Seán Fleming (Laois, Fianna Fail)
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We will deal with the Comptroller and Auditor General's special report first and will deal with the other business of the committee later. We are joined by the Comptroller and Auditor General, Mr. Seamus McCarthy, who is the permanent witness to the committee. He is accompanied by Mr. Andrew Harkness, director of audit. There will be two parts to our consideration of this report. In the first part we will discuss the findings of the report with representatives from the Department of Public Expenditure and Reform, and as they come in for particular mention in the report, we will meet representatives of the Central Bank for the second part.

I welcome Mr. Robert Watt, Secretary General of the Department of Public Expenditure and Reform, who is accompanied today by Mr. Frank Griffin and Mr. Kevin Coman, both of whom work in the remuneration, industrial relations and pensions division, and Ms Helen Codd from the corporate support unit.

I remind members, witnesses and those in the Public Gallery that all mobile phones should be switched off. I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, 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 do so, they are entitled thereafter only to qualified privilege in respect of that evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I invite the Comptroller and Auditor General to make an opening statement on his report on the management of severance payments in public sector bodies. I should point out that the Comptroller and Auditor General is also accompanied by Ms Patricia Devlin. Apologies, that was my mistake.

Mr. Seamus McCarthy:

There were obviously crossed lines in our communications. Ms Patricia Devlin is the senior auditor who carried out the work on this special report and she is accompanying me today.

The report before the committee was undertaken as a result of financial audit work in a number of public bodies that identified large one-off severance payments. I had a concern that there seemed to be variation in public bodies as to how these should be managed. The examination did not include an assessment of the circumstances giving rise to individual termination agreements and severance payments. The findings in the report are intentionally presented at a level of detail that does not identify individuals. The emphasis is on how cases were handled and not on who received what payments and why.

I might also point out here that severance agreements can include cash amounts or non-cash elements, for example, added years for pension purposes or both. Some schemes of employment include specific provision for severance payments, often reflecting the nature of the employment contract or the expected duration of the work. Outside those formal schemes, severance payments may also arise in a number of situations. For example, there may be cases where an employee's capacity to perform the role becomes limited or where, for whatever reason, the employment relationship has broken down irreconcilably.

In such cases, severance payments may be in the best interests both of the employer and employee. A characteristic of such discretionary severance payments is that the amount paid is over and above what the employee is contractually or statutorily entitled to.

The Department of Public Expenditure and Reform is responsible for policy on public sector pay and employment terms and conditions. Apart from the rules set out on specified approved severance schemes, the Department had not issued any general guidance to public sector entities on severance payments.

I am glad to note that in publishing a revised code of practice for the governance of State bodies in August of this year, the Department included additional guidance relating to termination agreements and severance payments which I expect will clarify matters for public bodies and ensure more consistency of practice in the future.

My examination looked at awards made between 2011 and 2013 under six public service schemes that provide for severance payments. The examination found broad compliance with scheme rules in most cases, with the exception of a scheme for chief executives of State bodies. Two State bodies made severance payments in the form of pension enhancements amounting to more than €1 million in total, without the required prior approval of the Department of Public Expenditure and Reform. Other key findings included that three of the schemes did not provide for maximum amounts payable, severance payments were generally not disclosed in financial statements, and there were deficiencies in documentary evidence on one scheme.

The examination also looked at a number of high-value discretionary severance payments where no formal scheme was in place. We identified 14 such payments made by six public sector bodies in the period 2011 to 2013, amounting to almost €1.5 million. Six of those payments, amounting to more than €540,000, including legal costs, were made by the Central Bank.

In the report, we have set out a good practice framework for public sector bodies making such discretionary severance payments. This was adapted from a framework developed by the office of my New Zealand counterpart. We used the framework to assess how each identified discretionary payment was handled. The assessment resulted in recommendations regarding supporting documentation, the need for external sanction, the use of confidentiality clauses and disclosure requirements. I welcome that the Department’s revised code of practice has addressed these issues.

The Central Bank is in a different position from other public bodies in that, due to its statutory independence, it does not require external sanction for termination agreements and severance payments. I found that the bank had not adopted a standard approach for assessing and determining cases or for approval of the severance awards. In response to the report findings, the bank has implemented a formal procedure on discretionary severance payments which incorporates the good practice outlined in the report.

Seán Fleming (Laois, Fianna Fail)
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I thank Mr. McCarthy for his presentation. I now call Mr. Watt to make an opening statement.

Mr. Robert Watt:

It is a pleasure to be here. I thank the Chairman and wish him all the best in his new role. There are some familiar faces on the new committee, but some new ones also. I wish members all the best with their work.

I thank the Chairman and other members of the committee for giving me the opportunity to make this opening statement. I am pleased to appear before the committee to discuss these issues. I will give a brief synopsis of the findings of the report and its context and will then set out the response of our Department.

The Department of Public Expenditure and Reform very much welcomes the report of the Comptroller and Auditor General. It is timely and informs the ongoing development of policy in the Department and for the public service more widely. The Department regards seriously compliance with procedures governing payments. This report found that there was broad compliance with procedures in most cases, which is a welcome finding for us.

The report raises a number of issues which we have taken on board and to which we are responding. The Comptroller and Auditor General has outlined some of the responses we have undertaken since the report was published. The report proposes a good practice framework for public sector bodies making discretionary severance payments. This framework is a particularly useful input, which we support and intend to advance.

The report points out that confidentiality clauses, which were widely used, should acknowledge statutory override of confidentiality terms and should not interfere with employees' rights or prevent an employer from fulfilling his or her accountability obligations. We have referred specifically to this matter in recent guidance and we expect to deal with this further in a circular to be issued in the near future.

The report recognises that severance arrangements play an important role in recruiting and, when necessary, exiting people from the public service. Candidates are aware that circumstances can change and that they may not be able to remain in their post as long as had been hoped or intended initially. Against that background, the availability of a severance arrangement is likely to be viewed as an important element of their overall remuneration package.

The public service also needs to provide for severance arrangements to address key risks, for example, where the employment relationship has broken down or where a new and fresh approach needs to be introduced. The public service needs to have the tools to manage all these situations.

There is also a need to provide for early retirement or severance to deal with situations where individuals wish to exit the public service rather than be redeployed or where there is a need to be able to deal with the consequences, for example, of an economic downturn. These situations are dealt with currently through the collective agreement with the Irish Congress of Trade Unions on voluntary severance terms within the public service.

We should be clear about the relative position of severance payments in the overall context of public service pay and pensions policy. In the period under examination, when the total cash value of public service pensions amounted to €8.8 billion, the cash value of severance payments reported on was less than €7 million. On expenditure, for which I am accountable, under Vote 12 - Superannuation and Retired Allowances, expenditure in the period was €1.4 billion while the cash value of severance payments was €1.149 million.

There have been a number of changes in severance arrangements in recent years which are set out in the brief we supplied to the committee. Recently, text has been included in the revised code of practice for State bodies requiring disclosure of the aggregate value of severance payments and agreements in excess of €10,000. The text also calls on State bodies not to enter into confidentiality agreements which preclude them from disclosing details of settlements other than in exceptional circumstances and on foot of legal advice. The Department is currently considering what further elaboration on the existing guidance on severance may be necessary.

I welcome the report and look forward to discussing it with the committee.

Seán Fleming (Laois, Fianna Fail)
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I thank Mr. Watt for his presentation. Our first speaker is Deputy Farrell.

Alan Farrell (Dublin Fingal, Fine Gael)
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I thank the Chairman and welcome our guests. I thank the Comptroller and Auditor General and in particular Ms Devlin for her work. I also thank Mr. Watt for his opening remarks. I am slightly puzzled that the code of practice for the governance of State bodies, which was published in August 2016, is not yet available to me as far as I am aware. We are now eight years on from the financial collapse and the knock-on effects in terms of public service numbers. Given the discrepancies between severance arrangements across the public sector, I find it a little puzzling that in this climate such a document is only being put together now. Perhaps Mr. Watt can address that at a later stage.

I am conscious I have 20 minutes, if I am not mistaken, and therefore I will try to be as efficient as possible if Mr. Watt could be as well. I would appreciate that.

Mr. Robert Watt:

Does the Deputy want me to address that now?

Alan Farrell (Dublin Fingal, Fine Gael)
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I will come back to Mr. Watt if that is okay.

Mr. Robert Watt:

Okay.

Alan Farrell (Dublin Fingal, Fine Gael)
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In terms of the Comptroller and Auditor General's report, there are a number of figures that are somewhat alarming. I refer in particular to the chart concerning the various schemes. One particular civil servant received a total severance package of €1.12 million. I would like to know the answers to a couple of questions. I appreciate the anonymous nature of the report, which is fine, and I have no intention of deviating from that or naming any names. From my perspective, however, I have a fundamental question. How would a person employed in the Civil Service amass such a payment? How much did it cost for that person to purchase additional years, or were they purchased on their behalf by the agency for which they worked? For how long was that person in the employment of the State to accrue a severance package of €1.12 million?

Mr. Seamus McCarthy:

I want to make a point of clarification. I said at the beginning that there are cash and non-cash elements. On reflection, it might have been better to have said "total severance value" there.

Alan Farrell (Dublin Fingal, Fine Gael)
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Okay.

Mr. Seamus McCarthy:

What we are talking about in that case is the value to the individual of the added years and of early commencement of the payment of pension. I just wanted to make that clarification.

Alan Farrell (Dublin Fingal, Fine Gael)
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Could Mr. McCarthy clarify further whether the individual in question paid in any way for years? I am familiar-----

Mr. Seamus McCarthy:

No.

Alan Farrell (Dublin Fingal, Fine Gael)
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No, they did not.

Mr. Seamus McCarthy:

It was not a question of purchase of years. It was a question of what the person had already accrued in terms of pension entitlement. Added benefits were given which meant that the person went on their pension earlier and started to receive their pension earlier than otherwise would have been the case. It was also a question of the value of the pension. It is not the case that someone was written a cheque for €1.19 million. The person started to receive their pension. The value of that pension over the years in which the person will draw it is €1.19 million. I am sorry but I wanted to make that clarification.

Alan Farrell (Dublin Fingal, Fine Gael)
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I appreciate the clarification and I thank Mr. McCarthy for it.

Mr. Seamus McCarthy:

The same point applies to the scheme for Secretaries General.

Alan Farrell (Dublin Fingal, Fine Gael)
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I emphasise that I have no desire to identify the individual in question, but I would like to know what agency or Department he or she worked for or was employed by. I do not believe that would be unreasonable.

Mr. Seamus McCarthy:

We approached it on the basis that we were not identifying individual Departments or public bodies. We made an exception by referring to the Central Bank because a considerable number of these payments were made in respect of that body. We identified them because we felt the system was big enough to ensure the identities of those individuals was not obvious. I would be concerned that if I were to talk about the circumstances of this case in that period, the individual would be identifiable.

