Oireachtas Joint and Select Committees
Thursday, 10 December 2015
Public Accounts Committee
Business of Committee
Are the minutes of the meeting of 3 December 2015 agreed? Agreed.
We have received notification from the HSE that sections of the Conal Devine report will be released to the requestor today. The minute of the Minister for Public Expenditure and Reform, which is the formal reply to our report on the wards of court is still being worked on in the Department of Public Expenditure and Reform. Many members have been in contact about this, but it is not ready as yet. Members will be circulated with a draft report on the costs associated with undelivered capital projects. If members wish to make any amendments please contact the clerk before close of business on Monday.
Correspondence has been received from Mr. Sean Ó Foghlú, Secretary General of the Department of Education and Skills, regarding Tralee IT, to be noted and published. We can deal with this matter today when the Secretary General is before the committee.
Correspondence has been received from Mr. William Treacy regarding the Horse Racing Ireland Bill, to be noted. As outlined previously, the committee is not in a position to assist Mr. Treacy in this matter.
No. 3B.2 is correspondence, dated 1 December 2015, from an anonymous source regarding fraud at DIT Aungier Street, to be noted and forwarded to the Department and the HEA for a note on the matters raised.
Correspondence has been received from Maples and Calder Solicitors regarding Dublin Waterworld Limited v. National Sports Campus Development Authority, to be noted. Maples and Calder represent the plaintiff in this case, Dublin Waterworld Limited. The committee examined an issue in 2011 and 2012 and reported on the matter. This correspondence seeks the permission of the committee to waive privilege so as to allow the defendant to get access to certain categories of documents in accordance with a High Court order. There are two categories of documents. The first is correspondence to the committee that now forms the record of the committee. All of this has been published on our website and all was given to the Department. As these documents are already in the public domain, the advice is that no issues of privilege arise and the plaintiff can be notified. The second category of documents relates to records maintained by the plaintiff of correspondence with individual members. These are not matters for the committee but for the plaintiff. The matter is covered in Part 10 of the Houses of the Oireachtas (Inquiries, Privileges and Procedures) Act 2013. The Clerk will write to Maples and Calder and apprise them of the position.
No. 3B.4 is correspondence, dated 1 December 2015, from Mr. Jim Breslin, Secretary General of the Department of Health, regarding the registration of nurses, to be noted.
No. 3B.5 is correspondence received from Mr. Niall Cody, Chairman of the Revenue Commissioners, regarding Mr. Patrick Coughlan, to be noted.
Nos. 3C.1 to 3C.9 are briefing documents and opening statements for today’s meeting, all to be published.
I ask the Comptroller and Auditor General to comment on No. 4.1, which comprises the financial statements of the Institute of Technology, Tallaght.
Mr. Seamus McCarthy:
With regard to the Institute of Technology, Tallaght, this is a clear audit opinion but I draw attention to the fact it did not carry out a review of the effectiveness of the system of internal control, which is a specific requirement in the code of governance for institutes of technology. There was procurement by the institute in respect of 14 suppliers, with a combined value of €1.2 million, in the year of account which was not subject to a competitive tendering process.
Mr. Seamus McCarthy:
It is particularly an issue in the third level sector, and this is an institute of technology again. The note the liaison officer prepared for committee members indicates a significant number in the education sector where full compliance with the guidelines and regulations is not adhered to.
We have dealt with Mr. Robert Watt who, when it comes down to it, with the Office of Public Procurement is the top echelon as far as public administration is concerned. We then deal with the Department of Education and Skills underneath that when it comes to procurement and compliance. The Comptroller and Auditor General has been dealing with this for years. The Chairman asked Mr. Watt what is the solution. It is not being dealt out or directed from his office appropriately. There does not seem to be any great improvement and, in fact, with some agencies such as the HSE it has disimproved, contrary to what he said that day.
Mr. Seamus McCarthy:
I made the point on the HSE that we do not actually know whether it is improving or disimproving. What is improving is the capacity of the HSE to identify the instances. A point that may be worth making on the third level sector in particular, and particularly the universities, is there is a delay in completing the audits in many cases for a variety of reasons. By the time we raise with them that there is a problem with procurement the next year of accounting has almost elapsed so they are not in a position to remedy it.
