by the Department and the HEA 11 or 12 years ago? What is the nature of its current oversight function in respect of institutes of technology? What happened in the president's office during the period in question? Was the level of oversight which previously obtained sufficiently rigorous? Did people inform the Department or the HEA that guidelines were potentially being breached? It is not just the institute which had a function here in terms of oversight. The Office of the Comptroller and Auditor General, the Department and the HEA also had responsibility in this regard.
A former chairman, Mr. Redmond O'Donoghue, has stated that he was unaware of the excessive spend in the president's office. The controversy relating to this matter ignited in May 2011. Two years previously it was widely reported in local newspapers - the story even made the front page of the Waterford News and Star - that there might have been an overspend in respect of the president's new office, which cost almost €160,000. Did anyone in the Department or the HEA contact the then chairman, who stated that he was not aware of this overspend but about which everyone else in Waterford knew because it had been widely reported? Did anyone outside the college with an oversight function in respect of it raise any of these issues with the then chairman? Was he questioned as to whether he knew, or should have known, about what was widely publicised in local newspapers?
Mr. Seán Ó Foghlú:
Perhaps I will return to the beginning of the period of the over-expenditure on expenses. From our point of view, there is a cascade of responsibility in the context of ensuring that expenditure is undertaken in an appropriate manner within institutes of technology. The first part of that cascade is the senior management of the relevant institute. The senior management at Waterford Institute of Technology had a responsibility to ensure that the issues were addressed. Following on from that there is the governance of the institute, namely, the audit committee and the governing body. We all agree and accept there was a failure at governance level in respect of the expenses and in the context of the nature of the interaction with the senior executive of the institute. The approach we have adopted places primary responsibility on institutions to ensure they address those issues. A code of practice for the governance of State bodies was not in place when all of this started. However, it was put in place as the expenditure was under way. Clearly, the Department had a direct role in respect of the institute until the transfer of responsibility to the HEA in 2007 or 2008.
The Department has maintained its role and in the meantime it has have been strengthening the nature of governance and setting down clearly the responsibilities of institutions in terms of their internal audit committees, the need for chairpersons to sign off on appropriate expenditure, etc. The Department was not aware of difficulties and challenges in respect of the expenses.
We were not aware of them in the early part of the last decade. The issues the Deputy has referred to relate to the end of the last decade. It was shortly after that - in 2011 - that we became aware of them. We do not monitor local media in various parts of the country. We are not aware that any formal or informal feedback about over-expenditure in the institute was received in the late part of the last decade.
11:00 am
John Deasy (Waterford, Fine Gael)
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Fair enough. After the fact, did anyone ask the president and the chairman of the board what he knew and when he knew it?
Mr. Seán Ó Foghlú:
The Department and the Higher Education Authority asked Waterford Institute of Technology that question. As part of Deloitte's process with the institute, it asked the former president and chairperson that question. He engaged in the first Deloitte review, but he has not engaged since that time. Those questions were all asked as part of the first WIT process that was conducted by Deloitte.
John Deasy (Waterford, Fine Gael)
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The process has changed. Can Mr. Ó Foghlú explain how the relationship between the institutes and the Department has changed?
Mr. Seán Ó Foghlú:
We have made significant changes over that period of time. The code of practice for State bodies, which is now in place for the institutes of technology, is the most significant change. There is enhanced co-ordination among the internal audits of the various institutions. The institutes commonly outsource those audits and collectively learn lessons from them. Those are two of the key elements. As we discussed last October, we now have a memorandum of understanding with the Higher Education Authority which sets out our respective responsibilities.
Mr. Seán Ó Foghlú:
We do not think that is sufficient. We are looking further at the nature and the role of the Department and the authority in the context of the new performance framework we have put in place. We are at the final stages of a service level agreement with the authority in that regard. As a final part of that, having regard to the sorts of issues that have arisen in the Comptroller and Auditor General's report and at this committee, the Higher Education Authority is currently preparing advice for us on accountability issues. We hope to agree a revised accountability framework with the authority for the higher education sector in the near future.
Mr. Tom Boland:
I would like to add, in the context of the code of governance mentioned by Mr. Ó Foghlú, that all institutes of technology are now required to submit to the Higher Education Authority an annual governance statement signed off by the president and the chair of the governing body. One of the elements of that comprehensive statement on a range of governance issues is a statement that they are acting in accordance with approved procedures regarding travel and subsistence expenses, etc. The overall governance structure has been strengthened not just because of that, but as a result of a general evolution in the understanding and knowledge of best governance practices in public sector organisations.
John Deasy (Waterford, Fine Gael)
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Has what happened in Waterford acted as a catalyst for change in this entire regime, when it comes to what Mr. Ó Foghlú called the cascade of responsibility?
Mr. Tom Boland:
I assure the Deputy that the situation in Waterford Institute of Technology has reminded all institutes of technology of their responsibilities across a range of issues. It has also led us to review how well the code of governance and other regulatory regimes are working. We did that shortly after the last meeting of the committee. The board of the Higher Education Authority has asked the executive to review the entire governance and regulatory arrangement between the authority and the entire system - not just the institutes of technology - having regard to issues like academic freedom and institutional autonomy. To some extent, this has been prompted by the situation in Waterford. It has also been prompted by the significant change in the Higher Education Authority's mandate with regard to the higher education sector. The executive has been asked to review what that relationship should be and whether the authority would recommend to the Minister any legislative changes with regard to our regulatory function. That work is in train. As chief executive, I have given a commitment to report to the board on that matter early in the new year. It arises from elements of what has happened in Waterford and, more broadly, from the new mandate of the Higher Education Authority.
John Deasy (Waterford, Fine Gael)
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Okay. Fair enough. Can I ask the Comptroller and Auditor General, who obviously was not in this position back then, a variation of that question with regard to his office and auditing going back ten years? Is he happy that it was carried out as it should have been with regard to the potential breaches of the expenses guidelines?
Mr. Seamus McCarthy:
When we discussed this previously, I mentioned there has been a substantial change since 2009. That year was a bit of a turning point because that was when concern arose about matters in FÁS. We recognised at that stage that we needed to do something fundamentally different in our financial audits if we were to identify similar situations in other organisations. At that stage, we instituted a different approach and added onto the normal financial audit testing, whereby we specifically target issues of propriety. There is now a long schedule of matters, including remuneration of chief executives and chief officers, expenses, credit card policy, procurement, capital projects and financial reporting to audit committees and boards, etc. I think there are 14 or 15 items on the list.
When we were looking at travel and subsistence claims during the period prior to 2009, we would have taken a sample across the whole organisation. The sample would have been drawn from the full spectrum of charges. I have to say that in general, we did not find many problems with it in Waterford. I think there were other reviews of expenditure in Waterford over that period, including the Deloitte report which looked at other expenses in Waterford and found it was generally clean. Under the system of governance laid down in the code, which was being applied in Waterford, an internal review of the effectiveness of controls is required every year. I think it was generally coming up fairly clean in Waterford. It is probably quite an unusual and unexpected thing to find. There were problems in Waterford, obviously, but they were confined in a very narrow sphere.
Mr. Seamus McCarthy:
The financial audit obviously focuses on the financial statements. One of the exercises we do involves analysing the expenditure under the headings that are reported in the financial statements. When we look at variances and trends from year to year, we look for explanations if it transpires that expenditure is increasing significantly. As there was no line in the financial statements that drew attention to the budget of the president's office, we were not looking at that. The internal reporting to the governing body and the audit committee would not generally have been focused on those kinds of cost centres. The president will correct me if I am wrong in that regard. One of the recommendations that has been made is that there should be formal reporting of some of those key cost centres as part of the normal financial reporting to those involved in the governance of the organisation. When we instituted the change in our procedures - in relation to propriety - in 2010, we picked up three or four instances in which difficulties arose with regard to expenses relating to the president's office.
We would probably have raised those in the normal way, as management letter items, with the president. They would have been dealt with and there would have been an opportunity for the institute to reflect and to investigate further to see if there was a deeper problem. Subsequent to our reporting at the end of the audit in 2010, the freedom of information request was made and it became apparent that there was a deeper problem then we had identified at that stage.
11:10 am
John Deasy (Waterford, Fine Gael)
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I raised this question because of something the Chairman said at the September meeting. He asked about the other arms of the State with an oversight function and whether they performed properly outside of the internal oversight in the institute. Mr. Boland said that certain things were in train but things have changed and are changing dramatically since 2010. At the meeting of last September, the blame focused on one individual. Sometimes people need someone to blame. It is clear that the oversight structures may not have been there as far as looking at the propriety of the decisions and the expense concerned. Everyone needs to fess up to that. It has changed since then and it must be acknowledged that there was a deficit when it comes to the arms of the State and their oversight functions. I am glad to hear that people recognised that and are changing accordingly.
I want to ask the Department and the HEA about the findings of the Quigley report. Specifically, when talking about structures within WIT, the report says that the Department was aware of the structures but did not pursue the issues raised regarding the structures adequately and that the HEA should have taken more urgent and decisive action. Can the witnesses deal with that in respect of the Quigley report?
Mr. Seán Ó Foghlú:
I acknowledge the assistance of the Comptroller and Auditor General in our final decision-making approach on initiating this. I also acknowledge the impact of the Committee of Public Accounts considerations on that decision. Following our last appearance at the committee, when the issue of the companies was addressed and while we were already in detailed engagement with the HEA and WIT, we met with the current chairperson and the current president. Arising from that meeting and the manner in which WIT did not have access to full information, we felt we needed to initiate an inspection. We did so in the context of trying to protect the academic reputation of WIT. As the president said, we were extremely conscious of it. The inspection process was helpful and it has given us real confidence about the information we needed on what was happening in WIT. We all learned a lot. I am not trying to avoid Deputy Deasy's question and I will come to it in a second. We have a way forward on the report that we find very helpful. It involves an additional investment from the State, which will be repaid. We were being asked to make a call about paying it without enough information. We now have that call and, most importantly, the companies are being restructured and coming into the ownership of WIT.