Alan Farrell (Dublin Fingal, Fine Gael)
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I accept Mr. McCarthy's point. I have a follow-up question on that matter. Did the agency involved adhere to, consult with or deviate from standard procedures within the agency in question or the rules of the Department of Public Expenditure and Reform?

Mr. Seamus McCarthy:

It was compliant with the rules.

Alan Farrell (Dublin Fingal, Fine Gael)
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I thank Mr. McCarthy. Chapter 2, which relates to severance schemes, mentions that two State bodies made payments in the form of pension enhancements between 2011 and 2013 without the required approval, or prior approval, of the Department of Public Expenditure and Reform. Has the Department conducted a review of those two instances?

Mr. Robert Watt:

That case related to a situation we have since addressed. When we issued clarification on this issue in February 2010, we made it clear that any contract arrangements involving severance payments, added years or enhanced pension entitlements on exiting for CEOs would have to receive prior approval when the contract was being signed. We also said that when the payments were being made, we would have to check that they were appropriate in the context of the terms of the contract. The contracts in these two instances were entered into in the late 1990s. We were informed about these deals when the payments were being made. The payments were based on the contractual arrangements into which people had been signed, so there was no leeway for the State at that stage. It had no choice other than to make the payments. We have tightened up the rules to ensure all contracts have to be cleared and approved by us in advance. That allows us to approve the actual termination of payments at the time of the signing of the contract. We have addressed the gap that existed. The case mentioned by the Deputy is a historical one that goes back to contracts signed in the late 1990s.

Alan Farrell (Dublin Fingal, Fine Gael)
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Would I be correct in saying that if another individual who had a contract from a similar period sought to retire or leave his or her post early, the same issue would arise because the 2010 instruction would not apply?

Mr. Robert Watt:

We would have to make the payments in the case of somebody who has ended a contract and has a clear legal entitlement. We could try to challenge it, but we would lose the case. I am not sure if there are other cases which have not yet come to our attention. As six years have passed since we issued the clarification, and given that most of the people in question have moved on or retired, it is unlikely that more cases of this nature will arise. The Deputy is absolutely correct when he says that if contracts were entered into prior to the issuing of the circular, and we are not aware of their termination, it is possible that we will have to make payments.

Alan Farrell (Dublin Fingal, Fine Gael)
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The Comptroller and Auditor General alluded to the code of practice that is about to be implemented. He has a copy of it but I do not.

Mr. Seamus McCarthy:

Absolutely. I think the code of practice has been in place since 2001. It was updated in 2009 and again this year. It covers a broad spectrum of issues in relation to the governance and oversight of public bodies. I am sorry if I gave the impression that the code is totally new, because that is not the case. There are new provisions in the revised code. I think many issues have been updated in the code. It is very much extended relative to what it was. I think it might be of use and value to the committee at some stage to be taken through it and to look at certain elements of it.

Alan Farrell (Dublin Fingal, Fine Gael)
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It would indeed. Such an opportunity would be appreciated as soon as possible. If this is a rolling document that was last reviewed in 2001-----

Mr. Seamus McCarthy:

It was reviewed in 2009.

Alan Farrell (Dublin Fingal, Fine Gael)
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Excuse me. It was reviewed in 2009. The Comptroller and Auditor General's report has identified several instances where it was not adhered to. While I accept Mr. Watt's point that it was broadly adhered to, significant sums of money are being paid out on behalf of several Departments and agencies that did not adhere to the rules set out by the Department of Finance.

Mr. Seamus McCarthy:

There was compliance with the rules of the scheme, in general, but there were some exceptions that related to the rules requiring disclosures to be made or sanction to be obtained. Those would be the key things. The bodies were making the decisions and making the payments without reference to any outside agency, but they were making them within the terms of the schemes that were in place, by and large. The individual circumstances of each payment should have been explained to the Department of Public Expenditure and Reform so that it was aware that the payment was being made and was able to satisfy itself that those circumstances were appropriate. I am not trying to suggest that there is complete laxity in the scheme around this. The difficulty we had with the code of practice as it stood in 2009 was that it was relatively unspecific about how severance payments should be dealt with. One category of payment, across a very broad spectrum, was dealt with in the code. We felt agencies were having to make these decisions without having enough guidance to ensure that there would be consistency in the approach in all Departments and agencies.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is it not the case that ultimate responsibility for adherence to such advices lies with the Department of Public Expenditure and Reform?

Mr. Seamus McCarthy:

I would say that the setting of the framework for how severance payments are to be dealt with is a matter for the Department of Public Expenditure and Reform, but the board of each agency is then responsible for implementing that framework. If a board is unsure, or if it interprets it in one way only for a different board to interpret it in another, that is a problem. When we come to look at these payments and identify that different bodies have treated severance payments in different ways, we are in a position to identify the source of that difficulty. That was what gave rise to the report. We have to figure out why people are doing things differently in different places. When we came back and talked to the Department about it, we said that the bodies needed more guidance. We have tried to provide such guidance in our report.

Alan Farrell (Dublin Fingal, Fine Gael)
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I would have assumed that the updated code of practice-----

Mr. Seamus McCarthy:

That was the Department's response to the recommendations we made and to the situation.

Alan Farrell (Dublin Fingal, Fine Gael)
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Perhaps the issue of the varying approaches to severance packages has already been addressed. The issues experienced in the particular timeframe analysed by this report have been highlighted in the code of practice and, indeed, in the report. What actions have been taken to ensure that each Department and agency has the supporting documentation to prove and illustrate it has adhered to existing arrangements, both on foot of this report and in light of the updated code of practice?

Is the Comptroller and Auditor General satisfied or has he been provided with information to assure him that is now the case?

Mr. Seamus McCarthy:

Given that those guidelines have only recently been issued we will be continuing with our work of examining severance payments where we come across them and where they arise. We now have clarity as well about how the Department expects them to be reported and handled, and the level of sanction required before such payments are made. If I find in the future that a significant payment has been made that is not compliant I will point that out, depending on the amount and the level of the oversight, to the management and board of a public body but I might also refer to it in my audit certificate on their financial statements. We have done that in other instances.

We have used this as an exercise to be clear about how we will test severance payments that we come across and examine. Any significant severance payment that we would identify will go through the tests that we expect to see for the procedure. We will be looking for the supporting documentation, for the advice, the signed agreement and so on.

In Chapter 3, in respect of some payments made, we asked a public body to show us the signed agreements. It had draft agreements but it did not have signed agreements in place. That is not acceptable to us.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is it likely that in the next report, should the Comptroller and Auditor General commence one on 2014 through 2016, we will see similar issues at a future meeting of this committee because this matter has only now come to light and three years have passed since the end of the period analysed?

Mr. Seamus McCarthy:

I would expect not and I would not expect to be reporting. I think because I have brought attention to it public bodies have already started putting proper systems in place and completing the record. Payments will continue to be made. Public bodies now know that they must disclose the fact that they are making the payments and the aggregate value of those payments. If that is done it is in the financial statements. Members of the public can see that.

It is also important, and this is one of the key reasons for the disclosure, that the overseeing Department that relies on the financial statements will see that these payments have been made. It can check its records to see whether we gave sanction for those payments to be made. It happens regularly that expenditure requires the sanction of the Department of Public Expenditure and Reform not just in respect of severance payments. If we find during the course of audit that we do not see the sanction what very often happens is the body then has to go the Department of Public Expenditure and Reform and say it forgot to go to it with this and ask is it alright with it. It receives retrospective sanction. A similar process happens in the third level sector where the sanction of the Higher Education Authority, HEA, is required for particular lines of expenditure or transactions. If the sanction is missing we say it has to go back to the body that was supposed to give the sanction and fix the thing and then put systems in place to ensure it does not happen again.

Alan Farrell (Dublin Fingal, Fine Gael)
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What is Mr. Watt’s and Mr. McCarthy’s view of the statutory oversight of confidentiality agreements some of which were not available for this report, given that taxpayers’ money is involved and that the Comptroller and Auditor General could not access some of the documents? In respect of the public oversight available to the Department and the Comptroller and Auditor General and indeed this committee, while it is perfectly reasonable to withhold names and in this instance withhold agency and departmental names, I have a fundamental difficulty with it. We are talking about taxpayers’ money and a State agency with a confidentiality agreement that I think has no place in the public sector, most especially if the information is withheld from the person responsible for auditing and, in Mr. Watt’s case, a person responsible for an element of its governance.

Mr. Robert Watt:

I do not know whether we found significant cases where confidentiality clauses were used to prevent us accessing the terms of the deals. I am not quite sure if that happened.

Mr. Seamus McCarthy:

In the cases where the agreements were not available the entity did not have the records. The record was just not there. It ended up getting a copy of the agreement from the person it had the agreement with. We had evidence eventually of the signed document. I expect an entity to be able to produce the record itself without having to go to-----

Alan Farrell (Dublin Fingal, Fine Gael)
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It is a significant failure in its practice-----

Mr. Seamus McCarthy:

It is.

Mr. Robert Watt:

Our clear preference is that we do not sign confidentiality agreements, that it is public money and if we have to get into a situation of severance arrangements from a discretionary, as opposed to a formal, scheme we believe the details need to be made known publicly, that people need to know. As the Comptroller and Auditor General has set out in the report, the details are there and the public can see the value of the total award, not the total cash payment because most of the value is early pensions and added years as opposed to an upfront payment. That has been our longstanding view and we set that out in the code of practice where we made it very clear that for payments above €10,000 bodies should include that material in their annual accounts and in the appropriation accounts and for the 2015 appropriation accounts we have that line where we include those payments that are material.

This is not the practice in all countries. Some countries take the view that it is possible to get a better deal for the State in difficult employment circumstances if the details are kept confidential. Our view is that the imperative that the taxpayer needs to see how the money is being spent overrides those considerations but that is not the view elsewhere. For example, in the United Kingdom, UK, permanent secretaries, human resources managers, legal people in Departments can negotiate, reach severance deals with people and keep those amounts confidential. They have to produce aggregate figures for Departments or agencies but they do not give the individual amounts. I think that is being reconsidered.

There is a debate but our view is that the imperative of this committee, of the Comptroller and Auditor General and the taxpayer overrides any other considerations. The debate in the UK is that the value of the payments and the severance arrangements is lower and the time it takes for somebody to exit is faster and there is less trouble for the organisation if a confidential deal can be done. There is a trade-off but for the moment we have set out a clear view. We can debate the rights and wrongs of this but it is not absolutely clear cut.

Mr. Seamus McCarthy:

There is possibly a distinction to be drawn between the chief executive of an organisation and disclosures around his or her severance payment and maybe those at a lower level in the organisation. The Deputy is aware there is a requirement of the Department that the total remuneration package of a chief executive in a year is disclosed in the annual financial statements. We check that all those details are given. Where a departing chief executive receives an additional non-contractual payment or even one within the terms of an existing scheme my view is that should be disclosed. It would be known that the chief executive is leaving and the package is disclosed. A different view might be taken within an organisation where several people at a lower level may have got a package because they became ill and are no longer able to do the work and so on.