Another issue is that because framework procurement structures are being put in place, there are cases where colleges are deciding to wait until the Office of Government Procurement has put a framework in place. The only way to solve this is through persistence and by continuing to raise the issue. Essentially, it will be a question of who wears out first. It is appropriate for us to continue to put the emphasis on the matter and report on it where it is material. That is what we have been trying to do.
We might all be fired in a few months time. Perhaps those who have the power and who tell us they have the power and that they are in charge of the most powerful Department within Government, should just do their job or else leave and get somebody else to do it if they cannot. That is the reality.
I agree with the Chairman. It is ironic that a week after the Secretary General of this particular Department talked about any further pay increases or promotions being based on productivity as opposed to longevity, we are still dealing with these kinds of issues. On the one hand, there is an aspiration to become like the private sector in some respects, but the reality is there is no change when it comes to these types of issues.
Mr. Seamus McCarthy:
A point worth making is that a private business would not have to do the same amount of tendering. For those businesses, it may be economically advantageous just to get a supplier. The rules are different between the two sectors. However, I do not disagree with the point the Deputy is making that if the chief executive says something must be done, then it should be done.
Yes, that is surely the principle of it. An employer in the private sector will say how the business must be done and if that does not happen, the boss will not be too happy and will probably fire the employee in question. However, that does not seem to happen within Departments. In fact, nobody even gets sanctioned. When we raise this issue, we get all the spiel about doing what one can and so on. In the third level sector, people are simply saying they will not use the threshold of €25,000 and will instead use one of, say, €60,000. Until someone decides to deal with that issue, Mr. McCarthy will continue to have these notes on the different audits that come before us.
That is the point I was making. If we set a threshold of €25,000 and an institution like St. Angela's College in Sligo, which we will discuss presently, decides to have its own threshold of €50,000, surely it is possible to introduce some type of financial penalty for such a direct breach of guidelines. That should be coming from the Department.
What I am saying is that something should kick in automatically if the standard threshold is breached, which, clearly, is happening deliberately. Perhaps the committee could issue an recommendation that a financial penalty should kick in for Departments and Government agencies that are consistently in breach of the established threshold.
Mr. Seamus McCarthy:
There is no doubt that procurement is a difficult and quite technical process that has costs associated with it. It may be that institutions are adopting a type of least-cost approach because they do not want to incur that cost or, in particular circumstances, feel it is not warranted. As I said, it is a matter of how one deals with it. The Department of Education and Skills and the Higher Education Authority are in the front line in this area and the delegates may be able to cast light on it during the course of today's meeting. I expect we will hear about compliance reviews they are doing as part of which they are looking at some of these issues in a more systematic way. I understand they are focusing on procurement.
Mr. Seamus McCarthy:
This relates to Fáilte Ireland and its financial statements for the year ending 31 December 2014, in respect of which I have given a qualified audit opinion. The background to this is that Fáilte Ireland does not recognise a deferred pension funding asset for one of three defined pension schemes it operates. Its argument for this is that it has not been provided with a guarantee in regard to the future liabilities of that scheme. Fáilte Ireland recognises there is a liability that will have to be met, which, I understand, is of the order of €240 million in total. That is the body's estimate of benefits already accrued. Fáilte Ireland is recognising that the State will provide it with funding to meet some but not all of that liability. It recognises some €100 million of future funding as an asset on its balance sheet, which leaves it with a net liabilities position on the balance sheet of €100 million.
In most semi-State bodies, there is full recognition that the State will meet liabilities as they arise in the future and, on that basis, the full value of the asset is recognised. That would change the look of Fáilte Ireland's balance sheet, putting it in a net assets position, as at 31 December 2014, of approximately €42 million instead of that net liability. It would also have an impact on its income and expenditure account whereby it would be showing a surplus of €6 million for the year instead of a surplus of €4.2 million. Prior to its financial statements for 2013, Fáilte Ireland did recognise that asset, but the board has decided this is a more appropriate way to account for it.