The report also identified a number of governance changes. WIT has bought into that and we are glad that it has done so. It will take some time to implement. The Department and the HEA have notified WIT that, in an unusual step and in a non-statutory way, on completion of the work within WIT we will have a further expert or group of experts to check on the company issues and the governance issues. It is an external check on behalf of the Department and will also assist WIT on these procedures. We are seeking to put in place something as close as we can get to a guarantee about its effectiveness. In no way are we questioning the appropriateness of WIT to undertake the changes. However, given the importance of the issues and the need to ensure they are sorted out, we thought we should do so.
With regard to the history of the companies, the Department had a number of concerns about the relationship with the companies in the late 1990s and in the early part of last decade, in 2001. We had a good bit of dialogue with WIT around some of the issues. In particular, there were concerns of the student union, which were addressed by WIT. The other issues were perceived to be not as important and they were not followed up sufficiently by us and WIT. WIT assured us they were separate companies and they continued not to be included in the accounts. We recognise that we did not follow up sufficiently in regard to those issues. The fact that we did not follow up on these issues led to the continuing uncertainty. From the Quigley report, we can see that this uncertainty increased in the past decade. A number of issues arose in the report and at times they were treated as if they were separate companies while at other times they were treated like companies of the institute.
Mr. Tom Boland:
From the HEA prospective, the Secretary General has said much of what I wanted to say. Over a period of about two years, from the end of 2010 until the inspector was appointed, the HEA sought to get information on the situation in WIT regarding the companies, even to the extent of nominating to a working group a retired senior civil servant to get access to sufficient information to allow the HEA and the Department to understand the relationship between the companies and the institute. For a variety of reasons that do not lie at the door of the institute, it proved impossible to get the kind of detailed information necessary. This, ultimately, led to the appointment by the Minister of an inspector. In hindsight, it is not appropriate that a body like the HEA must wait two years and wait for the exercise of fairly extraordinary statutory powers to get information of this kind. The reason we were reluctant to recommend to the Minister the appointment of an inspector earlier is that it is a draconian action, potentially seriously impacting upon the reputation of an institution. This is only the third time an inspector has been appointed.
I mentioned earlier that we are looking at the area of governance and regulation and the role of the HEA. One of the areas I am interested in exploring is whether there are activities we can engage in that are less draconian and less impactful on the reputation of the institution. If the appointment of an objective person to an institution to investigate an issue was more commonplace in circumstances where there are difficulties without necessarily requiring the involvement of the Minister, it does not become such a major issue in reputational terms. It would enable an agency like the HEA to have a more forensic examination of particular issues at particular times. I say that with the benefit of hindsight. It took two years and then six months for an excellent report from Mr. Quigley. Had we waited six months and had the Minister appointed Mr. Quigley sooner, it would have been resolved in that way. That is not to rationalise it out of existence but to explain the situation.
John Deasy (Waterford, Fine Gael)
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Getting away from all this, I have number of questions for Dr. Neavyn. He mentioned in his opening statement that WIT is moving away forward to stage 2 of the university designation process.
Can Mr. Neavyn outline what that process is, the timeframes involved, where WIT is right now with regard to Carlow, what we can look forward to over the next year with regard to that process and the potential for both institutions to amalgamate and become a technological university?
11:20 am
Dr. Ruaidhrí Neavyn:
It has been a long-term ambition for the south east to have a university. The main reason is that having a higher education institute at university level is fundamental to the infrastructure to support sustainable economic development in the region. That is the clear message we want to give here. We hope that university designation and a higher education institute operating at university level will be key to sustainable economic development for the region. In that regard, the two institutes of technology in the south east - Waterford and Carlow - have agreed to combine forces to make this happen. We very much welcome the recommendations in the national strategy for higher education for a process to create a technological university. We jointly applied in that process, which has four stages. The first stage was an expression of interest. That also entailed developing a detailed MOU of operation in respect of how to achieve university designation, which requires us to produce a business plan to meet the criteria for technological university designation. These criteria revolve around research and development and academic achievement.
On top of that, we are also looking at the consolidation process, because there is a requirement that the two institutes become one as part of the technological university process. We hope to move the business criteria plan - the plan for the creation of a university and how it proposes to meet the criteria to function as a university - forward this year. Allied with that are a consolidation plan and the due diligence process associated with that.
Once we submit the business plan, we will then move to stage three. This involves an analysis of our capability of meeting the criteria for a university. The final stage is stage four, which involves an assessment by an international panel of how we meet the criteria. In terms of overall timeframes, we have set a very ambitious target and would like to see that achieved within a three-year time frame. We think it important that we set an ambitious timeframe and believe we are capable of meeting the criteria. The Deputy spelled out some of the notable achievements of Waterford Institute of Technology, and they are notable achievements of our partner as well. We certainly believe that, in tandem, we can achieve these criteria.
John Deasy (Waterford, Fine Gael)
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I am glad to hear it, because we are dealing with legacy issues with regard to expenses and all of that. There are legacy issues with regard to the previous president when it comes to Carlow. What Mr. Neavyn is effectively telling me is that they have been dealt with, that this is a harmonious arrangement with regard to a joint application being made and that everything is moving along quite well.
Dr. Ruaidhrí Neavyn:
In the past, the application process made by Waterford Institute of Technology would have been an application process under section 9 of the Universities Act 1997. That particular application would have been funnelled more towards the technological university process that is now there, so, effectively, multiple institutes of technology must apply for designation as a technological university, and that is what we are doing in a south-east context. There is obviously a great level of co-operation between the two institutes. Indeed, both governing bodies, both management teams and members of the institute community are behind this effort. There is very strong support from stakeholders in the region, including Members of the Oireachtas and members of the business community, who want see this happen.
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome everyone. I want to go back to a few items relating to WIT. When did Mr. Neavyn take up his appointment as president of the institute?
Kieran O'Donnell (Limerick City, Fine Gael)
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In respect of the period covered by the second Deloitte report, what is the relevance of the period from 1 January 2009 to 31 December 2009?
Dr. Ruaidhrí Neavyn:
That was a detailed time period for expenditure by of the office of the president. A two-year time period was picked - 2009, 2010 and up to May 2011. It was a two-and-a-half-year period. I am not sure there was a particular relevance in terms of legal requirements. Following the completion of the report, we obviously saw the areas of potential direct benefit and then applied and looked at the statute of limitations.
Kieran O'Donnell (Limerick City, Fine Gael)
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When did Mr. Byrne take up his position as president of the college?
Kieran O'Donnell (Limerick City, Fine Gael)
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Could Dr. Neavyn go down through the reports produced to date and tell me how much has been spent on them?
Kieran O'Donnell (Limerick City, Fine Gael)
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It relates to the Deloitte reports, the Quigley report and the Grant Thornton report.
Mr. Seán Ó Foghlú:
I can answer in respect of the Quigley report because it is obviously not a matter for WIT. Dermot Quigley undertook the report, worked for us from November until June of this year on a pro bono basis and was unwilling to take any payment for it. There was no salary and he had no expenses. A small amount of travel expenses were paid not to him but to others who drove up and down.
Kieran O'Donnell (Limerick City, Fine Gael)
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I commend Mr. Quigley on that.
Kieran O'Donnell (Limerick City, Fine Gael)
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For both reports?
Kieran O'Donnell (Limerick City, Fine Gael)
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What was the make-up of the two individual reports? Ninety-seven thousand euro-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Is that the VAT-inclusive figure?
Kieran O'Donnell (Limerick City, Fine Gael)
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It is approximately €100,000. Were there expenses on top of that?
Kieran O'Donnell (Limerick City, Fine Gael)
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And the Grant Thornton report?
Dr. Ruaidhrí Neavyn:
I will just go through the other expenses relating to the office of the former president. Costs associated with legal issues came to €22,428. That figure was for the case the former president is taking against the institute and the case we are taking in respect of reimbursement. We would obviously examine recouping the costs of the legal case should we win it. Those are the expenditure costs.
Moving on to costs associated with the consolidation of the DCS companies, the figure for the initial reports from Grant Thornton was €53,247. The figure for work to date relating to the consolidation process was another €46,524, giving a total of approximately €100,000 - that is, €99,771.
Kieran O'Donnell (Limerick City, Fine Gael)
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What does the figure of €46,524 consist of?
Kieran O'Donnell (Limerick City, Fine Gael)
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That is Grant Thornton again?
Kieran O'Donnell (Limerick City, Fine Gael)
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In essence, costs associated with Deloitte are about €100,000 while legal costs are about €20,000. That adds up to approximately €120,000 to date. In terms of consolidation, one is probably talking about €100,000 in consultancy fees for Grant Thornton.
Dr. Ruaidhrí Neavyn:
That is for Grant Thornton in respect of financial and planning issues. We also have legal costs in respect of consolidation, which is a very complicated issue. Between 2012 and 2013, the total legal costs relating to the consolidation process and to gain effective control of the companies have come to €113,373.
Kieran O'Donnell (Limerick City, Fine Gael)
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So about €213,000 has been expended to date on the consolidation process?
Dr. Ruaidhrí Neavyn:
Correct. I know it is a big figure, but we are talking about protecting student services and acquiring assets that are worth more than €20 million. We are also talking about services that span 26 operating units with a turnover of €12 million and 160 employees, so we are not dealing with a small process.
Kieran O'Donnell (Limerick City, Fine Gael)
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I see them as two separate issues. I want to deal with the expenses issue first. A total of €120,000 has been extended to date in spending on that issue. The questions one must ask are whether that provides value for the taxpayer and whether that amount of money will be recouped from the legal case.
Has the level of expenditure for personal use been quantified and how much does WIT expect to be recouped through the legal case? The ordinary person looking at this would understand €120,000 as being four times the average salary. That probably includes many of those who work for WIT. This is not personal; it is what we have to do. We appreciate the institute's position but we have to ask the questions.
11:30 am
Kieran O'Donnell (Limerick City, Fine Gael)
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That is on the basis that the institute recoups €22,000 in legal costs if it wins the case.