There is something in the framework, which is on page 32 of the report, around confidentiality that the committee might like to discuss.

It is important that any agreement that is made does not contain confidentiality clauses that create a perception that the employee cannot speak about what has gone on or about poor practice within the body. The whistleblower legislation specifically precludes any kind of contractual arrangement where there is an exchange of money to an employee. One cannot gag them with a confidentiality clause. It is a tricky space. There is, maybe, a concern around the private details of an individual employee and that those should not be brought into the public domain. There is also this other side that one cannot pay off an employee not to speak out against one.

Alan Farrell (Dublin Fingal, Fine Gael)
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I am conscious of my time and will wrap up in a moment. Would there be an issue with the Comptroller and Auditor General or the Committee of Public Accounts or both reviewing such instances in a private manner, as is dealt with in many other committees where private business is transacted, so that there is a public oversight and an auditing oversight of such arrangements? This committee, for instance, is subject regularly to confidentiality, as I am sure is the Department and the Office of the Comptroller and Auditor General. I understand using aggregated sums, as Mr. Watt has mentioned, and that is not a bad idea. However, there are other means to ensure the oversight function of this authority and the Office of the Comptroller and Auditor General is adhered to in all instances.

Mr. Robert Watt:

Yes, and that is how this issue has been addressed in this report where we do not have names. Their issues relate to one case, but there are no names and the Comptroller and Auditor General does not talk about the names of the bodies. However, of course, there is also the freedom of information legislation, FOI, which has separate legal provisions, which in terms of making information available would be probably far more open than is revealed by the Comptroller and Auditor General's report. That is another consideration. We are dealing with FOI requests on these matters.

I know a lot of the issues have been dealt with in the to and fro. I make the point again about the way in which the value of severance payments is set out in the report. The majority of the value relates to early pensions and added years as opposed to upfront payments. When it is set out, there is a tendency to say that an individual received €1.1 million last week, which of course they did not. In that particular case it was all related to early payment of pension. I am not suggesting for one minute that it is not significant. Of course it is and it is absolutely correct to discount it, as the report does, but in most cases the benefit relates to early retirement.

In all these cases we just look at the cost of the terminations - the cost of the exiting. We do not look at the benefits for the organisations. That is something, of course, which neither the Comptroller and Auditor General nor any of us here can talk about. The benefits for the organisations in many cases could be multiples of the cost. If it is a situation in an organisation where the relationship between a very senior person and the Minister or other colleagues has broken down, there could be damage to the organisation which may be looking after hundreds of millions of euro of taxpayers' money.

When we are looking at the costs, particularly when it relates to the discretionary payments, and there are 14 cases over the period, we need to have in the back of our minds that these are done for very good reasons and there is a benefit. With the best will in the world, unless we want to spend our time sitting down with the relevant, manager, HR manager and legal adviser, we will not really get a sense of the basis for the agreement. To an extent we have ultimately to trust people who are closer to the challenges they face. That is very important, but I-----

Alan Farrell (Dublin Fingal, Fine Gael)
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I have absolutely no difficulty with that point. My only concern and that which is embodied within the Committee of Public Accounts is that there is oversight of it.

Mr. Robert Watt:

Yes.

Alan Farrell (Dublin Fingal, Fine Gael)
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However, I accept Mr. Watt's point entirely. I think we have seen a lot of that in recent years. I accept the point. The only matter that concerns me is that agencies adhere to the rules and do most, if not all, of their business in the public domain in order that it is available to both the Comptroller and Auditor General and this committee. What is most important is that we should have an opportunity to review that to ensure the previous two points are adhered to. If we are in that position, regardless of the figures involved, even if it does not sit well with some, the bottom line is that rules be adhered to, as Mr. Watt highlighted with my first point about a payment of in excess of €1 million to one individual.

I accept the point that a contract is a contract. While these can be challenged and renegotiated, the bottom line is that if agreements are in place, adhered to, accessible and reported, that in itself is adequate in terms of public service oversight on expenditure by this committee.

The Comptroller and Auditor General's report has highlighted certain parts of various schemes, or one scheme in particular where rules were bent or ignored. In other instances, contractual agreements have been challenged with money thrown at legal costs to ensure the matter is dealt with, which means ultimately the taxpayer is footing the bill. The Comptroller and Auditor General highlights one particular instance in the Central Bank where a contractor was treated as an employee, I presume following a legal challenge. While neither he nor I has the legal advice available, it presents a difficulty because as a report from the Central Bank is subject to the Comptroller and Auditor General, it is subject to this committee. As such there are questions there that, I am sure, my colleagues will cover. I thank Mr. McCarthy and Mr. Watts.

Seán Fleming (Laois, Fianna Fail)
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Speakers have indicated in the following sequence: Deputies Madigan, Connolly and Cassells. I remind members that officials from the Central Bank will appear separately for the second half of this report.

Josepha Madigan (Dublin Rathdown, Fine Gael)
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That is me told. I have only one observation or question. I am not sure if it should be directed to Mr. McCarthy or Mr. Watt. I thank them for their helpful presentations.

When we look at anything like this, we have to learn from past mistakes. Although there was general compliance with the Department guidelines, obviously there was a notable exception when we look at the chief executives of some State bodies. Even if we had more stringent guidelines as the report has recommended, I believe the witness referred to retrospective sanction which is like retention planning permission or something. I always like to look at prevention rather than the cure, which goes without saying.

My question is on policing or enforcement. We can have more stringent guidelines, which we want people to adhere to, but how do we enforce and police that? Does it require some kind of review process? Is that in the scheme or the code of practice?

Mr. Robert Watt:

In terms of the CEOs of State bodies, we changed the guidelines as far back as 2010. We responded to the situation that arose where, in effect, contracts were signed with terms which we subsequently thought were overly generous or we did not approve of. We tried to address that as far back as 2010. The revised code sets out very clear enhanced obligations on bodies to adhere to the sorts of suggestions set out in the report to ensure details are published and that we do not enter into confidentiality agreements that make it difficult to look exactly at the costs for the taxpayer. However, ultimately one has to trust, in this case, the boards of those bodies to meet the guidelines and I am sure their governance arrangements do that. One has to ensure the Department is calling those bodies to account.

In our Department there are 310,000 public servants. There are thousands of bodies, despite our efforts to reduce them over recent years, which I have discussed many times here. There are still many bodies and always will be many bodies, offices and Departments, and we cannot police everything. Of course, it would be foolish to try to do that and it would be very wasteful and counterproductive. The committee would have me in complaining that our Department was too powerful and we were trying to control everything. We have to set out guidelines - delegated guidelines - and ensure boards have proper governance in order that they adhere to those guidelines.

Good governance really comes down to having chairpersons of boards, individuals on boards and systems in place. We have issued the code of conduct, which is very detailed and complex. One could argue that it may be too detailed and too complex but we have set it out. We will see how we get on in managing it. At departmental level in the Civil Service, we have issued a new code of conduct for the governance of Departments, which is also very detailed. It is really about getting the policy right, but then it is about governance.

One of the big changes over recent years that does not receive that much attention is the way in which we now appoint people to State boards. We are going out of our way to set out clearly the types of skills, capacities and competence that we need to fill the gaps that may exist, and we advertising for people who may have those skills. We hope that, over time, this will improve the performance of boards of governance. That is really the issue. Of course, there is a role for periodic reviews of the nature of that produced by the Controller and Auditor General. There are reviews that we carry out in our own Department-----

Seán Fleming (Laois, Fianna Fail)
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I ask Mr. Watt to repeat that as his comments are not being picked up owing to mobile telephone interference.

Mr. Robert Watt:

I will say it again. It is a question of ensuring we have good governance and that people meet the guidelines. There are also periodic reviews, of course.

Josepha Madigan (Dublin Rathdown, Fine Gael)
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And some way of communicating with people so they will be aware of the rules, perhaps through their code of conduct.

Mr. Seamus McCarthy:

May I make a point? It arises in regard to the cases of the two chief executives. The termination benefit they received was bigger payments of pension earlier. It might be helpful for public bodies and the Department, when making decisions about the value of the agreement being made, to put a valuation on the added years. There is a very well-established methodology for looking forward and saying we expect to pay the pension for so many years into the future and for outlining the income of the person is getting and what it is worth today. If on the termination of a chief executive's contract in the future, a public body disclosed that he or she was given added years for pension purposes and the value of that based on actuarial advice, it would be helpful from a public accountability point of view in knowing what was happening in terms of the termination of a contract with an individual.

Catherine Connolly (Galway West, Independent)
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I welcome the delegates and thank Mr. Watt for his presentation. The fact that the Department has embraced the Controller and Auditor General's report and welcomed his recommendations is very good and positive in view of external developments in this country at the moment in regard to other reports he has produced. I welcome that. The Department has clearly put its hands up. It has clearly been put in context that there has been good compliance, by and large. It has to be said that there has been good compliance. In regard to other matters, the Department has put its hands up. However, I would not be totally reassured by the delegates' responses here today or their written report. In fact, they have gone some way towards justifying their stance, which I do not believe is helpful. It would be helpful to come in and say that there has been good compliance in general and to outline what needs to be changed. The delegates are telling me there is a code of practice in place now. This is good. I will come back to this.

The delegates also tell me there is a debate on disclosure. Mr. Watt should note that may be a debate we should have some day but I get a little nervous when I hear about a debate about keeping things confidential. It is a question of attracting good people. Everything Members of Dáil Éireann do is open and accountable. My severance pay as a councillor has been in every paper in the country. My salary and that of every Deputy are made known throughout the country. Presumably, we are attracting good Deputies to the Dáil. The process is open and accountable. The delegates should bear that in mind when having their debate on how to attract good people.

Alan Farrell (Dublin Fingal, Fine Gael)
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It is debatable.

Catherine Connolly (Galway West, Independent)
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It might be debatable but it is worth looking at, nevertheless.

Page 18 of the report contains an overview of the findings. The delegation accepts all these but it is noteworthy that disclosure in accounts was the problem. "Civil servants", "Secretaries general", "Chief executives of State bodies" and "Ministerial appointments" all received a mark for no disclosure in accounts. Is Mr. Watt telling the committee that will not happen again?

Mr. Robert Watt:

We have agreed in regard to the boxes where there are X's pertaining to civil servants and secretaries general that the values of any termination arrangements, whether they involve cash severance payments or early pension or added years, in the appropriation accounts for 2015 should made clear. To suggest they were not available beforehand is incorrect. If the Deputy makes a freedom of information request or asks us in a parliamentary question, we will provide her with the details on any termination or severance arrangement.

Catherine Connolly (Galway West, Independent)
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I am asking for disclosure in accounts, whereby the details may be seen publicly.