I am giving a qualified-audit opinion on this matter. The practice of operating pay-as-you-go pension schemes has an implicit, as opposed to an explicit, commitment. There is also the fact that the employees of Fáilte Ireland and many other State bodies are paying contributions into a pension scheme in the expectation they will receive benefits in the future. The Department and the Minister have the difficulty that the funding for Fáilte Ireland comes by way of Estimate, which is voted every year by the Dáil. The Minister cannot bind the Dáil to a commitment in this regard, which presents a technical difficulty. However, there is no evidence the Department would seek to avoid meeting those commitments as they arise.
I wish to raise something I should, perhaps, have raised under correspondence or the lack thereof, which is the case of Mr. Douglas Fannin. It is an issue we have discussed several times at the committee. Am I to take it from the absence of correspondence that we still have not had a response?
After this issue was raised again last week, we informed the Department that we expected a response by today, or we would otherwise hear directly from it at next week's meeting. As of this morning, we have not received a response. However, I am told the Secretary General was away and that we should receive a response today. If that is not forthcoming before the close of business, which is 1 p.m., we will have to decide whether to call representatives of the Department before us next Thursday.
The Department has really dragged its heels on this issue. If the Secretary General was away, so be it, but the matter has dragged on and on and now we are approaching the Christmas break. If we do not have word by lunchtime, we certainly should have the departmental delegates in next week.
On the same issue, to an extent, the last response we received from the Secretary General of the Department of Agriculture, Food and the Marine with regard to Tom Galvin was that a report was due in December. We should follow up on whether the Department has a conclusion or a report based on the meetings it had with him a few months ago. Can you add that to the list?
There are a couple of points which I wish to see raised. The draft report is very good. It highlights the lack of accountability with regard to abandoned projects and impaired projects, and suggests a way forward. Two items should be included in it. One relates to the children's hospital, which is that it was in breach of both the local area plan and the Dublin city development plan. The plans are glaringly obvious to anybody drawing up a planning application. Furthermore, it went up 16 storeys. There is no mention of the subsequent plan that was put in place, involving nine storeys, which they were able to do within a couple of weeks.
That is the first point. The second point relates to Mountjoy Prison. Both of those planning applications are literally across the road from each other, the Mater hospital and Mountjoy Prison, and a total of €85 million in taxpayers' money was effectively wasted. However, in the process of the purchase of Thornton Hall there was the sale of Shanganagh Castle, the only open juvenile prison in the country. It was not just that this defrayed the costs, it also resulted in a huge loss to the quality of penal rehabilitation and so forth. Reference to that should be included as well.
Okay, we can check on that. I was going to mention something for the same date. We were dealing with an issue involving Castlemartyr and NAMA, and we have not received a response on that. I am not advocating for whatever is happening there but I just want an update on it. We could get a response from the Revenue Commissioners, but not from NAMA. Should we not get a response from NAMA we could use that day as well, depending on who is available.
We can schedule a meeting if you wish. We commence our next term on 21 January, but we can certainly meet a week before that. I am sure members will not mind. We can determine who is available for 21 January and we have suggested NAMA or the Revenue Commissioners.
Perhaps you will give me a few minutes to brief the committee. I have already spoken to the Comptroller and Auditor General in respect of information that has been given to me from a former employee of the Central Bank. This employee was tasked with carrying out a review of the code of practice for the governance of State bodies. The Central Bank had been found not to be in compliance with those measures previously. The Comptroller and Auditor General had correspondence with it in that regard.
This individual joined the Central Bank in July 2014 to cover what was a temporary promotion but which subsequently transformed into a permanent promotion within the internal audit unit. Between August and September 2014 this person carried out the field work in respect of the audit task in question and in October 2014 produced a draft report, of which I have a copy. In the course of November there were discussions on the draft report and it is the strong view of the whistleblower that they were encouraged or instructed to omit, delete and amend certain findings within the draft. The individual was so concerned that they made a protected disclosure on 17 November 2014 to Professor Patrick Honohan, the then Governor of the Central Bank. The whistleblower had no further involvement in respect of completing this audit report. He was tasked with other duties.
In December 2014, Deloitte was invited to carry out an assessment of what had happened. I also have a copy of that assessment. Deloitte acknowledges that the whistleblower had resisted amending, deleting and omitting elements of the findings, however Deloitte found that, in its view, the actions of management in respect of the report may have been appropriate and in keeping. I am trying to mimic the language it uses, because its language in the report is somewhat conditional. On 21 December, the whistleblower was informed of the decision of Deloitte and on 23 December they were informed that their contract was coming to an end. The person concerned has a live unfair dismissal action within the system, so we must respect that procedure. Finally, on 29 January, the final audit report was produced, and I have it with me. It does not bear the name of the whistleblower anywhere on it, even though they had been involved throughout the process.
