Jerry Buttimer (Cork South Central, Fine Gael)
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I remind everybody present that mobile phones should be switched off for the duration of the meeting as they interfere with the broadcasting of our proceedings. I welcome viewers who are watching on UPC channel 207 and those who are watching live on the Oireachtas website.

Today's meeting is our final committee meeting of the Dáil session. I welcome Mr. Denis McKenna who has joined us from the Oireachtas Joint Committee on Transport and Communications. I wish him a very successful tenure with us. I thank the members who have made the effort to come today. Apologies have been received from Deputies Conway, Maloney, Dowds, Mitchell O'Connor and Healy.

The purpose of our meeting is to discuss the ongoing investigation by the HSE into section 38 and section 39 organisations, which are funded partly by the State and the impact on the provision of services. I welcome from the HSE, Ms Laverne McGuinness, chief operations officer and deputy director general; Mr. Barry O'Brien, national director of human resources; Ms Paula Lawler, assistant national director of human resources; and Ms Patricia McCormack, general manager of the national business support unit non-statutory services in the national social care division. I also welcome Mr. Ray Mitchell, our parliamentary affairs liaison with the HSE. I thank Mr. Mitchell for his work and partnership with us during the Dáil session.

A background briefing document and the HSE opening statement have been circulated to members. As soon as the committee secretariat received them, they were sent on to members of the committee.

Witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of a long-standing parliamentary practice and ruling of the Chair to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable.

Dan Neville (Limerick, Fine Gael)
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I want to declare an interest. I am president, director and co-founder of an organisation that receives funding - and is very grateful for it - under section 39, the Irish Association of Suicidology.

Jerry Buttimer (Cork South Central, Fine Gael)
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I ask Ms McGuinness to make her opening remarks.

Ms Laverne McGuinness:

I am grateful for the invitation to attend today's committee meeting on section 38 and section 39 agencies. The Chairman has already introduced my colleagues Mr. Barry O'Brien, national director of human resources; Ms Paula Lawler, assistant national director of human resources; and Ms Patricia McCormack, general manager in the national contracts office.

The HSE acknowledges the very significant role and contribution of the voluntary and non-statutory service providers in the development and provision of health and personal social services, and is committed to the continued enhancement of effective governance arrangements within the sector in accordance with the Health Act 2004 and within the requirements of best practice.

These organisations have a long history of providing health and personal social services in Ireland. They vary in scale and complexity, ranging from large acute hospitals to local community-based organisations providing personal social care services.

The HSE funds over 1,900 voluntary agencies to a value of approximately €3.1 billion. Forty-four of these agencies, accounting for €2.5 billion are funded under section 38 of the Health Act, while the remaining agencies of which there are more than 1,800 are part-funded under section 39 of the Health Act.

Under section 38 the HSE may enter into an arrangement with a service provider for the provision of health and personal social services on its behalf. Under section 39, the HSE may give assistance to a person or body to provide a service that is similar or ancillary to a service that the executive may provide.

The governance context in which the HSE engages with section 39 agencies is distinctly different from that which applies in the case of section 38 agencies. For example, the employees of section 39 agencies are not public servants, are not members of public sector pension schemes and, unlike their section 38 counterparts, are not directly bound by the Department of Health consolidated pay scales.

In 2009 the HSE developed a national standard governance framework with the non-statutory sector. In 2010 under this governance framework, service arrangements were introduced between the HSE and section 38 agencies. Such arrangements serve as the contract between the HSE and each individual agency and it specifies on an annual basis the services to be delivered for the funding provided. Under the service arrangement, agencies are obliged to give certain undertakings relating to compliance with a range of standards and statutory requirements.

In 2013 the HSE sought to enhance its governance arrangements with the section 38 agencies and also to strengthen the direct relationship between the HSE and the boards of each of these agencies. Part of this enhanced governance is the introduction of the annual compliance statement process and annual meetings which take place between the HSE and the chairs of section 38 agencies.

Each section 38 agency has also been supplied with the HSE’s requirements for board and corporate governance which are in line with best practice requirements. These requirements form an integral part of the compliance statement process. The requirement for the annual compliance statement came into effect on 1 January 2014 and applies to the agency’s 2013 financial statements. The HSE acknowledges that not all agencies will be in full compliance in respect of 2013 and agencies have been provided with the opportunity to put a plan in place to achieve compliance in 2014.

The annual compliance statement requires the chairman and a director of the board to sign the annual compliance statement which sets out requirements for compliance in eight key areas including Government pay policy. This process will strengthen the overall governance arrangements in place within funded agencies.

Members will be aware from our previous update provided to the committee on 14 April 2014 that the process which has been ongoing with section 38 agencies to reach compliance with Government pay policy is nearing completion. Since 8 April 2014 work has been ongoing with each agency through the office of the national director of human resources to assist agencies in reaching compliance with Government pay policy by the deadline date of 1 July 2014. As at today’s date, of the 143 business cases made, confirmation has been received advising that arrangements have been made to cease a total of 47. I have set out in the table a summary of the position from which members will see that 47 have ceased; three have a case for a one-person-one-salary principle; 67 have contractual obligations seeking red-circling and documentation regarding their legal contracts has been submitted; 14 have indicated contractual entitlements and will be seeking red-circling, but the documentation is awaited; in the case of four we are working with agencies to achieve compliance; and the CRC is under a separate process whereby the new board will engage with it. That gives a total of 143.

It should be noted that the submissions received to date seeking approval to red-circle arrangements on a personal-to-holder basis include documentation supporting contractual entitlements on behalf of the individual staff concerned. These submissions have been made by agencies having obtained independent legal advice to ensure that action taken is done so in a legally compliant manner thereby mitigating risk to the greatest extent possible. This documentation is currently being reviewed by the HSE and where considered appropriate the HSE will seek formal approval from the Department of Health on behalf of the agencies to red-circle these arrangements as personal to holder.

The support for these particular cases will be on the strict understanding that once the current post holder no longer holds the roles and responsibilities attaching to the role then the non-compliant remuneration will cease. In addition, when the post holder vacates the position all future appointees will be remunerated in line with the Department of Health consolidated salary scales.

In addition, when the post holder vacates the position, all future appointees will be remunerated in line with the Department of Health consolidated salary scales. It is anticipated the remaining issues to be addressed will be achieved over the summer. It is our intention to present a full detailed report in September 2014 at which time we expect all issues to be fully addressed, resulting in all agencies being in compliance with the Government’s pay policy.

Since the introduction of the national standard governance framework with the non–statutory sector, the HSE, Health Service Executive, has been reviewing and strengthening the arrangements in place with funded agencies. One such enhancement was the introduction in 2013 of a requirement on all agencies covered by a service arrangement, both section 38 and 39 agencies, to complete a template setting out details of the remuneration arrangements for senior managers at grade VIII and above. While employees of section 39 agencies are not public servants and are not members of a public sector pension scheme, each section 39 organisation is requested to have due regard for overall Government pay policy in respect of the remuneration of their senior managers.

