Oireachtas Joint and Select Committees
Thursday, 19 November 2015
Public Accounts Committee
2014 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Vote 11 - Office of the Minister for Public Expenditure and Reform
Vote 12 - Superannuation and Retired Allowances
Vote 18 - Shared Services
Vote 41 - Office of Government Procurement
Chapter 4 - Vote Accounting and Budget Management
Chapter 5 - Management of Government Grants
Chapter 6 - Payroll Accrual for National Accounts
Chapter 7 - National Lottery Fund
Before we begin our meeting, I remind members, witnesses and those in the Gallery to turn off their mobile phones as they interfere with the transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given. They are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are reminded of the provisions within Standing Order 163 that the committee should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. I welcome Mr. Robert Watt, who is the Secretary General of the Department of Public Expenditure and Reform. I ask him to introduce his colleagues.
Mr. Seamus McCarthy:
I thank the Chairman. As a result of the number of items on the schedule today, I propose to outline very briefly the results of the four 2014 appropriation accounts before summarising the key points of the four reports. I should say at the outset that I have issued clear audit opinions for each of the accounts.
On Vote 11, the 2014 appropriation account for the Office of the Minister for Public Expenditure and Reform records gross expenditure totalling €36.8 million divided across two programme areas. The programme of activities relating to public service management and reform accounted for 54% of the expenditure, while the programme comprehending the management of the system of public expenditure accounted for 46%. At the end of the year, the Department had underspent by €3.8 million, or just under 10% of its gross Estimate provision. That amount was accordingly liable for surrender back to the Exchequer.
Vote 12 presents the expenditure on Civil Service and prison officer pensions. Pension payments for other public servants are charged to other votes, including those for education, the HSE, An Garda Síochána and Army pensions. The gross spend on Vote 12 in 2014 amounted to €474 million, which was up 10.8% compared with 2013. Appropriations-in-aid, mainly arising from employee pension contributions, amounted to €105 million in 2014, which represented a year-on-year increase of almost 18%. A Supplementary Estimate amounting to a net €22.25 million was provided for the Vote in 2014. At the end of the year, a surplus of €16 million was liable for surrender. The Department of Finance administers the pension payments charged to Vote 12. The associated administration costs are borne in Vote 7 - Office of the Minister for Finance. Costs of policy formulation relating to public service pensions are borne in Vote 11 - Office of the Minister for Public Expenditure and Reform. The absence of administration costs is reflected in the format of the appropriation account for Vote 12.
The 2014 appropriation account for shared services records gross expenditure totalling €23.2 million. This mainly comprises €13.2 million spent on activities related to PeoplePoint which handles HR activities centrally; €7.6 million spent on payroll shared services; and €1.6 million on other shared services projects, including a shared financial management system project. Vote expenditure in the year was significantly less than provided for in the Estimate mainly because of delays in recruitment and progressing projects. Overall, there was a net underspend of €10.3 million or approximately one third relative to the Estimate.
Vote 41, Office of Government Procurement, was a new Vote in 2014. On its establishment, the office took over the activities of the former National Procurement Service in the OPW and those of the former national public procurement policy unit in the Department of Public Expenditure and Reform. The Vote Estimate provided for gross expenditure by the Office of Government Procurement totalling €12.8 million in 2014. The outturn was €6.4 million. After a deferred surrender of €125,000, the amount due for surrender was €6.1 million. Note 3 explains that the underspend in the year arose from slower than anticipated recruitment of staff, with knock-on effects in other areas of planned expenditure, including certain planned projects.
Turning to the chapters, Chapter 4 is a standard report that aims to consolidate and summarise Vote expenditure for 2014 and to demonstrate medium to long-term trends. Gross voted expenditure across all Votes in 2014 was €46 billion. This represents a cumulative reduction of almost 13% since 2010. The report also compares net Vote expenditure with the original budget allocations and identifies those that were granted additional funding by way of Supplementary Estimates. Figure 4.5 in the chapter indicates that three Votes each required Supplementary Estimates every year from 2010 to 2014, inclusive. They were the Votes for the HSE, An Garda Síochána and Army pensions. There were Supplementary Estimates for the Department of Transport, Tourism and Sport in each of the last three years.
In 2014 grant funding issued from Votes amounted to a total of over €11 billion. Chapter 5 describes significant changes made by the Department of Public Expenditure and Reform to the framework for the control and management of such grant funding. Previous reports from my office and the committee identified certain weaknesses in these arrangements. In particular, the special report on the national health and local authority levy fund made a number of recommendations for improvements in grant control and accountability arrangements. The revised control framework was set out in Department Circular 13/2014 and took effect from January 2015. The revised arrangements introduce a number of additional requirements for both funding bodies and those in receipt of grant funds. These measures should increase the transparency and accountability arrangements for grants and address the identified weaknesses. Meeting the new or extended requirements may present a significant challenge to both funding bodies and grant recipient bodies. The exercise of judgment will be required to ensure the requirements are applied in a proportionate way, taking account of the size and capacity of the grant recipient and the scale of the grant involved. Compliance with the new requirements will be examined during the course of the 2015 audits of Departments and agencies.
Chapter 6 is a technical report, prepared to meet a specific requirement of the CSO for audited accrual-based payroll information for national accounts purposes. Members will be aware that appropriation accounts are prepared on a cash basis and record transactions when payment is made or income is received. Accordingly, public service staff pay costs and payments to pensioners are recognised in the appropriation accounts at the point of payment. Payments are made either weekly, fortnightly or monthly, as appropriate, and normally in arrears. Most years there are 26 fortnightly payroll runs and 52 weekly runs. However, because the number of days covered by pay periods does not exactly match the number of days in the calendar year, an accrual element builds up over time. There is an additional pay period every ten to 11 years for fortnightly paid staff and every five to six years for weekly paid staff. This results in spikes in pay expenditure in the appropriation accounts in years when there are extra pay days. I should perhaps point out, to allay concerns, that no one receives any extra pay beyond his or her annual salary as a result. This is purely an accounting and a timing issue.
Payroll accrual information submitted by Departments with the appropriation account was audited as part of the statutory audit of the accounts. By agreement with the Department, we have presented the information in the annex to this report in the format specified by the CSO. The table also includes information on the Houses of the Oireachtas Commission which does not have a Vote. Although the Commission is funded directly from the Exchequer, it prepares its financial statements in the appropriation account format used for voted expenditure.
Chapter 7 was undertaken in the light of the significant changes implemented as a result of the National Lottery Act 2013. It aims to outline the process used to distribute the proceeds of the national lottery among the good causes specified in the Act. It also explains how the application of the funding is accounted for in the appropriation accounts. Annex 1 of the report summaries the funds flow. Exchequer funds totalling €217 million were provided to fund a range of designated national lottery supported programmes that fitted within the "good causes" categories. The finance accounts show that a total of €178 million was paid from the national lottery fund to the Exchequer in 2014. For 2014, we can, therefore, establish that the national lottery provided 82% of the funding applied across national lottery supported programmes. However, because national lottery funding is not formally allocated on a subhead or programme basis, the percentage national lottery funding level cannot be identified at a programme level.
The report also outlines the receipt into the Exchequer in 2014 of a licence fee totalling €405 million for the operation of the national lottery over a 20 year period, following a competitive tendering process.
Mr. Robert Watt:
I thank the Chairman and the committee for giving me the opportunity to make a short opening statement. I propose to set out the Department's strategic objectives and our performance in meeting these objectives in the past few years.
The Department of Public Expenditure and Reform has two broad strategic objectives: to support economic and social progress by managing public expenditure on a long-term, sustainable basis; and to introduce and support reform of the civil and public service, ensuring public administration and governance structures are citizen-focused, efficient and cost-effective. Linking these two objectives is an overarching focus on value for money for the taxpayer. Achieving value for money in how public services are delivered is central to the work of the Department and a key concern for the committee.
The Department's key function, since it was established, has been the control of public expenditure. As the committee will be aware, Ireland has met its deficit target in each of the years since the Department's inception and we are on track to do so again this year. We have sought to do so by shifting resources to where they are needed most and protect the most vulnerable in society. Much of our capacity to do this has arisen directly from the sacrifices made by public servants in their terms of employment.
As we return to more normal times, our function will not be to determine the level of spending other than to advise the Government on what we believe is appropriate but to ensure broad budgetary targets are met and that expenditure delivers the best possible value for money for the taxpayer. Many of the reforms we have put in place during the recession years will continue to bear fruit as the economy continues to grow. What are these reforms? First, we are seeking to remove the duplication of services and apply common standards. The provision of HR functionality by a myriad of Departments is more expensive and feeds into the silo-driven nature of government. Shared services is an obvious example of our response to this challenge, as are public service-wide pay agreements, sick leave and annual leave reform and the single pension scheme. The Civil Service Management Board and the Accountability Board are deliberate attempts to break down a culture that has evolved over many years. One of its first tasks will be to see how Departments co-operate better on shared tasks. This is ultimately not only about costs, although that is important, but also about improving the range of data available to the Government to enable it to make more effective decisions.
Second, we are seeking to encourage the development of policy-making on a more open and considered basis. Examples on which I will touch include more measurement of outcomes, more varied commissioning models, more use of specialists, an aggressive attitude to open data and reform of the budgetary process. Similarly, we are trying to broaden recruitment channels into the civil and public service.
We have enacted a series of Bills aimed at opening up our system. Freedom of information legislation has been restored and is being used more extensively. In the next year we will see the first impacts of the lobbying legislation.
The banking inquiry is operating under the terms of the Oireachtas inquiries Act. The Ombudsman has increased powers and is set to see his powers extended further into the health arenas. Whistleblowers now have a common framework under which to report and public bodies have been offered standardised procedures on how to proceed. While we have come a long way, the Department recognises that we have further to go.
Finally, and I think this is important, we are opposed to inertia. Through our reform and delivery office we act as the prodders of reform in other Departments and across the system. Our system has been under extreme pressure in recent years. In the private sector, activity slows when recession hits while in the public sector demand increases. I think in time our response to the crisis will be seen to have been particularly effective but it has undoubtedly been difficult to endure. We cannot go back to the old ways of doing things and must continue to innovate, change and reform. These tasks will become particularly challenging as we exit the excessive deficit arm of the Stability and Growth Pact and move to the preventative arm in 2016.
I stress for the committee the broad budgetary context we have experienced in recent years as it is the appropriate backdrop to discuss the reforms we have introduced. In 2014, gross voted expenditure was €54 billion. This is a reduction of more than €9 billion from the peak in 2009. Current expenditure over the period was reduced by almost 10% and capital expenditure was reduced by half. By identifying savings, driving efficiencies and working with Departments to better manage their cost bases, the Department has made a very significant contribution to the improved fiscal environment and enhanced value for money.
One source of significant Exchequer savings was in the area of public sector pay. As a result of financial emergency legislation, savings in the public sector pay and pensions bill amounted to €2.2 billion annually. Ms Oonagh Buckley, who is in attendance, was very involved in cutting the pay of her colleagues. She is very popular.
Mr. Robert Watt:
Ms Buckley's team has been involved in a series of reforms over the period. This year, the Government decided to begin to unwind some of these measures under the Lansdowne Road agreement. The agreement will provide for a continuation of enhanced productivity measures while securing an industrial relations framework that will foster and support industrial peace. Other reforms worth mentioning include the new public service sick leave scheme introduced to reduce the cost and incidence of sick leave for the public service. I know the committee debated the scheme previously. The scheme has had an immediate and positive impact. Approximately 260,000 extra days were worked by public servants in 2014 in comparison with 2013, saving an estimated €51.5 million. We hope to see further savings from the implementation of the scheme over the next few years.
Between 2008 and the end of 2014, the number of staff working in the public service was reduced by 10%. As a result our success on expenditure consolidation and driving public service reforms, we can now consider on a strategic basis the allocation of extra staff to critical public services. Since 2014, there has been increased staffing in the following areas. We have appointed an additional 3,000 teachers and more than 1,300 new special needs assistants. The HSE has hired 1,000 nurses and there will be an increase in the number of gardaí. Without public service reform and the savings it produced, including those underpinned by agreements negotiated with staff, it would have been impossible to increase staff levels in these critical areas.
