Oireachtas Joint and Select Committees
Thursday, 6 April 2017
Public Accounts Committee
2015 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Waterford Institute of Technology: Financial Statements 2013-2014
We are dealing again with the third level education sector. With regard to our examination of the financial statements in the education sector, over the past two weeks we have met with representatives of the Department of Education and Skills, the Higher Education Authority, University College Cork, Dundalk Institute of Technology and University of Limerick.
Today we will continue with three further sessions in which we will examine the financial statements for Waterford Institute of Technology and Dublin Institute of Technology, together with the Grangegorman Development Agency, and the National University of Galway. We will begin with Waterford Institute of Technology’s 2013-14 financial statements. From Waterford Institute of Technology we are joined by Professor Willie Donnelly, President, Ms Elaine Sheridan, Vice President, Dr. Derek O’Byrne, Vice President and Ms Kathryn Kiely, Industry Services Manager. From the Department of Education and Skills we are joined by Mr. Christy Mannion and from the Higher Education Authority by Dr. Graham Love and Mr. Andrew Brownlee.
I remind members, witnesses and those in the public Gallery to turn off their mobile phones. I must repeat that it is not enough to put them in silent mode because e-mails coming in and out can disrupt the recording of these proceedings.
I wish to advise 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 this committee. 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 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 either by name or in such a way as to make him, her or it identifiable. Members of the committee are reminded of the provisions of Standing Order 186 to the effect that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. Finally, 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 would first like to call on Ms Drinan from the Office of the Comptroller and Auditor General to make a brief opening statement.
Ms Colette Drinan:
The financial statements before the committee this morning relate to Waterford Institute of Technology’s financial year ending 31 August 2014. The institute’s consolidated income for the year amounted to over €99 million. As seen in the graphic in the submission, State grant funding of €28 million accounted for more than a quarter of that total. Tuition fee income of nearly €31 million included fees of €7.4 million paid by the State and student contribution income of over €15 million. In addition, research grant income of €19.5 million was recognised in the year.
Expenditure in the year was nearly €96 million. Of that, around 68% was accounted for by staff costs. A detailed analysis of expenditure is given in note 11 of the accounts.
While the consolidated accounts show an operating surplus of €3.7 million for the year, the audit certificate notes that the group had an accumulated deficit of over €15 million at 31 August 2014. The institute addresses the question of the group’s financial position in note 24, and concludes that it remained appropriate at the date of signing to prepare the financial statements on a going concern basis.
In regard to the institute’s financial position, the accumulated deficit prior to the consolidation of the subsidiaries was €3.3 million. After consolidation and taking into account the current year surplus, the deficit is now over €15 million at 31 August 2014, as outlined in note 19 to the financial statements.
The Comptroller and Auditor General issued a qualified audit opinion in respect of the financial statements, arising from the failure of the institute to include comparative information for the prior year in its consolidated income and expenditure account for 2013-14.
The institute’s subsidiaries were incorporated into the financial statements for the first time in 2013-14. Note 19 explains that prior year comparatives were not available because the subsidiaries’ financial statements for 2012-13 covered a 14-month period. The relevant accounting standard provides that, in such cases, amounts for the prior year should be adjusted, with the basis for adjustment disclosed. Accordingly, the audit concluded that it would have been appropriate for the institute to include adjusted comparable figures for 2012-13.
The governance code for institutes of technology provides that audit committees should submit an annual report on their activities to an institution’s governing body. The audit certificate also draws attention to the fact that the audit committee in Waterford IT did not issue an annual report for 2013-14 to the governing body until June 2015.
The Comptroller and Auditor General’s recent special report on financial reporting in the public sector identified Waterford IT as the only institute of technology that had not completed its financial reporting for 2013-14 by the end of 2015; that audit was subsequently certified in October 2016. In terms of the 2014-15 audit cycle, Waterford IT is now the only institute of technology for which the audit has not been completed.
Professor Willie Donnelly:
Chairman, for the record, Ms Kathryn Kiely has been replaced by Dr. Peter McLoughlin.
I welcome the opportunity to address the committee on behalf of the institute and to address matters relating to the institute’s accounts. I wish to begin by setting my remarks in context.
The institute’s current situation needs to be considered in the context, first of all, of demonstrable under-investment in the third level sector over a decade or more and, moreover, inequalities in the ways funding is distributed between institutes of technology, IoTs, and universities. Some aspects of that are outlined in our briefing document but in summary, between 2008 and 2015, State investment in the IoT sector in general dropped by 50% while student numbers increased by 30%.
As we saw in our briefing, our mission is to serve our students, the citizens and the communities of the south east and our social, industrial, cultural and commercial partners and stakeholders - regional, national and international. Since its foundation in 1970, the institute has responded proactively to the region’s needs and with huge success, evolving from a provider of vocational training programmes to a research-led, internationally respected educational institution.