Mr. Robert Watt:

The practice from 2015 has been that any amount over €10,000, or any amount deemed to be material — I refer to an estimate based on the value, as the Controller and Auditor General has just discussed — has been put in the appropriation accounts. That is happening and will continue. The point I am making is that just because the Controller and Auditor General has placed an X beside "Disclosure in accounts", we should not imply the information was not available before. It was available, and it was available in response to parliamentary questions and freedom of information requests. It was available in evidence I have given at this committee in the past. That has now been formalised in terms of the appropriation accounts for Departments. Within the code of conduct, we have made it clear to agencies and bodies that it should be set out in their annual accounts. I refer to the reports as well as the appropriation accounts.

In effect, we are responding to the report by saying we can do more, make it clear and set it out. That is what we are doing. We are 100% behind the recommendations. These are the sorts of recommendations our Department pushes independently of reports by the Controller and Auditor General. This is the sort of work we have been doing in recent years. We have moved to a much more open approach to all these matters. As members know, the details on the pay of civil servants and their expenses and diaries are available to the public. This is the same as for Deputies, members will be happy to hear.

Catherine Connolly (Galway West, Independent)
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Is there any sanction if the disclosure rules or the code of practice are not complied with?

Mr. Robert Watt:

If we discover in future that a material payment was not noted, the Comptroller and Auditor General might pick it up and it would then be an issue for the Accounting Officer.

Mr. Seamus McCarthy:

Absolutely.

Mr. Robert Watt:

No doubt, the issue would be raised with the Accounting Officer when appearing before this committee. We would raise it with the officer also if we noticed the oversight.

Catherine Connolly (Galway West, Independent)
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In regard to the discretionary payments, which are a different kettle of fish altogether, I read the documentation with some astonishment. We will be coming back to that separately with the Central Bank. When we read about the education sector, referred to on page 38, we note there was a substantial amount of money in respect of which no approval was given by the Department. Three severance payments were made by two third level institutions, presumably colleges or universities. The delegates should correct me if I am wrong. In one case, a third level institution paid an employee just over €183,000. The legal costs brought it up to almost €250,000. Paragraph 3.30 of the Controller and Auditor General's report outlines what I really find amazing. It states the governing body of the institution was made aware of the case and was informed that it was a matter for the president of the institution to decide. The settlement terms and amount paid were agreed and approved by the president on his own. He went back and told the governing body of the outcome. That surprises me in itself. One wonders why there is a governing body if the president is going to make the decision. The question for the delegation concerns the fact that this was done without any sanction from the Department. Is that not correct? The institution did not believe it needed sanction. Is that correct?

Mr. Robert Watt:

I think the Department of Education and Skills requested details and may have been aware of the situation. We said in the guidelines that bodies need to set out arrangements that are appropriate, and that the Department should be aware. It sanctions the payments and verifies that they are in line with the code-----

Catherine Connolly (Galway West, Independent)
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In that case, it did not sanction it.

Mr. Robert Watt:

It did not but it was aware of it.

Mr. Seamus McCarthy:

The Department was not aware of it at the time.

Mr. Robert Watt:

Retrospective sanction.

Mr. Seamus McCarthy:

It became aware of it when we brought the report-----

Catherine Connolly (Galway West, Independent)
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It became aware of it on seeing a draft of the Comptroller and Auditor General's report.

Mr. Seamus McCarthy:

Yes.

Catherine Connolly (Galway West, Independent)
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That is of concern. These are two third level institutions with three major payments, nearly-----

Mr. Seamus McCarthy:

The Department of Education and Skills was certainly very exercised and concerned that the institutions had not come to it.

Catherine Connolly (Galway West, Independent)
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What is the role of the delegates in regard to that?

Mr. Robert Watt:

Our role is to set appropriate policy and guidelines, which we have done, and we have refreshed those again on foot of this report. It is up to the relevant body to ensure that any payments are appropriate and that the parent Department, in this case the Department of Education and Skills, would be informed and that it would receive sanction. However, there is a bigger issue here around governance. Our education institutions have budgets of hundreds of million of euro, amounting to €400 million, €500 million or €600 million. I am not here to defend the Department of Education and Skills but it cannot decide everything; it cannot be there standing behind the president of a governing body. The ultimate responsibility for doing the right thing rests with the leadership and the governance structures within these bodies. That is the real challenge for us in this situation. We need to set the right policy which, we hopefully will do, but it is then up to the relevant bodies to ensure it is being implemented appropriately, or else the system will not function. If we say the Department of Education and Skills will sanction this payment, and that is what we are saying now, where do we draw the line? Do we want the Department of Education and Skills to run third level institutions? No, we do not want that. Therefore, there is a balance to be struck. As we pursue the new policy, it will be interesting to see the extent to which it will operate.

Mr. Seamus McCarthy:

I would draw Deputy Connolly's attention to figure 3.9 in relation to that particular case. I am satisfied that the body actually handled it well. It got legal advice. It made an assessment as to whether this was the best thing to do. We must finish this situation, as the Secretary General has said. Damage can be done to a body and development does not happen if there is a difficulty with an individual. The specific place where it fell down was that it should have gone to the Department and said: "We have a problem, here is how we are dealing with it, it has been fully considered by the governing body, it understands the principle and we have agreement for the deal and is the Department comfortable with this?" That is the thing it did not do.

Catherine Connolly (Galway West, Independent)
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That is the point I was making. I am not happy with Mr. Watt coming back telling me the Department of Education and Skills cannot micro-manage. I am asking how we improve it. I am putting my hands up welcoming the Comptroller and Auditor General saying there has been generally good compliance but on the specific issues that have been raised, I am not leaving here today confident in the belief that this could not happen again tomorrow in those third level institutions. That is my first point.

On the second page of the report, the Comptroller and Auditor General comments on the second institution. There is some confusion here with respect to the Health Service Executive, HSE, in that there is reference to the Department of Education and Skills and the HSE. The only point I want to make about it is that they were significantly at variance-----

Mr. Seamus McCarthy:

At variance.

Catherine Connolly (Galway West, Independent)
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-----with the terms of the HSE scheme as they exceeded one of the limits provided for within that scheme. In other words, they picked out a scheme to say that is what they were following yet there was significant non-compliance or they were at variance with that scheme. How can that be avoided in the future? I am not asking for an answer that says this is only a small amount; I am asking how can these issues that have been highlighted be avoided in the future? I will conclude because I am conscious of time but I would like that question answered.

The second issue that jumped out at me related to confidentiality. The final institution highlighted is the health sector. It had a gagging clause in one of its severance provisions. The clause does not acknowledge any statutory obligation override. Clearly, it was set out that the person was obliged to keep confidentiality. There are serious issues there in terms of drawing attention to public sector, or public, issues.

Mr. Robert Watt:

On the gagging issue, we have addressed that in the Protected Disclosures Act 2014 which provides that one cannot sign any confidentiality Act which overrides the provisions of that, so that-----

Catherine Connolly (Galway West, Independent)
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I understand that; Mr. Watt has made that point, but in telling them-----

Mr. Robert Watt:

-----situation arising would not be allowed now, the situation arising from the enactment of that legislation. That has been addressed. Whether it was not legally the case, it seems inappropriate to have such an order and would not be good practice.

With respect to the third level institution, table 3.9 of the reports shows compliance with good practice. Where the body fell down was not informing the Department. We have made that clear within the code and within the guidance we have issued. The fact that the Comptroller and Auditor General has highlighted these issues will now have an impact across the system so people will appreciate it. Also, with respect to discretionary severance payments, and this relates to those, we are going to build on the proposal, which is the New Zealand model, that is set out in the report, and draft a circular, which will remind the system again about discretionary severance. The scheme we eventually decide upon will be very similar to what is set out in the Comptroller and Auditor General's report. It covers these elements. We hope those different elements that we have moved on since the report will help to reduce the risk of that happening again, but nobody sitting in this position can ever tell a Deputy that this will not happen again. Nobody can ever give that assurance because we know about the system; we know that mistakes are made and that there can be governance failures, but we are hopeful that in response to the report, which we will be working on, we will definitely reduce the likelihood of that happening again. We will continue to monitor and continue to work with colleagues across the system to ensure that the guidelines set out are met.

Mr. Seamus McCarthy:

I would like to respond to some of the comments Deputy Connolly made. Two interesting matters arise in the education sector. I mentioned institution C, which did everything very well. It got a UK framework and followed the guidance that was in that framework. The other institution had a reference to the HSE, and when we asked how it arrived at the figure, it said it looked at the terms that were in place in a voluntary redundancy scheme in the Health Service Executive and followed the conditions that were set down there. When we tested it we found that was not the case. If it had started out to do that, it did not achieve it. What is interesting, and particularly taking account of the surprise of the Department of Education and Skills when we brought its attention to these matters, is that neither body thought to go to the Department. That is what is surprising about this. Two major third level institutions did not turn to their Department and say that they had a problem, what did the Department think about it and how did it think they might best address it. If there is a thread in this, that is possibly the one.

In relation to gagging orders - and it is not only in regard to severance it could also relate to settlements where there is a legal dispute, a settlement is reached and there is a confidentiality clause in it - under no circumstances will we accept that we cannot see the contract or the deal; no matter what is written in it, we must see it. The day I do not get an agreement that I am looking for, I will come and tell the committee that I did not get the explanations and information I required. Usually we do not have that difficulty, but the point we always make is that one cannot contract one's way out of a statutory obligation. That is not the way the law works. If the law says that I must be provided with the document, then nobody can enter into an agreement somewhere that says I cannot be provided with it, and that usually ends the argument.

Seán Fleming (Laois, Fianna Fail)
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I call Deputy Cassells.

Shane Cassells (Meath West, Fianna Fail)
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I thank the Comptroller and Auditor General and his staff, as always, for the excellent reports prepared for and presented to us. This is my first time to meet Mr. Watt and I thank him for his presence here today, for his frankness and positive approach with respect to his statement and the answers provided. I note the Comptroller and Auditor General's confidence in that he stated that he views the situation as we move forward in a much more positive light. Mr. Watt referred to an overall context in his opening statement. In my brief time as a member of this committee I have heard that phrase an unbelievable number of times, especially from the representatives of the HSE when they have appeared before the committee. That phrase "overall context" seems to permeate every debate we have had. I want to speak about context. With respect to a report such as this in the build up to the budget in October, there is a political context because we have conflicting demands and requests.

Deputy Connolly touched on the education sector and I want to discuss it as well because one of the biggest demands we face is in the third level sector. The expert report on third level education prepared by Peter Cassells showed that a minimum of €120 million per annum will be needed over the next five years. As a party, we discussed the report in depth on Monday and one of the greatest concerns we have relates to that money going into the correct spheres within the sector. One can see the report, and the fears expressed by the Comptroller and Auditor General, that three payments were made from two bodies at a cost of nearly €750,000 without prior sanction from the Department. I ask that when we are talking about context there is an appreciation of the fear and frustration of not only elected Members but also members of the public. Whether it is the Department of Education and Skills or the Department of Health - which always uses this phrase - there is a very good fear that when payments are made, they are not always made in the correct manner.