The Minister, Deputy Brendan Howlin, has introduced a number of significant reforms to ensure taxpayer money is allocated to the maximum benefit of society. The wide-ranging reforms to the budgetary architecture support the efficient use of public funds to deliver effective services for citizens. The implementation of a medium-term budgetary framework and the introduction of comprehensive reviews of public expenditure allow for greater debate about key expenditure challenges. The revised public spending code, which sets out the economic appraisal requirements for new current and capital expenditure proposals, brings together in one place all the elements of the value for money framework. Departments and agencies proposing expenditure are responsible for undertaking the required appraisal for each new spending proposal or project. The public spending code provides that appraisals and detailed assessments should be carried out before Exchequer resources are committed. In July 2015, the Government agreed a new three-year value for money review programme for each Department. Under the programme, Departments will review expenditure across a number of programme areas. This programme, which is reviewing 40 topics, is aligned with the multi-annual budgetary cycle and the comprehensive review of expenditure process.
The Oireachtas and its committees play a central role in overseeing expenditure of State resources. Last week the Houses of the Oireachtas Commission launched an OECD report, Review of Budget Oversight by Parliament: Ireland. The report takes account of the parliamentary and budgetary environment within which we all operate. Its recommendations have the potential to engender more meaningful and constructive dialogue around the efficient and effective use of public resources and the role of the Oireachtas in overseeing these issues. This is a key concern of this committee. While the OECD's report is of course a matter for the Oireachtas and the Executive, the Civil Service is ready to assist in any way we can in augmenting Oireachtas oversight of the Irish budgetary process.
Of critical importance to implementing budgetary and expenditure management reform is building the institutional capacity to do so. Our Department has been enhancing capability within the public service and Civil Service to appraise, evaluate and monitor public expenditure effectively, ensuring the focus remains on value for money. Of particular note is the establishment of the Irish Government Economic and Evaluation Service, IGEES. IGEES is an integrated cross-Government service which enhances the role of economics and value for money analysis in public policy-making. IGEES members have a particular skill set which has improved the analytical capacity of the Civil Service. They operate in designated economic evaluation units and engage widely with other Departments. Their expertise further strengthens the focus on evidence-based policy-making within the public service.
The effective use of data is also critical to a more integrated and efficient public service. The publication of official non-personal data in open format has the potential for significant economic, social and political impact. Our open data initiative aims to enhance the value and utility of public service data. Such data can be shared within and between public bodies and with the public as a whole. Open data can become the raw material to drive more effective decision-making and efficient service delivery within public and private bodies. It can spur economic activity in the development of new products and services and empower citizens to take an active role in improving their communities. This is an area where we will strive to do more over the next few years. It has enormous potential to improve the operation of the system.
A better trained, more integrated and more effective Civil Service will support better delivery of services and a better return to the taxpayer. Published in October 2014, the Civil Service renewal plan sets out a vision and three-year action plan to achieve it. It outlines practical actions that will create a more unified, professional, responsive and accountable Civil Service. Since its publication, significant progress has been made. An accountability board has been established to oversee Civil Service performance and develop a better framework for holding senior civil servants to account for performance. A Civil Service management board has been established to create a more integrated and cohesive whole-of-Government executive management team. It is a great surprise that before now senior leaders across the Civil Service did not meet regularly to consider the strategic and delivery issues faced by the system. There is now a performance review process for Secretaries General to ensure high standards are maintained. Open recruitment campaigns have been held for positions across different grades for the first time. This will ensure there is a consistent stream of talented professionals with different backgrounds, experiences and capacities entering the Civil Service at every level. The new structures are helping to strengthen accountability and performance by introducing greater oversight of delivery across the Civil Service.
Progress has also being made in other actions in the plan. This week we published a corporate governance standard for the Civil Service. This is the first time that such a standard has been produced. It will set out how each Department and office does its work and operates to deliver on its mandate and functions. To bring greater individual accountability, we will also ensure the statutory official assignment of responsibilities in each Department down to the level of principal officer are publicly available. Effective leadership is crucial to deliver Civil Service and public service reform. The senior public service has been established, initially within the Civil Service, to support high performance and a more integrated approach to leadership development at senior levels. It supports executive coaching and provides for mobility at senior levels in the Civil Service.
Shared services is one of the largest cross-cutting change programme the Civil Service has ever introduced. The national shared services office, NSSO, in our Department is responsible for establishing and providing shared services to the Civil Service and, as part of its wider leadership role, for setting standards for shared services in other public service sectors. Earlier this year, the Government approved the drafting of a Bill to establish the NSSO as a separate Civil Service office. Work on the Bill is being advanced with the Office of the Attorney General. I thank Ms Hilary Murphy Fagan and all her staff for their hard work in bringing this about.
Established in March 2013, PeoplePoint provides HR and pensions administration services for 35 organisations with approximately 30,000 employees. By the end of next year, it will be fully established and serve 33,500 employees across 40 departments. The payroll shared service centre is in three locations and administers payroll for 34 organisations and 43,000 employees and pensioners.
This will rise to 80,000 by the end of this year. In addition, the evaluation of tenders for a single financial management solution for the Civil Service is now nearing completion, and we expect to return to the Government shortly to proceed to implementation. Strong oversight and governance frameworks exist to oversee and monitor the performance of these centres against service level targets and customer satisfaction. Cost savings and significant improvements in service delivery in PeoplePoint have been made throughout this year and we are striving to improve service delivery for all our clients.
ICT has a critical and increasing role in delivering better public services. Earlier this year, the Office of the Government Chief Information Officer published the new public service ICT strategy. The strategy will create a new model for ICT delivery. The central aim of the strategy is to deliver better value for money by creating efficiencies through integration, consolidation and data sharing. The strategy will ensure ICT infrastructure and systems are shared across the Civil Service and public service, achieving greater efficiencies in the use of resources.
Progress has also continued on introducing more external delivery of services. Examples include the use of private call centres for administration of the water conservation grant and local property tax. These contracts leverage private sector expertise and innovation to deliver cost savings and better services for citizens. JobPath, the new employment activation programme, also uses private sector expertise to assist the long-term unemployed back into the labour force. There is much more scope to use the external delivery of service in other areas of administration and service.
The Department is working with other Departments on the issue of commissioning. The commissioning model will embody a more strategic approach to the delivery of services by the community and voluntary sector than the traditional block grant funding model. This model aims to assess and identify the needs of a population and release funding in return for achieving the identified outcomes on foot of evidence-based evaluations.
Another example of how the Department is driving a culture of value for money is the issue of Government grants, which I know is the subject of a separate chapter in the most recent report of the Comptroller and Auditor General. In September 2014, the Department issued a new circular setting out a revised framework for management and accountability arrangements for grants. The overarching principle of the new circular is that there should be transparency and accountability in the management of public money. There is also a new statement of principles for grantees. The statement outlines four principles that apply to those in receipt of grant funding, namely, clarity, fairness, governance and value for money.
A related initiative has been the establishment of Benefacts. This will provide a single repository of regulatory data on the entire not-for-profit sector. The sector is estimated to encompass 20,000 entities which receive €4.4 billion in Government funding annually. The objectives of Benefacts are to deliver a single view of all not-for-profit entities in Ireland, to facilitate better decision-making in the Government’s funding of the sector and to rebuild donor confidence and provide for increased investment in the sector.
A key aspect of the reform agenda has been the area of public procurement. Over many years concerns have been raised in reports of the Comptroller and Auditor General about weak procurement practices and we have sought to address them. The Office of Government Procurement, OGP, now procures common goods and services across the sector. The procurement reform programme is gaining increasing traction in delivering a more joined-up approach for procurement. The OGP is progressively putting in place sectoral or whole-of-Government arrangements in areas such as professional services, ICT, facilities, travel and HR services.
Some expenditure areas, such as legal costs and insurance, have never been procured on a whole-of-Government basis. For the first time, the OGP is looking at such services across the public service and is putting in place professional commercial arrangements that leverage scale, bring consistency and manage risk. The OGP is also committed to ensuring SMEs are fully engaged with public sector procurement. In March this year, the office produced a detailed analysis of non-pay expenditure in the public service, which was the first of its kind. The findings indicated that 66% of the State's procurement was with the SME sector. I commend Mr. Paul Quinn and his team on all their hard work in the delivery of this very extensive and ambitious programme of change.
Value for money is also important in our management of the State’s property portfolio. The OPW led the development and implementation of the property asset management delivery plan. Significant progress has been achieved in areas such as intra-State property transactions, communications and the Civil Service estate. More work is required, so we will continue to support the OPW in driving the implementation of the plan as part of the Government’s overall reform programme.
I have set out some of the changes the Department has introduced to improve the effectiveness of public spending. Of course, given total voted spend of more than €55 billion, it is inevitable that there will be errors, omissions and inefficiencies which do not meet the high standards we are setting. We are dealing in a world of uncertainty and increasing complexity. However, it is critical that we continue with and improve on these reforms. Specifically, we need to embed a very strong value for money culture which does not tolerate outdated practices or inertia. Achieving this will require a significant improvement in our leadership capacity. This is, to my mind, the single most important challenge we face.
I will now turn to some specific items on the agenda today. With regard to chapter 4, vote accounting and budget management, since the Department was established, significant progress has been made in reducing the fiscal deficit and bringing stability to the public finances. In 2011, the budget deficit stood at 12.5% of GDP. This year it will be below 2.1%. In 2016, it is forecast to reduce further to 1.2%. The Department’s two objectives of managing public expenditure and driving reform have made a major contribution to this improved fiscal environment. In 2014, gross voted spend amounted to €54.1 billion, which is €1.1 billion or 2.1%, ahead of profile. In net terms, net voted expenditure amounted to €42.2 billion in 2014 and was €1.1 billion or 2.6% ahead of profile. It is worth noting that nine of the 16 ministerial Vote groups were at or below profile. Ministerial Vote groups requiring Supplementary Estimates were in most instances able to obtain savings elsewhere from within the Vote groups to offset partially the Supplementary Estimate.
Turning to the Department's own Vote, the Estimate for 2014 was set at €35.9 million, a slight increase on 2013 levels. This reflects the addition of funds to provide for the establishment of the Office of the National Lottery Regulator and to provide for a widening of responsibilities in the Office of the Government Chief Information Officer. The audited surplus to be surrendered in 2014 was €3.8 million. The surplus mainly arose due to lower than expected progress on recruitment as set out in the report of the Comptroller and Auditor General and spend on North-South projects.
On Vote 12, Superannuation and Retired Allowances, the 2014 appropriation accounts for the Vote show a net outturn of €368.7 million compared with an Estimate plus Supplementary Estimate of €384.8 million, giving a surplus of €16.1 million. The surplus arose due to the timing of receipts from the single public service pension scheme.
Turning to Vote 18, Shared Services, the 2014 Estimate of €30.6 million represents a net increase of €9.6 million compared with the 2013 Estimate. This increase is largely driven by the migration of existing payroll functions from originating Departments to the centre. The net outturn for 2014 was €20.3 million, giving a surplus to surrender of approximately €10 million. The underspend primarily arose because of later than anticipated transitioning of staff to PeoplePoint and payroll.
With regard to Vote 41, Office of Government Procurement, the Estimate for 2014 was set at €12.4 million. The outturn was €6.2 million, leaving a surplus to be surrendered of €6.3 million. This surplus arose mainly due to lower than anticipated recruitment, as only two thirds of expected staff were on board at the end of 2014, and knock-on savings in non-pay.
I take this opportunity to express my appreciation to the staff of the Department for all their hard work. Since 2011, the Department has achieved much, none of which would have been possible without the commitment and expertise of the staff. As the country enters the next phase of our recovery, the Department will continue to make a contribution to public policy, budgetary management and the management and reform of the public service. I look forward to working with the committee on these issues in the future. I am aware this is likely to be our last meeting before the general election and I wish the members all the best in the upcoming contest.
I have several questions on Mr. Watt's opening statement, as I seek clarification. He referred to the fact public spending provides that appraisals and detailed assessments should be carried out before Exchequer resources are committed. He also stated the Department will improve the range of data available to the Government to take decisions. I am asking about a policy matter, but I am asking Mr. Watt not to address it but the costs involved. The Fennelly commission is to be extended and staff are to be recruited.
Does the Department carry out an analysis of the costs in this respect so in making any decision the Government is aware of the possible potential costs? If the Department has carried out this analysis will Mr. Watt give us an idea of the extra costs involved in the decision?