In the past ten years, the institute has successfully attracted over €135 million in competitively sourced research funding from various sources. We have been instrumental in attracting knowledge intensive industries to the south east region and Waterford Institute of Technology, WIT, has been vital to job creation and regional development. Since 2008, WIT has signed 34 licences and been involved in the spin out of ten companies resulting in the creation of more than 600 high impact jobs in Waterford. Enterprise Ireland, in a statement to the Committee of Public Accounts on 31 January 2013, stated: "Waterford is a shining example of how co-locating the incubation centre with the institute has led to the establishment of a software industry that probably should not have existed in Waterford.".
The institute has played a pivotal role in the transformation of Waterford city as a leading high impact digital and advanced manufacturing economy. A key example of this is FeedHenry, a spin out of Waterford Institute of Technology, which created 50 jobs. It was recently acquired by Red Hat. Red Hat announced an investment of €12.7 million in a new project which will create an additional 60 jobs, going some way to address the unemployment deficit in the city.
At the same time, the institute's record in promoting regional access and participation is also extremely strong. Approximately half of our undergraduate intake is from sources other than the leaving certificate student cohort. Over one third of our full-time learners come from target socioeconomic groups, approximately 10% of our students are registered with our disability office and almost 3,400 students at the institute are currently receiving some form of grant.
WIT's current situation must be set in the context of these efforts to address regional need while at the same time bearing catastrophic funding cuts. The success we have had over many years in the research domain and in access give just two examples of the hard work of our management and staff in the interests of the region despite the restrictions imposed on the institute.
I turn now to addressing the items specifically referred to in the committee's correspondence. In respect of the institute's 2013-14 financial statements, the delay was, first, as a result of the institute complying with a request from the Comptroller and Auditor General to carry out a substantial policy change which required a full review of research income and a change in the policy relating to the recognition of research overheads, a change that was requested across all third level institutions. Second, 2013-14 was the first year the institute was required to consolidate the financial activities of the subsidiary companies which were the subject of the Quigley report, issued in June 2013 by the Minister for Education and Skills.
For the year ending 2013-14 the institute's financial statements, before consolidation, record a surplus of €1.168 million compared to a deficit in the prior year of €306,000. General expenditure in the year increased by 0.9%, largely due to increases in utility costs. However, State recurrent grant fell by €2.78 million compared to the previous year, that is 9%. Some of this deficit was offset by an increase in student contribution and tuition fees particularly as non-EU fees increased by €1.55 million.
Also in that financial year, the subsidiary companies reported an annual financial profit of €1.096 million. However, the consolidation required the alignment of policies in relation to the treatment of assets, deferred capital grants and reserves, both recurrent and capital, and this necessitated a transfer of €26.936 million from revenue reserves to capital reserves, hence creating the deficit the committee has just heard about.
In the year prior to consolidation we moved the financial year end of the subsidiary companies to 31 August rather than 30 June, in order to bring the financial year end in line with the institute's. A consequence of this approach is that comparative 12 month figures for the year ending 31 August 2013 were not available to include in the consolidated income and expenditure account.
The overall financial position of the institute remains difficult; funding levels have not yet been fully restored to the third level sector as highlighted by the financial review published by the Higher Education Authority, HEA, in October 2016. That report indicates that the future sustainability of the institute of technology, IoT, sector is under threat and that there is a "critical need for investment in order for the sector to survive and flourish". The WIT executive is focused on addressing matters associated with the financial situation that are within its control.
As reflected in the higher education sector systems performance 2014-2016, the institute places a high degree of emphasis on good practice, corporate governance and internal audit. The audit committee was reconstituted and greatly strengthened in December 2013, following the recommendations of the Quigley report; the detail is included in our briefing statement. It was an administrative error that the report mentioned in PAC's correspondence was not furnished to the governing body in the year ending 31 August 2013 within the acceptable timeframe. However, the records and minutes held in the institute confirm that the governing body was, and remains, fully apprised of the work of the audit committee.
Finally, with regard to the technological university process, WIT remains committed to the provision of enhanced educational opportunities and an enhanced innovation and development infrastructure for the south east. This is needed by the people of the south east and demanded by all our stakeholders. The technological universities legislation currently under consideration will enable the provision of that enhanced higher education infrastructure. In this context, we continue to engage with our colleagues in IT Carlow to explore the potential to create that new entity.
The institute made a successful application for funding, with our partner, IT Carlow, in support of the engagement process to the HEA and the agreed project plan for this will see the institute complete the commencement and activation phases of the process by the end of 2017. Currently a memorandum of understanding, MOU, between the organisations is being finalised. The organisations have identified members to participate on a joint steering committee to advance the process.