Kieran O'Donnell (Limerick City, Fine Gael)
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One is looking at a break-even situation in regard to WIT's outgoings versus getting the money back. Clearly there are salacious elements in the details of the case, but why did reason and common sense not prevail with regard to people sitting down to examine the case? The Deloitte report indicates that between 1 January 2009 and 31 May 2011 the president's office incurred almost €1 million in expenditure and estimates that approximately 40% of this expenditure, or €368,000, provided insufficient evidence of value for money. Why did nobody realise the institute would end up pursuing a court case until two reports later? Why did reason not prevail?
Dr. Ruaidhrí Neavyn:
The first Deloitte report was commissioned to get an idea of the scale of expenditure that did not comply with policies and procedures. This included expenditure that was not considered to offer value for money for the State. The second report focused on additional spending for personal benefit in a confined period because the figure identified in the first report was quite large. We subsequently carried out an internal review for the full claim and thus we did not incur further costs.
Kieran O'Donnell (Limerick City, Fine Gael)
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That was between the first and second Deloitte reports.
Kieran O'Donnell (Limerick City, Fine Gael)
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The second report was not completed, however.
Dr. Ruaidhrí Neavyn:
That is correct. Once we saw the scale of expenditure between 2009 and 2011, we made a conscious decision that we did not want to incur further costs and, therefore, the staff of my office carried out the review, with a focus on the areas of expenditure identified in the second report. These form the basis of the reimbursement claim. Does that make sense?
Kieran O'Donnell (Limerick City, Fine Gael)
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It does.
Dr. Ruaidhrí Neavyn:
We definitively did not want to produce endless reports. I take the Deputy's point about the cost to the taxpayer. It is fair to say, however, that the first two reports were necessary for the commission to get an idea of the scale of expenditure that did not offer value for money or might represent spending for personal benefit to an individual. In regard to whether a rational proposal was made to sit down with the parties to the case-----
Kieran O'Donnell (Limerick City, Fine Gael)
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WIT is a fine academic institution with great staff and students. Equally, however, we have a specific task to perform. This appears to be a case of a sole trader operating in an institute. The chairman of the institute was flying in economy class while the president was in first class on the same flight. The explanation the president gave was that it was common practice across all the third level institutes that presidents flew business or first class. Any rational person would see a problem with this. Why are we only now at the point of pursuing a legal case and when does Mr. Neavyn expect it to conclude?
Dr. Ruaidhrí Neavyn:
I would far prefer to be able sit down with a former employee to agree on what expenditure should be reimbursed, but we have reviewed the issue with legal advisers and internally, and that is clearly not happening. We asked for reimbursement and for further information but, unfortunately, we are forced to go down the legal route. Nobody likes to take the legal route.
Kieran O'Donnell (Limerick City, Fine Gael)
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When were the legal proceedings commenced?
Kieran O'Donnell (Limerick City, Fine Gael)
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When is the case expected to come to court?
Kieran O'Donnell (Limerick City, Fine Gael)
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I can see why one might buy a book called A Déise Boy but I do not see the relevance of books about Audrey Hepburn and horse lovers, or Mixed Doubles. They appear to be books that people would purchase in an airport while they are travelling. Many of these issues are taking the legal route, but pragmatism would suggest that people sit down to discuss them. Does Mr. Neavyn see a possibility, even at this late stage, that a reasonable and rational settlement can be negotiated?
Kieran O'Donnell (Limerick City, Fine Gael)
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There was little or no documentation about taxi expenses or the 280 items of hospitality identified in the Deloitte report. Issues also arise in regard to foreign travel and artworks, one of which was by way of a gift. It is extraordinary that such a situation could arise. I ask the Secretary General of the Department of Education and Skills whether it is normal procedure across third level institutes that their presidents fly first or business class.
Kieran O'Donnell (Limerick City, Fine Gael)
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It is in the Deloitte report.
Mr. Tom Boland:
The presidents of institutes are obliged to operate under the normal travel and subsistence rules issued by the Department of Finance. Immediately after the last meeting of this committee we wrote to all the institutes of technology regarding a range of issues arising from the meeting. The letter reminded all higher education institutions that they are required to comply with proper procedures in regard to travel and expenses and that codes of governance were agreed at a sectoral level to provide for a range of effective measures with regard to procedures for procurement, tendering, financial reporting, internal audit and travel. It is not a common practice and, obviously, we would not stand over it.
Kieran O'Donnell (Limerick City, Fine Gael)
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The financial secretary, Mr. Tom McFeely, appeared before us on the last occasion.
Is there a reason he is not present as a witness today?
11:40 am
Kieran O'Donnell (Limerick City, Fine Gael)
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Is he still in the institute's employment?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is there a particular reason for his not attending? He was a key witness at the committee the last time.
Kieran O'Donnell (Limerick City, Fine Gael)
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He was a key witness. He was directly responsible for expenditure. I expected his presence. Obviously, he is not present.
On the Quigley report, how much will the amalgamation cost?
Dr. Ruaidhrí Neavyn:
I will reiterate that what we are dealing with is the acquisition of seven companies, some 26 operating units, with a turnover of €12 million and fixed assets in excess of €20 million. The message I am trying to convey is that there is much to be gained.
In terms of who is engaged in the services, IBEC is engaged in the HR function. There is no cost being incurred from IBEC. As Deloitte's review of governance is being done as part of the institute's internal audit function, there is no additional cost.
Regarding project planning and the financial planning associated with consolidation, particularly the consolidation of accounts, which is the requirement set by the Comptroller and Auditor General, the Higher Education Authority, HEA, the Department of Education and Skills and ourselves-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Give me the bottom line. We have limited time. How much will it cost?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is the HEA-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Is the HEA or the Department responsible? Is the number of subsidiary companies five or seven? The diverse campus services, DCS, operate through five subsidiaries. Would the institute have required prior approval from the HEA or the Department to proceed with establishing them on day 1? Mr. Quigley's report mentions that the structure is unique. It reads: "The relationship that exists between WIT and the companies providing campus services to it is unique in the Institute of Technology sector". Companies that were legally a part of WIT were not subject to scrutiny by the Comptroller and Auditor General. Would the institute have been required to seek the approval of the HEA or the Department prior to their establishment?
Clearly, this structure did not provide proper accountability. Companies had large cash balances for a period, although these have subsequently been depleted. Amalgamation is now under way, but how did those companies come to be set up in the first place?
Dr. Ruaidhrí Neavyn:
My understanding is that the genesis of the DCS structure came from the creation of the development committee, which was a coming together of staff members in WIT to run student services facilities, including canteen, restaurant, facility support and recreational activities as well as accommodation facilities for the student body. I understand that this was effectively set up independently of the institute. It was considered to be a stand-alone, independent company structure. This appears to be the issue.
As to whether this should have been notified to the Department, one could argue that the answer would be "No" in the case of an independent structure. Given the Quigley report and the connectivity between the company structure and the institute, however, it should clearly be made a subsidiary, which is what we are doing. If taken from the pure legal perspective that these were independent, stand-alone companies, there was probably no requirement to inform the HEA or Department. This is probably why there may have been an information deficit in terms of the company structure from a departmental or HEA perspective.
Kieran O'Donnell (Limerick City, Fine Gael)
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Did the Department have prior knowledge?
Mr. Seán Ó Foghlú:
No. The development committee was set up in 1989, when the Waterford Regional Technical College was under the aegis of City of Waterford Vocational Education Committee. It was given freedom under the Regional Technical Colleges Act 1992 and changed its name to Waterford Institute of Technology subsequently.
The crux of the matter is that the companies were independent on the one hand and not independent on the other. Our understanding was that they had been operating independently, but the report has clarified that they were not. In effect, they were really a part of the institute. The directors of the companies have readily agreed to being consolidated under the institute in the past few weeks.
Kieran O'Donnell (Limerick City, Fine Gael)
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Must the Department sign off on the legal structure that will be put in place before the consolidation concludes?
Dr. Ruaidhrí Neavyn:
As to the steps that we are taking in respect of the recommendations in the Quigley report, oversight will be provided by the HEA. We are working closely with it on the implementation of all of the recommendations. We correspond with and meet it on a weekly basis, when the workload and what has been completed are reviewed. As the Secretary General has pointed out and we have accepted, a further independent review will be conducted post implementation of the Quigley report recommendations.
Kieran O'Donnell (Limerick City, Fine Gael)
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There is no legal obligation. An institute could set up a subsidiary and would not be required-----
Mr. Tom Boland:
As the law stands, yes. All due credit to the president and his team, there is a close working relationship in bringing certainty and proper process to bear in this particular instance. We will work closely with the institute to ensure that happens. As the Secretary General pointed out, in a matter of six months or so we will jointly perform a thorough review of the situation. The institute is working closely with us.
Kieran O'Donnell (Limerick City, Fine Gael)
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If something is a subsidiary of an institute, does it fall within the Comptroller and Auditor General's remit?
Kieran O'Donnell (Limerick City, Fine Gael)
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In what circumstances would it not?
Mr. Seamus McCarthy:
Normally, a subsidiary is established as a company and is audited by an independent auditor, effectively determined by the shareholders. There is provision in the legislation for a subsidiary of an entity that I audit to be audited by me, but it requires the agreement of the relevant Minister and the Minister for Public Expenditure and Reform.
Kieran O'Donnell (Limerick City, Fine Gael)
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I thank Mr. McCarthy.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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At the outset, I acknowledge the work undertaken by Mr. Quigley and the fact that he has done it without charge. At a previous meeting, we acknowledged his valuable work at the Valuation Office. He is an excellent public servant. One does not come across that type of contribution often.
I also wish to acknowledge the work being done by WIT in terms of its development, its students, its quality of courses and so on. The matter that we are dealing with is a legacy issue, one that will have a major impact on the college's future funding requirements. As such, it is important that we understand what has happened and take the necessary steps highlighted by various reports, particularly the Quigley report, to ensure that good governance is applied and that this does not recur.
A number of issues need to be clarified. Who is the auditor of the institute?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
11:50 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For how long have they been the auditors?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much would they have cost the institute for the standard audit each year?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Approximately.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Some €30,000 per annum.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In order to do these two different reports, Deloitte's were selected again. Who selected Deloitte's?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The governing body?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What about the personnel who came in and did the reports and audit? Were they the same personnel?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There were some common personnel running through both reports and the audit.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How is it that in two of the reports they were able to uncover so much, yet in the context of the audit they did not bring anything to your attention?