The reason I raise this, and the reason I approached the Comptroller and Auditor General, is that three very important issues arise. The first is the behaviour within the audit division of the Central Bank and the practice of asking, encouraging or attempting to coerce people - who is to say? - into removing, altering or amending findings in an audit report. The whistleblower concerned consulted with their professional body to establish, to the best of their ability, what their professional responsibilities were. I have seen that correspondence also.
An issue arises in this regard.
The second issue is the treatment of the whistleblower and the question that arises in my mind is was the whistleblower punished for speaking out, and for not going with the flow? That is an important question.
Finally, in the longer term the issue for this committee relates to the finalised internal audit report which the Central Bank issued on 29 January 2015 and which was distributed to the then Governor, Patrick Honohan, the deputy governors, the chair of the audit committee and the chair of the risk committee. It does not make for very good reading. It shows that the Central Bank, as at 29 January 2015, is not compliant with the code of practice for the governance of State bodies. As I cast my eye down the document I see the results as follows: in terms of composition of board and code of ethics, it is partially compliant and on remuneration or pay it is partially compliant. We know there was a recent controversy around retention payments, or bonuses or whatever they are called, within the Central Bank. In terms of risk management accountability internal control, it is partially compliant; on procurement it is partially compliant; on travel it is compliant - the only such case on the list; in terms of disposal of State assets and access to assets by third parties, it is non-compliant; and on tax compliance it is partially compliant.
That is a very troubling account of the level of compliance of the Central Bank and in saying this it is not to adopt a fetish around the precision of audits or to argue over technicalities. The reason I believe this report is troubling is that a lack of regulation, oversight, sloppiness and groupthink were all ingredients which led us to a catastrophic situation, not so much for the banks but for citizens, taxpayers and so on. We can all in this committee room recall that time. I have this document because it came in the package of documentation given to me by the whistleblower as a protected disclosure. I emphasise that I have not been given anything that carries commercial sensitivity or that relates to another institution supervised or regulated by the Central Bank.
The question is what we are to do about this. I raised this matter yesterday with the Comptroller and Auditor General. My view is that there is a need for some serious questions to be answered in respect of practices within the audit division and in respect of the culture and the atmosphere within it. That it would be considered, in any way, shape or form, good practice to lean on somebody to take findings out of a draft report smacks of the worst of the bad practice of the old days. There are questions around the whistleblower, not including the unfair dismissal issue, which is separate. Was the whistleblower punished? Is that what happens within the Central Bank? I would like to know.
Finally, and perhaps most important, we need answers as to why, at 29 January 2015, there is a litany of non-compliance on the part of the Central Bank. We have a right to expect best practice from the Central Bank and I do not think it is an outlandish thing to look for. This is an internal document as audits, by their nature, tend to be but good practice and compliance within the Central Bank are not a private matter. They are a matter of the utmost public concern and we need to find a mechanism through which we can investigate it. I suggest the committee seek a copy of the internal report of 29 January and seek an opportunity to question the Central Bank on these matters. There are obvious issues for the Minister for Finance, Deputy Noonan, and I do not know if he has had sight of this document. If he has, I would like to know his response to it and what he proposes to do about it. If he has not seen it, I would like to know why. I am conscious that I have documentation which other committee members do not have so I will seek advice as to whether I can share the information with members of the committee.
Deputy McDonald has the information and we do not. The Deputy has raised it now and I am not sure of the legalities around whether we can get access to the documents. That would have to be clarified. We have been informed that we do not have a remit in respect of the Central Bank, even though it is audited by the Comptroller and Auditor General. It is one of the organisations listed in Schedule 2 which means we are excluded from the normal process of bringing in the witnesses from the organisation to deal with the report of the Comptroller and Auditor General. In light of what the Deputy has raised, I would like to find a process or a mechanism whereby we could get to the bottom of some of the issues which might be relevant to us in terms of audit but we will have to take some advice on it. Perhaps the Comptroller and Auditor General would like to comment.
