Mr. Seamus McCarthy:

The 2012 appropriation account for the Office of the Minister for Public Expenditure and Reform records expenditure totalling €42.6 million on two programme areas. Some €23.8 million was spent on activities related to public service management and reform. Some €18.8 million was spent on management of the system of public expenditure. At the end of the year, the Department had underspent by €4.6 million relative to its budget, and that amount was accordingly liable for surrender back to the Exchequer.

Vote 12 presents the expenditure in relation to Civil Service and prison officer pensions. Pension payments for other public servants are charged to other votes, including those for Education, the HSE, Garda Síochána and Army pensions. The total spend on Vote 12 in 2012 amounted to €520 million. Appropriations-in-aid amounted to €88 million, and mainly comprised employee pension contributions.

The costs of administering Civil Service pension payments is borne by the Vote of the Office of the Minister for Finance. Costs of policy formulation in relation to civil and public servants are borne by the Department of Public Expenditure and Reform Vote. The non-inclusion of administration costs is reflected in the format of the appropriation account for Vote 12.

In 2012, I recommended that the Department of Public Expenditure and Reform should regularly estimate the State's accrued liability for future pension payments, especially given the significant changes in recent years in pension contributions, entitlements and employment numbers. The last published estimate relates to the position at end 2009, and put the liability at a total of €116 billion. When I reported last September, the Department had begun an exercise to update the estimate which I understand will be reported annually in the finance accounts. The Accounting Officer will be able to update the committee in that regard.

Chapter 3 focuses on central government's financial commitments under contractual public private partnerships. At the end of 2012, there were five central government Departments and agencies with financial commitments under a total of 38 major PPP contracts. The total expenditure already incurred on those projects by end 2012 was just over €2.6 billion and the outstanding commitment was estimated at nearly €4.2 billion. One new PPP contract, the Schools Bundle 3, was awarded in 2012.

The central PPP unit in the Department of Public Expenditure and Reform facilitates the PPP process centrally by setting the general policy framework and provides guidance to Departments and agencies on appraisal, procurement and evaluation of projects. The Department's guidance stipulates that a post-project review is mandatory for all projects with a capital value greater than €20 million. When I reported, only one PPP deal had so far been subject to a formal post-project review. The Courts Service commissioned a review of the Dublin criminal courts complex contract. The complex came into use in late 2009, and was fully operating from January 2010. The review, which was completed in October 2012, concluded that the project processes had been satisfactory but suggested that further analysis should be carried out on the impact of the project on court business, for example, the effect on court waiting times, cost savings, etc. As previously reported by my office, the original business case for the criminal courts project identified potential benefits in general and qualitative terms, but more could have been done to quantify the expected business benefits. As a result, there will be difficulties in carrying out a meaningful post-project review of the extent to which expected benefits have been realised.

Both the Department of Education and Skills and the National Roads Authority indicated to us last summer that reviews were in progress on certain projects. I am aware that some of the roads project reviews have been completed. We will examine these and may report further on the outcomes.

Contracts for some PPP projects provide for benchmarking of operating costs to be undertaken from time to time. These potentially afford the relevant public bodies the opportunity to secure savings in respect of contract services. For example, following a benchmarking exercise, the Courts Service secured annual savings estimated at over €160,000 a year. The chapter recommended that Departments and agencies engaged in PPP projects be reminded by the Department of the importance of engaging in periodic benchmarking of costs, where this is provided for in the contract.

There are two main elements in Chapter 4 dealing with Vote accounting in 2013. The first element is the standard aggregation and reporting on the outturn for appropriation accounts. Figure 4.1 indicates that total gross voted expenditure in 2012 amounted to €49 billion – a reduction of €4.8 billion or 9% from the peak level in 2008. All Departments and offices managed within their voted 2012 allocations. Overall, the surplus relative to the amount appropriated was around €750 million. Of this, Departments and offices carried over to 2013 just over €100 million, with the sanction of the Department of Public Expenditure and Reform. The balance was surrendered to the Exchequer.

The chapter also draws attention to a small number of issues arising from the audits of appropriation accounts that raise specific accounting or control issues. These relate to duplicate payment of salary over a long period to an individual who initially went on secondment and then transferred from the Central Statistics Office to another Department; contributions from both a Vote and a departmental fund in relation to the same service, making it more difficult to identify the full contribution, and weakening the vote control function; and pre-payment of Ireland's 2013 UN contribution on the last day of 2012 out of funding that would otherwise be surrendered, and contrary to the general government accounting principle that charges on votes should be "mature for payment" within the year, which was discussed with the Secretary General of the Department of Foreign Affairs and Trade when he appeared before the committee.

The chapter also presents the final financial outturn following the disposal of e-voting machines.

Chapter 5 is an examination of how well central government Departments and offices manage the budgets they are allocated by Dáil Éireann each year. It also assesses whether appropriation accounts present adequate explanations of the extent to which outturns differ from the original budgets.

Estimates are presented to the Dáil with varying levels of detail as to how the money sought will be used. The Estimates of expenditure presented to the Dáil for approval early in the year should reasonably accurately represent the amount that it is expected will be spent on each departmental service. They also effectively serve as cash limits. Departments are required to monitor and manage expenditure within the programmes and subhead allocations approved by the Dáil. If spending begins to run ahead of the profile, or threatens to do so, Departments are required to take action to bring it back into line with the approved estimate. If large adjustments to the budgets for programmes or subheads are required as the year progresses, formal approval must be sought from the Dáil, through the Supplementary Estimate process.

In practice, only a small number of Departments seek Supplementary Estimates in any year. Figure 5.4, in chapter 5, shows the Votes that regularly have required Supplementary Estimates in recent years. These include the Votes for the HSE, Army pensions, An Garda Síochána and the Courts Service. There is a separate chapter dealing with budget management in the HSE, which the committee is scheduled to examine on another date.

Chapter 5 also deals with a general issue affecting Vote accounting. In the past, appropriation accounts were required to explain significant variances from amounts appropriated by Dáil Éireann which occur in December of the year of account after any Supplementary Estimate adjustments. Explanations were rarely given about expenditure lines that were adjusted as a result of a Supplementary Estimate. Consequently, some appropriation accounts gave only partial explanations of their performance relative to budget. I have recommended that, in future, explanations should be based on the variance from the original budget. The Department agreed to review the accounting policy, and the Accounting Officer will be able to update the committee in that regard.