Dr. Ruaidhrí Neavyn:
To be fair, the focus of the two reports was specifically on expenditure in the office of the president. The internal audit function generally looks at broader category areas. For example, in doing an internal audit one might review areas such as the entire ICT infrastructure, or the staff allocation. Or one may look at broad areas, but this particular review was specifically on the expenditure in the office of the president - specifically on the detail.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deloitte were engaged as auditors and, as such, they would have examined the full range of activities within the institute from a financial point of view, is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Would they have looked at governance, for example?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Therefore they would probably have looked at the governing body, the internal audit committee and so on.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The point I am making is that at no stage was any of this irregularity of spend or governance picked up by the internal audit committee which did not tell Deloitte's.
Dr. Ruaidhrí Neavyn:
To be fair to the internal audit committee, it would have raised it. In 2009, there was a well documented case of expenditure similar to this in another organisation. At that time, the internal audit committee would have asked the question, "Will there be a review done of the expenditure in the office of the president?" It was informed at the time that it would be done as part of the Comptroller and Auditor General's review.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yet it never triggered anything. It never asked questions about governance.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why did it not do something about it then, if it was not sure about what was going on either in the president's office or indeed anywhere else?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So it got €30,000 each year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. However, surely at some stage someone looking at governance within the institute would have come up with a query on, for example, the president's office and how it reports its cost centre. It is referred to as a cost centre there. That cost centre is called the president's office but I have noticed that within that there is all kinds of promotional material going on, such as efforts to get university status. That has nothing to do with the president himself - it concerns the college's wish to pursue a particular agenda on university status. Those costs are not necessarily the president's; they are those of the institute, yet during the audit no one seems to have separated out what was solely in the president's office. It seems to me that quite a lot of the expenditure and some of the income was dumped into the office of the president when in fact it should probably have come under some other heading entitled "university promotion" or "university status".
Dr. Ruaidhrí Neavyn:
The Chairman's point is correct in that regard. In fact, as part of the reviews that were conducted, we would have done that analysis. The figure that Deputy O'Donnell quoted earlier shows money that was direct expenditure and money that was also associated with other activities. Therefore the Chairman is correct in that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The governing body or the internal audit committee did not raise that issue. They just proceeded with the general governance arrangements that were in place, and nobody else raised it either, in terms of the Comptroller and Auditor General or the Deloitte report.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not interested in systems. There are people operating those systems. We are tired of hearing about systems in this committee. People were operating the systems of management and those who were overseeing those systems did not raise an issue or ring any bell. The Department did not pick up on it and neither did the HEA. Things went merrily along until such time as a financial issue arose. That is extraordinary because people are given the responsibility to do this particular job, yet they seem not to have completed the task. They did not raise any issue about this. It has cost €30,000 per year and many more hundreds of thousands of euro thereafter because people sat on their hands. That is essentially what happened here. That is what I am taking from it.
Mr. Neavyn mentioned a particular invoice for €4,200 for the journey. In his remarks, he said the chairman and president signed off on that. Was that invoice not queried?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was queried by the secretary to the financial controller.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Right. Who signed off on that invoice?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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This is the invoice for Bel-Airways Limited, and the address, for €4,200. We will not mention the person's name, but it was queried by the secretary. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Therefore there was the possibility of queries being raised on any of these invoices, and the query was raised. When it was being signed off, the only signature I can see on this is the finance manager's.
Dr. Ruaidhrí Neavyn:
No. The system operates based on who is approving the invoice for payment. The query was made. The Chairman will note that underneath is "query made" and the person's name. It then says "OK to pay". That query followed on from a direct question back to the office of the president. That is the information I have.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that but the fact is that the finance manager was in charge. That person, whoever it is, had to sign off and had to be satisfied.
I am sure he or she would not put their signature to this without giving it consideration. It was considered. A query was raised, yet it was signed off by the finance person.
12:00 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That finance person could have decided not to sign off on it.
Dr. Ruaidhrí Neavyn:
They could have, but it was queried. I have asked people these questions. The position would be that the order was signed off and approved by the most senior officer in the institution. It was queried and that person indicated it was authorised to sign off. If one is putting a query to the senior financial officer, one is put in a very difficult position if one is being told by that senior financial officer that everything is in order to be signed off.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I question that, because there are other instances here. I found one instance where there was a query as to why tickets were bought at Ticketmaster, if my recollection is correct. My understanding is that the president was asked to repay that and he did so. That is proof positive that there was a system in which if enough fuss was made about a matter it would be repaid, or it would be questioned and, perhaps, much more made of it. In a press release the then chairman, Mr. O'Donoghue, said:
Never once in that period was concern about expenditure brought to my attention or that of the governing body by as much as a raised eyebrow - not by the finance function, by internal audit, by the audit committee or by the external auditor who is the Comptroller & Auditor-General. No criticism of spending by the President or the President's Office was ever voiced to me or brought up at governing body meetings, whether formally or informally.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. I wish to emphasise, because we will have to consider this after we finish our hearing, that the chairman said this. We are acknowledging that there was a breakdown in systems, but there was also a breakdown in terms of the people who served on the governing body and on the internal audit committee. That must be acknowledged too. There is a further acknowledgement that this president's cost centre, or whatever it is, recorded many more other types of expenditure as well. That must be said along with everything else. Has the governing body changed in any way? How many members are on it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Would half the members have changed?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are the same people on the audit committee?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Perhaps you would provide us with that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The other question that arose from some of the reports is the travel costs of governing body members. Explain how they would incur costs for travel.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No, it was in the period we are discussing. It is a separate question. Did the governing body incur travel expenses during the period in question? If it did, how did it incur them and what was it doing?
Dr. Ruaidhrí Neavyn:
Travelling expenses may have been incurred for travel to the institute for governing meetings and for other sub-committee meetings. The members may have participated, representing the institute, at other events and functions. They would be the general headings, but principally travel would relate to attendance at meetings and committees of the governing body.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They were being paid to be there and to govern and all of this took place.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes. They were paid for going down to govern.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Perhaps you would give us a list of who did-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----and what it was for during that period, so we know what we are speaking about here and what other moneys were expended on the governance of the college.
On the governance issue also, Mr. Quigley said in his report that while he had not examined the question in detail, he recommended that there should be a review of the size and composition of governing bodies for the institutes of technology, including the merits or otherwise of having nominees from particular groups. Was that examined by anybody?
Mr. Seán Ó Foghlú:
We are looking at that now. The Minister plans legislation for the institute of technology sector, including the establishment of technological universities, and as part of that it is planned to address various governance issues, including the composition of governing bodies of both institutes of technology and technological universities should any be established.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So that will be addressed. Proceeding to the staff, there are 160 staff involved in the various companies. There is a considerable amount of money to be examined in terms of not just the cost of bringing these companies under the direct guide of the institute but also in terms of their assets. Have you asked the Department, or directly where you get your funding, about how the €3.2 million borrowings, the €7 million for Manor Village student accommodation and the €2.5 million for the sports complex are to be dealt with?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What happens when the new structure comes into play?
Dr. Ruaidhrí Neavyn:
The same; the DCS structure will deal with those loans. They will be a subsidiary of the college. The advice we would have received, indeed the advice Mr. Quigley may have received, is that the loans were not incurred by the institute as such, therefore they are an undertaking of the subsidiary structure or the company structure. However, the plan is well in place to deal with those loans. With regard to the repayment of the moneys to be forwarded for Manor Village and Carriganore, exact details and workings have not been fully calculated at this stage. We have just effectively made the company structures subsidiaries of WIT since 1 October and we must now do the detailed financial analysis of the cashflows of the companies and their ability to repay the money. That will be greatly connected to the Manor Village income, and Mr. Quigley makes the point in his report that it is a financially viable entity. We are using the assumption that the funding generated from the Manor Village complex would repay the moneys to be forwarded by the Department.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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You have not set out yet the money you might require from the Department to-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will you be expecting that from the Department?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is €10 million and the college has loans of €3.2 million.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A total of €13 million will be required to sort this out.
Dr. Ruaidhrí Neavyn:
That is in terms of a commercial activity.
The DCS structure has always been run as a commercial entity. It is quite clear that it has been financially viable. They operate as commercial entities. Any profits that have been generated by DCS in the past have gone toward the development of student services and facilities. We do not expect any change in the financial viability of the company structure.
12:10 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are they moving from being private entities to being subsidiaries?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are they coming into the State?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What about the 160 staff?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that the position now?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They were in the private sector but are they now moving across.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will they remain that way?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As we look at the figures for taxis and hospitality and so on, is each and every one of those figures down to the president or is it the president's cost centre?
Dr. Ruaidhrí Neavyn:
The Chairman is correct in this point. There is a mixture. I want to clarify the point. There are costs that are associated with central activities and other costs that are associated with what one may term personal expenditure. The analysis is there. I can give examples. The PR consultancy costs would have been for services for the institute in general. There would have been taxi expenses that would have been for the office specifically. The Deloitte report would give the Chairman an idea of the general categories of expenditure and in Deloitte 2, we focused on the areas that were specific to direct expenditure by the president in relation to his specific costs.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can Dr. Neavyn give an estimate of the legal costs in relation to the claim for in excess of €100,000?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Have the solicitors representing him not indicated a figure?
Dr. Ruaidhrí Neavyn:
The solicitors have indicated that they can give an estimate, but it depends on how one must defend the case. I could not give an exact figure, but to date we have spent a total of €22,000 defending both. Based upon the estimates to date, there would probably be an additional figure in the region of €8,000 to €10,000.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will now direct questions to Mr. Boland. Looking back on the matter and the various reports on it, and that what was going on was not uncovered by the HEA, does the authority have questions to answer on governance issues?