Mr. Robert Watt:
For every policy decision which has a cost implication a memorandum for government is brought and within this is an estimate of the costs involved over a number of years. This is set out and the Department comments on it with regard to resources available within the Vote to fund it and on whether we believe the cost estimates. This is the standard approach. To answer the Chairman's question, I am not exactly sure on the detail but I will check and come back to him. The standard practice is the Department comes up with an estimate based on the likely work, on which the Government offers a view, and as part of the discussion we give an assessment on whether we think it is reasonable.
With regard to the actual cost of something such as the Fennelly commission, does the Department have any commentary on the figures to state it is reasonable or justified, based on whether the amount of work entailed, which may or may not yield something of significance, is worthwhile pursuing?
Mr. Robert Watt:
In such a case it is very difficult to anticipate the amount of work involved and the amount of activity, but we would give a view on whether the cost estimate is robust and reasonable. It is the parent Department's responsibility to state what it believes is the likely work and the likely cost and we give a view on this. As the Chairman knows, there is much uncertainty about what inquiries and investigations are likely to discover and their level of activity, so there is more uncertainty about budget estimation than in other areas of activity. We can certainly come back to the Chairman on what was the original estimate.
I raise the question because of this very point, to know before we enter this exactly where we are going. The Department of the Taoiseach sets it out and the Department of Public Expenditure and Reform sets out the potential costs.
It is important that this figure is well publicised before we enter it. It may provide a restraint against what we have seen in previous investigations and tribunals, which climbed to a figure that was never intended.
Mr. Robert Watt:
If we look back at every inquiry and commission of investigation we have ever undertaken, the work involved has been multiples of what was expected and the costs have been way in excess of what was anticipated at the time they were established. Looking back over the past 15 or 20 years, we have had many inquiries and tribunals and this has been the trend. The Comptroller and Auditor General has examined this in other cases in the past.
On the same point, and I was going to mention this later, when it comes to the commission of investigation into the IBRC the point the Chairman makes is valid because in recent days we have found that the estimate for how long it will take could be approximately eight years. Did the Department know this when it put its memo to Cabinet. What was the length of time for which the Department had financially estimated?
Mr. Robert Watt:
In this case, it was the Department of Finance which put forward the memo stating what it thought the inquiry would involve and an estimate, and we then had an opportunity to comment on it. In this case it is very difficult for the Department of Finance to anticipate the amount of work involved.
We are now finding out, after the fact, based on what the person leading the commission of investigation has said, that it could take eight years. Was this even closely factored in when it came to the memo? At how much was it estimated?
Mr. Robert Watt:
I would have to look at the original decision. I cannot recall exactly what the proposal was at the time. I do not think anybody envisaged it would take eight years. I do not think anybody envisaged that type of timescale, but I cannot recall exactly what the Department of Finance said about how long it would take or the costs.
-----based on his opening statement and the analysis he pointed to which needs to be made when Exchequer funding is spent that surely we are doing things after the fact here? Everybody was amazed by the eight year projection, and it seems to me that in the initial analysis this was not well-known at Cabinet, or there might have been second guessing with regard to this in the first place.
It is, and that is fair enough, but it seems to me if we are making a decision without knowing fully how long something will reasonably take it defeats the process from day one. This is the point Mr. Watt made in his opening statement. We have a very recent example that belies and makes a mockery of what we already know about how long these things take and the type of the overruns we have dealt with historically in this committee. We are still dealing with tribunals. Every time the Department of the Environment, Community and Local Government comes before the committee we ask how much the bill is now. We are speaking about things which have taken decades. I understand from where Mr. Watt is coming, and the point the Chairman is making is very relevant. I understand the analysis and that a memo goes to Cabinet, but do we undertake a proper analysis on how long an inquiry will take and how much it will cost? I still think the answer is no.
To come back to it, and not to go into the policy area, it is a huge concern of mine and, I am sure, as Deputy Deasy has said, other members of the committee, that we are now entering two inquiries without being able to define in a reasonable way - I know there is risk in it - the exact extent and cost involved. This does not sit well with me. What Mr. Watt said in his opening statement is fine, but I caution against the decision to have what would seem to be an open cheque in both cases, because this is what we are looking at. Those making policy should think twice about what they are doing. I would certainly want to see set out the benefits of the spend of this type of taxpayers' money to achieve we do not know what.
It is a pity, when we reflect on the OECD report, that a system is not in place in the House to examine in a very detailed way the proposal and cost to determine if what will come out of the report is worth this type of money. If it were a business this is the question that would dominate, but a cost-benefit analysis and information on what the public should know do not seem to be considered in this case. Who will cry stop should all of this be a step too far? As Chairman of the Committee on Public Accounts I caution the Department and the policymakers on this, because it seems we are going down the same old road we have travelled before without learning anything.
This brings me to the OECD report. I participated in the report and was there for its launch. While I welcome the report, and it is the basis of debate and conversation for various committees, it is very disappointing that, in the same way as the budget is front-loaded to spend the money, it speaks about the budgetary process to examine the amounts of money to be spent, but there is no emphasis thereafter in the report on upskilling or empowering the Comptroller and Auditor General to have a much greater role in the examination of the spend of taxpayers' money to the point where it is being spent, unlike in other jurisdictions. It excludes any commentary on an amalgamation of the local government audit team and the Office of the Comptroller and Auditor General and empowering the committee to do the job the public believes it is doing.
Earlier, before the Secretary General and his team came in, Deputy Costello and others raised the question of the wards of court, the replies from the Department, where recommendations go and so on, as well as the delay in reverting to this committee. Until such time as sanctions are introduced as part of the structure of this committee, it will continue to be effective but not effective enough, it will be given oversight but not enough and if one likes, it is being separated from the €2.5 billion to €4 million, depending on whether one is in good times or bad, of local government expenditure. On Mr. Watt's opening statement and this morning's reports regarding the Central Bank and the payment of retention money, what role, if any, does the Department have in this case?
Mr. Robert Watt:
I have a few comments. On the Comptroller and Auditor General, local government and the relationship between the Comptroller and Auditor General and the local government auditor, I have expressed my views in the past that our Department has an open mind about whether both should be amalgamated. I have stated this previously and I believe the Chairman and I are in broad agreement here. Certainly, our Department would be supportive of that and have been in the past. We know the Comptroller and Auditor General and this process have a strong impact in terms of value for money and ensuring that Departments account for money and are called to account before this committee. This is very powerful and if we believe this could have an impact on local government expenditure, we certainly would not object to that. I have supported it in the past and my view has not changed in this regard.
The Chairman raised some issues about responding to recommendations of reports. He will remember that when our Department was established in 2011, one issue about which he approached me was that it took a great deal of time for us to respond to the recommendations in minutes of reports. We have put great effort into ensuring we respond promptly and I think - Mr. Dermot Nolan can confirm - we now respond within 11 or 12 weeks. We also put pressure on Departments to respond and while the Comptroller and Auditor General might confirm this, we put a lot of effort into this and there have been improvements in the timeliness of the response. As for the wards of court report, I believe it arrived in our Department last week. I had a chance to look at it last night and we will review it. Inasmuch as it relates to our work, we will revert to the committee on that. As we literally only received it last week, we have not had a chance to consider it in detail. We will come back to the committee and will provide members with a view when we have had a chance to consider it.
-----it was with the Department of Justice and Equality and the Courts Service prior to that. It has gone around the houses a little, although I understand the Department of Public Expenditure and Reform only received it-----
Mr. Robert Watt:
Yes, we only got it last week, but certainly, inasmuch as it relates to our role - I am not sure it does - we are happy to provide comments and give the committee some views on it. That is no problem. On the wider issue of the role of this committee and the Comptroller and Auditor General, the focus is very much on mattersex post. The Comptroller and Auditor General prepares reports after the event. When it comes to assessing in advance proposals, theex-anteevaluation is something that in the first instance is undertaken by Departments and then our Department has a role in ensuring the appraisals are carried out properly with proper evaluation. Under our system, parliamentary questions can be asked at any stage about what is the evaluation and what is the assessment of it. It is possible to invite in Accounting Officers to explain their assessment of a particular issue. However, the Chairman is correct that within our system and with our structure and that of the Comptroller and Auditor General and this committee, the focus is very much on an ex postanalysis.
I am aware the Organisation for Economic Co-operation and Development, OECD, touches on some of these issues although I have not had a chance to read its report in detail as it only came out quite recently. I believe the general recommendations are worthy of consideration and merit and if enhanced parliamentary oversight by this committee or other committees can enable Departments to be more effective in delivering services and enhancing value for money, then we very much support that. Our Department would support and would be happy to engage with this committee or with the Executive, no doubt it will be the new Government that must reflect on this, but we have no problem in discussing or giving views about what we think may or may not work. We are very open to this and if implementation of aspects of this report can enhance the role of this committee and that of our Department and if it makes them more effective, we would be very supportive of that.
Mr. Robert Watt:
We have become aware of these payments. We are surprised about the payments, having just heard about them. The key issue for the Central Bank is that it must satisfy itself that it is compliant with the law and with the provisions of the relevant Acts. That is the first issue for the Central Bank, that it must satisfy itself it is compliant with the Acts.
Mr. Robert Watt:
No, we do not. The Central Bank is separate with regard to the discharge of its function in respect of pay. Since we are the originators of the legislation and the legislation applies to the Central Bank, we are certainly happy to support it in its assessment. The key issue is, however, whether the Central Bank is consistent with the legislation that governs the pay arrangements for the bank. This is a matter we will explore with the Central Bank.
Yes, so long as this does not mark the start of the banking structures in Ireland giving the two fingers to the Government again, as they did previously. Perhaps there should be an early indication from Departments that this kind of retention payment, or the other areas into which they entered, will not be tolerated again. Otherwise, they will revert to the same kind of culture from which we all have just emerged. They are inclined to do that and certainly have shown very little respect for business people, ordinary citizens, mortgage holders and the Government in the past. If manners have been put on them at all, one should ensure that they stay on them.
No, if I wanted to be brusque or to say anything about it, the Secretary General knows I would say it quite clearly.
On the other matter of looking at accounts as they are spent, I have some figures to hand from the Comptroller and Auditor General. I believe approximately €2.6 billion is going to Irish Water up to 2016 in various amounts. These are the kind of figures that frighten people, who want to feel comfort in the fact that somebody publicly will hold these people to account but the committee cannot do it directly. I encourage the Secretary General, inasmuch as he discusses policy with the political side of the house, to do so because it certainly will not go away after this meeting and people still have a concern in this regard. While I apologise for keeping Deputy Dowds waiting, can the committee publish Mr. Watt's statement?
I welcome Mr. Watt and his team before the committee. Before turning to my main questioning, may I also mention the issue of wards of court, because my understanding is the Comptroller and Auditor General cannot audit the money involved? There was a recommendation from the Committee of Public Accounts that the funds held in trust for wards of court and any funds held in trust by the proposed office of public guardian should be audited by the Comptroller and Auditor General and that legislative amendments to facilitate this should be brought forward by the Ministers for Finance and Justice and Equality. There is a certain urgency in this regard because new legislation is coming down the track. From what I am told, the money may not be well invested. This is a serious issue and it is important that it is tracked, in particular given the vulnerability of the people who ultimately would benefit. I would be grateful for the Secretary General's comment on that issue. If he is unable to comment directly, if possible he should send the committee a report when he is in a position to do so.
Mr. Robert Watt:
As I mentioned in response to the earlier comment by the Chairman, we have received the report and I have had a chance to look through it. First, I was surprised about the scale of the funds, amounted to €950 million, as I had not realised it was such a large amount. It is important to stress this is not public money in the way in which we understand public money. It is not voted expenditure, as it is not voted upon by the House. It is not under the control of an Accounting Officer and, consequently, there is an issue as to the role of our Department.
We have no role. On the question of whether there is a future role for the Comptroller and Auditor General, I do not know. That is something we need to reflect on. We need to reflect on it very carefully because these are not liabilities that are liabilities of the State. They are not public moneys or voted moneys, so we need to be careful about what this means. All I can say by way of reassurance is that we will examine this matter and determine what the issues are. I am aware there are concerns about some funds running out and what that might mean for certain individuals. This is obviously a very serious issue for them. I am very happy to talk to the Comptroller and Auditor General offline about that. It is a matter on which we have not had visibility. As I said, it is not public money. It is not audited or voted on.
Mr. Robert Watt:
There is a public interest, obviously. I am not suggesting for one moment there is not; of course there is a public interest because people are in receipt of funds. If there is enough available, those people will then avail of services provided by the State. There is obviously a public interest but we need to read through this and examine it carefully. We should speak to the Comptroller and Auditor General about this and perhaps revert to the committee afterwards. I am sorry but I am not kicking for touch; it is just that we have not really formed a view.