A process to verify and validate the remuneration templates from the section 39 agencies commenced earlier this year with a priority focus given to the larger agencies. Details of the organisations in receipt of funds in excess of €3 million annually have been provided to members in a briefing document prepared for today’s meeting. Based on this information, it has been established that a total of 136 senior managers, grade VIII and above, are employed by these organisations. Of these, 24 senior managers are in receipt of an annual salary in excess of €100,000. In addition, 34 of 136 management positions across eight of the agencies receive additional benefits, such as private health insurance, company car, etc. A breakdown of the salary ranges for the 136 senior management positions has been provided to members in advance of today’s meeting. To address the issues raised, arrangements have been made to engage further with these agencies in the coming weeks regarding their obligations under their service arrangements to have due regard to the Government’s pay policy.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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This is an opening opportunity for this committee to address these matters. Along with other colleagues, I only have had sight of the documentation circulated in a relatively short time leading up to today’s meeting. There are many questions. One of the key observations we can make from Ms McGuinness’s presentation is that this ongoing work. Accordingly, our oversight and engagement should be ongoing.
I welcome Ms McGuinness and her colleagues from the HSE and thank them for their presentation. I am conscious that this is the first opportunity the committee has had to address these very important matters. I record that fact with some degree of disappointment in that we have not had that opportunity previously but that is no reflection on the delegation.
Several questions are pertinent but it will become apparent that this committee’s critical concern, I expect, given that others have a focus on matters that have had quite an amount of media attention over the past period, is the impact of all of this on service provision and the needs of service-users across the range of services provided by section 38 and 39 agencies. For me, of fundamental importance at this point is the impact of all that has been exposed, as well as its impact on the services provided and on the trust and confidence the wider citizen has in many of the entities involved.
There are 44 section 38 entities out of some 1,900 agencies funded by the HSE to one extent or another. While it is a small number, 143 business cases have been received relating to specific areas of pay and remuneration in excess of the stated policy figure. Many terms such as “red-circling” creep into documents such as this opening statement. Will Ms McGuinness explain for the record what it actually entails and the accurate read into what it would translate?
An interim administrator was appointed by the HSE to the Central Remedial Clinic, CRC, and a report on matters there was published in May. This opening statement refers to eight of the cases involved there. Can Ms McGuinness speak specifically to the process involved and how it differs in terms of its set-aside and address in the other cases that have been presented?
The critical distinction is that section 38 agencies are directly bound by the Department of Health consolidated salary scales while employees of section 39 agencies are not public servants. What the HSE is asking is that they would act in compliance but there is no means of enforcement. Can Ms McGuinness give us an update on her expectation of compliance, given that under section 38 and the red-circling process that there will be those excused for the period of their tenure but it will change on their departure, whatever the circumstances, be it retirement or whatever else? Exceptions are being made because of the terms of contract. What prospect or hope have we of section 39 compliance when people expected to be fully complaint because of their employment under section 38 terms will be excused? To me as a layperson, there is a degree of inordinate flexibility that should not apply. Will Ms McGuinness elaborate on the type of exceptions she is accepting, as well as the legal advices being submitted in tandem with these applications? This would give the committee a sense of the actual process in which she is engaged along with her colleagues, Mr. O’Brien, Mr. Carter and Mr. Healy.
Another committee of the Houses is dealing in an ongoing way with much of the matters that have been at the core of public attention concerning these entities. We have the report of the interim administrator of the CRC, as well as a range of other paperwork before us today. The interim administrator recommended:

The CRC should publish an annual report giving comprehensive details of the CRC activities, services, funds or fund-raising sources.

Again, I would like to ask the following. Has there been any process of assessment of the impact on service provision year-on-year into the current year and going forward? That is an exercise that I believe is hugely important. Out of all of this has there been any impairment in terms of the opportunity of any of the entities concerned in carrying out the functions and responsibilities that they had either invested on them or taken upon themselves? Has the HSE a programme in place to establish the throughputs and satisfaction of service users, and the ability of the 1,900 entities, to perform the roles they have set to themselves or been asked to carry out?

Jillian van Turnhout (Independent)
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The delegation is very welcome. As Deputy Ó Caoláin has said, today is the first step in us trying to scope and understand the funding arrangements. The more I look at sections 38 and 39 organisations the more questions I have. If I say something that is incorrect I expect the delegation will correct me.

There has been huge focus on the salaries of senior management but I am very concerned about the delivery of services and identifying same. How often does the HSE scope what services are needed?

My questions on section 38 are as follows. Given that staff are public servants, why does the HSE not deliver the services directly? Why do we use organisations and give them all the benefits yet the State has no control over how money is spent? Is there value for money given that the organisations have all the benefits of being a public employee yet are in a hybrid-type structure? Many of the listed organisations started as charitable entities and delivered services. The State then took on to fund the entities but the public still retains an historic picture of the organisations. I would like us to move towards a rights-based delivery rather than people almost feeling they need charity. It is the State who funds the services and not a charity, necessarily, but the perception remains that it is a charity.

I have questions on the company structure of section 38 and 39s. Is there a requirement on the type of company structure? Must they be a charity? Can they be any type of body or registered entity? How are renewals and re-tendering determined? The list of organisations seems to have remained relatively the same for years. Organisations have told me they must hold many discussions on service level agreements and different aspects. However, when I examined the figures on the list it looks as if it just ticks over year after year. I want to know about the re-evaluation piece too.

My next question is on section 38 and section 39 organisations. Do we know the percentage of funding that the HSE, other State agencies, Departments and the public provide to the organisations? If we had that information we would know more about these entities. Following my own research on the matter there is a great disparity in terms of funding for the organisations.

It was interesting to hear Ms McGuinness say that each section 39 organisation is requested to have due regard for overall Government pay policy in respect of the remuneration of their senior managers. I know what happened when cuts were imposed on some of the section 39 organisations. They ran into difficulty because they were expected to keep the salaries for their senior managers in line with Government pay policy but make cuts due to a cut in funding. The result was money was disproportionately spent on salaries and the money for services was greatly reduced. The salaries for senior managers of these organisations must very clearly be in line with Government pay policy. Why is that not the case for other staff salaries?

My final questions are on administration. Are these organisations funded on a multi-annual basis? Does the HSE fund them through a negotiated yearly contract? How does the HSE determine the amount of administration and staffing?

Colm Burke (Fine Gael)
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I thank the delegation for the presentation this morning and for all the documentation that we have received. The latter contains a lot of information and I appreciate it being furnished to the committee.

It is important that we acknowledge the work that all of these organisations are doing and the excellent service provided. We are not here today to criticise them, just to make sure that the taxpayer gets value for money.

I have looked at the documentation. It seems the process of bringing order to how we give out money and the type of contracts provided seems to have commenced five years ago. It is only in the past two years that we have been more precise about the contracts offered, documentation and accountability. I tabled my first question on this issue early in September 2013 to the Oireachtas Joint Committee on Health and Children. A lot of information has been made available to the public since then which is welcome because people did not have the information before.

My next query is on the number of organisations. I understood, from previous questions that I asked, that over 2,600 organisations received HSE funding of one kind or another. This morning we have been told the figure is 1,900 organisations. Please explain why there is a discrepancy of 700 agencies.

We have referred to the payment of managers. What is the ratio of managers and senior managers to the total number of employees in an organisation? My query follows on from a question I asked at a meeting of the health committee. In the reply I got to my question last week, or at our last quarterly meeting, there was quite a disparity. In one organisation the ratio of management to the number of employees was 1.3% whereas in another organisation the figure was 17%. It is fine for us to say we want all of the salaries to comply with what is operated in the HSE. What if one person in a voluntary organisation is doing the jobs of three people? How does that compare with what happens in another organisation? Does it mean we are getting better value for money?

We have looked at the salary issue. Have we looked at the ratio of managerial people to the number of employees and compared that with the level of service offered? We should look at the issue. I know the delegation cannot give me an answer today but it is something that we should keep in mind.

I have an issue with the number of organisations. My information previously was that there were 2,600 organisations but Ms McGuinness has stated here that there are 1,900. Have discussions taken place with any of these groups at any stage? A lot of paperwork and tidying up has been done in the past two to three years and credit is due to everyone involved, both the organisations and HSE. Has it been suggested that some of them could work more closely together and possibly amalgamate in the long-term? We have talked about getting rid of quangos in Departments. Has the following issue been looked at in the HSE? I refer to creating more efficiencies by having more groups or organisations working together, thus getting better value for money.

I wish to touch on the issue of six or seven-year signed contracts for people who work in these organisations. I presume that such contracts cannot be reversed and must last the entire period of the person's employment because there is a no-review clause. I ask the delegation to clarify the issue.

If somebody is earning €125,000 per annum on a fixed contract, and there is a no-review clause allowing the employer to reduce the salary because the level of work the person is required to do is the same as previously, are these agencies then tied by the terms of the contracts for the period of time the person is employed with them? Will the witness further clarify this?