Mr. Robert Watt:

We strive in all cases, when it comes to the formal schemes under review here, to ensure that their terms are met. The Comptroller and Auditor General concluded in his report that in the case he looked at we were broadly compliant. There are some issues there which we will be debating this afternoon and which are highlighted in the report. We share those concerns and we have responded to them by making changes in terms of the code of conduct and guidance and we will work on a circular on discretionary payments, which will hopefully address some of the concerns. We are not complacent or blasé about it. The money, in the overall scheme of things, is small. We know that but that is not to in any way suggest it is not important. Every euro is important. We take this very seriously. In the short period since the report was published we have responded to it. We have been energetic in terms of trying to learn from this and ensure that the rules of the formal scheme are properly adhered to and, in the context of discretionary payments, that any payments made are proportionate, that the relevant bodies are informed and that there is appropriate disclosure. We are very conscious that we need to improve here. We have set out a range of steps which we hope will improve the situation and that in the future we will look at this and it will be improved.

Shane Cassells (Meath West, Fianna Fail)
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The report, as has been stated by the Comptroller and Auditor General and Mr. Watt, does not go into the actual reasons for severance. Mr. Watt spoke earlier about the benefits. Can he give me a flavour of those? I have a concern about the safeguards in place for the recruitment process. Mr. Watt said the benefits would far outweigh the negatives where somebody is in charge of hundreds if not thousands of people. Will Mr. Watt give me a flavour of that? What is the frequency of this and the reasoning behind it? These are very senior people. The public would have questions about the frequency of this in respect of people in such high-powered jobs and whether it is better to dispose of them or to see a mutual parting of ways rather than working through whatever difficulties or challenges there are. Perhaps it would be interesting for us to hear the challenges and difficulties that people are supposedly facing.

Mr. Robert Watt:

There are two aspects here. There are the formal schemes that give rise to most of the payments which are set out here. There is a whole variety of reasons why we make termination payments. There is a scheme in respect of secretarial assistance, of which members of the House would be aware. Where people have worked for a certain number of years for a Deputy or Senator who retires or loses his or her seat, there are payments that recognise the service. That is more a redundancy-type scheme but in this-----

Shane Cassells (Meath West, Fianna Fail)
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They are all fully public with pictures beside them.

Mr. Robert Watt:

Like everything here.

Shane Cassells (Meath West, Fianna Fail)
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Yes.

Mr. Robert Watt:

That is set out. There is the issue of senior positions in the Civil Service, where we now have fixed contracts. As a result of the changes introduced in November 2011, we do not provide added years or early pension without actuarial reduction. As a result of that, severance payments are made. Then there is the old scheme which included severance payments. Those payments were put in place because we did not want people to stay in jobs for 15 or 20 years. They were given fixed contracts. If there is somebody who has a permanent job at a certain level and one wants them to go for the top job, it was felt back then that in order for them to take a job with a seven-year contract or a fixed contract, there had to be some benefits at the end and some severance payments. This is not unusual. It is certainly not unusual in the private sector but it is very rare in the public sector, where we use it, but it is sometimes a feature of what is required to attract people to do jobs. There is a variety of different reasons why the formal schemes are there and a variety of different schemes are set out. Then there are the discretionary payments which arise when the relationship has broken down, when we have somebody in a position who is not contributing or a relationship has broken down with the board of an organisation, with the president of an institution or maybe with the Minister and where it is seen - by all concerned - that the best way to address the problem is to provide an exit payment. There are two alternatives. One is to work through which was probably pursued before it reached the point where a payment was made and a resolution found. The other is to go through the formal disciplinary process of trying to remove somebody which, as the Deputy would know, whether it is the public or private sector, is very difficult and time consuming and can be unsuccessful and problematic at the end. Where the relationship involving a senior person has broken down, going through that process can be very damaging for the organisation involved so pragmatic decisions have to be made. The number of these payments is small and one could argue that, given the scale of our system, it should be higher. One could look at this in a different way and say that perhaps we are not addressing this appropriately and that we should have more recourse to termination payments where exits occur because there are probably an awful lot more problem situations that we do not address in this way which we try to sweep under the carpet. That is the-----

Shane Cassells (Meath West, Fianna Fail)
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That would bring us into another debate on the core problems rather than it being seen as the optimum recourse in dealing with problems within the public service in general.

Mr. Seamus McCarthy:

The first element of the framework that we set out on page 32 is about the risks, costs and benefits. When we see a large severance payment, what we also want to see is some documentation of the risks, costs and benefits. What is the nature of the problem? How did it come about? What options do we have for everybody's benefit - for the organisation, the individual and so on? There needs to be a clear understanding of what the risks are in cases where, for example, somebody in charge of an operations area in a hospital or something of that nature is are not able to do the job. One cannot just throw them out on the street without looking to their welfare. It may be through no fault of their own that they are not able to do it anymore. One wants to try to find a way of arriving at that but one does not want to overpay for it either. That assessment of the risks, costs and benefits is where we would look to see that there had been due consideration of it. What we would not try to do is second-guess it. If the right people with the responsibility in the organisation have made the decision, then I am not going to say their judgment is right or wrong. That was part of the reason why I did not want to get into looking at the individual circumstances of individual cases. Sometimes one would need the wisdom of Solomon to make a call on it but it must be documented.

Shane Cassells (Meath West, Fianna Fail)
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I appreciate that but it was referred to earlier in the discussion and I want to get a flavour of it because it is helpful for people in general, even though the Comptroller and Auditor General has clarified it by saying he that thinks it is a better course to pursue in the long term in respect of future cases. From our point of view, that is interesting.

Mr. Robert Watt:

I will comment on some of the other things we are doing to try to reduce the risk of this happening in terms of our recruitment process. When we are recruiting, we have an enhanced process whereby we engage in very detailed testing of people. We have several interviews. We invest an awful lot more in the recruitment process now than perhaps was the case in the past. We have a much more professional HR within and outside Government Departments. We try to address problems early and we have more professional HR people who intervene. We have a more developed performance management system which we identify at the start. We are actively managing probation more than we used to in the past. It really is around HR and we have put in a great deal of effort in recent years to try to become more effective at HR.

Shane Cassells (Meath West, Fianna Fail)
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I thank Mr. Watt.

Mr. Robert Watt:

We all know that sometimes things do not work out and relationships break down and we have to find the best solution.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I thank the witnesses and I thank Ms Patricia Devlin for her work on this matter, which was most insightful. Overall, there is some reassurance from the presentations. I wish to make a suggestion without getting into the entire HR issue. Clearly, there must be discretion and the ability to use the full toolkit. My suggestion is that matters of sanction and disclosure ought to be hardwired into the rules for severance and discretionary payments rather than having them running in parallel as a type of second thought and a box that might be ticked. It seems sensible that some of the core operative rules would be about sanction and disclosure. That is my proposition. The framework set out in the Comptroller and Auditor General's report is extremely helpful. It also tallies with common sense and good practice. However, hardwiring it into the rules might result in a little more clarity of thought.

On the issue of ministerial appointments, these were all cash severance payments. I understand from the report that there was a total of 41 of them between 2011 and 2013. Will the witness explain how there were 41? Did that tally with the change in Government?

Mr. Seamus McCarthy:

Is that secretarial assistants?

Mary Lou McDonald (Dublin Central, Sinn Fein)
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No, the ministerial appointments, such as special advisers and so forth.

Mr. Seamus McCarthy:

As it happened, obviously there was a change of Government in 2011 so there would have been changes of personnel.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Can the witness say that for a fact? If that is the case, I understand it. If not and when we just had a new Government, it appeared that they were running and fleeing the ship early on.

Mr. Seamus McCarthy:

No, it relates to the point the Secretary General made about the nature of the work and the terms on which somebody is employed. It is a policy matter and I cannot comment on policy matters, but I understand that if somebody has a relatively short tenure or they leave an employment for a less secure employment, it obviously makes sense that these would be there.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am not questioning that people are entitled to their severance. I just wondered about the figure. If it was a new Government, were all these folks heading off to the horizon? However, if the 41 is a consequence of a change of Government, that makes sense. I simply wished to check that.

Mr. Seamus McCarthy:

Yes. It was likewise with the secretarial assistants.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Yes.

Mr. Seamus McCarthy:

If we had picked 2012 to 2014, there would be nothing there.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is fine.

Mr. Seamus McCarthy:

I wish to make a further point. The Deputy's point is well made about hardwiring certain things into it. It might be useful to add to that a definition of a severance payment. Where an employment breaks down and somebody leaves and then decides to take an unfair dismissal action, we are into a legal situation. That is a grey area where, perhaps, somebody leaves this week and is back the following week saying he or she should not have left. That is a very complicated situation. From our point of view, if there is a rule that the value of a severance payment must be disclosed, I do not wish to be in situations where I am arguing with public bodies about whether a settlement is a severance payment. If it is in the space of being related to the termination of an employment contract, we must be clear about what is in and what is out for disclosure purposes. That is my suggestion on the hardwiring proposal.

Seán Fleming (Laois, Fianna Fail)
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Are any of these as a result of unfair dismissals?

Mr. Seamus McCarthy:

I cannot say offhand. I cannot give a definitive number but there were some.

Seán Fleming (Laois, Fianna Fail)
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Some of these would have gone through an external process for unfair dismissals and this is the figure. Perhaps you would send us a note on that.

Mr. Seamus McCarthy:

My recollection is that there are one or two where it was heading for court and where there were actions against-----

Seán Fleming (Laois, Fianna Fail)
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We understand. Many of them avoided all that and reduced the legal costs. However, you might tell us if any of these were as a result of that.

Mr. Seamus McCarthy:

Certainly some of them were in the nature of disputes that would have been likely to end up in court had they not been settled.

Seán Fleming (Laois, Fianna Fail)
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Are any of those payments specifically as a result of a figure determined by a body such as the Labour Relations Commission or were they all worked out internally? Are any of them a result of such an outcome?

Mr. Seamus McCarthy:

No, they were worked out within the organisation.

Seán Fleming (Laois, Fianna Fail)
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None of them is as a result of costs.

Mr. Seamus McCarthy:

No, they are not orders for payments.

Seán Fleming (Laois, Fianna Fail)
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Where would they be reflected? Would they not be in that?

Mr. Seamus McCarthy:

In financial statements and particularly in appropriation accounts, at the back of each appropriation account is set out the number of cases taken by employees against their employer.

Seán Fleming (Laois, Fianna Fail)
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It is in the appropriation accounts.

Mr. Seamus McCarthy:

The numbers, compensation and legal costs paid are there.

Seán Fleming (Laois, Fianna Fail)
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Before concluding this session and proceeding to the next one, I forgot to record apologies from Deputies Alan Kelly, Marc MacSharry, Róisín Shortall, who may or may not be able to attend, and Peter Burke.

I thank the witnesses from the Department of Public Expenditure and Reform for participating in the meeting and for the material they supplied. We will suspend the sitting to facilitate the arrival of the witnesses from the Central Bank.