Mr. Seamus McCarthy:
We actually discussed it during the correspondence earlier. The policy encapsulated in the Comptroller and Auditor General (Amendment) Act 1993 is that the Comptroller and Auditor General may audit funds, etc., of Departments but not a fund managed by the courts. That is where the impediment to my doing as proposed, by agreement or otherwise, lies. It would require legislative amendment. The measure is in place for a very particular reason, that is, the separation of powers between the legislative side and the court side. It has to be done not as a blanket change because there are other funds managed by courts and so on. All that would have to be thought through, followed by the presentation of a report by me to the Oireachtas.
I recognise that, after the Department of Finance, the Department of Public Expenditure and Reform is currently the most powerful Department in government. Obviously, it has played a very important role in turning the finances of the country around. In case I forget to say it later, I want to acknowledge now the role public servants have played in terms of the pay cuts they have had to accept and also, in some cases, extra hours worked. I very much hope they will continue to benefit from the fact that the economy has turned around.
Every Department has to come to the Department of Public Expenditure and Reform to get its hands on the money it requires to run its operations. Can Mr. Watt explain the criteria and examinations he employs to be satisfied that Departments' Estimates are accurate? In answering, could he address the fact that, in some cases, there have to be Supplementary Estimates. The body that stands out most obviously is the HSE. Other examples concern Army pensions and the Garda Síochána. It would be very useful for the public to hear the criteria.
Mr. Robert Watt:
I thank the Deputy for his comments on the Department. With regard to the budgetary process, we have three-year envelopes. We try to set out spending over a three-year basis. The broad parameters of the expenditure are set out based on a comprehensive review of spending which we carry out every three years. We go through a review with a Department very extensively and the papers are published and publicly available. We work with Departments in terms of determining the trends that are having an impact on spending on a no-policy-change basis. If we do nothing and deliver the same service, what would it mean for the cost of services? We look at new policy initiatives and commitments the Government has entered into and we build up an assessment of how much is required. Ultimately, it comes down to a question of politics. When the officials have done their work on figuring out the implications of policies and the no-policy-change position, the making of the allocations is a political decision. On an annual basis, that is refined with the budget. The intention of the three-year envelope-----
Mr. Robert Watt:
Yes, we set out a three-year envelope. The intention of three-year envelopes is that there would be more of a constraint and cap on the Department. The Department would have to manage within that and be more strategic. Of course, on an annual basis as the economy evolves and as the budgetary position is updated, there is scope for the Government to add to or increase the allocation, as in recent years. The first assessment is really for us to figure out the underlying trends and costs and what allocation is appropriate given the current policy and the perspective on the policy. That debate takes place across all Departments and agencies. It is quite an involved process.
Issues arise regarding Supplementary Estimates. In recent years, the Government has taken the opportunity as fiscal targets have been met and as the economy has grown faster than expected, to allocate additional moneys. Some of the Supplementary Estimates involve a conscious decision. In terms of transport, for example, there has been an increase in allocations in 2014 and 2015-----
Mr. Robert Watt:
That is a policy decision. The Government decided as things were improving and as we were well below our deficit targets, we would use some of the money to enhance capital. We saw that response in the storm that took place in 2014, when there was an allocation across a variety of different heads.
Of course, there are challenges in a number of different Votes. Overall, our record has been quite good over the past five years on managing expenditure. The vast majority of Votes, as I believe has been set out in the report of the Comptroller and Auditor General, stay at or below profile. However, issues clearly arise over Army pensions and the Garda. There are significant issues associated with the HSE. We are aware that the establishment of budgets and budget execution need to get better.
With the HSE over recent years, a large proportion of the increases have been on the basis of policy decisions the Government has taken each year requiring additional resources. Other factors relate to our ability or inability to forecast demand, be it in the hospital system or through medical card or GMS payments. Therefore, there is a real challenge associated with forecasting demand and managing spending within the health system. This is a challenge faced not only by Ireland but also by other countries. We talk to colleagues in OECD countries and they talk about budget issues, budget execution and budget planning. The health system comprises the one issue across all publicly funded health systems in respect of which it is very difficult to forecast demand, set Estimates and stay within budget. This is an ongoing challenge. That is the process.
Why is it so much more difficult than with the Department of Social Protection, for example, which obviously has the highest expenditure of any Department? I can understand certain reasons, such as the desire to make some new drug that has come on stream available to the people. That would obviously lead to an increase. Allowing for that, the Department of Health seems to be the most frustrating Department to deal with.
Mr. Robert Watt:
We do not find it frustrating; it is just a challenge. It takes up an awful lot of our time. Colleagues in the Department of Health and HSE are very much focused on doing their best in terms of managing budgets and delivering the service as best they can.
The comparison with the Department of Social Protection is interesting. The thing about social protection is that there is a payment rate and a given number of recipients. We have an idea of the number of pensioners next year and of the number of children who will no longer be eligible for the child benefit. We know the likely number of births. With the vast majority of social protection schemes, we have a reasonable fix.
Unemployment is the one area where it is very difficult but in the past four or five years, we have done reasonably well in terms of forecasting spend under social protection. This year is an exception in that the live register figures have not come down as fast as we thought they would. On average, it is about 9,000 or 10,000 above where we thought it would be and that will lead to an overspend. Within social protection, therefore, we have a reasonable fix.
The health system is vast, with 100,000 people employed and a spend of €14 billion. There are so many different delivery units. It is available 24 hours a day, seven days a week. There are so many different aspects and demands to it that it is very difficult and an enormous challenge but we are working with the Health Service Executive and the Department of Health on how we can get a better matrix in terms of looking at the demand and what is likely to impact on spending over time.
There is a challenge for the next number of years as we move to the preventative arm of the new fiscal rules. There is less scope for Government to have Supplementary Estimates during the year and if there are significant overruns in one area, there will have to be compensatory changes elsewhere to stay within the overall fiscal space the Government is allowed. The new rules will have a greater impact in the future on the capacity of Government to have Supplementary Estimates of the type we have seen in the past number of years.
I will move on to the question of the Haddington Road agreement and the gradual removal of the financial emergency measures in the public interest, FEMPI, legislation. Am I correct in saying that overall, there has been approximately €1 billion in savings under the Haddington Road agreement? Are we in a situation where we know the final savings? Mr. Watt might deal with that question first.
Mr. Robert Watt:
As the Deputy knows, Haddington Road was a long time ago and I am trying to think back to the agreement but there are many different elements to it. There was an increase in hours worked, changes in overtime rates, premium payments and cuts in pay for those earning over €65,000 so for a large number of the Haddington Road measures we have a very clear sight of the savings. They were provisions which enabled us to deliver more services or make savings, hours worked being an example. There were 15 million extra hours delivered in the system. There is a cash value on that but that enabled us to sustain services as we continued to cut, and those additional hours were very valuable. We can come back to the Deputy with our assessment of the savings. We are very happy that, in the main, the Haddington Road agreement delivered. We are very happy that at a particular time when we needed to make savings, and it was difficult to make savings on the budgets during that period - we had a long way to go in terms of cutting the deficit when we negotiated it - that agreement was the right thing to do for the Government and it delivered broadly in terms of where we are now.
We are in the process of unwinding and the Government has entered a new agreement with the unions which, over time, will unwind the provisions of FEMPI legislation but it will take a number of years to get back to where we were. The cuts in pay have been significant and the pay savings are significant, so it is not possible for the Government to unwind it over a three year period. It will take much longer than that given the extent of the savings and the cuts that were endured.
Mr. Robert Watt:
The agreement covers three years and the cost is a little under €300 million for each of those years - €260 million, €270 million or €280 million depending on the year. The cost is €267 million for next year, €290 million in 2017 and €287 million in 2018. Approximately €900 million would be the cost of the restoration over those three years and that would have an impact on the take-home pay of public servants, depending on where they are within the scale.
The Government decided in percentage terms to focus the reductions more on the lower to middle income groups, and they are benefiting more from the changes. Broadly, there are two changes. There is the winding up of the pension related deduction, which affects the vast majority of public servants and there is an increase for lower income groups from 1 January. There are changes in pay depending on the income group and the income level.
Mr. Robert Watt:
As the Deputy knows, we reduced the overall public sector numbers by about 30,000 or 10% since 2008. In 2014 and 2015 the Government was in a position to increase employment again, and the focus has been to increase the number of teachers, gardaí, nurses, special needs assistants and front-line medical staff generally. The focus has been on increasing numbers and I set out in my opening address some of the increases that have been possible. Depending on the evolution of the fiscal position and what the medium-term expenditure plan will look like, the intention would be to increase employment in those key areas over the next number of years.
The real challenge for us is not to go back to some of the practices in the past. Nearly every area of the system showed an increase. We had to be very disciplined and focused on the areas of need, where we needed to increase the volume of public services-----
Mr. Robert Watt:
We work with the Minister, Deputy Howlin, in the first instance and set out what we think is affordable. The Minister, Deputy Howlin, and the Government decide then the priorities and they set out their priorities in respect of the front-line services I have spoken about.
Within the Civil Service, numbers are down to about 35,000 or 36,000 from 41,000. We are starting to recruit more graduates at administrative officer, AO, and executive officer, EO, level. For the first time in recent months, we have recruited assistant principals, APs, and principal officers, POs, as part of an open competition, so there will be some recruitment into the Civil Service as people retire. Approximately 1,000 people retire every year so we will replace those people but in a different way. For example, we do not see the Civil Service numbers getting back up to the levels we had in 2007-08. We do not see that as desirable because we need to be more efficient. We need to digitalise and use technology to reduce numbers but we need to focus on where the need is greatest.
The public service will get bigger. We will be recruiting and the number of teachers and medical staff will increase but in a number of years' time, the shape and structure of the public service will look very different from the way it looked in 2007. The increment to each sector will be different and will vary depending on the needs but, ultimately, where we allocate will depend on-----
Mr. Robert Watt:
We had an AP and PO competition in the past number of months. We have panels established and we will be taking people off those panels. For the principal officer post, 20% of the people on the panel are from outside the Civil Service; I think it was 25% for the AP post, therefore, 20% or 25% of people placed on those panels were from outside the Civil Service. The vast majority of people placed on panels are civil servants but, for the first time, we have a stream of people from different backgrounds entering the service.
Mr. Robert Watt:
When it comes to manpower planning two things are important. First, we are providing opportunities and investing more in the existing staff and we are trying to recruit in the best possible way and from the widest pool. We hope that both in terms of investing in people and recruiting people from different backgrounds that, over time, we will have the range of experience that will enable us to deliver on our objectives.
The impact on the culture takes a long time. There can be positives and negatives in terms of the impact on the culture.
Are there areas where it is difficult to recruit people? In terms of media reports, we sometimes hear that there is difficulty encouraging nurses to return from abroad or difficulties taking on people with high levels of skills and qualifications in the public service. Is that a problem and, if so, how is it being addressed?
Mr. Robert Watt:
I do not think there is a generalised problem around recruitment. When we have had recruitment campaigns to recruit teachers, gardaí or civil servants, we have had plenty of applicants so I do not think there is a generalised issue.
There was much misinformation about this within the medical sector. The Deputy might have seen some of the reports last week about the difficulty of retaining staff and the number of staff who want to leave. Those numbers were all nonsense and the Minister for Health, Deputy Varadkar, has come out recently and corrected that and explained the actual position.
Mr. Robert Watt:
I do not think there is a generalised problem across the system in terms of recruiting or retaining staff. There are pockets of difficulty. I will speak for the Civil Service, if I may. There is difficulty in terms of ICT staff. There is a major problem in terms of recruiting and retaining the type of staff we need, which is a challenge for us given the importance of technology in improving services and data sharing. This will become a greater challenge. We have a real challenge in terms of attracting people into senior leadership positions across Government Departments.
Mr. Robert Watt:
The number of applicants we receive for posts is low and so is the number of potential candidates that we have that we can appoint. We have a challenge when it comes to certain specialist skills and attracting people into leadership positions across the Civil Service.