Mr. Tom Boland:
First, there was a clear failure of the accounting procedures in governance in Waterford Institute of Technology. There is no gainsaying that. The role of the HEA is to ensure there are processes in place in the institutes and in universities that will ensure internal controls are effective. By and large, they are. Overwhelmingly they are in the system. It is not possible for the HEA, given its role, to identify the lapses or misconduct of this sort. When they arise, I see our function as to ensure action is taken to address them promptly, to review the system of controls that is in place and to make any changes that are necessary. We are engaged in that. I mentioned that the HEA is looking at our regulatory governance functions in this context but also in the context of the broader mandate of the HEA to see what additional procedures or powers we might have to make our system more effective. There is no circumstance in which the HEA has a responsibility to look regularly at the individual elements of expenditure in an institution. That is, as the Secretary General described it, a function ultimately of the cascade of accountability within the institution itself.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Should the HEA not have looked into the activities of the institute? Given its very public profile and the creation of these companies, is Mr. Boland saying that in general terms of governance and accountability, none of this came to the attention of the HEA?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To what is Mr. Boland saying "yes"?
Mr. Tom Boland:
Yes, it did not come to our attention except to the extent that I will clarify now. We took over responsibility for the institutes of technology in 2007. The arrangement in relation to these companies had been in existence since the early 1990s. We took at face value in the first couple of years the assurance by the institute that they were separate independent companies. It is only in the context of the issues around the consolidation of the accounts of these companies, an issue recommended by the Comptroller and Auditor General, that we as the HEA became concerned about the governance arrangements that were in place in the context of the transfer of significant resources of the institute to what were, we were assured, independent bodies. That raised alarm bells. We then explored the issues over the next couple of years.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If that had not happened, the institute would have gone merrily along the way it had been going. The HEA would not have known about it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does Mr. Ó Foghlú think it is credible that all of this went on under the public gaze, that the structures were known to all and sundry and yet the HEA, overseeing the institute, did not know and, as a result, we are dealing with this loss of money to the State? I find that incredible.
Mr Seán Ó Foghlú:
The primary responsibility rests with the institute, the senior management and with the governance structures. Clearly, we are collectively very disappointed that those structures did not operate correctly. That is a clear message to us that we need to ensure the senior management and the governance are aware of their responsibilities and that we update their responsibilities appropriately. That is the first clear message.
In terms of discussing the Chairman's precise question to Mr. Boland on whether the HEA could have done something, could I apply that to the Department, because I think it is appropriate that I do so? We would have had responsibility for funding WIT directly until it was transferred to the HEA. We obviously funded the HEA to fund Waterford Institute of Technology subsequently. As I said earlier, we had an engagement with the institute about the companies in the late 1990s and early part of the last decade. The institute satisfied us in relation to some aspects but we did not follow through sufficiently about others, and I put that on record. I am disappointed that we did not follow through more thoroughly with them. At the same time, they were completing their accounts and continuing on and there were no issues arising.
I think issues would have arisen, without the freedom of information requests, with the conclusion of the term of the previous president. Quite clearly there was a set of arrangements in the institute around expenses which were particular to the development of the office in his time, which were not there prior to that. The turnover in the senior management and the turnover in the governing authority would probably have given rise to knowledge about the issues if the freedom of information issues had not arisen. We welcome the fact that the issues arising from the freedom of information did arise. We take the matters very seriously and we have put a great deal of thought into updating the arrangements. As the Chairman said, and I do not disagree with him, the implementation of all these systems rely on individuals to implement them. It is a matter for individuals in each of their different positions, whether they are in senior management, on the government body or the internal audit committee, to ensure they perform their roles appropriately. Systems are operated by individuals. We have to ensure this happens.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I read in some of these papers that the president's term was at an end and that he had to be reappointed. His reappointment was recommended following an interview process. Is that right?
12:20 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Dr. Neavyn might check that again to see if anybody informed the president. I would like to know the procedure. Did anybody speak to Dr. Bryne in this period?
Mr. Tom Boland:
I did. When issues arose on the question of expenditure in the president's office, I asked to meet the president to establish his take on the situation. My concern was for the reputation of Waterford, given all the other things that were happening. I had a fairly lengthy meeting with the then president and he was adamant - I had no way of knowing otherwise - that he had no case to answer and that all of the expenditure was entirely appropriate. That is the basis on which we left our conversation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What does Mr. Nolan think?
Mr. Dermot Nolan:
We are dealing with a situation where the systems did not work and the individuals within the system are only as good as the system itself, and there has to be a cascade of responsibility down there. It is unfortunate that people within WIT did not act within the system. I can understand there can be problems with people questioning their superiors, but it is unfortunate that people did not operate within the responsibilities they had.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What about the cascade of responsibility from the Department of Finance? Did departmental officials not look in at the Department of Education and Skills and the HEA to see where the dog was barking and what was going on?
Mr. Dermot Nolan:
The Department of Finance and the Department of Public Expenditure and Reform have thoroughly revised many guidelines, recommendations and responsibility frameworks that arose from the FÁS discussions in 2009. We changed the governance for State bodies and we also brought out revised arrangements and guidance on travel and subsistence.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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However, in this instance, the oversight of the Department and the HEA did not uncover anything.
Mr. Dermot Nolan:
The Department of Public Expenditure does not go into the individual accounts and reporting arrangements of individual bodies. I do not think it would necessarily be appropriate to do so. We certainly do not have the resources to do so. There are 11 or 12 institutes of technology and seven or eight universities. There is a lengthy cascade of responsibilities in that. The responsibility of an individual body lies with that body to work and operate within the framework of guidance and framework of accountability and auditing that is in place. I do not think we get down three or four layers into a cascade of responsibility like that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Department of Public Expenditure and Reform allocates the money to the Department of Education and Skills. I do not expect it to go down layers. The Department of Education and Skills allocates the money to the HEA. It is not expected to go down layers, but I would expect Mr. Nolan's Department at least to have a report from the Department of Education and Skills. I would expect that Department to be looking in on the HEA. Mr. Nolan is telling me that large sums of taxpayers' money go down through the system and this is the result of some of it. Nobody is prepared in some respects of this case to take responsibility for not taking a full hands-on approach, although Mr. Ó Foghlú did so a minute ago. I would expect the Department of Public Expenditure and Reform to ensure the Department of Education and Skills ensured the HEA ensured that in WIT, good governance would be observed and taxpayers' money would be protected. To come before this committee and say that the institute is at fault, while the institute representatives tell us that the systems failed, is just more of the same. I would like to see it much tighter.
Mr. Dermot Nolan:
We became aware of this as a result of the report of the Comptroller and Auditor General. We have spoken several times to the Department of Education and Skills about it, and we have also met and spoken to Mr. Quigley. We passed on our concerns. We were told there was an overhaul of arrangements not only within WIT and not only between the HEA and the higher education institutions but also between the HEA and the Department of Education and Skills for the higher education sector.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Essentially we were closing the gate when the horses were gone. Let us be honest; that is what happened. The Department introduced the guidelines later on, but the existing guidelines were completely ignored between two different Departments, the HEA and down in Waterford.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I would like to second the comments on Mr. Quigley and the work he has done. I want to go back to the issue of the reappointment of the former president. Dr. Neavyn said that his understanding was that that was not a recommendation from the governing body. On what does he base his understanding?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Can Dr. Neavyn take us back to his initial appointment and the manner of it?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Who was involved in that interview process in 2001?
Dr. Ruaidhrí Neavyn:
I would not have the detail on that, but the current practice is that a sub-committee of the governing body would oversee the appointment process and a recommendation would be made to the governing body. That would be notified to the Minister. I think that is the correct procedure.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The Minister accepts the appointment on the advice given.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Would Dr. Neavyn have any idea who was on that sub-committee in 2001?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I presume the organisation has that knowledge.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I thank Mr. Ó Foghlú for that. The dilemmas between the various Departments, the HEA and the institute have been voiced and the term "systems failure" has been used repeatedly. We often hear that term at this committee. I would like to drill into the issues of individual responsibility and accountability for these matters. In the public interest, and notwithstanding systems failures that have been identified, where sits individual responsibility for this fiasco, the entrails of which we have picked over a couple of times on this committee? I would like a response to that question on behalf of WIT, the Department and the HEA. The average person looking at this mess would ask many questions of the system, but would also ask questions of individuals in senior positions and about the level of accountability to be exercised in terms of their actions, misjudgments, misconduct or whatever term we might wish to use.
12:30 pm
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Dr. Neavyn has set out the new dispensation and the new regime. I am asking a different question. I am asking about the accountability of the individuals who were involved - some of whom were in very senior positions - when all of this unfolded. Where is the strand of accountability in respect of those individuals? That is my question.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am asking, for instance, about the former president.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is fine in theory. In practice, we now know, to our cost, that this did not happen or certainly there were significant issues. I note the spending from the office of the former president, which is fairly hair-raising for anyone looking at the list of expenditure.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The list shows fine art, taxi charges and fine travel, for example. What are the consequences for that individual?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Yes.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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To the tune of how much?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Despite the fact that the queried expenditure is several multiples of that sum.
Dr. Ruaidhrí Neavyn:
We have undertaken a detailed review of all expenses in the office of the former president between the years 2007 up to the middle of 2011. That followed on from the two studies performed by Deloitte, entitled Deloitte 1 and Deloitte 2, which clearly identified the areas of expenditure of any potential personal benefit to the former employee.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Has the information been given to the committee as to how that exercise was carried out?
Dr. Ruaidhrí Neavyn:
I will go through it again for the benefit of the Deputy. The exercise was a request for Deloitte - which provides our internal audit service - to review the overall expenditure. This was the Deloitte 1 report. The Deloitte 2 report was a more detailed review of the time period 2009 to 2011. Based on that report we were able to identify categories of expenditure where we wanted answers from the former employee with regard to either reimbursement or clarification. We got neither and we are now going through a legal process to have this finance reimbursed.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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How was the figure of €100,000 arrived at?
Dr. Ruaidhrí Neavyn:
As a result of a detailed analysis performed on the detail from the Deloitte 2 report, which was the analysis of the period 2009 to 2011. We also conducted an in-house analysis in order to keep down the costs of any further analysis. We conducted an analysis of the category areas identified in Deloitte 2 where personal benefit could have been perceived to have arisen for the years 2007 to 2009, which is the period of statutory limitations.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The expenditure detailed as central spending was discounted.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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What is the current stage of the process for reimbursement of those moneys?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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What is the timeframe?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The last time Dr. Neavyn appeared before the committee, the issue arose of people questioning their superiors. Even this morning I heard a number of people speak about the difficult position in which it places individuals. This is very worrying for any organisation if individuals believe they are impeded from doing their job because of fear of the boss or the person at the top. I know things have changed and I presume Dr. Neavyn has had a very keen eye to the cultural change within the organisation to ensure this does not happen again. Is a whistleblower's charter in place and a process for protected disclosures?