Seán Fleming (Laois, Fianna Fail)
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We resume public session. We spoke in the first part of the meeting with representatives of the Department of Public Expenditure and Reform in relation to our consideration of the Comptroller and Auditor General's Special Report No. 91 on the management of severance payments in public sector bodies. The report notes that the Central Bank had more frequent recourse to termination agreements and severance payments during the report's review period than any other public body examined. We have therefore invited representatives of the Central Bank to discuss this matter with the committee today. We are joined by Mr. Gerry Quinn, chief operations officer, and Ms Liz Joyce, director of human resources.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the 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 a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. I invite Mr. Quinn to make an opening statement.

Mr. Gerry Quinn:

I wish the Chairman and members a good afternoon and thank them for the opportunity to appear before them today to discuss the special report of the Comptroller and Auditor General on the management of severance payments in public sector bodies. The Central Bank of Ireland welcomes the report and, as acknowledged by the former Governor in the report, we agree fully with the recommendations that pertain to the bank. In this context, the bank has undertaken a number of actions to implement the recommendations in full. These include the introduction of clear guidelines and robust risk management procedures for individual discretionary severance payments. The Comptroller and Auditor General's report recognises that in certain cases termination agreements providing for such payments may be in the best interests of both the employer and the employee. The Central Bank agrees with this statement and believes that this is reflected in each of the highlighted cases given the specific circumstances involved. In my short introductory remarks, I will briefly address the procedures surrounding severance payments within the bank, the number and cost of the cases and, finally, touch upon the circumstances of the cases which were highlighted in the report.

Looking at procedures, the report assesses compliance with good practice and, for the bank, finds some discrepancies with regard to the documentation of the options, rationale and legal advice for the decisions. It also found issues surrounding the formal delegation of authority in relation to the approval of severance payments. The bank now has a clear, documented and formal policy that has been in place since July 2015 when it was approved by the Central Bank Commission's budget and remuneration committee. It is also published on our website. The policy includes procedures to ensure adequate control and oversight over, first, the decision to enter into negotiations; second, the severance amount to apply in particular circumstances; and, finally, the written terms of the severance agreement. Furthermore, a cost-benefit analysis is always required and this must be supported by detailed written legal and/or employee relations advice. However, I note that while this formal policy post-dates the severance arrangements referenced in the report, all arrangements detailed in the report were made in the full knowledge of the appropriate senior level management within the bank. This was either myself as chief operations officer or the director of human resources. Furthermore, all arrangements were negotiated by or with the assistance of legal advice.

Turning to the number and cost of the severance payments, the report notes that the bank had more frequent recourse to termination agreements and severance payments during the period under review than the other public bodies examined. This refers to six cases over the period 2011 to 2013 totalling €384,000 with associated legal costs of €157,000. As highlighted in the former Governor’s response, the cases occurred in a period of unprecedented growth where bank staff increased by approximately a third between 2009 and 2013 as a result of the bank’s increased mandate and its more intrusive supervisory approach following the financial crisis. In fact, by 2013, the bank had more than 1,400 employees compared to approximately 1,000 in 2009. The arrangements examined in the report amounted to an average of two cases per year and €64,000 per settlement and represented 0.11% of the bank's total payroll expenditure over the 2011 to 2013 period. The individual settlements were entered into with a view to avoiding alternative outcomes which could have proved far more costly in the long run. In the view of the bank, the agreed outcomes represented the most cost-efficient solution in the particular circumstances of each case.

Turning finally to the specifics, the report draws attention to four cases: a long-term contractor who had never formally been an employee of the bank; a case where the individual had not yet commenced employment with the bank; and, two cases where employees had less than two years' service. It is important to state that the Comptroller and Auditor General did not make any assessment of the individual cases. Rather, the report focused on the procedures and processes used to deal with them. I will, however, briefly address each of the cases in turn but only in a general manner. As members will appreciate, for data protection and confidentiality reasons, the bank, like the Comptroller and Auditor General, can only disclose details to a level that will not identify or give rise to the identification of any individual involved. Of these cases, two related to settlements arising from pending court proceedings. The first of those related to a contractor who claimed to have been an employee. This settlement was agreed in advance of the hearing of High Court proceedings which were taken by the individual. This settlement was agreed following the consideration of legal advice and in view of the likely cost of the High Court proceedings. In the second case, a candidate was awarded a role and resigned an existing position. The individual alleged that the bank's pre-employment processes did not make sufficiently clear the conditions of employment prior to the resignation. The individual was unwilling to take up the role on the basis of these conditions of employment and took High Court proceedings on a number of grounds. A settlement of €32,000 plus legal costs of €25,000 was agreed following legal advice. In two other separate cases of fixed-term employment, the employment relationship broke down for differing reasons. Settlements were agreed which were acceptable to both parties and which represented the most cost-efficient solution from the bank's perspective.

In conclusion, the bank believes that the outcomes in the six cases highlighted were the best possible in the circumstances. The bank accepts the deficiencies identified in the report in relation to our policies and processes. A range of improvements has been implemented, including a formal discretionary severance policy, a written delegation of authority, a revised probation policy, revisions to our code of ethics, measures to clearly distinguish between independent contractors and employees and revisions to our pre-employment processes. I hope the above gives the committee a picture of the context behind the payments at the time and the changes made by the bank since then to improve our processes and implement the recommendations of the report in full. We welcome and will do our best to answer the members' questions.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I welcome the officials from the Central Bank and thank them for coming before us to answer our questions on the report of the Comptroller and Auditor General. The Central Bank adheres to proper governance and a code of practice and implements the Government's pay policies, which is very important. However, the report's findings do not always agree with that. I have highlighted some of them. While significant legal costs were incurred, details of the legal advice received were not documented on file in some cases. The bank had no written policy or guidelines for dealing with termination agreements and severance payments. In three of the six cases, there was no evidence that a review of all the options, risks and costs involved had been undertaken before the decision to pay severance.

The report also states, "While each case had an agreement on file that was signed by a representative of the Bank, it was not clear if the terms and amount of the settlement were approved at an appropriate level". It also states there was "no close correlation between the level at which agreements were signed and the value of the settlements" and no evidence "of any formal delegated authority in place in relation to the approval of severance agreements". The report assessed the bank's overall performance on severance payments against six good practice benchmarks and found the bank to be non-compliant in respect of half of these, which is a rate of 50%. I have a number of questions. Should I ask them together or one at a time?

Seán Fleming (Laois, Fianna Fail)
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Whatever the Deputy wants.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The Central Bank accounts for almost half of the total severance payments awarded by public bodies from 2011 to 2013. This implies there are deficiencies in the bank's procedures for managing employee performance and its general management of human resource issues, including recruitment. Is this the case or are there other reasons for the bank's relatively high recourse to severance payments?

Mr. Gerry Quinn:

We need to take the context in which the circumstances arose. The bank grew in an unprecedented fashion following the crisis. It grew from having approximately 1,000 employees in 2009 to approximately 1,600 people at present. On average over the course of the past six years we recruited approximately 120 people per year so we have had significant growth in the organisation. In this context it is not surprising that certain cases arose regarding employment issues. Not every employment and recruitment measure taken is as effective as one would like it to be. As the Secretary General indicated earlier, sometimes employment relationships can break down. We sought to address these at the earliest possible time. We have dealt with a number of historical issues that existed at the time and we have put in place and adopted the full best practice framework outlined by the Comptroller and Auditor General.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Some of these issues were covered in Mr. Quinn's initial remarks. Without referring to the particular individual, what were the general circumstances which gave rise to costs of more than €73,000 being incurred in respect of an individual who did not commence employment in the bank? This is serious. This person was not part of the bank but received €73,000 compensation.

Mr. Gerry Quinn:

In the general sense we can see why calling it a severance payment is challenging but it is the overall framework of settlements that were arrived at. The circumstances were as I outlined in my opening statement. An individual was offered a role and resigned an existing position but then made a claim based on not being made fully aware, or not being made aware in sufficient time, of all the various elements associated with the terms and conditions of the Central Bank of Ireland. Clearly, there was a deficiency in our process of offering the particular job. The individual took a case on the basis of resigning a particular job and not being willing to take up the role in our organisation, which was still open and available if the person wished to do so. The person decided not to do so and took a case to the High Court for a variety of reasons. We looked at the circumstances of the case and took legal advice. We examined the potential costs of High Court proceedings and the likelihood of succeeding. On this basis a negotiated settlement was arrived at using the legal advice.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Did the Central Bank bring the person to the steps to make the award?

Mr. Gerry Quinn:

It was close enough to the steps.

Ms Liz Joyce:

It was not literally on the steps but it was close.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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What general circumstances gave rise to the payment of €61,000 each to two individuals with less than two years' service, and to the payment of €60,000 to a contractor who had worked with the bank for more than five years but who had never been an employee?

Mr. Gerry Quinn:

I outlined the case of the contractor in my opening statement. The contractor had been with the bank for approximately eight years and worked in the institution. The role ceased and no more work was required of the individual. The individual was told the contract would cease. The individual had never been on the payroll of bank. There was never an employee file for the individual. As far as we were concerned the person was a contractor and was employed as a contractor for services in bank. The individual made a claim on the basis of being an employee of the bank. I must be careful about getting into too much detail in case there is a danger of identifying the individual. This went through a number of fora before it arrived, once again, at the High Court. The issue was much the same. We weighed up the risks of going through and the cost of the High Court hearing. It is clear there were some deficiencies regarding the explicit nature by which we identified a contractor and we decided to settle on this basis. Since then, we have implemented certain measures, for example, different identification badges and different e-mail addresses for contractors. Contractors pay more for coffee in the canteen. This is the measure of explicit difference we are required to have in place so we never enter such a situation again where there is any doubt about the role of a contractor versus that of an employee. In 30 years' experience, having worked with many contractors in many organisations, this was the first time I saw this particular circumstance emerge.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Does Mr. Quinn believe the system is now right and this will not happen again?

Mr. Gerry Quinn:

Absolutely. We are very explicit about calling out a contractor as different from an employee of the bank in all of the aspects outlined.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Did this happen because of neglect in the system?

Mr. Gerry Quinn:

The contractor had been in place for eight years and had become embedded in the bank. The level of distinction required to be in place in the event of a High Court case was not understood by anybody.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Of the total amount of €384,000, the extraordinary amount of €157,000, or 41%, was paid out in legal fees. Why were the legal fees so high? The amount seems very severe.

Mr. Gerry Quinn:

We must take account of the nature of the cases. The Deputy is seeing the outcome. The process involved tends to be quite long. Each case tends to go through multiple stages. We must protect our employees. We have a duty to ensure that employees in the organisation have a right to appeal and access to grievance procedures. They are entitled to representation through these procedures. When something gets to the end of such a process, there can be quite an amount of legal involvement if the individual decides to take legal representation. We must also recognise that all these cases involved negotiated settlements. There is no rulebook to be taken down which outlines the amount of money that applies in particular circumstances. These arrangements were negotiated by our legal advisers with the legal advisers of the individuals involved. I accept the legal costs were high, but they are the legal costs associated with settlements of these nature, particularly if one gets to the steps of the High Court.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Why was the legal advice received not documented and filed in some cases? Why did the Central Bank not disclose and document it?