Mr. Robert Watt:
Within ICT, we are trying to recruit people at different levels and grades and invest in them and to try to set out the benefits of a career in ICT in the Civil Service. It is not just about the money because we cannot really compete on the money. It is about the experience of working in Government and dealing with the types of challenges we are facing. We are trying to present ourselves in a different way because we cannot compete on money. The challenges of attracting senior leaders is an ongoing problem that we have. We are investing in principal officers and Assistant Secretaries and are trying to provide more mentoring and support. We are putting in place a talent management programme in which we identify future leaders and try to invest in them. We have two problems. We cannot compete with the private sector when it comes to pay for senior people and people do not want to take on public roles in which they have to deal with the Committee of Public Accounts and other committees. They do not like the treatment meted out by the media on a regular basis so people from the private sector, in the main, are not interested in taking on public roles because they believe the risks for them are too great. I do not know how we should deal with that but that is the reality of it. The pay is too low and the risks are too great for senior people from the private sector. That is what we get-----
In terms of doctors and nurses, Mr. Watt seems to be suggesting that, in the broad sense, there is not a problem. Are we able to retain or encourage back doctors and nurses who have received their training and professional qualifications in this country? Is that still a problem?
Mr. Robert Watt:
There was some debate about this last week and there were statistics thrown around that were misleading. A class of graduating doctors were asked if they were leaving Ireland and I think 90% of them said they may wish to leave. If one went to any group of graduates from the universities and asked them if they would like to spend some time abroad, they would all say that they would. I thought some of those statistics were misleading. I think there is a challenge in the health system but I do not think it is as chronic as some of the media has reported. The Minister for Health, Deputy Varadkar, responded to some of that reporting and said that the position is a little bit different. I think it is correct to say that we have never had as many doctors in the system in the history of the State as we do now. If there was a major retention problem - a really chronic problem - that would not be the case. That is not to suggest that we could not do more to attract people from abroad who have left. The HSE has been involved in those recruitment campaigns.
Sometimes I hear complaints about delays in recruitment in terms of the public service and in the health area as well. Does Mr. Watt have any sense of how long it takes to fill posts? I have heard of some situations anecdotally such as an occupational therapist within the HSE system who was interviewed for one position but offered another after all the interviews. In some cases, there seems to be a considerable delay between the advertising of positions and the filling of them. How is that being addressed?
Mr. Robert Watt:
The Public Appointments Service manages most appointments to public positions and it does a fantastic job. The activity it is dealing with now is up 50% or 60% in 2015 compared to 2014. The level and volume of activity and the demand placed on it as we are starting to recruit again is enormous and it is doing a fantastic job within a very constrained budget allocation. We never give it as much money as it wants and it is always under pressure. The Public Appointments Service operates within the code. There are very clear guidelines on how we recruit people. We have a very rigorous, transparent process and because of that, it can take time. There are screening processes, shortlisting, final interviews and then people are placed on panels. It can take three to six months. That can create frustration and delays. If we are going to offer a position to a graduate coming into the Civil Service who may be with us for 20 or 30 years, we need to spend as much time as necessary to ensure we are getting the best candidates and that we are happy with the people we place on panels. I know-----
Is that not way slower than other areas? I come from the teaching profession. When I applied for jobs, it did not take that long to fill them. Surely, in many cases, one is trying to fill positions that need to be filled yesterday, as it were.
Mr. Robert Watt:
Yes. We do not employ teachers, the schools do. The school would organise the competition and offer the post. We get a lot of complaints from managers across the system who have staff shortages and want people to come in and they complain about the time it takes. My view is that we need to get the best people who will be with us for a long time doing very important work. I understand the frustration. The Deputy has probably received representations - the Public Appointments Service also gets them - from people who are looking for work and want to join the service and we are slow at taking them off panels. I can understand the frustration but we need to be sure we are getting the best people in because they could be with us for a long time. If somebody is coming into a private sector organisation, it could take a long time to give notice and manage that process so I am not sure how out of kilter we are but we could look at it and we might come back to the committee with some data on how long it takes.
Mr. Robert Watt:
They do not operate under our code. Appointments to public positions operates within a code that I think everybody here would accept is absolutely critically important. It has served the State very well. The Public Appointments Service serves the State very well. I would be reluctant to suggest anything that makes it harder for it to deliver on its mandate. We are happy to come back to the Deputy with some data on how long it takes to fill and whether there are outliers there.
My last questions are on the area of procurement. Part of Mr. Watt's opening statement dealt with that issue. In the broad sense, we should all be satisfied if the changes in procurement policy are improving efficiency. On the other side of it, as individual Deputies, we get complaints, particularly from small companies that are feeling as though they are being pushed to the wall because of Government procurement policy and the difficulty that small companies have in competing with much bigger enterprises.
Mr. Robert Watt:
We hear this and we try to respond by providing supports and information and working with Enterprise Ireland and other bodies in terms of facilitating the access of SMEs to contracts. Within the circulars that we set out, we encourage the breaking up of contracts into lots, where that makes sense, and to have different framework contracts to accommodate that. The analysis that Mr. Quinn and his team did, which we discussed the last time we were here, shows that 66% of the spend goes to SMEs, which is significant.
There is a lot of procurement we do where the only providers are large entities. If one thinks about, for example, the procurement of drugs, the companies involved are large and are not SMEs. However, for the spend which is relevant here, SMEs are accessing a considerable amount. During the process of reform, contracts that have been in place for a long period of time may be re-examined and changed, and companies may lose contracts or feel they have lost out. There is always going to be kickback and issues arising from that. We are very cognisant of that and we receive such feedback all of the time, as do Ministers.
The overall mandate is to operate a more efficient and professional service. There was a lot of unhappiness in the past with the way procurement was done. The Comptroller and Auditor General and others have completed many reports on procurement which found problems with non-compliance, value for money and a variety of other issues. Of course, there are still issues now and the system will never be perfect. However, we are happy that the journey we are on now is to professionalise a really core function, to make it much more commercially focused and to address a variety of issues that existed in the past. Already we are seeing very significant savings. We have saved over €100 million to date and we have just started the process. We have ambitious targets to save up to €500 million over time on procurement-----
Mr. Robert Watt:
No, that is across the entire system, the whole public service, which has a procurement spend of between €9.5 billion and €10 billion, and we believe we can make more savings. If one looks at framework contracts that were entered into for electricity, gas and other services, one sees that we are making very significant savings. The State needs to use its monopsony power more and it is crazy that it does not do so. That is what we are embarking on and that will save money. Ultimately, what we save can be used to improve services elsewhere. The aim is to improve services all the time. Members of this committee and all Members of these Houses call for more spending on a variety of services all the time.
There is an obligation on the State to procure in the most efficient way and that is what we are trying to do. I am aware that there are challenges, that some sectors lose out and some companies lose out. In most cases the business goes to another company employing people in this economy, so there is not an overall loss to the economy, but there is an impact for individual companies. I am fully aware of that.
Mr. Robert Watt:
I did not say they were non-compliant. I said there was an issue in the past with weak practices. What we now have in place is a circular and an approach to procuring common goods based on a framework we have set out whereby we do the procurement for Departments and provide the goods or services for them. In other cases, Departments undertake the procurement themselves and we provide them with guidance, assistance and help. There is always going to be an issue with compliance. We cannot police every single contract that is entered into. That is absolutely impossible and we do not wish to do that. However, we must encourage Departments to stick with the circulars, to implement best practice and to make sure they are getting value for money. That is what we strive to do and that is what Mr. Quinn and his team are working on. There will always be non-compliance at some level. A report from the Comptroller and Auditor General last year showed that there was a spend of approximately €150 million to €160 million that was not based on competitive tender processes. There were various reasons for that. In some cases the explanations were not adequate, in our view, and there should have been a competitive process. However, the number of cases of non-compliance for which there was no justification represented a very small percentage of the overall procurement spend. We will monitor it, and no doubt the Comptroller and Auditor General will revisit the issue at some stage. We are happy to work with his office on this. The most important principle is that there is a competitive tendering process and that we strive to get the best value for money for the taxpayer.
Mr. Robert Watt:
No, but there is a circular on the provision of grants, which was the subject of a report. I referred in my opening statement to the fact that we have a new policy circular relating to grants which sets out a statement of principles in terms of clarity, transparency, value for money and so forth. We expect bodies in receipt of grants from the State to procure based on good practice, and that is what we set out within the statement. We hope that happens. As I also mentioned in my opening statement, we have established Benefacts, a single repository of data and information on the sector, which receives €4.4 billion and comprises more than 20,000 entities. Next year we will have a database that shows how much money entities are receiving from the State and what we are getting from that in terms of outcomes and outputs. That will improve their compliance and performance over time and aid this committee in its assessment of the extent to which they are providing value for money for the taxpayer.
On the issue of procurement, I do not expect the Department to police every contract or arrangement that is entered into, but for recent years, particularly the last two, we have had to examine accounts of various Departments and agencies and in most of those accounts we identified cases in which procurement was not carried out properly, as agreed with Mr. Watt's Department. In 2014, for example, under the Garda Vote, there were 51 contracts, with a total value of €6.7 million; under the Vote for the Prison Service there were 11 contracts, with a value €2.8 million; under the Vote for the Courts Service there were contracts worth almost €750,000 for which there was no competitive process; under the Vote for the Department of Agriculture, Food and the Marine, there were 14 such contracts, with a total value of €1.5 million; in the Department of Social Protection, such contracts numbered ten, with a value of €1 million; and in the HSE there were 299 cases, valued at €56.5 million. Those Departments and bodies gave various explanations for this, the most common one being that they did not have specialist procurement staff available. In other instances they said that there was an extension or roll-over of the contract, that they had to acquire the goods from a special agent or that-----
Yes, or that they had to deal with the matter urgently. This is similar to the explanation given in one set of accounts presented to us this morning, in which just over €400,000 was spent on procurement without the appropriate process being followed. That sends out a very negative signal about procurement processes. In the education sector, for example, UCD applies a threshold of €60,000 for open tendering for contracts, rather than €25,000. It has simply taken the view that it can apply a threshold of €60,000 rather than €25,000. All members of this committee have questioned this approach in recent times. This morning we saw that Bord na gCon continues to have issues around procurement. It is an issue within Departments and agencies, with some continuing to operate outside the guidelines. Not only that, in many cases that we have examined, they receive very poor value for money.
Mr. Robert Watt:
In 2014, what was the value of all of the contracts mentioned? What is the total involved? I ask because the Comptroller and Auditor General did a report last year covering a certain period which suggested that there was a spend of approximately €150 million that was not subject-----
Mr. Robert Watt:
Yes, but there are valid reasons for not conducting a competitive process. There are some valid reasons, which we accept. It should not be and is not the norm, but there are valid reasons, including the extension of a contract, urgency or if there is only one supplier of the goods or services. There are some good reasons for not having a competitive process.
In the vast majority of cases, one should go through a competitive tendering process based on the rules that Mr. Quinn has set out and on the guidelines furnished to the committee. They are not necessarily our rules, they are EU guidelines. The issue for us is the amount involved. The Comptroller and Auditor General's previous report on this indicated that there was spending of between €30 million to €40 million without a competitive process and there was no good reason for the absence of such a process. That is the subset where the problem lies and it is not acceptable. That is the amount and I absolutely agree that it is not acceptable and must be addressed.
I would make the point, however, although I know the Chairman hates when I say this, that the total spend is €10 billion. Does a sum of €30 million or €40 million, in terms of non-compliance with a process, out of a spend of €10 billion represent an okay outcome or is it disastrous? I would contend that we need to do better, that this should not happen but that, in the overall scheme of things, there is a pretty effective level of compliance. It suggests to me that 99.99% of the spend is actually compliant. Is that not the case? Is it material in the overall scheme of things?
I will explain the issue in terms of the overall scheme of things. We often hear figures of €8 billion and €9 billion quoted here. Mr. Watt has just said €10 billion in terms of the spend on public procurement. I absolutely accept Mr. Watt's opening remarks that, in the general scheme of things and in the context of a budget of €54 billion, mistakes will be made and that is true. However, I am referring to the number of agencies and Departments that continue to operate outside the procurement rules and which are not making much effort to comply. As long as we have these ten-----
While the performance is good, it could be a hell of a lot better. It is not acceptable. I say that in the context of what is being offered as an excuse for not procuring goods and services properly. Deputy Deasy raised the issue of the Aran Islands in the context of procurement and there are many examples of procurement that fall way short of the mark. When that happens and it is clear that there is a problem, what power does the Department of Public Expenditure and Reform have to make the agencies and Departments work in accordance with the rules?