Dr. Ruaidhrí Neavyn:
There is a recommendation for the implementation of a whistleblower's charter across the sector. We have developed a charter specifically for Waterford Institute of Technology. We were awaiting input from national level because it is a sector-wide issue. We will be implementing our own soon in the absence of agreement on a national charter because we do not wish to have a reoccurrence.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is Dr. Neavyn saying he will implement one or is he saying one is currently live and functioning?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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As we speak, the charter is not in place.
Dr. Ruaidhrí Neavyn:
No. However, with regard to expenditure in the office of the president, there is a co-authorisation process. The full expenditure in the office is reviewed by the governing body biannually. The budget for the office of the president has to be approved by the governing body. The co-authorisation process must occur between the finance function and the office of the president. The oversight of the expenditure of the office of the president now lies with the governing body.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I would have thought that Dr. Neavyn would have had a greater urgency about a whistleblower's charter, given what the institute has been through. This charter would be primarily for internal purposes but also it would be a way of trying to revive a level of public confidence, to show that the former culture does not persist. I would suspect very strongly that if there was that reticence about questioning bizarre and extravagant spending by the president I do not imagine that this was just a limited phenomenon within the organisation. I suspect if one were to examine the organisation in its totality, one would find that this reticence was echoed in all different parts of the organisation.
Dr. Ruaidhrí Neavyn:
On that point, we performed a separate review as part of the internal audit process to see if the type of spending patterns to which the Deputy refers was in other areas but no cause for concern was raised. I do not think it was prevalent across the entire organisational culture. That is my personal view. The Deputy is correct that we want the whistleblower's charter, and very much so. However, there will need to be consultation with staff representative bodies, with management and with the governing body, with regard to a whistleblower's charter. The consultation with staff representative groups on something that is to be implemented across the whole sector would occur at national level. So far as I am aware, those national level consultations have not been completed. I reiterate that we are not against implementing a whistleblower's charter at local level but we will require agreement from parties.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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How long has Dr. Neavyn been in his position?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I suggest to Dr. Neavyn that he does not delay any longer on this matter.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The point I make about the operation of the organisation is designed to be in a more general governance and management sense and not just necessarily in respect of expenditure.
I note some of the queried expenditure in respect of publicity and public relations. It seems this has been offset as it is not included in the claim against the former president. Did the organisation get to the bottom of why tendering procedures were not observed?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Was that another systems failure?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Did Dr. Neavyn seek an answer?
12:40 pm
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is not a very satisfactory response.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Who would have taken the decision not to go to tender?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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By whom was the decision made?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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These matters were apparently sidelined and not included in the bill of claims because there was no personal gain involved.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is very impressive. Will Dr. Neavyn tell us about Bracken Public Relations Limited?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Where is it based?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am simply choosing this company as an example. Given that there was no tendering, was there a particular reason for availing of its services?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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It is a great pity Dr. Neavyn cannot provide more insight in this regard. For anybody reviewing the figures the individual payments to PR companies of €37,000, €13,000 and so on are, on one level, quite modest. However, when one sees that tenders were not entered into and procedures were not followed, there is a question mark as to why that was the case. Was there, for example, a personal relationship between the provider of the service and the person seeking that service? Dr. Neavyn will appreciate that there is a real difficulty in terms of confidence around these items of expenditure.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I would have thought Dr. Neavyn would be more persistent in his questioning around these issues in order to be satisfied as to whether anything untoward was at play. I am disappointed that he cannot give an answer on that point.
Dr. Ruaidhrí Neavyn:
I apologise to the Deputy. We will try to discover whether there are any reasons as to why a particular company was specifically selected. What comes to mind is that rather than a full tender process, there might have been a quotes process, in which case the companies in question could have offered the preferred third or fifth quote. I am not aware of any personal relationships between any of the providers and any members of staff who would have engaged their services. That is all the insight I can give at this point in time.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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To be clear, I am not using this committee to insinuate anything untoward here. However, we would expect a better answer than simply saying there was no tender because there was no tender. These decisions were apparently made by somebody in the president's office.
Dr. Ruaidhrí Neavyn:
My understanding is that the decisions were taken by the president. Members should bear in mind that communication between the former president and the institute at this time would be regarded as strained. It will be difficult for me to get answers to all of the Deputy's questions against a background of ongoing legal issues between the institute and former president.
Shane Ross (Dublin South, Independent)
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Following on from Deputy Mary Lou McDonald's question, why did the institute need all these PR people?
Shane Ross (Dublin South, Independent)
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Will Dr. Neavyn tell us about Bance Nolan?
Shane Ross (Dublin South, Independent)
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Is it a one-man operation or something larger?
Shane Ross (Dublin South, Independent)
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Is it a small or large company?
Shane Ross (Dublin South, Independent)
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Dr. Neavyn indicated that Bracken PR is based in Dublin.
Shane Ross (Dublin South, Independent)
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Is it a large company?
Shane Ross (Dublin South, Independent)
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Would Dr. Neavyn be surprised if it turned out to be a one man and his dog type of operation?
Shane Ross (Dublin South, Independent)
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The size of these companies could be material to finding out how all of this happened. Questions arise as to whether there was a personal relationship between any service provider and the person or entity availing of that service, as Deputy McDonald outlined. There is the question of whether companies which did not go in for a competitive tender should have been selected at all. One wonders whether they had a track record with the universities or more usually acted for other, more commercial, bodies, which is my understanding of the case.
Shane Ross (Dublin South, Independent)
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We have established that these contracts did not go to tender. Did anybody ever challenge the president on these items of expenditures? People must have been aware the guidelines were being breached.
Shane Ross (Dublin South, Independent)
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Is Dr. Neavyn aware of any challenge to the president on any ground of breach of governance?
Shane Ross (Dublin South, Independent)
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By whom were those queries raised?
Shane Ross (Dublin South, Independent)
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What was the outcome of that request?
Shane Ross (Dublin South, Independent)
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To clarify, there was a query about expenditure which was referred to the management committee?
Dr. Ruaidhrí Neavyn:
No, the matter was referred to the audit committee in 2009, which raised a specific query in regard to it. In terms of reviewing expenditure in the office of the president, this would have been post an incident that occurred in another State body where expenditure was incurred by the chief executive officer.
Shane Ross (Dublin South, Independent)
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Is Dr. Neavyn referring to FÁS?
Dr. Ruaidhrí Neavyn:
Yes. The audit committee would have requested that this issue be included in the audit plan. It was informed by the management of the institute, however, that the understanding was that the Comptroller and Auditor General would be conducting a review of expenditure within the president’s office as part of a broader review and audit process covering the period in question.
Shane Ross (Dublin South, Independent)
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In other words, the issue was passed over to the Comptroller and Auditor General.
Shane Ross (Dublin South, Independent)
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Was that the only challenge to the president's expenditure of which Dr. Neavyn is aware?
Dr. Ruaidhrí Neavyn:
That is the challenge that was set out to me. However, others have indicated differently. For example, a member of staff who attended a previous meeting of this committee indicated that he raised concerns regarding expenditure not in any official way, but with members of the institute community.
Shane Ross (Dublin South, Independent)
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Is it fair to say that we are talking about a chief executive officer with a huge budget who, over a long period, really was not in the habit of being challenged by anybody about his expenditure? Dr. Neavyn indicated that the first occasion on which his spending was challenged was in 2009?
Shane Ross (Dublin South, Independent)
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What was the outcome of those challenges?
Shane Ross (Dublin South, Independent)
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In other words, when the president was challenged his response was to say the judgment was his to make and that was the end of it.
Shane Ross (Dublin South, Independent)
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It is not a very satisfactory method of running a corporate operation.
Shane Ross (Dublin South, Independent)
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Were any of these items of expenditure ever brought to the attention of the board?
Shane Ross (Dublin South, Independent)
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I am referring to any and all of them.
Shane Ross (Dublin South, Independent)
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Is Dr. Neavyn saying that any other challenges or queries on expenditure which may have been raised before that time were not brought to the board? Is it the case, in other words, that nothing was ever brought to the board's attention in the entire period from 2001 to 2011?
12:50 pm
Shane Ross (Dublin South, Independent)
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The situation is that the chief executive was really in a position to spend what he liked, when he liked, without challenge. That is the reality. A few things might have been said but nothing ever went any further.
Shane Ross (Dublin South, Independent)
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That is an absolutely extraordinary situation.
Shane Ross (Dublin South, Independent)
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Dr. Neavyn is new to the position. Where does he think the main failing lies?
Shane Ross (Dublin South, Independent)
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How much is involved in total? I am sorry for interrupting Dr. Neavyn. I know he cannot talk about the details of the case he is taking but how much is he looking to be reimbursed?
Shane Ross (Dublin South, Independent)
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Is that the total?
Shane Ross (Dublin South, Independent)
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To get back to the other question, where does Dr. Neavyn feel the main failing lies? He has looked at the issue for a couple of years.
Dr. Ruaidhrí Neavyn:
The simple reality is that the top of the tree must take ultimate responsibility for the implementation and maintenance of the appropriate standards. That responsibility lies with the chief accounting officer who is the president of the institute. Above all else, the president should ensure that all the procedures are followed.
Shane Ross (Dublin South, Independent)
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If the president is behaving in a certain way, there are Government checks on him.
Dr. Ruaidhrí Neavyn:
Absolutely, Deputy Ross is correct that there should be appropriate procedures and policies in place to ensure that the spending of even the chief executive officer can be reviewed and that matters relevant to it can be raised in a transparent and open way where an employee or anyone else would not feel potentially threatened.