Mr. Seamus McCarthy:
I confirm that I had a discussion yesterday with Deputy McDonald about this matter. The origination of the internal audit work probably goes back to an issue we raised in a 2013 management letter to the Central Bank. There was an ongoing issue with holding the Central Bank to account in relation to things like procurement so we made a recommendation that they carry out a comprehensive review of the extent to which they were compliant with the code of practice. This is possibly the first instalment of a programmed review relating to four main areas: the operation and construction of the board of directors; code of conduct and ethics; remuneration; risk management accountability; and internal control and internal audit. There were specific procedures to be followed by State bodies on procurement, travel, disposal of State assets and access to assets by third parties, as well as tax compliance. We suggested that to the Central Bank and it undertook this work in 2014. We received a copy of the results of the internal audit in March 2015, around the time we were completing the audit of the 2014 financial statements. It was an exercise the Central Bank needed to do and actions arising from the audit needed to be followed up fairly promptly. When we audit the 2015 financial statements we will revisit the matter to see what action has been taken on the recommendations of the internal audit and what progress has been made in investigating other aspects of the code of practice.
The statement on internal financial control is at the front of the financial statements.
It includes a reference to the applicability or otherwise of the code of practice. It states:
The European treaties ... provide that the Central Bank of Ireland is independent of the Government and so Government decisions, codes of practice and circulars do not apply directly to the bank. However, the Code of Practice for the Governance of State Bodies is largely applied by the Bank. In accordance with the Central Bank Acts 1942 to 2014, remuneration of Bank staff is set by the Commission. The Bank is guided by Government policy on staff remuneration.
In the statement on internal financial control, the bank also disclosed that:
During 2014, expenditure of €4 million ... approximately 4% ... of the Bank’s committed spend, was incurred across 42 contracts without recourse to a public procurement tender process. Of the 42 contracts ... 28 have been regularised during the year, and there is an action plan in place to address the remaining 14 contracts.
Where significant weaknesses in control are disclosed, there is a requirement for the Central Bank to include them in the statement on internal financial control. We will come back to it. The audit was informed that there was a whistleblower event in 2014 and we will investigate the matter further in the audit of the 2015 financial statements.
I thank Deputy McDonald for raising the issue. I do not know if we are being told it is outside our remit, which we are used to hearing about anything that is particularly awkward. The Central Bank has had a series of problems with whistleblowers, which the committee is familiar with. Some years ago, it suppressed information that Eugene McErlean brought to it. More recently, a whistleblower challenged the Central Bank's stress test system and suggested it was not all it appeared to be. In the case of Eugene McErlean, the Central Bank was subsequently found to be wrong. When Matthew Elderfield came before the committee we asked him questions about the second whistleblower. He was more than reluctant to answer any questions and left an unsatisfactory situation in which we never got to the bottom of why the whistleblower had found the Central Bank a very cold climate in which to blow the whistle. We never found out what happened to the whistleblower. It was unsatisfactory. Now we have another case. We cannot accept that it is outside our remit. Some civil servant will bury it and ensure we do not discuss it. There is a pattern that is worrying and we should pursue it with more vigour than we are being encouraged to.
Deputy McDonald suggested that we should write and ask for the report. When we do so, we could send a transcript of this part of the meeting. Then, we could seek whatever advice is necessary and take it from there, rather than just leave it.
With the Central Bank, one constantly hits a brick wall. While we can understand the commercial sensitivities, there is a culture of secrecy. We can never get to the bottom of the procedures or how they follow them up.
We need to check a number of issues in the report. Deputy McDonald has undertaken to do some work regarding the disclosure made to her. We agree to take the suggestion to the Central Bank, request the report mentioned and include the transcript of this part of the meeting and request a response. It is a starting point.
Based on what the Comptroller and Auditor General said, the articles of the Central Bank imply independence on the part of the Committee of Public Accounts. It is listed under category two and has its own set of rules in this regard. It also follows general governance guidelines set down by the Government. Is the process the Comptroller and Auditor General started continuing?