Mr. Robert Watt:
Hang on. We can all give examples but the data that we have, based on the Comptroller and Auditor General's assessment of this, suggest that between €40 million to €50 million of spend on procurement was outside of the competitive process and there was not a sufficiently good reason for it being outside thus. I may be mistaken but I believe that was the figure. The sum was small. I would contend - although the committee is entitled to disagree with me - that, in the overall context of the spend that we have on procurement, this is immaterial in an auditing sense. That said, I am not suggesting we should not be concerned it. I am suggesting that it is inevitable, with thousands of contracts every year across hundreds of bodies, that some contracts could be executed in a better and more efficient way. There is no company, organisation or system in either the public or private sector anywhere in the world that gets everything 100% right all of the time.
I understand the concerns of the Chairman. In terms of his question as to what we do, we work with Departments and remind them of their obligations all the time. Mr. Quinn's team works with the procurers in the various agencies to explain what we want. We are moving from a situation where this was not as professionally focused as a function in the service as we would like and we are trying to fully professionalise it. Mr. Quinn's office has been in place for just under three years. The process takes time but we are very happy with the progress we are making. That said, we are not content in the face of examples of non-compliance. I am not disagreeing with the Chairman. We need to figure out how we can do better across this vast system and determine whether there are sanctions or other mechanisms that can be put in place to improve the situation further. We are striving all the time to ensure that Departments understand their obligations and are working with them in that regard. Some of the reasons given for non-compliance, such as, for example, an absence of specialist staff, are not acceptable. That is not an adequate reason because specialist staff are available. That is not a good enough reason for not doing things properly. If Departments do not-----
I would make the case to Mr. Watt that this is not just about the money. He is using figures such as €77 million, €150 million and so forth but for almost a year now we have been dealing with the HSE and the way it awards contracts. In many cases there is a lack of competitive tendering. The cases we have been dealing with involve allegations of very serious child abuse and what we have found is that the HSE was awarding contracts, without competition, to former HSE employees. The executive has been dragged, kicking and screaming into changing that process. No offence to Mr. Quinn, but this was happening under the nose of his office and that of Mr. Watt's Department. The only reason we have got to the point now where proposals have been put down on paper is because we pursued the issue relentlessly for the past year. It took the HSE an awful long time to admit to something that was known about for a considerable period. It is not just about the money. In the cases we dealt with, the exposure to conflict of interest was massive and the seriousness of the issues was enormous.
In this case, a Garda investigation remains ongoing but the proposals are there and have been accepted. Mr. Watt said that one corrects things as one goes along and that is fine but that has not been our experience with the HSE. It had to be dragged, kicking and screaming, into agreeing to change its policy when it came to awarding incredibly important contracts. We are not talking about enormous amounts of money. We are not talking about millions but tens of thousands of euro in terms of the value of the contracts. I do not accept Mr. Watt's contention because our experience in here has been the polar opposite. When we raised this issue over and over again, it was ignored. We had representatives of the HSE in here and they cited some very obscure regulations with regard to getting around the competitive tender process. Two representatives from Mr. Quinn's office were also here and were asked whether they knew about this but they knew nothing about it. They knew nothing about the specific instances involved, which were disgraceful. That is just one example I would put to Mr. Watt to illustrate that it is not always about the money. The importance of this relates to the gravity of the issues involved too.
Mr. Robert Watt:
There is absolutely no justification for a process where there are conflicts of interest like that. There is absolutely no justification for it and everyone is clear about that. As this is the subject of an ongoing investigation, I will not comment on the specifics but it is very clear what the policy should be.
It is disappointing to hear from the Deputy that after this committee identified a problem, those involved still suggested that this was acceptable and said that they were not going to change their processes. That is not good enough. There is a very clear way of procuring goods and services. There are technicalities involved but the policy is very clear and no one should be under any illusions about-----
Mr. Robert Watt:
In the main, the HSE does its own procurement and we help it for the procurement of some common goods and services. We are very happy to help in any way we can to ensure that the processes are robust. Frankly, I am not going to defend any processes in the HSE or anywhere else which do not have value for money at their core.
I accept mistakes are made and things go wrong. If people are managing a process that is not adequate and it has been brought to their attention by the committee repeatedly, then it is not acceptable. We are working with HSE in putting in place a procurement strategy and a more focused approach. We have our job, as well as the Department of Health, to ensure it is doing it properly. Obviously, the committee has its job in calling it to account as to how moneys are spent.
Mr. Seamus McCarthy:
If I might just make an observation on that. The HSE is actually capturing the problem better. It still does not have a total grip on the extent to which it is not procuring competitively. What might appear to be a worsening trend is actually an improvement in the identification of the problem. I have previously pointed out that the problem in the HSE is a systemic one which it is struggling to deal with and improve.
Let me compliment the HSE then on successfully capturing its non-procurement data. In capturing the non-procurement data, it is crucifying itself. There were 32 cases in 2012, 116 in 2013 and 299 in 2014. If the Department does not intervene with the HSE, which is now attempting to procure one financial system for the organisation as well as other major projects, we will be back to a position where money will be lost and there will be no value for money for the taxpayer. I do not mind complimenting those which did well. However, those not within the system must be warned to come within it.
The Higher Education Authority, HEA, the Department of Education and Skills and third level institutions are just as bad. When one gets a third level institution saying it is employing a threshold of €60,000 against the €25,000 limit requested by the Department, it is telling the Department to get lost. I do not believe Mr. Watt is the kind of fellow who would accept that. Is he?
Mr. Robert Watt:
We will take it up. The fact the HSE now has the data and we understand the problem will enable us to improve performance and address it. Without the data, one cannot measure or improve. We are happy to continue providing support and clarity under procurement functions. The HSE management and the Department of Health accept it has not been adequate. We are working with them to address this. What would be useful - it is something that Mr. Paul Quinn’s Office of Government Procurement team can come up with - would be to look at the data on non-compliance across the system for the latest year. What the Chairman described is not a trend because it was under-reported in 2012. It identifies a problem. We do not know whether it is getting worse or better. Obviously, there is a reporting issue, as opposed to it being a trend.
Earlier, the Chairman asked about the Fennelly commission and I asked about the inquiry into the Irish Bank Resolution Corporation, IBRC. I am not going to stray into policy or ask Mr. Watt any policy questions. However, I want to go through this again.
The committee is still dealing with the legacy costs of tribunals. For example, the figure of €159 million comes to mind when we are talking about Mahon and €50 million for Moriarty, etc. When the Department of Finance was dealing with the analysis of how much it would cost to run a commission of investigation into IBRC, Mr. Watt said he does not have that figure right now. Does he have any guesstimate as to what figure was on the memo to the Government?
In his opening statement, Mr. Watt stated, “The public spending code provides that appraisals and detailed assessments should be carried out before Exchequer resources are committed.” He also said the Government did not expect the IBRC inquiry to be eight years at the time when it made the decision to set it up. Now that there is an expectation that the IBRC inquiry could take eight years, does Mr. Watt revise this? Does he put a cap on it? Does he say to the Government this could be massively open-ended? Does the Department say it cannot have this, based on what has happened historically with open-ended tribunals and the costs that have ensued? The public deserves some kind of assurance that we are not going to repeat the mistakes of the past when it comes to investigations. Is that fair?
Mr. Robert Watt:
In terms of the eight years, what I said was that I had not heard that timeframe. I do not think the Department of Finance was thinking in those terms at all. I do not recall that. I do not want to stray into what is a policy issue and a political issue of the day because I do not want to say anything that is then going to become an issue. That is not my job.
Mr. Robert Watt:
The Deputy can be pretty sure about our concerns and position. I do not like the sound of open-ended liabilities for the State. If one looks at our record on inquiries, tribunals and commissions, one can see that.
I will give my views to the Minister about this and the funding of it. I do not wish to comment on what is a policy issue now and is a public process. The Deputy can imagine what the Department’s view is, however.
This is important for the public, in fairness. If, for example, the assessment from the individual who is conducting this investigation is that it could take eight years, which is not hypothetical because it has been in the media, what does the Department do when it discovers that? Does it have input? Does Mr. Watt give his opinion and tell his Minister we have a problem here? Does he say to the Minister we need to correct it and put a cap on it? Does he just ignore it and leave it go?
My guess is that some people in the public would say that IBRC should be investigated. However, if one puts a realistic cost tag on it, then the public would say it is not so sure. Are the projections made out of thin air? It seems to me that this could be the case. There was no expectation that this inquiry would take as long as some people are saying it would take. That is a relevant issue for the Department, based on what Mr. Watt said in his opening statement.
Mr. Robert Watt:
I am not close to what has gone on in this area but the Department of Finance will have to come up with its assessment of how long this may take and the cost of it. As part of the decision-making process, those involved will put that in. If it involves money, then we will offer a view. Ultimately, it is a policy decision in respect of how we proceed.
That is fair enough.
I want to ask Mr. Watt about recruitment. He said some things about the private sector. We deal with this in the committee a little. We dealt with the Department of Justice and Equality recently over not hiring a Secretary General. Three people in the interview process were not deemed appropriate to be offered the position. That is high-end in the public sector. Last week, we dealt with the Attorney General's office, the Director of Public Prosecutions and the Chief State Solicitor's office. The case was made at the time that they were unable to hire enough young lawyers into Government. I do not imagine the public views hiring more lawyers in government as a crisis, to be honest. If it is a question of nurses, then the answer might be "Yes" and the public would have a different view.
There is a better chance of it if there are more lawyers. I am not trying to be funny but they view it differently. Mr. Watt answered the question when it comes to doctors and nurses but I am unsure whether he has really dealt with this in enough detail when it comes to the pressures relating to hiring and recruitment within the public sector. The average age within the public sector is 47.9 years. I gather that is the age right now.
Mr. Watt is saying that in many cases, the private sector is beating the public sector when it comes to recruitment of individuals in certain sectors. Where are the critical areas within the public sector now? Mr. Watt referred to information and communications technology. Are there any others?
Mr. Robert Watt:
Generally, we have a demographic issue in the wider public service and certainly in the Civil Service. The median age Deputy Deasy referred to is broadly the correct figure. We are in the process of transitioning. Many colleagues who were recruited in the 1970s during a period of expansion are retiring and moving out. We are now in a position where we can recruit again. We are starting to recruit across the grades, from clerical officer, executive officer, administrative officer and assistant principal officer - in fact, right across the Civil Service. We do not have a problem when it comes to generalised recruitment. Our pay rates are competitive. We have had applicants in competitions held recently. We have been happy with the quality of the applicants and the people we have placed on panels. They are excellent people. In my Department, the recruits we have taken on in recent years have been fantastic people.
Mr. Robert Watt:
However, there are gaps I am aware of. There is a challenge within the legal offices. Deputy Deasy is right about the public. The public always thinks of teachers, gardaí, nurses and doctors. That is their focus because those are the staff involved in the services people interact with. People are less concerned about whether the law offices of the State are well populated with good people. Of course, if we do not have good people in those offices, then problems will appear quickly because we will be unable to provide services. The DPP will not be able to do its work and so on.
Mr. Robert Watt:
There may be an issue within the legal area. I do not know whether it is acute but there may be an issue with our ability to attract legal people and retain them. I am not absolutely convinced yet but we shall see, depending on how the labour market recovers. At the moment, there is certainly without doubt a major problem with ICT. The most acute problem we face relates to technologists. There is no doubt that if I was asked for one area within the Civil Service, I would advert to technology. The rates of pay the private sector offers are multiples. We have seen it ourselves with the Office of the Government Chief Information Officer. We have been trying to recruit. We brought someone in and then the person left. We have tried to recruit other people but we are simply not competitive. The pay is not competitive.
Mr. Robert Watt:
When it comes to technology, we are trying to bring people in at different levels. We are trying to invest in our own people and train them. We are trying to package the career so that technology in the Civil Service is appealing. People are not necessarily going to take up the opportunities for money but they will take them because the work is interesting and exciting for a period. It looks great to have a number of years working with us on a CV. It makes them more valuable when they go out. We are trying to adjust the offering in a way. We have had some success. We have brought some people in recently and we are trying to recruit some more people. We have had some success but it is an ongoing challenge that we must face. We have a particular problem. There is a wider shortage of these skills. There is a shortage of people with the technical capacity.
Mr. Robert Watt:
I was being slightly flippant but if the committee members want to be serious about it and have a conversation about it, it is important to realise we have a major problem in attracting people to senior levels because of the pay. Second, regardless of whether it is fair, people believe that when it comes to committees and the media profile of senior public servants, they are treated in an unfair way. I am not going to get into it because if I say that, it will be the headline.