Shane Ross (Dublin South, Independent)
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Perhaps I am wrong, but these items of expenditure are noticeable. They are not things one could overlook. If people are flying around the world first class or taking private jets here, there and everywhere or doing all manner of things which are documented, as one of my colleagues suggested, everybody must have known about it, not just members of staff but members of the board. Whereas, these things might not be formally brought to their attention unless those concerned were completely blind they would know what was happening if people were spending money like that. Why does Dr. Neavyn think that was never brought to the attention of the board by a board member or by a member of staff to the board?
Shane Ross (Dublin South, Independent)
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How many members are on the governing body?
Shane Ross (Dublin South, Independent)
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It is not a pretty top-heavy governing body?
Shane Ross (Dublin South, Independent)
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Especially given that they did not know what the chief executive was doing.
Dr. Ruaidhrí Neavyn:
The reality is that the governing body would have been apprised by the president of his activities but I do not think there was any appraisal of the expenditure in the office of the president at any particular time. That is why we made a significant change to the effect that on a biannual basis the expenditure in the office of the president is reviewed directly by the governing body and the budget of the office of the president is approved by the governing body.
Shane Ross (Dublin South, Independent)
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It is quite extraordinary. Did the president seek a second term?
Shane Ross (Dublin South, Independent)
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What happened to dissuade him?
Shane Ross (Dublin South, Independent)
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Does Dr. Neavyn have any idea of the reason?
Shane Ross (Dublin South, Independent)
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No. I can understand that. What age is the president?
Shane Ross (Dublin South, Independent)
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But he was not of retirement age.
Shane Ross (Dublin South, Independent)
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We can find out. He applied-----
Shane Ross (Dublin South, Independent)
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It would be interesting to know the formal reason. Could Dr. Neavyn help me with another point? Who are Martin and Eleanor Power?
Shane Ross (Dublin South, Independent)
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Are they the ones who got €29,000?
Shane Ross (Dublin South, Independent)
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This is my final question to Dr. Neavyn on the extraordinary laxity in oversight of expenditure. The question is perhaps more correctly directed to Mr. Ó Foghlú and Mr. Boland. Are they aware or has anyone brought anything similar to their attention? Are they dealing with similar queries in any of the other third level educational institutions?
Mr. Tom Boland:
The answer to both questions is “No”. We are not dealing with any other issues of this nature in any institutes, nor are we aware of any circumstances of this nature. Arising out of this particular incident, we have reminded all of the institutes of their responsibilities and obligations in respect of travel and expenses. There is no evidence of any irregularities. The Comptroller and Auditor General might well have a comment on that also.
Shane Ross (Dublin South, Independent)
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If the officials did not detect it in this case, what confidence could we have that it would be detected elsewhere?
Mr. Tom Boland:
In recent years the system of governance and controls across the sector has greatly improved. The code of governance has been adjusted in accordance with the code of governance for State bodies. We are receiving formal statements signed by the president and the chair of the governing body that all procedures relating to public expenditure are being properly followed. I would have considerable confidence that the system is operating well. In addition, we have the oversight of this committee and the Comptroller and Auditor General.
Shane Ross (Dublin South, Independent)
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I accept that the HEA has improved since freedom of information requests exposed what was happening. Has the HEA done any look-back on what was happening in other third level institutions at the same time as this was going on in Waterford?
Shane Ross (Dublin South, Independent)
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But there never was any much indication of what was happening in Waterford either.
Shane Ross (Dublin South, Independent)
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Only after the FOI information became available.
Shane Ross (Dublin South, Independent)
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Could Mr. Ó Foghlú answer the same question please?
Mr. Seán Ó Foghlú:
I echo Mr. Boland’s comments. We are not aware of any third level institution where similar issues arise. We often do different pieces of work to check up on things and one piece of work which we just received from the HEA, which we need to discuss with it, is a review of the travel and subsistence of board members of institutes of technology. We have just received that in the past couple of days and there are some issues we will need to discuss with Mr. Boland, but there is no indication of anything of the nature indicated by Deputy Ross. We have continuous dialogue with the HEA about these matters.
Shane Ross (Dublin South, Independent)
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Are issues worrying Mr. Ó Foghlú?
Shane Ross (Dublin South, Independent)
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Is there anything in particular at the moment that Mr. Ó Foghlú would like to share with us?
Shane Ross (Dublin South, Independent)
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Perhaps we will have to come back to it later. We are aware that things are going to happen. Could Mr. Ó Foghlú just tell me whether in his experience it is not extraordinary – Mr. Ó Foghlú accepted some of the blame himself – that one has a situation where one has a board, an internal audit committee, staff, an external audit committee, a governing body, a chairman, the Department and the HEA and yet this sort of thing can go on? Is that not unprecedented and extraordinary?
Shane Ross (Dublin South, Independent)
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Okay. I thank the witnesses.
Áine Collins (Cork North West, Fine Gael)
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I welcome the witnesses. What governance and systems were in place in the institute during the time to oversee the president’s expenses?
Dr. Ruaidhrí Neavyn:
If I could put it another way. As far as I am aware, there was no direct authorisation of the president’s budget by the governing body.
There would have been a submission of proposed budgets by senior managers to the finance office, but there would have been no review process conducted of the president's office by the governing body, as far as I am aware, or by any committee of the governing body. That is where the significant change has been made, that we actually have the review process in place.
1:00 pm
Áine Collins (Cork North West, Fine Gael)
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Were there no governance procedures to oversee the president's office for how expenses were incurred?
Áine Collins (Cork North West, Fine Gael)
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I appreciate that. Were there systems or procedures in place at the time in terms of what was and was not considered to be allowable expenditure?
Dr. Ruaidhrí Neavyn:
The institute did have standard procedures and policies covering hospitality, travel and procurement processes. They would be the standard procedures used within the public service. The Deloitte report clearly identified that there were consistent breaches of the policies and procedures of the institute in the cost centre of the office of the president.
Áine Collins (Cork North West, Fine Gael)
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We are talking a great deal about systems and procedures and it seems obvious that there were no governing procedures or systems in place.
Áine Collins (Cork North West, Fine Gael)
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How often were they reviewed? Were they ever reviewed or looked at? Obviously not is the answer.
Dr. Ruaidhrí Neavyn:
The procedures and policies generally tend to be reviewed if there is going to be a change at national level. The Deputy should not forget that the policies and procedures we have in place for procurement and expenditure are based effectively on what we receive from the Department of Finance and the circulars on financial arrangements for procurement. We change them as necessary because they generally follow the standard State agreed procurement policies and procedures.
Áine Collins (Cork North West, Fine Gael)
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I appreciate there are policies and procedures for procurement, but how often is there a review of how the institute runs and manages its own budgets and where it spends particular funds?
Dr. Ruaidhrí Neavyn:
The process is based on an allocation of funding from the budget that we receive on an annual basis from the HEA. The way it is done, effectively, is that the senior managers responsible for the particular areas submit a proposed budget; we review them based on the proposed budget that we receive from the HEA - we receive an indication early in any financial year - and then have a discussion. What I do, with the finance department, is meet each senior manager to discuss the proposed budget and we allocate based on that discussion and the available budget. During the year we monitor and review expenditure in these cost centres and if people are busting their budgets, then, obviously, we deal with the matter. In this instance, there was no proper adherence to the policies and procedures in place.
The spend of the institute is also brought to the attention of the governing body and the audit and finance committees, in particular, the finance committee because during that time period in Waterford there was both an audit committee and a finance committee. The finance committee dealt with the accounts and day-to-day expenditure, while the audit committee dealt with risk management and the internal audit plan. We are amalgamating the two committees because, obviously, we believe that is an important recommendation made within the Quigley report. However, it is also a decision the institution made, that actually there should be one committee to have complete oversight of the risks associated with expenditure. That is an important point to make in that regard.
Áine Collins (Cork North West, Fine Gael)
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I will rephrase the question. In the time period about which we are talking in respect of the travel and other expenses incurred by the president, were there specific procedures and systems in place and were they looked at? We clearly see this as a systems failure. From what I am hearing, it appears as if the then president was able to write a cheque for anything he so chose at the time. I am most concerned that this seems to have been allowed.
Áine Collins (Cork North West, Fine Gael)
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I am concerned about the systems that were in place at the time.
Dr. Ruaidhrí Neavyn:
The systems were in place. It is a duty of all officers. At least, one has to follow the policies and procedures in place. We have said there were queries made by officers at a lower grade and in instances where queries were raised, the higher office indicated it was in order to pay.
Mr. Seamus McCarthy:
I am sorry, the assistant principal of the college. However, that would have been where a specific mileage and subsistence claim had been lodged. Flight expenses were incurred on the credit card which, I think, was kept by the finance unit. I am not sure whether a similar sign-off procedure would have applied. That may help to answer the question.
Áine Collins (Cork North West, Fine Gael)
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Let me ask about the pending court case. I understand, as was stated, we are claiming somewhere between €110,000 and €120,000. What have the two Deloitte reports cost and are we looking to claim reimbursement for them? Are we looking for legal expenses?
Dr. Ruaidhrí Neavyn:
The costs associated with the two Deloitte reports are €97,618. The legal costs associated with the two legal cases, one in relation to the appointment process and the other in relation to the expenses claim, are €22,428. We, obviously, hope to recoup these costs as part of our legal case. On the costs incurred for Deloitte one and two, Deloitte one was prepared to actually give us oversight of global expenditure within the office of the president in the time period in question, while Deloitte two was a specific report to undertake a more detailed analysis of expenditure in the years 2009 to 2011. Following on from this, we were able to identify specific categories of expenditure on which we wanted to have a greater focus for an extended time period. We did this and went to the Statute of Limitations figure in the six-year time frame dating back from 2012. Therefore, the review was completed for the period 2007 to mid-2011 and that forms the basis of the claim.
Áine Collins (Cork North West, Fine Gael)
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Are we seeking to have the money reimbursed?
Áine Collins (Cork North West, Fine Gael)
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The legal expenses incurred in carrying out the court case.
Áine Collins (Cork North West, Fine Gael)
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It seems extraordinary.
I will go back to the issue of of systems. In relation to governance, Mr. Boland has mentioned that in terms of audit, the president and the chairman sign off on governance procedures. They sign to say all systems are carried out in accordance with the HEA's regulations. Would Mr. Boland consider bringing in an external auditor to ensure this is done to give reassurance?