Mr. Gerry Quinn:

Regarding the inadequacies of the documentation, there was no single file that contained all the information, which is the standard we should have had in place. It is the standard the Comptroller and Auditor General expects us to have in place and the standard we have now defined in our new procedures. It is not that there was an absence or complete lack of documentation, far from it. There was documentation but it should have been put in a single file. Something else to bear in mind is these are relatively infrequent events. As outlined earlier, no general policy was in place in respect of the public service. The procedures and processes one would expect to have in place were not there. We have now put them in place.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The report states the bank had no written policy or guidelines for dealing with termination agreements and severance payments and that the process usually involved either external legal advice or employee relations advice. Why was such a policy not in place?

Ms Liz Joyce:

Some of these cases arose on an ad hocbasis so there was no pre-existing policy. We should have documented them as an easy to follow audit trail. We now have such a process in place. I assure the committee that every decision taken was based on legal advice.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I will ask the obvious question. What lessons has the bank learned from these instances and what amendments have been made to its procedures to avoid a recurrence of what happened?

Mr. Gerry Quinn:

We have taken all of the lessons on board in terms of the recommendations in the report of the Comptroller and Auditor General. We have added certain elements to this, as I outlined in my opening statement. We now have a formal discretionary severance policy. We have a written delegation of authority. We have revised our probation policy and our code of ethics. We have put in place measures to identify contractors and revisions to our pre-employment process. We have taken all of the lessons on board.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Were the Central Bank representatives happy with the report of the Comptroller and Auditor General? Do they have any differences with the report? Is the bank happy to accept the report in full?

Mr. Gerry Quinn:

We have accepted the report in full. We are very happy that the Comptroller and Auditor General has identified these matters. It allows us to put the improvements in place, and we have put them in place.

Josepha Madigan (Dublin Rathdown, Fine Gael)
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I thank the Central Bank representatives for the presentation. It occurs to me that there was an unprecedented level of recruitment, but it is precisely because of this that the policy should have been looked at, perhaps, before a recruitment process was put in place. It is done now, but I would have thought it would have happened and that it would have triggered a check in the ordinary course when the bank was expanding.

Mr. Quinn has said guidelines are now in place that the bank accepts and also that the bank accepts the report. How do we know there are not other internal processes? Will those responsible carry out another internal review of the Central Bank and how it looks at these processes? The relevant people were not aware of this until it was highlighted. How can we safeguard this not happening again with other issues in the bank?

Mr. Gerry Quinn:

The first point from Deputy Madigan related to whether this should have been in place. Yes, in hindsight, clearly it should have been in place. In the same way, it was not that we ignored an existing policy from the Department because no policy existed. The other thing is that we have to frame it in the timeframe that this was happening. We all know the context in which this was happening, the context of the bank and everything that was going on. In terms of prioritisation and identification, when we are looking back on this, it probably should have been highlighted at an earlier point. These are not things we anticipated, clearly. Certainly, we would not have anticipated this type of contractor case or the other issues arising from someone not taking up a role.

Josepha Madigan (Dublin Rathdown, Fine Gael)
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I appreciate that but when an organisation is expanding, it is something to be mindful of.

Mr. Gerry Quinn:

I absolutely take that point. However, I should point out some of the other elements that we put in place at the time because we were expanding. We put in place a formal performance management system throughout the bank. Our concentration in respect of the management of performance is to try to ensure we get the best out of the people we have. Let us consider the organisation and the number of people that have been recruited in recent years. The vast majority of them operate very effectively, are committed to the public service and are dedicated and professional in the things they do. We need to support them in terms of our human resources processes and learning and development. We focus considerable attention on those. These are the cases that did not work out and take a good deal of time to manage through. The Secretary General, Mr. Watt, referred earlier to the value proposition if we do not deal with these. We put the procedures in place. Ms Joyce may wish to add some comments on the other investments that we continue to make in human resources.

Ms Liz Joyce:

I can outline a number of areas but first I will address the specific concern around policies. We have had a number of human resources policy reviews as well as policy reviews in other parts of the bank. All our policies have been updated in recent years. One of the early steps we took was to improve our probation policy. The policy had been for a 12-month probation period. Often issues were not arising until the end of that period. That made it difficult to deal with. The period was reduced to six months with the option to extend the probation period, if that was helpful to the situation. Obviously, our desire is to help people to be successful in their jobs. It is only the occasional situation in which that does not succeed.

The performance management system that Mr. Quinn referred to is now in its sixth cycle. We provide extensive training to managers in supporting people to implement that in the best way possible. The purpose is to ensure we have clear objectives for people and that they get good feedback as well as to ensure good career development conversations come out of that. As I have mentioned, we have provided a good deal of training for managers on various aspects of managing people as part of their people management responsibilities. We have also improved our recruitment and selection procedures. We have clearer role profiles. There are very focused interviews and assessment methods associated with the roles we are trying to fill. We have training for interviewers and we have consistency assessment methods. Those are some examples.

Josepha Madigan (Dublin Rathdown, Fine Gael)
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The report can throw light on other internal mechanisms within the Central Bank. The bank can use it as groundwork for the future.

Alan Farrell (Dublin Fingal, Fine Gael)
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I thank our guests from the Central Bank. They should, perhaps, take some solace from the fact that they have given the answers thus far to every question I had written down. That is a good thing for our guests. I have some follow-up questions, specifically in respect of the legal advice the Central Bank received. Does the bank use the same legal adviser or panel of legal advisers for corporate business and financial advice the bank might require as it uses for human resources advice in these particular circumstances?

Ms Liz Joyce:

We have a framework agreement under which we have a number of advisers we can call on for a range of issues. I have to check with the general counsel. We have a separate panel for employment law.

Alan Farrell (Dublin Fingal, Fine Gael)
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Have any severance agreements that the bank has reached with former employees in recent years, not necessarily in the given period analysed by the Comptroller and Auditor General, not involved legal advice?

Ms Liz Joyce:

Not that I am aware of. We had a number of sources of legal advice. At a general level, we have our in-house legal team and we have an employee relations unit.

Alan Farrell (Dublin Fingal, Fine Gael)
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Sorry, I was referring to contracted legal advice.

Ms Liz Joyce:

In most if not all cases, I am almost 100% certain that external specialist legal advice was involved where we concluded a settlement agreement. For more general issues we would not necessarily go to external advisers.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is Ms Joyce confident that, as a result of this report or changes the bank has made since 2013, including in respect of the relevant reporting period, the Central Bank has put in place sufficiently robust human resources procedures to ensure issues like this do not arise, in so far as that is possible?

Ms Liz Joyce:

We cannot avoid operational risk. That is natural when it comes to running an organisation of this size with the level of hiring and change going on. I think it would be silly to expect that we would never have risk, but how we manage it is much improved and how we document it is significantly improved as well.

Mr. Gerry Quinn:

Since 2012, we have disclosed these payments in our financial accounts in any given year. That is the focus it gets. It is in our annual accounts.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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On the positive side of the ledger, the Central Bank representatives have accepted the report and they have remediated the shortcomings, so they tell us. On the negative side, my reading of this in respect of the Central Bank is that the lack of compliance was quite shocking. I appreciate the nature of operational risk and that there are no 100% guarantees. I appreciate the level of growth in terms of the staffing numbers. However, Mr. Quinn referred to issues with fairly rudimentary things like a formal discretionary severance policy. In all fairness, it should not take the Comptroller and Auditor General's office to have to come in for the Central Bank to recognise this. This is the Central Bank, not the corner shop. Do the representatives understand me? The bank is a central pillar of the entire system of the State. Other issues included delegation of authority, a revised probation policy etc. I am glad the bank representatives accept the findings, but I am concerned by the lack of compliance the report reflects. This is something we will have to keep an eye on, if that is the case. I almost work on an assumption, God bless my naivety, when it comes to big institutions such as Central Bank in which there is a large staff. How many people work in the human resources function?

Ms Liz Joyce:

We have a total of 1,600 staff working at the bank, and we have 60 people working in human resources on a variety of projects.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is that sufficient? Is that ratio sufficient?

Ms Liz Joyce:

That is the group we are working with now to deliver all the different projects we are working on.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is the HR function stretched?

Ms Liz Joyce:

Everyone is very busy, but we are certainly prioritising the things that are important.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am trying to be helpful. If it is an issue that there is a staffing deficit within the human resources or industrial relations functions, then it is something one would be concerned about.

Mr. Quinn referred to a criticism relating to the legal files and remarked that documented legal evidence was not in the right folder.

Mr. Gerry Quinn:

I said there was no single file that had all the information relating to each individual case.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Where was the legal advice? The report refers to compliance with good practice. Page 35 of the report refers to key good practice requirements. One key stipulation is whether documented legal advice is obtained, whether internal or external. The letter X is beside that statement, which means that the Central Bank was not compliant. Is Mr. Quinn trying to say the advice received was in a folder somewhere on a dusty shelf? I did not understand his comment earlier.

Mr. Gerry Quinn:

What I was saying, in the context of the total file for an individual that had all elements associated with what ended up being the discretionary severance payment, was that there was not a single file one could go to. There were different elements in different parts of personnel files and different e-mails. In the context of the legal advice, it was a combination of written legal advice-----

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I do not wish to be rude but could the Comptroller and Auditor General clarify if that was the problem, namely, that he was looking to have it all in one file but that it was dissipated across the system?

Mr. Seamus McCarthy:

It was to see the whole legal case and, if one likes, the legal issues that were raised by the case and the advice on each of those points to be documented in one place. Again, within the framework that we set out, the standard is that use is made of experienced advisers, legal advice is obtained in writing to develop appropriate terms for a negotiated exit and the basis for a severance payment is documented. The "X" there was basically saying we did not see that kind of approach in four or more of the cases.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Yes. That is really bad.

Mr. Gerry Quinn:

We have acknowledged the deficiency in terms of not having operated to a form of best practice - one which did not exist in the public service generally, so it was not that we were ignoring anything that existed - in a period of unprecedented growth, as I have outlined, dealing with operational risk, as the HR director has outlined. In hindsight, we all would have liked to have that in place in order that we could have come before the committee today and said that everything was pristine in terms of the documentation, etc. What I and Ms Joyce are saying is that, notwithstanding the issue in respect of documentation - which we have fully accepted and addressed - in each of the cases involved, we believe the outcomes achieved were the best possible outcomes that could be realised in the circumstances.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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All right. I will not second-guess Mr. Quinn on that. I will conclude with more of a remark than a question. I am troubled by the fact that Mr. Quinn is playing down as an unfortunate oversight something that I would regard as nothing but common sense, which is that one would have one's documentation in a coherent fashion and filed appropriately so that not just the Comptroller and Attorney General but also anyone else - for any purpose - could put their hands on it. When one goes to the trouble of obtaining legal advice, it is for a good purpose. It is not just to pad out a file. It is important information.