Jerry Buttimer (Cork South Central, Fine Gael)
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I will take speakers in groups of three so I will now revert to Ms McGuinness.

Ms Laverne McGuinness:

I will deal with the comments made by Deputy Ó Caoláin. First, he referred to red-circling, which I will deal with in simple terms and Mr. O'Brien will give him more detail on it. An employee of an agency under section 38 might have been in receipt of a salary of €86,000. In addition, as part of his or her contract which could date from ten, 12, 15 years previously, the employee might be in receipt of an extra allowance ranging from €3,000 to €5,000 or whatever the case might be. We have documentation that shows it is a legally enforceable contract. We are reviewing that documentation for the full amount, that is the salary of €86,000 plus the amount of the allowance, whether that is €3,000, €4,000 or €5,000. Based on the legal documentation following the assessment of the individual's contract, we will be recommending to the Department that the total salary package of the individual would be protected for the term of his or her contract but as soon as he or she retires or leaves, the contract for that post would revert to the salary level of €86,000. The term "red circle" means that the terms and integrity of the legal contract are protected. In other words, it is drawing a ring around it. To do otherwise would involve significant issues and major expense.
In respect of the eight senior posts, we have published the interim administrator's report on the web and the committee secretariat has been furnished also with a copy of the report. The CEO who is currently in place is on a salary scale that is in line with the Department of Health's consolidated pay scales and is paid €86,000. The interim administrator has recommended - and the board has accepted his recommendation - that during the term of this board and before the conclusion of 2015, each of the eight posts will be reviewed. A number of these staff have contracts that are due to expire during 2015. All of the salaries will be concluded by the new board in 2015. The new board will have a period of time to review those contacts in detail and the particular tasks that those people were performing. We were before the Committee of Public Accounts previously, and the new chairman Mr. Kieran Timmins made that commitment to the committee. Two of the eight senior staff are due to retire in 2015.
The Deputy made the distinction between section 38 and section 39 bodies and questioned whether there is a level of inordinate flexibility and how this could be clawed back. Mr. O'Brien will elaborate on the new process we have put in place in section 39 bodies, because it is quite distinct and different from section 38 bodies.
In regard to section 38 bodies, it is not a hands-off arrangement that is in place in respect of the services that are provided. There are comprehensive documents on service arrangements with section 38 bodies, we have them available and we can make whatever the committee wants available to the secretariat at any time. The documentation sets out the full volume of service to be provided over the course of the year, the type of service, the quality of service that we expect to be provided, the pay policy, which is now part of the document since 2010, and the amount of funding for the year. The area and local managers would meet with the service providers on an ongoing basis and there is a review of what has been provided on a monthly basis. It is not as hands-off as it might appear. This will also be relevant to the questions asked by Senator Colm Burke.
Prior to this, the governance arrangement was not as rigorous as the service level arrangement, which took a great deal of negotiation. It took almost two years to put in place an arrangement that was agreeable to the large number of agencies. That service level arrangement concluded in 2009 and it was implemented for the first time in 2010 and year-on-year we have continuously striven to improve it, adding additionality, be it with regard to the service, quality and risk and what we expect. For example, it will include care plans for each of the clients in the agency. There is a rigorous review carried out in two parts, part 1 and part 2. One part is reviewed once every two years and the other has to be signed off every year. In order for the body to get funding it must be signed off.

Jerry Buttimer (Cork South Central, Fine Gael)
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Why did it take so long for the information to come to light? Let us take the example of the HIQA investigation which brought the information to light, if it is as hands-on as Ms McGuinness suggests, how did we allow a situation to evolve where there was a piecemeal approach taken and suddenly we are in the middle of a crisis, which does nobody any good?

Ms Laverne McGuinness:

What I was speaking about was the actual service level arrangement which is the Government's document between the HSE and the agencies. In 2009, the then Secretary General of the Department of Health and Children asked that we would write to each of the agencies and ask what salary scales the senior management was on. We commenced that exercise in 2009, which is when the CRC salary scale issue came to light. We then carried out an internal audit and that process has been ongoing in terms of gathering that information. The public pay policy as it currently stands has been recently concluded after a two year process. It is not that we had a comprehensive public pay policy by which to set a bar. We did set down that the agencies needed to comply with the consolidated pay scales in the service level arrangement in 2010. We have been gathering information since 2009. We have put in an internal audit and the internal audit carried out a review and report, which is available. Some 47 of the arrangements have ceased and the important point is that there is no new arrangements being put in place to pay people more than they should be paid under the consolidated pay scales. That is a very important point.

A further enhancement of the governance process is that the boards are the ultimate governors of these organisations in the disability sector or in the hospitals. We now have an arrangement in place with the boards and with the chairs of the boards, whereby they have to sign off on a compliance statement saying that they are in compliance with regard to the eight key areas, one of them being public pay policy, government pay policy and the consolidated pay scales. Other key areas, that members may be interested in, is the whole area of governance, procurement and taxation. We have set them out. It is a continuous process and that is the reality with regard to governance. Governance is on a continuous improvement trajectory right throughout the country.

There was a question on whether we had considered consolidating some of these agencies. As the Chairman rightly states, some of these agencies are very small and we have conducted a value-for-money review of the disability sector. We have that report and year-on-year we target a level of savings to be provided under value for money but with no reduction of services. It is to do with the concentration of back office functions, such as HR, payroll processing, finance and so on.

The Chairman asked whether we would provide the services ourselves. As members may be aware, these agencies have been there for a long time and they provide a very valuable service to a high quality. We interact with them to provide the service on our behalf. We certainly do not consider it to be a charity because they are getting a very significant amount of public funds, which is the reason for the service level arrangements regarding accountability. Let me take the example of the disability sector. Every year about this time children come out of services looking for day placements and we interact with the voluntary sector to provide those placements for them, so certainly in the mind of the HSE and those who receive the provision understand it is publicly funded, although it might be branded under the Brothers of Charity or the John of Gods.

In response to the question as to whether those services go out to tender, the services exist at present and there is no tendering arrangement for them.

Two questions were raised regarding the administration of the overall funding and the service level arrangement. The funding is paid weekly or monthly. This is administered by the business unit and I will ask Patricia McCormack to speak on that. This is a small unit, but we monitor and know exactly what is being paid out and publish a report on the amounts paid to each of the service level providers. Perhaps Ms McCormack will speak on that now.

Ms Patricia McCormack:

In regard to the different types of funding arrangements, hospitals, for example, are funded on a cash and weekly basis. Other agencies could be funded yearly, depending on the amount of the grant. A question was asked regarding the disparity between the numbers. As the committee knows, we have a new Child and Family Agency. The disparity arises because of those agencies now funded by that agency. In regard to funding arrangements, as Ms McGuinness has said, we review the schedules on an annual basis and funding is apportioned in line with the services provided. The key performance indicators are also aligned to the services.

Ms Laverne McGuinness:

I wish to make two comments. First, in regard to the impact on the service as a result of these various payment arrangements, there has been no diminution in the services provided. Second, in regard to the new arrangements we have in place for section 39 agencies, Mr. O'Brien will provide some details on these.

Mr. Barry O'Brien:

First, I would like to provide some context. I am conscious this is only the committee's second opportunity to deal with some of the issues. The key finding of our internal audit, which has been published, was that there is no standardised approach to pay in regard to section 38 agencies. The key driver for us, and for me as the person responsible for implementing the 22 recommendations, is to bring about standardisation.

The position is that we have gone through a detailed process, having regard to due process and natural justice for individual employees, and are now at a situation where we are not too far away from full compliance with public pay policy. The internal review group mentioned by Deputy Ó Caoláin issued a comprehensive set of recommendations providing that almost all the allowances would cease to ensure full compliance. However, we are trying to remain consistent with what pay policy allows. It allows an employee or organisation to make a submission to us for consideration, which may then be forwarded to the Department of Health or the Department of Public Expenditure and Reform for red circling for the particular individual or organisation only.