Áine Collins (Cork North West, Fine Gael)
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I appreciate that.
Mr. Tom Boland:
I do not think an additional layer of scrutiny is required. The problem - a problem that has been alluded to here a couple of times - is the extent to which a system depends on the people who operate it and if there is a degree of determination to subvert it, that will happen. That said, one then hopes the other structures in place in the institution, particularly the internal audit function, and, of course, the governing body, will act, first, to deter that kind of activity and, second, to find it and neither of these occurred in this case. I do not know if there is a further layer of governance or regulation that one could put in place that necessarily would work in this or any future case. I think the structures are good and that they do need to be regularly reviewed, but, overall, I imagine that they are fine.
Áine Collins (Cork North West, Fine Gael)
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I have some concerns.
Áine Collins (Cork North West, Fine Gael)
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It is clear that where one has many of the same staff involved in the same institute and it is governed by one person, even the internal audit committee's powers are limited to some degree.
Mr. Tom Boland:
Certainly in the past few years - this is more of an observation than any sense of fact - the awareness of people on governing bodies - this extends also to audit committees - of their duties and obligations has greatly increased, probably due in no small part to some public scandals but also due in part to the code of governance produced for State agencies.
The awareness of people in those kinds of bodies of their duties and obligations has greatly increased, probably due in no small part to some public scandals, but also due in part to the kind of code of governance that has been produced for State agencies. There is much more lively regard had among those kinds of bodies and their staff to their obligations. In addressing the governing body in Waterford a few weeks ago, following the publication of the Quigley report, an individual who has been a member of the governing body for a number of years made a point which I believe was valid, but valid only at the time. She felt that, a few years ago, she could reasonably rely on the word and statement of the chief officer, as presented to the governing body. That is no longer the case for members of boards. They have a duty to interrogate what chief officers say. The culture has changed quite significantly, for a variety of reasons.
1:10 pm
Áine Collins (Cork North West, Fine Gael)
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I accept that. How often is the review of procedures and governance? Mr. Tom Boland said there is a regular review.
Áine Collins (Cork North West, Fine Gael)
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What is that measured against? What are the measurements?
Áine Collins (Cork North West, Fine Gael)
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Who signs off on the report?
Mr. Tom Boland:
That would be a report to the internal audit committee and it goes on to the governing body. Ultimately, we receive a governance report from the institution, signed off on by the president and chairman of the governing body. It asserts, among a lot of other things, that all public procedures have been followed in relation to the activities of the college.
Áine Collins (Cork North West, Fine Gael)
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I appreciate that. My concern is that it is all being done internally. Mr. Boland is relying on a report coming from internal functions. I appreciate that there might be fantastic people in all of those functions but our job is to ensure that what happened will never happen again. I note that expenditure in regard to institutions is €1.2 billion. It might be worth considering having an external auditor carry out a review at the end of every year to ensure that systems, procedures, governance of systems of finance and their management, and expenditure, be it on expenses or otherwise, are examined and that everything is in line with what is approved by the Department. That is a recommendation.
Mr. Tom Boland:
To a significant degree, that function is being exercised by the Comptroller and Auditor General, although not in precise terms. In any institution, the chief officer is, in the first instance, the accountable person. There is an audit committee, internal auditors and a governing body. They operate in accordance with processes and procedures laid down by the Higher Education Authority on the basis of the code of government set by the Government. In addition, there is oversight by the Comptroller and Auditor General and the Committee of Public Accounts. It is a very sound structure but no structure or system is completely foolproof against human frailty. I will not argue the point with the Deputy.
Áine Collins (Cork North West, Fine Gael)
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I accept that. I am just concerned that there is a lot of taxpayers' money involved. I appreciate that the education sector is very important and it is our duty to examine this.
Mr. Seán Ó Foghlú:
Can I come in on that? I support Mr. Boland's comments but believe there are still areas in respect of which we can work further, notwithstanding all the codes of practice that have been updated. We are working on that with the Higher Education Authority. A particular area is the manner in which the institutes of technology operate the shared internal audit service. An objective is to formalise the lessons learned so that one institute can learn from an issue that arises in another and so there will be system learning. The finance officers get together collectively but there are opportunities to enhance system learning. I apologise for using the word "system". Staff in an institute of technology who have responsibility for the audit function learn about what goes wrong somewhere else but that process has the potential to be enhanced. This is a development. We will be considering this with the Higher Education Authority. We are saying we have confidence in the system but we also have some concerns at the same time. We must keep working to ensure enhancements are put in place as we learn.
Mr. Seamus McCarthy:
Let me contribute on the point that Deputy Collins raised. The statement on internal financial control or, in the case of institutes of technology, the statement of internal control, specifically addresses the system of control in operation. We do not formally audit to the point of establishing every statement is absolutely true and founded on evidence but we do look at the statement to ensure that the review of internal controls has actually been carried out and reported. Normally, it is reported, in the first instance, to the audit committee but it must also be reviewed by the board or governing authority of the entity. We also expect that it is done in a timely way. The operation of controls in a particular year needs to be addressed within that year or very shortly after the end of the year. Thus, the assurance is in place when the financial statements are actually presented. There is a question of resources. We have not sought to take on that function in addition to what we already do.
Not only in the third level sector, but across the public sector, the system of control is actually in place and operating. We report on the audit certificate in relation to financial statements where we find that the review of internal controls has not been carried out or that it has not been carried out in a timely way. The Deputy's point is that there needs to be a review. We look to see that that review is carried out.
With the exception of Dublin Institute of Technology, all the institutes of technology use the common contract in relation to internal audit function. Therefore, there is an external auditor carrying out that review of controls. In reality, it should cover the operation of all of the main controls that operate within a public sector body.
I have a couple of comments reflecting on some aspects of the discussion that has already taken place. Confidential disclosure and appropriate procedures in public sector bodies are important. I can say that nothing was brought to the attention of the auditors over many years in relation to questions of extravagance or non-competitive procurement in Waterford Institute of Technology. The bodies we audit know that we would be very quick to investigate if we had any inkling that there was a problem of that kind.
On non-competitive procurement, we test within the entities we audit whether procurement has been as a result of competitive procedures. We would have carried that out every year in Waterford's case but we did not come across any significant number of instances where that was happening. Departments, including the Department of Education and Skills, are required to report to us annually if there have been any instances of non-competitive procurement over a threshold of €25,000. That is not an obligation of other public bodies as a direction of the Department of Public Expenditure and Reform.
It might be one of the areas on which the committee might like to reflect and make a suggestion.
There is a structure and template in place for the financial statements of the institutes of technology which all of them follow. We feed back to the Higher Education Authority, HEA, on the financial statements. One of the issues we have raised and will raise again is that within the analysis of operating expenditure, the level of detail provided may not be optimal. There might be a basis for specifying certain categories of expenditure such as publicity, public relations and so forth. There is a category in the last set of audited financial statements from Waterford Institute of Technology titled “Other Expenses” which came to €4 million, a substantial item. In fact, it was the largest item in the listing of €18 million worth of expenditure items. This can be examined with a suggestion that there might be a more detailed analysis.
At central level, we could compare the financial statements of one institute of technology with another. The point has been made about the uniqueness of the company structures and their operations within Waterford Institute of Technology. As a result, the financial statements for this institute are quite different to those from all the other institutes. That is why we were concerned at the size of transfers from the institute to the companies. The level of detail of how that money was applied was not the same as in other institutions.
We also have a concern around the governance of companies that operate as subsidiaries or independent entities, as well as their compliance with competitive procurement and general procurement rules. Due to the uniqueness of Waterford Institute of Technology, we wanted to draw attention to the fact that these companies were consolidated into the financial statements and the governance rules that applied would be similar to those in other public sector bodies.
1:20 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. McCarthy. Is it agreed to dispose of the Comptroller and Auditor General’s special report No. 78, matters arising out of education audits?
Shane Ross (Dublin South, Independent)
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Before we do so, I have one last question for Dr. Neavyn. How much is being spent in pursuit of discovering what went on and the legal case? Is it correct that the institute is only pursuing reimbursement up to €120,000?
Shane Ross (Dublin South, Independent)
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There are other items of expenditure as well such as the Deloitte reports. How much did these come to?
Shane Ross (Dublin South, Independent)
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How much other expenditure has the institute incurred in pursuing the chief executive?
Dr. Ruaidhrí Neavyn:
These are the expenses for the office of the president case. There is expenditure on the consolidation process, which is separate. This process is about consolidating seven companies, 26 operating units with a turnover of €12 million, net assets worth €20 million plus and employees of 160 plus. That process has involved Grant Thornton and has come to €99,771. The legal costs associated with this have come to €113,373.
Shane Ross (Dublin South, Independent)
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It is a very expensive process.
Dr. Ruaidhrí Neavyn:
Yes, the Deputy is correct, but it must be remembered there are a significant number of assets involved which provide excellent services to the students. The services provided by DCS, Diverse Campus Services Limited, have been of great benefit to the institute and the student body. This was recognised in the Quigley report. We want to do our level best to secure these in the most appropriate way and to ensure the consolidation process is fully in line with all legal and governance requirements. Accordingly, there will be a cost associated with that.
Shane Ross (Dublin South, Independent)
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It is also taking up much of the time of the president and those involved in the institute.
Shane Ross (Dublin South, Independent)
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It is a massive operation in pursuit of a comparatively small amount of money.
Shane Ross (Dublin South, Independent)
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Yes, but I am referring to the former president’s case. Is it correct the maximum the institute can recoup in that case is €120,000?
Dr. Ruaidhrí Neavyn:
Possibly on what we have analysed as part of the second Deloitte report. The first report was produced effectively to give an idea of the overall expenditure pattern across the cost centre in the time in question. At the time this report was procured, no one had an idea of what the final figure for reimbursement costs would be. People wanted to get an idea of the scale of the problem from an independent body. That is the cost that was incurred.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will examine most of the evidence separately at another meeting. Is it agreed to dispose of the Comptroller and Auditor General’s special report No. 78? Agreed. I thank the witnesses for attending this meeting.