Mr. Gerry Quinn:

The legal advice in these cases was very important to the final outcome.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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Yes, and, therefore, the treatment of it should have reflected that.

Mr. Gerry Quinn:

We have acknowledged the fact and we have the processes in place now to ensure it will not happen again.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am relieved to hear it. I wish to make one final remark. Mr. Quinn, quite correctly, I am sure, stated that the settlements we are dealing with represent 0.11% of the bank's total payroll expenditure in the period concerned. Again, that is fair enough but I wish to make the general observation that it is not the issue. If this is, in Mr. Quinn and others' heads and in his presentation, a way of kind of minimising the fact that serious non-compliance issues were found, that is the wrong head space, in my respectful opinion, for Mr. Quinn and the Central Bank to be in.

Mr. Gerry Quinn:

We were trying to put in context the value of the payroll bill over that period versus the value that was paid out. It was not trying to minimise any issues in respect of-----

Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is not how it came across to me. It is either defensive, which might be understandable, or it is dismissive, which is not good, healthy or understandable.

Mr. Gerry Quinn:

It is not intended to be either dismissive or defensive.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am glad that Mr. Quinn has clarified that. I thank him.

Seán Fleming (Laois, Fianna Fail)
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I call Deputy Connolly.

Catherine Connolly (Galway West, Independent)
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I thank Mr. Quinn for attending. I think most of the questions have been asked. I direct this question to the Comptroller and Auditor General. Six severance payments were examined. Were these a sample of the severance payments?

Mr. Seamus McCarthy:

They were larger ones. What was the total number?

Ms Patricia Devlin:

There were a number of cases. We looked at those with a value in excess of €50,000 but there were others.

Mr. Seamus McCarthy:

They were the larger cases - all of the larger cases.

Catherine Connolly (Galway West, Independent)
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Okay. Is Mr. McCarthy satisfied that the Central Bank has implemented all of his recommendations as its representatives have indicated. I welcome the fact that they stated that those recommendations have been put in place. Is Mr. McCarthy satisfied that they are now in place?

Mr. Seamus McCarthy:

Yes. Obviously, in the future, if we see a significant severance payment, we will be examining it and looking to see if the controls that are now in place were applied to it. I am happy that the Central Bank has fully accepted what we suggested and that the controls are in place. We will keep under review that they are actually implemented.

Catherine Connolly (Galway West, Independent)
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On best practice, I accept that Mr. Quinn has come here and, from what the Comptroller and Auditor General has said, complied. I welcome that change. However, reference to best practice not being there at the time sets off memories of poor regulation in Ireland and what led to the downfall in the first instance. Unfortunately, the Central Bank has a particular onus on it to lead. It is there to regulate and in its mission statement - I am not here to preach - there is an extra onus on it to lead and to follow best practice. The bank aims to ensure that regulated firms are financially sound, safely managed and so on. If the bank has that role, there is an extra burden on it to do it 100% right. If the report of the Comptroller and Auditor General was not before us, what internal mechanisms did the Central Bank have in place to highlight problems and address them?

Mr. Gerry Quinn:

We are constantly reviewing all of our processes, not just those in HR but right across the operations of the organisation. That is part of our role in terms of continually trying to improve. We have an internal audit area that is also there to support us in identifying any issues. We have robust risk management processes to manage operational risk. If there are deficiencies in a particular business area, we expect them to be picked up by our risk management processes or, ultimately, our audit processes. However, the primary aim is to ensure that the standard outlined by Deputy Connolly is the standard to which we aspire, and that is what we are working towards. This is a process of ongoing renewal within the organisation. We recognise our role. We recognise that we have to have standards that match the role that we perform generally in the regulated sector.

Catherine Connolly (Galway West, Independent)
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The only observation I would make is that the period under examination is 2011 to 2013, is it not? I would have thought the Central Bank would have looked at this itself prior to a report coming before us and would have put these measures in place if its internal process is that robust.

Mr. Gerry Quinn:

I think-----

Catherine Connolly (Galway West, Independent)
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They have been put in place as a result of the Comptroller and Auditor General's report.

Mr. Gerry Quinn:

They have been put in place as a result of the report of the Comptroller and Auditor General. Also, however, some of those improvements, as Ms Joyce outlined, were put in place for exactly the reason Deputy Connolly outlined. The revised probation policy was not, in itself, a direct consequence of the report of the Comptroller and Auditor General. It was our analysis that, with a 12-month probation policy, certain issues were not emerging and that the focus on performance was not strong enough. That, for example, was put in place ahead of-----

Ms Liz Joyce:

2011.

Mr. Gerry Quinn:

-----2011. We put a full performance management system in place, as I outlined earlier, in the very early days in terms of 2011 in order to ensure that we had a methodology and a structured way of assessing performance within the organisation. It is not that we do not look at how we operate. It is not that we do not look at the risks involved and put improvements in place. We do. In these particular circumstances, I acknowledge that, when one looks at them now in the context of the issue of ad hocindividual severance payments arising - each of which, in its own right, is unique and complex - and the fact that there were no central guidelines issued from the Department, we did not have the best practice guidelines in place. We have them now and we will operate to them.

Seán Fleming (Laois, Fianna Fail)
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Before we conclude, I wish to put one other issue to Mr. Quinn. I refer to retention payments, which are almost the reverse of severance payments. This matter is not specifically dealt with in the report. Remarkably, the Central Bank has a system in place for what it calls retention of staff in strategically critical roles, so it is the opposite. Instead of having a settlement when someone is leaving, there is a system in place for someone who is in a job and possibly threatens to leave. The Central Bank offers him money over and above his salary to remain in the job. This matter was mentioned at a meeting of the committee last autumn. Mr. Quinn would not have been present but officials from the Department of Public Expenditure and Reform were here and they did not seem to know the position. I think Mr. Watt perhaps indicated he did not have personal knowledge of the issue. However, I have received correspondence in the meantime between senior officials in the Department of Public Expenditure and Reform and Mr. Quinn's organisation on this issue. It shows that in the period 2013 to 2014 five people listed on the schedule I was given received retention payments to remain in their jobs. Most of the payments were in the amount of €48,000.

One was €48,000, another was €17,000, another was €48,000, another was €8,000, and another was for €48,000. Total payments to people to persuade them to remain in their jobs added up to €169,000. The bank probably tied them into a period and they were offered and had to sign new contracts. It could almost be interpreted as giving somebody an increase.

The witnesses might explain that because it seems a very unusual practice. I have not encountered it before. I know the bank is separate legally and is responsible for its own activities. It is not subject to Department of Public Expenditure and Reform public sector rules because under European bank rules it must be independent of Government Departments in the performance of its duties, but it would be governed by the financial emergency measures in the public interest, FEMPI, legislation. In the correspondence to the Department of Public Expenditure and Reform, the bank says that it is satisfied that these extra payments are in line with FEMPI. Perhaps the witnesses do not have the full information in front of them today, but could they explain to the public how the bank can pay people working in a public body like the Central Bank sums of €48,000 over a two-year period when everybody else is taking cuts under FEMPI and the bank is saying these additional payments are in line with FEMPI? If the witnesses are not fully comfortable with answering the question now, because it is a difficult question, I would be happy to receive a written submission. However, could the witnesses give me their general position?

Mr. Gerry Quinn:

The general position is that we faced some very significant issues regarding staffing in two areas of the bank on what were highly critical projects of national and international importance where failure was not an option. We faced a situation where we could have lost a significant number of people who were vital to ensuring we fulfilled our mandate in this regard. We analysed the options open to us. These were particular individuals with particular skills who had accumulated knowledge in these areas. We considered the options that were available and discussed them with the banks' budget and remuneration committee. We assessed that the best option available to us at the time was putting retention payments in place such that we would aspire to keep those individuals to cover that particular period of exposure.

We took legal advice in respect of FEMPI because we are covered by the FEMPI legislation, as the Chairman noted. Our staff have taken all the cuts associated with FEMPI and the pension levy, even though we are independent. The legal advice suggested to us that in these particular circumstances - a very limited fashion with a very limited number of people - it was possible to pay those retention payments and be FEMPI compliant. That is the basis on which we operated. I accept that it is challenging for people to understand and reflect on but I assure the committee that this was not taken without a lot of consideration and a full understanding of the impact of failure on the particular projects with which we were dealing. We have a policy relating to that, which is called the interim retention policy. It is available on our website so it is publicly available. Nobody else has been admitted to that policy since the cases to which the committee has access on the basis that the circumstances that would give rise to that situation have not arisen and might not be likely to arise again.

Seán Fleming (Laois, Fianna Fail)
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Are the figures mentioned by me the total amount? I think I mentioned five people. There might have eight or nine included in the scheme but I think payments were made to five people. Is that the full extent of the figures or are there more?

Ms Liz Joyce:

Over a period of time, there were 29 individuals who were part of the retention scheme. Only two people remain in the scheme under the policy because the time for one of the major strategic projects has expired.

Seán Fleming (Laois, Fianna Fail)
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The witnesses might send us a detailed note on the 29 people. I do not need employees' names but I would like to know the amounts and the timing regarding when they were paid. Have witnesses any idea of the total amount paid or payable under the scheme?

Ms Liz Joyce:

It is circa €500,000 over the period from 2014 to the end of the scheme.

Seán Fleming (Laois, Fianna Fail)
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That is a lot of money. The bank is paying €500,000 to keep staff in a public service organisation. Did the people involved have to break their contracts and get new contracts? Were they deemed to be new employees or was it a mechanism of-----

Ms Liz Joyce:

They went on to new contracts.

Seán Fleming (Laois, Fianna Fail)
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They were deemed to be new employees. Did they get a P60 and commence again?

Ms Liz Joyce:

They did not get a P60 but they signed new contracts of employment with substantially altered terms and conditions of employment.

Seán Fleming (Laois, Fianna Fail)
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Will the witnesses send us a detailed note with information on that? It was referred to briefly here and that is where I picked it up. I have no problem forwarding a copy of the correspondence, with which they are familiar, and I will arrange with the clerk for its circulation for the benefit of other members. I thought other members had received it, but obviously it was only sent to me.

On behalf of the Committee of Public Accounts, I thank our witnesses from the Central Bank for taking the time to participate in our meeting today. I think the opening presentation was very clear, concise and to the point. I was very happy with the witnesses' acknowledgement of what was in the Comptroller and Auditor General's report. I propose that we suspend the meeting for ten minutes. We will resume in private session for a short period in order that the committee can consider how it will deal with and set up a work programme relating to Special Report No. 94 of the Comptroller and Auditor General concerning the sale by the National Asset Management Agency, NAMA, of the portfolio code-named Project Eagle.