It is important that people understand what we mean when we talk about red circling. The best way to describe it is to say that red-circling has its origins in an industrial relations arena where people are negotiating significant reform and change. For example, if everybody must change from next Monday, but three people have something that prevents them from changing, the decision is made to red circle those three people. Then when those people retire or leave the job, the red circling ceases.

In this instance, we have received 67 business cases, which are basically contractual evidence that clearly says the section 38 agencies have entered into contracts of employment with the individuals which give them the rate of pay, which may be basic pay inclusive of allowances or a specific rate of pay. Since these are public servants and fully funded by the taxpayer and having received legal advice we were likely to lose any case and have damages awarded and the contract upheld, it is only prudent that we take the view that rather than incurring significant potential legal costs, we should engage with the Department of Health and the Department of Public Expenditure and Reform to propose that based on a legal contractual basis there is a sound rationale for red circling this small group of individuals. This is being proposed on the basis that the organisation in which that person is working is fully aware that the next time it fills that job, it will be at the approved rate. This is not red circling in perpetuity, but is specific to an individual, depending on the length of contract. Notwithstanding this, there are other safeguards built into the pay policy. Even where people have allowances for carrying out a certain function, policy now requires a review of these allowances every five years to check whether they are still relevant to the job.

We are now going through this process. We will engage with the Department of Health and inform it of cases where we have contractual evidence that in our view provides a sound basis for red circling a small number of individuals.

Jerry Buttimer (Cork South Central, Fine Gael)
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Is that small number 67?

Mr. Barry O'Brien:

I am not saying what the number is, because each case is complex and we are dealing with them one by one. I could not say how many will or will not be valid. I wish to stress that we have a responsibility to implement Government pay policy. It will be the Department of Health, and where appropriate the Department of Public Expenditure and Reform, which will decide whether these cases should be red circled. I reiterate that if we have sound legal advice that a case should be red circled, it would be prudent not to incur further liabilities for taxpayers by pursuing legally a case there is no chance of winning. By September, we should have completed the exercise, implemented the 22 recommendations of the internal audit and achieved clarity in regard to Government pay policy.

In regard to section 39 agencies, we have included in our service level arrangement a requirement which deals with their overall approach to pay. I have written to all of them pointing out they need to have full and due regard for Government pay policy. This fully encompasses the need for pay to reflect the size, scale and complexity of the organisation, the number of employees, the level of service, the complexity of the clients and the fact there are benchmarks in regard to section 38 agencies and on the statutory side which would provide a good basis as to the rate of pay that should be paid to senior people.

A question was asked about pay for other general workers. When we engage with section 39 agencies on budgetary allocations and the annual service plans, we take the approach that while these are not public servants or members of public service pension arrangements, they should apply the terms of the public service agreement, initially the Croke Park agreement but now the Haddington Road agreement. We have asked all the section 39 agencies to ensure the nurse they employ works the additional hour and a half that all the nurses in section 38 agencies and the statutory sector work to provide the same value for money.

Therefore, our approach is that there is capacity to achieve savings out of the pay bill, without any impact on service delivery or overall quality of service. We have taken a consistent, even-handed approach with all the section 39 agencies in seeking this. We have made it very clear that we do not see it as the first port of call that there must be a service reduction to deliver the required cash saving, when there is the exact same capacity as the section 38 agencies to achieve it under the Haddington Road agreement provisions.

Jerry Buttimer (Cork South Central, Fine Gael)
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What has been the response to that?

Mr. Barry O'Brien:

There has been very strong engagement by the disability sector and by the other section 39 agencies and those caring for older persons. There is a real sense of engagement on our part through the national directors with the section 39 agencies and there is an awareness of the issues. As I always put it, if the public servants got a pay rise, the section 39 agencies would equally expect a pay rise. Our view is that where there is a requirement for public servants to make a commitment to manage the pay policy, section 39 agencies, which receive a significant grant, should be part of that.

Colm Burke (Fine Gael)
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I asked about the ratio.

Ms Laverne McGuinness:

The Senator asked about the ratio and said he would like us to come back on that.

Mr. O'Brien will be able to provide that information.

Mr. Barry O'Brien:

I refer to Senator Burke's question. As the committee will note from the information we have provided, it is fair to say that there has been a significant reduction in the overall level of management administrative grades. We are now back at the 2002 levels. If one extracts the percentages of all staff who are in non-front-line service provision, about 4% of staff are working corporately, such as, for example, hospital managers and hospital accountants, hospital medical records officers, hospital medical records personnel and those working in outpatient services - all those type of staff. The numbers in the organisations would be variables but these are dependent on size, scale and complexity. However, there is a standardised grading system across the organisation. It is a historical fact that we had a less integrated system. The Future Health framework, the hospital groups and ISAs will result in a more integrated management structure and far greater standardisation and consistency as regards what is where, so to speak. This will come from within the existing pool because we will not be recruiting more people.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I have a further question about the section 38 organisations. The Chairman cited the figure of 67 but that is only those who have already submitted documentation in support of their case for red circling. Why is it that another 14 have not yet submitted documentation? Why would this be when they have already indicated that this is the case they intend to argue? However, here we are in July and the documentation has not yet been submitted. With the regard to the CRC separate process, are any of the eight involved there likely to come in under the red circling decision-making?

I have a final comment. It is clear that of the 143 in total, we are going to have of the order of some two thirds approved, but where will it rest? A total of 47 are ceased, and there is a total of 81 between those already submitted and those yet to submit and the CRC, which is uncertain. I wonder at this point how many of these are going to actually get through the red circling process. How does that impact on the discussion about section 39 organisations requested to have due regard for overall Government pay policy?

Mr. Barry O'Brien:

All I can say in reply to the Deputy is that we are left with the challenge where the internal audit report stated that there was a complete non-standardised approach prior to the HSE coming into being in 2005. Since the HSE came into being we have been in pursuit of standardisation. Equally, it is fair to say that we have been absolutely unequivocal in our determination to pursue full compliance. The internal review group of which I was a member - as was Ms McGuinness - recommended the cessation of all the allowances but, clearly, one has to have due regard for legal advice which states that if there is a legal contract in place and one seeks to alter the contract and one pursues that through the legal route and one is likely to lose, it is not prudent to spend taxpayers' money in that way. Given that the HSE is the funder of the section 38 organisations, we have stated clearly in our advice to those organisations that in reaching compliance they need to mitigate and minimise the risk. We will deal with them on a case-by-case basis. We are in pursuit of the minimal of full compliance.

Jerry Buttimer (Cork South Central, Fine Gael)
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Mr. O'Brien referred to the non-standardised approach and he referred to the period prior to the establishment of the HSE. Prior to the establishment of the HSE, the health boards were the agents of the State. Who is culpable for allowing that non-standardised approach? As Deputy Ó Caoláin said, if only 47 organisations out of 143 have ceased and the internal audit review committee has stated that all should be gone - I appreciate where Mr. O'Brien is coming from - does this not make a mockery of the whole process, whereby Mr. O'Brien's hands are tied effectively and he must consider that if he pursues person X or organisation Y, it will be at a cost in the courts and the case may be lost? Therefore, the whole process is really just a cod.

Mr. Barry O'Brien:

If one considers the 22 recommendations from the internal audit report, it can be seen that significant progress has been made in providing reassurance to the taxpayer as to compliance with public pay policy. It emerged from the internal audit report that prior to 2005, many of the section 38 organisations would have dealt directly with the Department and on that basis there were varying arrangements.

Jerry Buttimer (Cork South Central, Fine Gael)
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By the Department?

Mr. Barry O'Brien:

I am not saying it was done by the Department; I am saying it is quite clear that there were varying non-standard arrangements and the challenge for us was to introduce standardisation. I refer to the level of work and dedication to achieving this standardisation in the past 18 months. There will be a certain appreciation of having regard to the rights of each and every individual. In some senses, significant progress has been achieved. We have nearly completed it but it will be a case of the committee making an analysis when we have finished as to what we have achieved. There was always the potential for red circling and even that is allowed for in Government pay policy. The Government recognises that there was this potential and therefore it was included in the policy.