Mr. Robert Watt:
There is a perception, Chairman, and we may not like it. Some people do not like the idea of spending hours being grilled in front of committees. That is fine. Unfortunately, they have seen how some of our colleagues have been treated in the media in recent years and they decide that they do not want it.
Mr. Robert Watt:
Deputy Deasy and I might be thick-skinned enough to put up with all this because that is the way life is. However, not everyone fancies it. There may be very good people who would like to come in but when they consider the risk - there is a risk about this public aspect to the job - they say, "No, thank you". Does that have implications for how the media reports public service? Of course, it does. We all know how the media have evolved in the past five or ten years and how they treat people now.
Mr. Robert Watt:
If you want me to give my views, I do not think the sort of ethical standards that pertained in the media when it comes to the treatment of individuals now is what it was five years, ten, 15 or 20 years ago. The media will now report things, say things and treat people in a way that would have been very different in the past. That is my view. The Chairman and committee members may disagree but that is my view. That has an impact.
Mr. Robert Watt:
We can disagree on this, maybe. You have asked my honest view. I have spoken to many potential candidates. They have cited Dáil committees and the way they have seen people treated in the media as a reason not to take on certain roles. Deputy Deasy and I might think that nonsensical and that they need to grow up and whatever else but that is the view. Therefore, there is a challenge for us in terms of the offering and in terms of pay and the risks around the roles. We need to work through this and think about how we are going to address it in future because it is a challenge for us.
I accept that is Mr. Watt's genuinely held view based on his conversations with these individuals. I am doing the arithmetic in my head on the chances of someone having to show up at a Dáil committee, for example. It is small enough. Most public servants, if they are not a nurse or a garda-----
I put it to Mr. Watt that I do not think he is going to engender too much sympathy among the public. People will say that these people knew it before they signed up. If Mr. Watt is saying it is a bar to people taking the step in the first place, that is fair enough.
Mr. Robert Watt:
I am not looking for sympathy. I do not care. This is the job. I am making a serious point. The committee members can dismiss this if they want but the way in which we interact with senior civil servants and the way in which the media deals with civil servants have an impact on attracting people to take up these jobs. That is all I am saying. I am not looking for sympathy and I do not really care but that is my sense of it.
If committee members do not believe me - they may not believe me - the next time Ms Fiona Tierney, head of the Public Appointments Service, is before the committee, the committee should ask her about the question and about her conversations with hundreds of candidates over a number of years. She will give the committee her view.
I will move on under the heading of reform, something that Mr. Watt mentioned a good few times in his opening statement. I advised the committee that I would raise the issue of the tender for the contract for air services to the Aran Islands. I am directing my question to Mr. Watt initially, because he referred to reforms within the system. This was an example of a botched job that had to be reversed because due diligence was not done. How could the system have awarded a contract to a company that was not in a position to deliver the service because it had never had a licence? I have a conflict of interest, as my wife is from Inis Mór, but I am probably the only Deputy who uses that service regularly. I have some experience of it. When this situation occurred, it caught my attention. When it was announced that the preferred tender was a helicopter service on the other side of Galway city, the immediate reaction of almost everyone, not just in Galway or on the islands but in the entire country, was "For God's sake." It was crazy.
In terms of delving into the nuts and bolts of how the process was constructed, what does Mr. Watt do as head of a Department that has direct jurisdiction over and oversight of the Departments involved and Mr. Quinn's office? Does he intervene? He stated that he did not want to intervene in every contract, which is fair enough, but people might ask whether he and his officials inquired into what was happening when he found out about this situation.
Mr. Robert Watt:
We worked with the relevant office - that is, the Office of Government Procurement, OGP - on drawing up contracts. A number of issues arise and I will ask Mr. Quinn to contribute after I have given my view on them. I do not necessarily agree with the characterisation of this as a botched job. It is not fair to say that due diligence was not carried out. The issue was whether Galway Airport had a licence to provide the service over the period of the contract. The airport was contacted for a check and confirmed that it had a licence. It did not tell us at the time that the licence would expire at the end of this year. The tender documentation that was submitted did not say the airport would not have a licence beyond the end of 2015. During the clarification stages of the contract, it was not made clear to us either that this was an issue.
When one enters into a contract, the requirements on the prospective provider of the service are clear. An obligation was on the airport to ensure that it was compliant and in a position to provide us with the service. It was asked and did not tell us. It had an opportunity to do so in the tender documentation. One cannot check everything. One cannot walk down the runway checking for potholes and kicking the tyres of the aeroplane. There is only so much that we can do. When we procure electricity from ESB, we do not check to see whether the turbines are working. We take it that ESB is in a position to provide us with the service - namely, that it is licensed to provide power and its turbines are working.
Due diligence was undertaken, but we should have been told that the airport was not in a position to-----
The first part of my question was about how the process was constructed in terms of the facilities being on the other side of Galway city and the fact that the service was to be provided by helicopters rather than fixed-wing aircraft. Did Mr. Watt-----
Mr. Robert Watt:
The critique is that the airport should not have tendered if it did not have a licence, but that was a matter for it. When we asked, those at the airport told us that it had a licence. They did not tell us that the licence would end at the end of this year, but they should have. People might point fingers, but at the end of the day we must re-tender - that process is beginning - and extend the contract for a year. We will see how matters pan out.
Mr. Robert Watt:
In terms of accountability, Mr. Quinn and his team were involved. Mr. Quinn came to me and told me the position. I checked and asked questions and am satisfied that the team did everything it reasonably could in the circumstances. Deputy Deasy may disagree, but I was satisfied with the explanations. I have read the report and the papers that have been provided to me. I am satisfied that the team drafted a reasonable tender around a reasonable competition within the regulations as set out.
Fair enough. My motivation and that of the people who are potentially affected by this issue is to learn what will happen next. There will be a new competition for the contract and people want to know what the Department will do about it. Everything else is in the past. I might agree with what Mr. Watt stated about the checks that he did, although I have a small disagreement with some elements of the process. Some of the bidders certainly do. They did not have a great experience with it. However, we will park that. How will the tender process be constructed in future? Will it be open to other air services or will the officials do the pragmatic thing and narrow it down to a geographical area that is reasonable in terms of air travel to and from the islands? Will they do the same thing all over again? How could they, given the fact that a licence would not be available in the first place?
Mr. Paul Quinn:
At this moment, we are planning for a new tender to issue in or around March of next year. The future of the airport at Carnmore remains uncertain. As the Deputy is aware, it is owned by two local authorities. They have expressed the view that the airport will be unavailable because they will not release it to the operator. I do not believe they have made a firm decision yet, so we are monitoring the situation.
Mr. Paul Quinn:
We will work with the Department of Arts, Heritage and the Gaeltacht to agree on the appropriate number of airfields and what their locations should be. If these are reduced for geographical and travel reasons to Minna Airport, which is the existing jumping-off point, and if that is the base against which people are to bid their services, another issue will arise, because Minna Airport is owned by the same structure that owns Aer Arann Islands, as many people are aware.
I understand the quandary at which Mr. Quinn's office may arrive and am asking the question. The matter of the licence not being available in respect of Galway has been thought about and the question is: what will the office then do?
Mr. Paul Quinn:
We then will be obliged to look at that. We have no firm answer on that at this point because it brings into play the regulations associated with the licensing of Na Minne and competition law because effectively, one will have a potential de facto monopoly for the only jumping-off point. We must work with the Department of Arts, Heritage and the Gaeltacht and with the law offices of the State to figure out how to go about meeting our obligations under the EU regulations on opening up these services and how to so do in a way that is compliant, open, transparent and gives people an opportunity to compete.
That is fine Mr. Quinn but in plain talk, it may be that only one airport will be available and Aer Arann owns that airport. Consequently, the decision for the Government, outside the legal matters, the regulations, monopoly law, etc., is that it may have a choice as to whether it wishes to continue the service or basically to tailor it to that particular airport. It is as simple as that. When it comes to the new tender, does Mr. Watt agree it really is coming down to this?
The committee tried to bring in that Department but I refer to Mr. Joe Hamill's surgery. I am sorry that some officials are not present but that is beside the point. The other issue, which I consider to be relevant, is about the expertise and experience within the Office of Government Procurement when it comes to air services and air transport. Would one not be better off dealing with the Department of Transport, Tourism and Sport to a certain extent when it comes to these services?
Mr. Paul Quinn:
No, I disagree. The category manager who led on this is well qualified both from a procurement perspective and had worked previously with the National Transport Authority in the procurement of various different services. There are matters of specification that come into play here but between the Office of Government Procurement and the Department of Arts, Heritage and the Gaeltacht, there was good consultation with both the Commission for Aviation Regulation and the Irish Aviation Authority on all these matters. While some technical knowledge is required, this process has been run a number of times previously by the Department of Arts, Heritage and the Gaeltacht.
I will not labour this issue forever. My own opinion is the Government might have got a bit lucky on this one because the licence was not in place at Galway. I have absolutely nothing against the preferred bidder in this case but having a helicopter service based at the location picked by the Office of Government Procurement made absolutely no sense. The office went through its processes and was given a job to do; it made no sense whatsoever. From my perspective, as someone who has used that service and knows the geography and infrastructure in the area, it was crazy to have constructed it the way it was. This is not just my opinion but is that of anybody who has a scintilla of information or knowledge of what I am talking about when it comes to that air service.
Yes. The important thing, and the witnesses have answered the question, is this narrows down to one airport and, conceivably, one tender and that is that. Moreover, I believe this will be the case. Respectfully, I believe the witnesses should gear their minds towards that eventuality, as opposed to fighting it. That really is the situation towards which we are heading and the Government must accept it. This is important and this entire affair has taught us we must be realistic with regard to the service under discussion and should just deal with it and make a decision. Is that fair enough?
Mr. Robert Watt:
It is made up of the Taoiseach, the Tánaiste and the Ministers for Finance and Public Expenditure and Reform, as well as Martin Fraser, myself, Seán Ó Foghlú and Niall Cody. It is comprised of four civil servants and four politicians and then we have three external people plus the chair of the Top Level Appointments Commission, TLAC.
Mr. Robert Watt:
We went through the Public Appointment Service's stateboards.ieprocess and asked for people with experience in assisting in the running of large organisations who had managerial experience and who had an interest in public policy and in government. Primarily, it was for experience and the people we have are very experienced in their fields. Their curricula vitae probably are available on our website. I am sure they are there.
Mr. Robert Watt:
No. That is the Civil Service Management Board. That is our own business.
Mr. Robert Watt:
This was drafted in the Department of Public Expenditure and Reform. We had a lot of discussion within our Department and across the Civil Service and then it went out to consultation. We had a consultation process in which we invited people to give their views on whether the standard was adequate and sufficient and whether we were covering all the different items that ought to be included.
Mr. Robert Watt:
No, it was external consultation. We put it out to external consultation and invited people to comment. We got back a reasonable number of comments from people who would be interested in this such as accountancy bodies, auditing bodies and others with an interest in this because as the Chairman is aware, there has been a concern in the past about some of the governance failures and some of the issues that arose about management teams that were not working properly, about how ICT was being used and so on. The Civil Service now has a common standard and by next year, each Department must come up with its own governance framework that is consistent with and has all the different elements that are in the common standard.
Does Mr. Watt think a greater effort is being made within Departments to attract outsiders into them to avoid getting the usual suspects on boards or bodies that would draw up this kind of stuff? In other words, is a greater effort being made to bring in someone who offers a challenge?
Mr. Robert Watt:
Certainly, in our Department we are fairly open to external people and to being challenged. There has been a sea change in recent years in how we engage with people. We have published a consultation document that sets out the principles and we have open policy debates. We have had 18 open policy debates since the Civil Service renewal plan was launched in which we have stated what is our policy issue and have invited outsiders, that is, external people, to give a view and work with us on policy.
Mr. Robert Watt:
Certainly, when it comes to appointments to State boards, we now have stateboards.ie, which is a process run by the Public Appointments Service, PAS, where the focus is on the job, the competencies and the people and we now are seeing people coming forward who never would have been in a position to get an appointment on a board based on the previous system. Consequently, when it comes to much greater external involvement, many more people are coming in now and coming forward because they perceive that the process is based on one's ability and is a meritocratic process.
The governance framework provides that the management board is made up of people in the Department, as well as the press officer and press advisers, but one issue about management boards and Departments about which there has been debate is whether there should be non-executive directors on the management boards of Departments, as has been tried in the United Kingdom. We will return to this issue of whether it would help were external people to sit on management boards and work with the Secretary General, the Assistant Secretaries and the management team. It is something we have not yet embraced but it is happening in the United Kingdom. The results are a little mixed, depending on the Department, but it is something to which we may well return.