Here is the difficulty with all of it. This is the first cut at dealing with the issues, which is welcome. During the process, it transpired that an auditor within the Central Bank had fallen foul of the process. Nobody disputes the fact that the person resisted removing, amending or omitting elements of his or her work from the report. Deloitte judged whether management was justified in it. It is worrying in itself. It came late to the process, and the controversy emerged during the process. The real question is whether the whistleblower was punished, directly or indirectly, as a result of the position he or she took in carrying out his or her professional duties. It is a fundamental question that must be answered. The whistleblower believes he or she was punished for resisting the removal, omission or amendment of findings from the report. Although I cannot definitively prove it is true, there is a body of documentation that echoes the whistleblower's concerns.
Deputy Ross has hit the nail on the head regarding the pattern around whistleblowers. The big brick wall seems to be that while one can ask the questions, one has no right to any answer or any form of reasonable transparency from the Central Bank. The Central Bank is independent, for very good reasons, as set out in the treaties as part of the euro system. However, these are matters of internal governance, best practice and decent standards. It is unacceptable that Members of the Oireachtas cannot ask questions and get answers on simple compliance issues such as this. If it is no big deal, if everything is okay and there is nothing for any of us to be concerned about, there should be no difficulty with the Central Bank providing its final report to the committee and providing representatives to talk to us about the process and explain why, in this tranche of the investigation, the results are partially compliant, partially compliant, partially compliant, compliant in one case, non-compliant and partially compliant.
That is not good enough. I am sorry if that offends the sensitivities of the Central Bank but it is not good enough after everything that has transpired and after all of the testimony that has been heard at the banking inquiry. I would think we could agree on that.
I suggest again that we write to the Central Bank and look for this report. I also suggest that we put the bank on notice that, remit or no remit, we would like it to voluntarily, outside of the question of remit and its usual form, come before the committee to talk to us about this material.
We have agreed to do that and to seek the report. On a point of clarification, if the Committee of Public Accounts were to suggest that Mr. McCarthy carry out a value-for-money or governance audit, would the report come before us?
Mr. Seamus McCarthy:
We have done three value-for-money reports as one might describe them. The value-for-money terminology relates to the Comptroller and Auditor General (Amendment) Act 1993. The provision in regard to carrying out similar exercises on the Central Bank is included in Central Bank legislation from 1997. The provision is there and once I report on one of those exercises, it can be taken up by this committee. In 2007, my predecessor published a report on financial regulation. That looked at the costs and processes involved in the regulator as it was at the time in the Central Bank. That was presented here and discussed by the committee. There was a subsequent report and a similar report in 1999 covering some of the same areas.
Mr. Seamus McCarthy:
It was not a simple conclusion around whether there was value for money but it certainly pointed out that the regulation was very light and that there was a need for the regulator to benchmark its processes. It probably would not have made much difference at that stage because it was too late in the day but certainly it is on record.
I direct two questions to the Comptroller and Auditor General. I do not know the detail of what Deputy McDonald has been presented with but presumably if a whistleblower has been badly treated, the new legislation in that regard applies if matters were pressed in that way. I remember trying to press the Central Bank on credit unions and being very frustrated at the lack of answers. Given the difficulty of our questioning the Central Bank, to what extent can the European Central Bank, which is not an institution for which I have any great love, examine the operations of the Irish Central Bank?
Mr. Seamus McCarthy:
It must act within the law and the expectation would be that everything it does is within the law. There are two sets of external auditors of the Central Bank. RSM Farrell Grant Sparks audits the financial statements of the bank on behalf of the ECB. As such, there are streams of reporting. We also carry out the audit and co-ordinate our work with the work of RSM Farrell Grant Sparks. So that there is no unnecessary duplication, we satisfy ourselves by looking at its working papers in certain areas for the purposes of our audit. Similarly, it looks at our working papers in regard to particular areas and, if it is satisfied, rely on it. There are two streams of reporting.
Mr. Seamus McCarthy:
What one would certainly expect and what we always try to do is to set out any control weakness issues that need to be addressed in a management letter which is addressed to the Governor. It is a matter we will then discuss with the audit committee. We will keep coming back to it until the recommendations we have made have been implemented. In general, it only takes one time of asking for the Central Bank to respond and to, at least, begin a process which we keep monitoring until we are satisfied that it has discharged the recommendation and completed the work we require. There is a rolling programme.