Jerry Buttimer (Cork South Central, Fine Gael)
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I appreciate the role played by Mr. O'Brien which has been significant.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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I thank the witnesses. I, too, wish to pay tribute to the work done by the people on the ground in the section 38 and section 39 organisations. I have a number of questions. The Secretary General of the Department of Public Expenditure and Reform told the Committee of Public Accounts on 3 April 2014 that the HSE had 11 financial management systems. In my view, this is an extraordinary number. Is the HSE confident that it has proper financial management systems? The HSE has been established for ten years.

I note that the HSE has carried out internal audits. How many qualified accountants and auditors are employed in the HSE to audit and check the HSE accounts? I am not referring to account managers - I mean qualified accountants and qualified auditors.

Mr. O'Brien referred to an internal audit report. Who carried out that internal audit report and what was his her or qualification for carrying out a report? Did the HSE consider using external auditors to examine how €3.1 billion is spent? It is not just the period of time since this Government came into power but rather it spans the past ten years. The budget was €16 billion and it has been reduced to €13 billion. Is the HSE confident that the taxpayers are getting value for money and that qualified people have put systems in place?

It seems that the Department of Health is so enmeshed in those organisations, either by accident or by design, that it has run rings around the HSE. Is it now desirable that the Department of Expenditure and Public Reform should provide a fresh set of eyes and regulatory controls?

The HSE has a written policy for the reporting of irregularities by any member of staff who considers there may have been an irregularity leading to the misappropriation of funds or an instance of fraud. I am not saying that fraud took place. Have there been instances of whistleblowing in the past three to ten years?

Have whistleblowers reported that excessively generous pay practices have been paid out? If so, has this been queried by anybody in the HSE? Has it been raised at senior organisational level, or with the Department or the Minister? The first two people I heard raising this issue were my colleagues, Senators Colm Burke and Tony Mulcahy. I wonder why this was not brought into the public domain at a much earlier stage.

Anybody who visits a hospital will know that car parking charges at hospitals generate a great deal of revenue.

Jerry Buttimer (Cork South Central, Fine Gael)
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That is not on today's agenda.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Sorry, I am talking about money.

Jerry Buttimer (Cork South Central, Fine Gael)
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It is not on our agenda, to be fair. We are talking about section 38 and section 39 organisations.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Okay. I will leave that then. I will come back to the final point I want to raise after I have heard the answers to my other questions.

Jerry Buttimer (Cork South Central, Fine Gael)
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I will allow the Deputy raise the issue of car parking at our next quarterly meeting.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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All right.

Sandra McLellan (Cork East, Sinn Fein)
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I welcome the delegates and thank them for their presentations. I would like to join others in complimenting the work of those involved in section 38 and section 39 organisations on the ground. The witnesses have said that 202 business cases were received from organisations, but just 143 cases are accounted for in the breakdown that has been provided. What about the remaining 59 cases? During the PAC hearings, an issue arose regarding the lobbying work of a member of the Rehab board. Questions were raised about a conflict of interest. Can the HSE set out the actions it has taken to ensure no such questions arise in the future for any section 39 organisation? How has this been provided for in the service agreement or the governance structures? The former CEO of Rehab argued that her salary was not subject to the HSE pay ceilings.

Jerry Buttimer (Cork South Central, Fine Gael)
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I would like to remind the Deputy that she is straying. I say that to protect the Deputy and the committee. There is a matter before the courts as well.

Sandra McLellan (Cork East, Sinn Fein)
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Okay. I was making the point that the CEO's argument was based on a suggestion that the group's activities are commercial. Can the HSE assure the committee that this is not the case? Can we be assured that the pay and pension arrangements of future CEOs and senior management personnel will be placed on the public record? Is that okay?

Jerry Buttimer (Cork South Central, Fine Gael)
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That is fine.

Sandra McLellan (Cork East, Sinn Fein)
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According to the HSE, employees of section 39 agencies are not public servants and are not directly bound by the Department of Health's consolidated salary scales. Do senior managers have to adhere to public sector pay scales? Where do workers in section 39 organisations at lower grades stand? It appears that the pay relationship between section 39 workers and the public sector applies only when cuts are being made. Is it the case that none of the benefits of the public sector, such as security of tenure or pension provisions, apply? If so, what action has the HSE taken to address this anomaly?

Jerry Buttimer (Cork South Central, Fine Gael)
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I welcome Deputy Fitzpatrick back after his recent injury. I hope he is recovering.

Peter Fitzpatrick (Louth, Fine Gael)
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I thank the Chairman. I welcome all the witnesses. The voluntary agencies, which are being funded by the HSE to the tune of €3.1 billion, are doing a wonderful job. Some €2.5 billion, which is a great deal of money, is being given to 44 agencies under section 38. Some €600 million is being provided to the remaining agencies, which are part-funded under section 39. Approximately €400 million of that money is going to just 39 agencies. I reiterate that €2.5 billion is being divided among 44 agencies and a further €400 million is being divided among 39 agencies. The former Minister for Health, Deputy Reilly, always believed in value for money. He advocated the "money follows the patient" approach. Ms McGuinness has seen the value for money report. Can she sum up the value of the money that is being given to these organisations? People are constantly asking me whether money is being given to the right organisations.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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I have a last question I would like to raise. I am not sure whether it was Ms McGuinness or Mr. O'Brien who said that the HSE knows exactly what is being paid out and mentioned that the HSE has written to section 38 and section 39 organisations. When people involved in suicide prevention have appeared at this forum, I have asked how many organisations are involved in giving help and advice in the suicide prevention area. I have been told that there are between 350 and 500 such organisations. It is quite a discrepancy. I wonder whether the HSE knows exactly what is being paid out and exactly how many groups are drawing down money in this area.

Jerry Buttimer (Cork South Central, Fine Gael)
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Would the witnesses prefer to respond to the questions that have been asked now, or are they prepared to hear the two remaining speakers at this stage?

Ms Laverne McGuinness:

We will do whatever suits the committee.

Jerry Buttimer (Cork South Central, Fine Gael)
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Okay. We will take Deputies Regina Doherty and Catherine Byrne now.

Regina Doherty (Meath East, Fine Gael)
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I welcome all our guests. I appreciate the presentations they have made. Most of the questions have centred around the people in section 39 and section 39 organisations who are on very large pay. We do not mean to discount the work the organisations in question are doing. I acknowledge that the work they are doing did not arise from the few questions they were asked by my colleagues on the Committee of Public Accounts. I am well aware that they have been doing this work for many years. I want to put it on the record that we appreciate it.

In the last number of years, the HSE has ceased trading with a number of organisations that we are currently funding. I am not discounting the fact that they provide valuable services. Can the officials share with me some of the reasons this cessation of trading has happened? Reference was made earlier to the compliance of the hundreds of organisations that the HSE is currently working with. I assume these agreements are not confined to the financial arrangements - wages and salaries - of the high earners in those organisations. Can I ask how the HSE is measuring the level of compliance? Can the witnesses give me an example of some of the key performance indicators that would be within a service level agreement, for example, in the case of somebody who is providing residential care in the disability sector? The specific reason I ask this question is that has been brought to my attention lately that in a certain organisation which provides services in residential houses - it will remain nameless - the ratio of service users to qualified staff looking after those service users has diminished drastically in recent years. The number of responsibilities the service providers in the organisation are obliged to offer has increased drastically in that time, and not as a result of the extra hour and a half that is required under the Haddington Road agreement or the previous requirements under the Croke Park agreement. How do we ensure the services provided are of a standard that we would be proud of? How can we be happy that we are getting value for taxpayers' money in the provision of these services?