In his statement, the Comptroller and Auditor General referred to the Estimate and the money surrendered to the Department.
Under Vote 12, €16 million was liable for surrender, and under Vote 18, €10.3 million was liable for surrender. Another figure totalled €6.1 million. What happens there? The Department sought an Estimate, and in some of those cases, substantial parts of that Estimate were surrendered.
Mr. Robert Watt:
In respect of the Votes that relate to shared services, there was a programme within the PeoplePoint transaction with HR and in payroll, where we are transitioning people. We had a profile of transitioning, so we had a work programme. In respect of payroll, we had people who were providing payroll in the Department who are now being consolidated in one of the three centres that we have. The pace of transitioning into services was slower than we had anticipated when we drew up the Estimate. The money is spent elsewhere in the system but it is just not spent on our Vote. That explains the underspend in respect of shared services.
A significant amount of capital was allocated within financial management shared services, which is a start-up project. The Comptroller and Auditor General is aware that we are taking our time with this. It is very important that we get it right. We cannot have accounts that are 95% or 99% correct. The Comptroller and Auditor General will be happy with that. We are trying to make sure that when we move to this integrated financial management system, everything is on board. It has taken us longer to draw up the specs and review the tenders, so we had a capital allocation for 2014 and 2015 and we have not drawn down all of it as much. It is about the pace of some of these change programmes. We set ourselves ambitious targets but we just did not deliver as quickly and we took our time. That means that we must surrender the money. Of course, we would have to spend this money in the future on the capital side of the programme-----
Bearing that in mind, because Departments might surrender money again this year, although possibly to a lesser or greater extent - I am not talking about the Department of Public Expenditure and Reform - I want to relate this to my next question. Local authorities are striking budgets all over the country. One of the issues they face is that of utilities and the reduction in their valuations. As a result of that, there is a €22 million shortfall, taking all the local authorities into account relative to their budget. For example, in Kilkenny, €200,000 will not be collected from big companies such as the utilities. That €200,000 will be shaved off the figure for services to people in County Kilkenny. The same applies to Waterford, where they must shave off €1 million relative to its local authority budget.
In respect of those figures and the shortfall of €22 million nationally, and the fact that it relates to rates - I think the Department of Public Expenditure and Reform is responsible for the Valuations Office; is that right?
The fallout from its independent function is that this change is taking place. In looking at this, would the Department not reallocate some of the unspent moneys to local authorities to assist them because of this once-off issue that they all face?
Mr. Robert Watt:
A global revaluation has taken place. On this occasion the rateable value has come down, so there is a loss of income of €22 million, as the Chairman noted. It would be worth exploring what would have happened if the revaluation had gone the other way and had increased the receipts to local government. Would local government then have sent that money back and reduced the allocation from the centre? I am just posing this as a question, because it can go both ways. We do these revaluations and it can go the other way. We have had revaluations in the past after which the income was the same. I am interested in whether I would be asked this question if it went the other way. There is a shortfall, so the options are for local authorities to reduce their services, increase their property tax or rates, or come to the Government looking for money. They are the three options, so I think I know which option they are going to go for.
Yes, so it is upwards of €22 million, and local authorities must now cut their services, as is the case in County Kilkenny, and raise the rates by 5% to compensate for the relief that some of the biggest companies in the country have received.
I am making the point that this seems to be out of kilter with Mr. Watt's remark that those who are least well off and most marginalised would be supported. They are now going to be targeted by local authorities. It is a fact. It is there in the Estimates. The small businesses in the counties are being asked to pay an extra 5%. I am not asking Mr. Watt to go into policy areas. I am just making the point that if this kind of money is going back to the Exchequer, and possibly from other Departments as well, consideration should be given to rebalancing the figure at local authority level. I am only making the point, which is a valid one.
This is well flagged. County managers are lobbying the likes of me about this, so Mr. Watt knows about it. Is there a view within the Department about local authorities asking for money to make up the shortfall?
The Minister did say that he would restore them and that he felt that abolishing town councils was a bad idea, so there could be a difference of opinion in the Department. It may once again go to the Department of Finance in terms of a decision relating to the Department of Public Expenditure and Reform.
There is a substantive point. The Department issued a report on local government relatively recently and we discussed it the last time Mr. Watt appeared before the committee. We talked about the provision of services at a local level. The Department is dealing with that on an ongoing basis. The point that I and possibly others have made was whether a deficit exists after the abolition of town councils and whether this is being surveyed and monitored on an ongoing basis to see their grade and the level of services that exist now as opposed to previously. Has the Department done any work on that?
Mr. Robert Watt:
No, not since that discussion took place. The Minister has his view and I think he expressed it previously in the House. I am sure the Minister for the Environment, Community and Local Government also has a view. I am sure everybody has a view on that local government reform, but no doubt we will return to it.
I have a few more questions. Last week, we dealt with legal fees. One issue that emerged from the conversation was that the legal services are outsourced.
There was a suggestion that in order to capture all of what was spent on legal fees, there should be some co-ordination with the Attorney General, the Department of Public Expenditure and Reform and so on. Is that suggestion being considered?
That answers the question. A similar issue arises in regard to third level institutions, including universities and institutes of technology, some of which have a contract through the HEA for auditing.
To my mind, it is not satisfactory because it seems that having the one audit across all third level institutions is not working for other reasons. These reasons are better spelled out in the various complaints we have received from various bodies, ranging from the VECs to the institutes of technology and universities. That is certainly a matter Mr. Watt should examine because sometimes buying in a uniform service for that type of grouping does not work well in achieving transparency and accountability. We have seen examples which we are still exploring. In line with that comment, I am deeply disturbed by what we have found in the institutes in Waterford, Cork, the VEC in Cork and expenditure in other universities. There is a huge issue in these third level bodies that needs to be addressed, to the extent that one member has asked that the presidents of Galway and Sligo institutes of technology be invited to come here to explain the procurement process. The same issues apply to the institutes in Waterford and Cork. The Department should examine this issue.
Mr. Watt will not appear before us again. This committee, like the Dáil, is running to the end of its term, but this issue concerning institutes of technology, universities and so on will not go away. It needs to be reviewed and I am anxious to bring it to the attention of the Department today.
The other matter concerned having one financial system for the HSE. I acknowledge it is progressing, but we have been told it will be some years before it is actually rolled out. Is there any way to speed up the process? Quite frankly, dealing with the HSE on its budget is a nightmare, as I am sure it must be for the management staff who appear before this committee.
Mr. Robert Watt:
We have got to a stage where different parties are happy that what is being procured and the specification will do the job. It has taken a long time to get to a place where we are actually happy. The timeframe and sequencing were very convoluted, but I am sure they were set out for a reason - to ensure we did not fall over. Those concerned are starting with a number of regions or consolidating a number of regions and will then roll out the system. It is certainly a matter we will pursue with the HSE. In the absence of an integrated system, I agree that it is very difficult to monitor expenditure and for management to discharge its functions. What is proposed is really needed. However, we do not want to fall over half way through, as happened in the past when it turned out that the system did not function. Certainly, we can take up the issue. Perhaps Mr. Quinn might talk to those concerned and determine whether we can make progress. We support the HSE as best we can and will continue to do so.
In his report Mr. Watt mentioned the Ombudsman, freedom of information and all of the various changes in that regard. My point concerns the work of committees of these Houses. There was a single taxpayer in whose case the Ombudsman recommended full payment on a particular issue. A half payment was made by the Revenue Commissioners. Ever since committees of the Houses, mainly those concerned with financial matters, have made recommendations that the individual taxpayer be paid as per the Ombudsman's original recommendation. I am not advocating on behalf of the individual concerned, but I am concerned about the issue. Various committees with a financial remit have examined the case and made the same recommendation. To this day, the remaining half payment has not been made. Therefore, not everyone is afraid of committees of the Houses.
That is an example of someone deliberately ignoring the hearings of a committee which were signed off on by a number of Chairmen. The matter concerns every party to the case. The payment should be reviewed and someone should ask about it. I do not know why the money is not being paid, particularly given the independence of the Ombudsman and the various reviews undertaken in the Houses and the fact that the case was referred to them. I encourage the Department to examine the matter in the context of expenditure.
We have dealt with Bord na gCon. Concern has been expressed about the fact that organisations are often considered on the basis of concern about their ongoing business. That has been said about Bord na gCon and its representatives will be before us again next week. As Chairman of the committee, I feel obliged to highlight to the Department the fact that there are continuing concerns about the organisation and others listed by the Comptroller and Auditor General, with the same comment on their reports.
I wish to return to the comments made by Mr. Watt on committees of the Houses vis-à-visthose applying for leadership roles. I do not wish to have a discussion on the matter. The answer is that if individuals were scared of applying for the job, or if it was one of the things about which they were scared, given the fact that some of them would have been in control of budgets of billions of euro on behalf of the taxpayer, I suggest one is better off without them. I fail to see how they can offer that kind of comment. We must talk to Ms Fiona Tierney about this. None of the biggest companies in the country which one would regard as being hard-nosed in business is short of leadership staff.
There are two sides to the issue. I am not disagreeing with what the Chairman said, but I have referred to this committee as the epicentre of parliamentary hyperbole. I am not referring to the Chairman in that regard, but on occasion the committee acts in the way I have described. Sometimes members let outrage flutter around the room like confetti. It is the case that they make a meal of some witnesses from some Departments and of issues raised here. In the past four years I have seen this trend among certain members. While I take the Chairman's point on the expenditure of billions of euro, at the same time we need to face up to the fact that it is sometimes dealt with by some members as a form of theatre. It is done for publicity reasons, not really for substantive reasons on occasion. We have to face up to that fact, too, and it needs to be mentioned, as it is a fair point.
Yes, it can. It happens in the Dáil and the Seanad, as well as in other committees, and I cannot see it changing any time soon. In fact, I have seen a marked change in the opposite direction. The conversation that was had with the Deputy earlier is one that we could have about politicians, believe it or not.
The point is we cannot change that. It is the way it is, and those who come in here to work must understand that. When it comes to recruitment, people see all of this going on and they understand when things are overstated or there is a bit of grandstanding. I cannot see either the Dáil, Seanad or committees changing any time soon, so people have to factor that into their decisions. Having said that, I have not seen many people run out of the place.
Mr. Robert Watt:
It is an issue that is worthy of discussion. Public scrutiny is critical and, as Deputies noted, this committee is at the centre of that. The public has a right to know how its money is being spent and, to that end, these types of formats are vital. However, we must bear in mind that while we have had a reasonable debate here for three and a half hours, only a small snippet of that will be covered in the media and it will not necessarily reflect the discussion that took place. We might be used to all of this, but a lot of people out there just hear the noise and not necessarily all the discussion. In a private organisation or even a large public company, the types of debates we might have around accountability and spending happen within a certain setting. On the other hand, discussions here take place in a public setting. All I am saying is that we need to be aware of what that actually means. While it is the nature of the system, as the Chairman observed, people outside look at it in a different way from how we look at it. For some people on the outside looking in, what goes on here is a very unattractive dimension of certain roles. It does not bother me because I know about the nature of it, but for some people outside who may be thinking of a career in the public sector, it could be factor. The Chairman may be right that there is nothing we can do about it, but we should keep in mind the tone of the engagement. This is not a reflection of my own experience of engaging with the Chairman and members of this committee. If I had a problem with the committee, I would have told the Chairman. In fact, I have never had a problem. However, there have been occasions where the tone of the debate - not necessarily here, but in other parliamentary fora - is such that it is a real turn-off for people. The Chairman might discount it but it really can serve to put people off. That is just the way it is.
Otherwise, it will not change. That brings us to the point about local government. Reports, including value-for money reports, concerning local government are produced but they never get debated in the real public sense of what happens in this committee. The public sees that and if we ask people whether they want that type of secrecy or an open public debate, they want to see the latter. One can measure the appetite for that type of scrutiny by virtue of the desire that is there to have meetings televised live. If that is how it is going to be, then we have to have horses for that course.
Is it agreed to dispose of Votes, 11, 12, 18 and 41 and Chapters 4 to 7, inclusive? Agreed. I thank Mr. Watt and his officials for attending the meeting. I have enjoyed our exchanges in the past few years. It has been good and healthy for our democracy.