Senator van Turnhout mentioned earlier that many service users have the feeling that they are receiving charity and are genuinely under the impression that they have to fight, scream and kick for services. This was mentioned the other night by Suzy B, a lady for whom I have a great deal of respect. In light of the amount of taxpayers' money we are providing to taxpayers, I wonder whether there is a better way of providing these services. Is there a better way of providing information on how the taxpayer is funding these services, so that service users do not feel they have to fight for services to which they are entitled? They should not have to feel like they are receiving charity, because they are absolutely not receiving charity. While most of these organisations raise funds to enhance the services they offer to service users, it must be emphasised that this €3.2 billion is not charity - it is taxpayers' money that is being paid to taxpayers who are entitled to it. Is there any way we could reframe that? Maybe we could do so by making it clear each year in the statement of intent what we are spending this €3.2 billion on. We should list the services that are being provided for and the people to whom the services are being provided. That might seem like a public relations exercise, but I think it would be valuable.

I am keen to know about the service level agreement and the key performance indicators on an individual basis across the organisations that are providing these services. At a higher level, are we actually looking at the organisations that are providing those services? I appreciate that we have business relationships with them, from the HSE to the individual organisations. As Senator van Turnhout mentioned earlier, those business relationships seem to be rolling over even though they are tendered every year. If that is not the case, maybe the witnesses can explain how and why these services are tendered. Are there new entrants from a larger scale? The same people that are receiving large amounts of money - well in excess of €5 million - are providing the services year in, year out. Are there new entrants into the market? Are people leaving the market? I hate the term "value for money", but we need to ensure the millions of euro that are being given to these organisations are being spent wisely to provide proper services to service users.

I am referring to the ordinary people who are providing the services and who are earning absolutely nothing close to the ladies and gentlemen we have been talking about in the media in recent weeks. How do we ensure the average nurse or service provider working in a residential care house is being treated well and that his or her conditions of employment are as they would be if he or she were working in one of the organisations and directly employed by the Health Service Executive?

Catherine Byrne (Dublin South Central, Fine Gael)
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Some of my questions have already been asked. I am grateful for the explanation of the red circle, as I was somewhat puzzled by it. I thank Ms McGuinness and the rest of the deputation for coming in. I have two short questions, one of which relates to the 143 business cases. The report on the initial review panel was given to us some time back. Apparently one of the criteria suggested that if business cases are not signed off by the Minister then they will cease immediately. Does this include the 47 agencies in question? Have any of these 47 cases ceased? If so, will the deputation indicate how many were involved? We heard that 14 agencies had not submitted any documentation as of yet. Is there a closing date or time for them to submit documents? Is there any stipulation that they have to be in by a certain time?

I wish to follow up on something Deputy Doherty said about being in the public eye. In recent months, particularly when I knocked on doors during the local elections, I came to realise, if I had not realised it before, that people are very angry. There is something in their mind about all these agencies and the amount of money people are being paid, but also the perks that come with the jobs. However, many people who associate themselves with local agencies and work with people with disabilities and so on see these organisations as charities. They find it difficult when it comes out in the wash that certain amounts of money are being given to these agencies but used for purposes other than services for the people who need them.

People have quoted different figures. In the opinion of the witnesses, is there a duplication of services, and, if this is the case, how widespread is it? As a public representative I believe there is considerable duplication. In the area I represent, I often find that within a small area there are five or six providers trying to do the same thing, overlapping and on occasion dealing with the same people.

We are all being told to go back to basics. Whether at home or elsewhere, we see people examining their utility bills and going back to basics. We need to go back to basics within the HSE. We need to get an understanding of how many groupings exist, how many agencies exist and what they are actually doing. There is considerable duplication - I am a living witness to it and I have seen it myself - and therefore, we need to pull some of them back in, determine exactly what they are working on, who they are working with and why so many people or service users can be involved in so many agencies. There is a real problem in trying to distinguish between agencies working in communities and further afield and whom they are dealing with, because they seem to be dealing with the same people. I hope I have made that clear and I am keen to hear the answers.

Ms Laverne McGuinness:

I will deal with the questions asked by Deputy Mary Mitchell O'Connor first. Reference was made to our financial systems. Currently, we have more than 11 financial systems and they are not fit for purpose as we would like them to be. We have a business case prepared and it has gone to the Department of Public Expenditure and Reform. This is for a new financial system and it has been widely specified in terms of our requirements to meet the need. Having said that, the information as we currently have it on the financial system is validated. We have between 110 and 111 accountants working with us.

In respect of the report carried out-----

Jerry Buttimer (Cork South Central, Fine Gael)
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When you say "working with us," Ms McGuinness, do you mean seconded or directly employed?

Ms Laverne McGuinness:

They are directly employed with us. There are qualified accountants throughout the entirety of the service.

The internal audit report was carried out by a professional accountant and internal auditor, Dr. Geraldine Smith. She has the competencies to carry out the report in this regard. We have an internal audit function. That is only one of the reports carried out. We have an audit plan and an audit committee in place with the directorate. We had an audit committee in place previously with the board. A significant amount of internal audit is systematically carried out year-on-year. We systematically audit our arrangements with the agencies. We have whistleblowing in respect of fraud. We find and detect a number of irregularities or frauds ourselves and the associated reports are published and available under freedom of information legislation. They are published and available on the Internet on an ongoing basis. We have an internal audit function which methodically and systematically reviews these areas as part of our overall internal control process. Furthermore, each senior manager is asked every year to sign an internal control statement. This is to ensure that in our area of work we have in place effective internal controls to ensure that we are protecting the State's money and assets and the public finances.

Jerry Buttimer (Cork South Central, Fine Gael)
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How can you protect the State's money if your financial system is not fit for purpose, if it is antiquated and if there are 11 different models of service delivery? Are you not doing a disservice to yourselves and to the people by not having one system? When do you expect the Department of Public Expenditure and Reform to come back with a reply? Will we have another personnel, payroll and related systems saga? What is the position?

Ms Laverne McGuinness:

We fundamentally recognise our requirement for new financial systems. The requirement has been specified on several occasions. We expect the Department of Public Expenditure and Reform to come back to us soon. The request has gone over to the Department for approval and it has been approved by the Department of Health. We have a significant specification for the financial systems.

The Chairman is correct with regard to PPARS and the entire debacle that ensued. It is important to say that of itself, PPARS is a very effective system. It is one of our better human resources systems. The Chairman suggested that our financial data was not integrated, and it is not, but we consolidate it to provide financial information. What we do not have, however, is the necessary level of at-the-desk ability to produce costings at a granular level. This would make the tasks of the accountants and those of decision makers who require that information far easier. We certainly require an integrated system. The matter is with the Department of Public Expenditure and Reform for approval. It has been in gestation for a long period and we will welcome it when we get it.

Jerry Buttimer (Cork South Central, Fine Gael)
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What is a long period? Is that fair to ask?

Ms Laverne McGuinness:

It has not been with the Department of Public Expenditure and Reform for all that time. Around 2006, when PPARS was being examined, there was a financial information system under consideration as well, but because of the PPARS issue it was stepped down. Correctly, an entire approval process was put in place for procurement as well as for project management in respect of the financial systems. We are looking to put in place a significant system. It is with the Department of Public Expenditure and Reform for approval at the moment.

Reference was made to the amount of money that we pay over to each of the individual agencies. Each year we publish an annual report and financial statements. At the back is a list of every agency that we provide funding for. I have some of the documents with me and we can provide them to the committee. We know every agency to which we pay funding. Some of these are small payments when seen in context - for example, €150,000 or €196,000. There are also larger payments, and often these relate to hospitals. We should remember that many voluntary hospitals are included among these section 38 arrangements. There was a question about whether we tender. There is no market to tender with for hospitals. We have the Mater Misericordiae University Hospital, Beaumont Hospital and St. Vincent's University Hospital. They are the agents we contract for services under a service management agreement. We have key performance indicators regarding the type and volume of services to be provided for the given budget. The hospitals must abide by regulations with regard to hospital-acquired infections and all the quality and patient safety indicators that we have. It is somewhat different in the disability sector because there are different key performance indicators. Certainly, for a residential facility we would stipulate the number of residents and the associated care planning, the number of day places and the number of personal assistant hours to be provided. All of this is set out in the service level arrangements.

Reference was made to our ability to tender with other agencies.

The hospitals are there and provide a very good service.

We tendered this year for the provision of home help and care services. Where we can tender we will. The disability sector has arrangements in place, and the facilities to provide the service. There is no choice there. As part of the value for money study we have examined where there are opportunities to amalgamate those services, particularly in the back office or whole shared service arrangements, be that administration, finance or human resources. The forums we have put in place come together under the umbrella organisations and the federation of voluntary organisations. Working through that forum with the national director of social care we examine all opportunities to consolidate services.

I was asked if there were some agencies that we had ceased trading with or that had gone off our books. Several agencies over the past few years have, for whatever reason, wished to exit the market and we have adopted several approaches, depending on what was most appropriate at the time. One of the latest examples is the Wisdom Services for people with a disability in Sligo, which we now provide. It is and was a fantastic service when the Daughters of Wisdom provided it. The same is true of several other agencies. I can give Deputy Byrne specific detail on that.

The pay to senior managers is part of the service level arrangement. We ask that all salaries are disclosed. One of the recommendations in the CRC report is that all senior manager salaries be disclosed.

Mr. Barry O'Brien:

There was a question about the difference between the 202 and what happened the 59. Our focus was on people who were paid grade 8 salary levels and higher. A total of 59 people were paid below grade 8. Each of those cases has been dealt with at local level and they are now fully compliant. Deputy Byrne asked were the 47 who had ceased part of the overall number. When we decided in the internal group that they would cease, the organisations said they were ceasing the 47. The 59 are compliant because they were under the pay cap. We are now dealing with the remainder on an application for red circle.

Ms Laverne McGuinness:

In answer to the question about planning year-on-year, in the example of the hospitals, if there is a reduction overall in the budget that has to be applied across the HSE. The organisations, such as the acute hospitals, bear a portion of that reduction. We consider the level of service to be provided year-on-year. We do that on our own service plan.

In respect of the charitable status of the agencies, our service plan specifies that we engage with and fund the voluntary agencies. That is something we could take on more proactively as a public relations opportunity to let everybody know that the HSE largely funds these services, particularly the section 38 agencies. Some of the section 39 agencies are relatively small and have funding from other sectors too.

Our financial systems are not fit for purpose. This is a significant risk for us in terms of our ability to respond quickly to decision making. The systematic information provided is consolidated. The information is accurate but not timely.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Does Ms McGuinness have confidence in the system?

Ms Laverne McGuinness:

I do not think anyone could be 100% confident about information. One depends on data input into the system, which may be incorrect. We have an internal control system in place in case somebody puts in an invoice incorrectly, to detect whether it is error or fraud. There will always be a margin of error. We look forward to getting the new financial systems, in time. They will improve the availability, accuracy and the timeliness of the information, which is as important as anything else. Having the information at a key time is critical to making a decision.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Does Ms McGuinness agree that this issue did not come up until people in here highlighted the problem with sections 38 and 39? This did not come up within the HSE’s financial management systems.

Ms Laverne McGuinness:

We do not have the individual accounts of section 38 or section 39 agencies on our financial systems. We have a payment system. We pay them a sum of money for a service as set out in the service level arrangements. These are separate organisations which are independently audited by their own auditors and they have their own sets of accounts.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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Do they audit themselves internally?

Ms Laverne McGuinness:

No they have external audits.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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I would like this clarified because I have received other information.

Ms Laverne McGuinness:

I will give an example. St. James’s Hospital has its own board, its own financial systems and data. It uses SAP financial software. Its accounts are audited independently every year. It has its own internal audit function as well because it is also required to have a system of internal controls in place that satisfies it and its board that its accounts are as accurate as possible, and to detect any error or fraud, as is required by our financial regulations. Likewise, it is required to have its accounts signed off by an auditor who has formed a view that the accounts are true and fair. The HSE has an arrangement with the section 38 agency set out in the service level arrangement asking whether it has complied with all the financial regulations it should have complied with to reassure us about the money we provide.

Jerry Buttimer (Cork South Central, Fine Gael)
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In regard to corporate governance of the section 38 agencies, Ms McGuinness referred to the annual compliance statement. Is that done at an annual meeting? Is there only one meaningful engagement based on a document every year which is the annual compliance statement between the HSE and the agencies? If that is the case, is that sufficient? Should we have more engagement outside this? Given the amount of money involved would it not be prudent to have more regular contact?

Ms Laverne McGuinness:

The first port of call is our service level arrangement, which is a very expansive and comprehensive document. That sets out the range of services to be provided, and the money. That is where the ongoing engagement takes place with the manager and the chief executive of the hospital with regard to the money given for the services provided. Every month there is a formal meeting with the hospitals – it might happen more frequently in some organisations – regarding the delivery relative to the amount of money.

That is ongoing at a very senior level, right up to ourselves, with the national director, the chief financial officer and myself in attendance at those meetings.

The compliance statement is new and we were seeking to put in place best practice from a governance perspective. This is an arrangement with the chairman of the board and another director whereby, as governors, they sign off as an indication that they have reviewed everything in the service level arrangement and they are in compliance with eight of the key issues set out in the service level arrangements. There are two pages dealing with procurement, finance, governance, risk management, remuneration, taxation and capital assets. The declaration is that everything has been checked - they are the governors of the board - and everything is in compliance. If they are not in some areas - as one might expect, because it is a retrospective issue at this time - the declaration is that there is a plan to come into compliance.

We have also done something which has not been set out before, which is to indicate what is good practice with regard to board membership and the various committees that should be set up. This is with a view to putting in place and harnessing a relationship with board chairpersons. We meet those twice a year and the director general meets them on one occasion as well. We have already met them in June. As part of that we have an information exchange so that the parties are aware of what is ongoing with respect to best practice. We engaged a speaker the last day and we reflected on the events with regard to the Central Remedial Clinic, CRC, the lessons learned and how to put in place a framework for shared learning in that regard.

Jerry Buttimer (Cork South Central, Fine Gael)
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Given the debacle involving the CRC relating to corporate governance, board membership, failure to fulfil obligations and the duties of board members, how confident is the HSE and how assertive will it be in ensuring that all organisations will have appropriate corporate governance and that when people become board members they will know their duties or roles and live up to that responsibility?

Ms Laverne McGuinness:

We met in December to discuss the implementation of the new compliance statement. All of the chairpersons of the section 38 agencies came to the meeting and we asked at that point that they signal their intent and confirm in writing that they would be willing to sign up to this process of compliance, and that they would sign it on behalf of their agencies. We have had that returned from all agencies, and all the parties have indicated their willingness to sign up to the process. We asked for the compliance statement to be returned by 31 May and we indicated that audits and plans could be formulated with regard to when compliance would be achieved in 2014. Almost all of the agencies have completed the process at this point, with 38 of 44 section 38 agencies submitting the completed statement. Four agencies were granted an extension due to the date of board meetings and our need for the signed annual financial statements. A further meeting was held with one agency to deal with very specific issues and one agency had a different governance structure as part of a university arrangement. That differs in legislation and the charter required with that. It is related to dentistry. Of the agencies, 36 have identified additional requirements for bringing them into full compliance. That process is set up as part of the overall business unit and those plans are being considered. By the end of 2014 we hope the majority of agencies will be in compliance. At that stage we will have resolved the issue relating to pay.

It is important to put this in context. We all acknowledge the very significant and important services provided by these agencies but, of between 30,000 and 33,000 staff in this sector, we are looking at 143 staff. That is the level of staff in these agencies. The number of staff is significant but we must consider it relative to the total number of staff in the sector. I am not minimising the issue but we must consider its extent.

Jerry Buttimer (Cork South Central, Fine Gael)
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Five members have indicated a desire to contribute, but I ask them to be very brief.

Jillian van Turnhout (Independent)
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I asked about the legal entities and who is funded. We have seen mixtures of organisations with regard to how companies are structured under section 38 and section 39. Are there specific requirements for the funding of organisations?

I am thankful that Ms McGuinness has taken on board the difficulty with the public's perception about the funding of these organisations. There may be a note in the annual reports and I have examined the HSE list. It is none the less very difficult even for somebody like me to know what services the State is contracting to be delivered through various charities. Very often the organisations operate under a different entity when it is being delivered to the public. The public may perceive that a service is delivered by a charity rather than as a right or entitlement. Where the vast majority of funding is coming from the State, it should be very clearly indicated. I have often seen with fund-raising organisations that less than 5% of the funding comes from the public and most is coming from the State through people's taxes. We should explore the issue further as a committee.

Ms Laverne McGuinness:

There are specific requirements and arrangements for companies where there is an issue of charitable status. It varies between agencies and we deal with that on an individual basis.

Jillian van Turnhout (Independent)
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It may be something to probe further.

Jerry Buttimer (Cork South Central, Fine Gael)
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We can do that.

Colm Burke (Fine Gael)
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With regard to companies with charitable status, outside of having to account to the HSE, they must also account to the Companies Registration Office or the person in charge of companies with charitable status there. When we speak of the HSE, we know it has 100,000 employees. When we speak of section 38 and 39 organisations, are there an additional 33,000 employees on top of the 100,000 employees? Are the section 38 and 39 organisations included in the 100,000 employees?

Mr. Barry O'Brien:

The section 38 organisations are included in the overall employment ceiling. There are approximately 65,000 people on the statutory side and approximately 35,000 on the section 38 side, involving acute hospitals and the disability sector. This group of people is employed in the budgetary allocation of €2.5 billion. Those from the section 39 side are not included.

Colm Burke (Fine Gael)
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What is the total number of people employed with section 39 agencies?

Ms Laverne McGuinness:

We can revert to the committee with that figure as we do not have it to hand.

Catherine Byrne (Dublin South Central, Fine Gael)
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There was mention of the agencies which have not submitted all of their relevant compliance documents. They are still in the loop.

Mr. Barry O'Brien:

Some of those are still in the process. They have indicated that they have received legal advice. We have asked for contractual evidence and we are still in a process.

Catherine Byrne (Dublin South Central, Fine Gael)
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What is the deadline? Are they given a month or two months?

Mr. Barry O'Brien:

There is a deadline. We have set a date of 1 July and at that stage the 59 bodies under grade 8 level were compliant, with 47 ceased. There are approximately 60 in a process. Our view is that everybody should be fully compliant by September, and we will give a complete report to the committee.

Catherine Byrne (Dublin South Central, Fine Gael)
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It may have been wrong to ask whether there is agreement about duplication of services, but while I was asking the question I saw a lot of heads nodding. It is something that could be examined.

Ms Laverne McGuinness:

In local areas there are a number of small organisations funded under section 39 and there is no doubt that the services provided are very similar. When asked, they might say they are not duplicate services as they provide services to different cohorts of people, or there may be other changes. We are looking to see if we can amalgamate some of those services.

Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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I acknowledge what Ms McGuinness said about St. James's Hospital. A number of months ago at a meeting of the Committee of Public Accounts, there was a disagreement about whether consultants at St. Vincent's Hospital were working within their contracts in the context of private versus public hospitals. Ms McGuinness gave an example to show that she is happy that the internal audits were signed off for St. James's Hospital. However, this case came up before the PAC. Consultants were double-jobbing or being paid on the double and I remain concerned about the audit trail. Would a fresh set of eyes not be better, with officials from the Department of Public Expenditure and Reform examining the accounts? I am amazed that Ms McGuinness said that section 38 and 39 agencies are not on the HSE's financial systems.

Ms Laverne McGuinness:

There are a number of different facets to that. It is not only about the Department of Public Expenditure and Reform. The Comptroller and Auditor General also audits our accounts every year. That is a thorough audit. We have an audit committee, which is chaired by an independent, fully qualified accountant. The committee also has a number of independent members and, therefore, they are not all internal appointees. The full work programme goes through the Comptroller and Auditor General. His officials attend some of the audit committee meetings as well. A thorough analysis is carried out by the Comptroller and Auditor General's office. That is the Government's independent eye and that is why we are called to the Committee of Public Accounts with the Comptroller and Auditor General.

Internal audit is an organisation's own internal watchdog to provide assurance that the required level of internal control is in place and any fraud or error is minimised, and if there is fraud or error, to make sure it is brought to light. That is why we have the internal audit reports. All that work is made available to the Comptroller and Auditor General. The office audits payroll, PCRS and the money we pay to these agencies. It has access to the full gambit.

It is not usual for independent section 38 agencies to be on our accounting system. They have independent accounting systems, whether that is St. Vincent's Hospital, St. James's Hospital or the Brothers of Charity. They have their own accountants, internal controls and internal audit. Their accounts are audited separately but we are provided with a copy of their audited financial statements and they form the basis on which both the compliance statement and the service level arrangement is provided.

Regina Doherty (Meath East, Fine Gael)
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Two organisations providing services for people who are deaf and people who have autism receive in excess of €8 million, and I am sure there would be many others if I added them up. Why are they reduced to applying for SSNO funding to provide staff for advocacy services when they are in receipt of so much under sections 38 and 39? I do not want to diminish the impact on, and the outcry over, the 26 groups that lost their funding from Pobal last week. Thankfully, that has been reinstated. Why is a group such as Irish Autism Action reduced to looking for funding under the SSNO to provide staff to man their offices when it is in receipt of €8 million in section 38 funding?

Ms Laverne McGuinness:

I do not have an answer to that. We provide that funding for a level of service. I am not saying that they do not have a case for it. I do not know why it has applied separately to Pobal for funding.

Jerry Buttimer (Cork South Central, Fine Gael)
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Was there any liaison between the HSE, Pobal and the Department of the Environment, Community and Local Government regarding the funding cuts prior to their announcement?

Ms Laverne McGuinness:

I will get back to the Deputy on it. I do not have any information on it.

Mr. Barry O'Brien:

Deputy Doherty asked earlier whether we had a key performance indicator system. We have put in place service improvement teams in the areas of disability and care of the older person. They have a clear focus on linking funding, activity, quality and outcomes. It is about going in to services at ground level and working with managers and asking what they are doing with the funding we are providing them with, what are the outcomes, how many clients they have and what is the quality of care. That work is at hand.

Sandra McLellan (Cork East, Sinn Fein)
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I would like an answer to my question regarding the lobbying of a member of the Rehab Group board and a possible of conflict of interest. Has this been provided for in the service agreement or governance? I also did not get an answer when I raised the issue of the pay that was not subject to the HSE ceiling because 60% of the activities were commercial. I seek an reassurance that this is not the case and that in future pay and pension arrangements for the chief executive officer and senior management of these agencies will be placed on the public record.

Ms Laverne McGuinness:

With regard to conflicts of interest, when we speak about compliance statements, we set out what is good practice for boards. Declarations of interest are part of that. They are aware of what needs to be done.

Under the service level arrangement, all salaries are to be disclosed under section 38. This exercise is about putting a level of transparency in place around that.

Jerry Buttimer (Cork South Central, Fine Gael)
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This was a constructive and positive meeting. It behoves all of us to ensure that we consider the positivity of the work being done by the section 38 and 39 organisations and thank those who provide services on behalf of the most marginalised and vulnerable in many cases. We thank the staff who work in those agencies. I would also like to acknowledge the participation of Ms McGuinness, Mr. O'Brien, Ms Lawler and Ms McCormack. I thank them for taking time to attend.

It is important that we all work to restore the reputation of all organisations in whatever sector they are among the public and, therefore, it is also important that we have an ongoing discussion on this matter. I look forward to another meeting when we come back in September.

This is our final meeting before the recess. I thank the staff, members and the media for their coverage of our proceedings.