I acknowledge Professor Donnelly's opening statement. I have to make an important statement before we commence our meeting.
The accounts the president presented here today cover the period 1 September 2013 to 31 August 2014. The institute has not completed the audit of the accounts for any period since then. For any organisation to come to the Committee on Public Accounts with accounts that are three years old is a disgrace. It is insulting to the committee and to the Irish taxpayer that an organisation as big as WIT should be putting our committee in a position of wasting its time discussing items that are three years old.
I also note the other colleges here before us today, the National University of Ireland Galway, NUIG, whose accounts also only cover the period 2013-2014. Its accounts are three years out of date and it expects us to spend our time discussing them. In respect of the Dublin Institute of Technology, DIT, the accounts before us today are for the same period, 2013-14. I am informed by the Comptroller and Auditor General's office that it has recently certified the accounts for 2015 but they have not yet been published.
If anybody came into the president's organisation applying for any position in WIT, and I would say the same for NUIG and DIT, with a curriculum vitae, CV, that was three years out of date they would not get an interview. These three third level institutions expect to take the time of the Committee on Public Accounts, the national Parliament discussing items that are three years out of date. There are very important issues we do need to discuss and this puts us in a dilemma.
I am also sending a signal to every other public body that ever comes in here with accounts out of date, they will get short shrift. I am also directing my comments to the HEA and the Department of Education and Skills who allow this position to continue. I find it unacceptable that the Department would roll out money, year in year out, for the Estimates in 2015, 2016 and 2017 without sight of up to date audited accounts from the witnesses' organisation. Due to the seriousness of this situation we are now suspending the meeting while the committee goes into private session to discuss whether it will proceed with today's events.
The meeting is now suspended. I ask witnesses to please leave the room and remain outside until the committee decides what to do next.
We will continue with our meeting to discuss the various third level institutions and colleges represented here. The plan is to discuss with Waterford Institute of Technology, Dublin Institute of Technology and the National University of Ireland, Galway, issues concerning their financial statements. We note that none of the three organisations has completed audited or published their accounts for any period since August 2014. The committee is gravely dissatisfied at being presented with information that is at least three years out of date. It reduces the impact of the effectiveness of the reporting structure of those organisations to this committee.
We have invited the Higher Education Authority and the Department of Education and Skills back first on this occasion, so that the committee can discuss the whole question of their role in ensuring that this sector operates properly.
Last week, we heard from three other third level institutions. One of their accounts was for the same period, the year ended August 2014. The other two accounts were for 2015. This matter has exercised this committee and the Comptroller and Auditor General. The Comptroller and Auditor General recently published a report on the timeliness of publishing financial statements.
We will start by asking Ms Colette Drinan from the Comptroller and Auditor General's office to comment. Committee members will then have some questions to pose. We believe that it is fine looking at individual colleges, but the idea that year in and year out they can get funding without us seeing sight of the previous year's financial statement is not adequate from our point of view. It should not be adequate from the Department's viewpoint either. We will therefore be asking the representatives to take our views back for action to the Department as a result of this discussion. It is our intention to resume the meeting with Waterford Institute of Technology, Dublin Institute of Technology and the National University of Ireland, Galway, once we have completed this session because of the serious issues we want to discuss. People will see the grave and unacceptable situation in which the committee is placed by being presented with accounts that are three years out of date. We will have to make the best of it today, however. I am saying to every Secretary General and every Accounting Officer that the committee will not again tolerate being presented with information which is three or four years out of date.
I call on Ms Drinan from the Comptroller and Auditor General's office to make her opening remarks.
Ms Colette Drinan:
I thank the Chairman. As he has referenced, higher education bodies are highlighted in the Special Report on Financial Reporting in the Public Sector as a sector where a number of institutes or entities have delayed accounts. The office has increased the resources we have available for financial audit in this area. We have also engaged with the HEA sectorally to advise it of particularly difficult cases with a view to trying to bring the timeliness forward. We have succeeded to a certain extent. Obviously we are not where we want to be yet, but there has been some progress. We will be updating the position on financial reporting in the public sector for 2016 and it is an area on which we are focusing.
I thank Ms Drinan. We will now have brief comments from members of the committee, starting with Deputy McDonald who indicated first. There will then be questions to the HEA and the Department about the issues so that we can see where we stand.
First, I wish to endorse the comments of the Cathaoirleach and those of the Office of the Comptroller and Auditor General on the issue of timeliness in financial reporting. It is entirely unacceptable that institutes of higher education, whoever they are, can float in here with archaic, out of date records. I want, therefore, an assurance from everybody concerned that they understand that is not on and has to stop. Whatever steps they have to take to straighten that out, whether it is the Department, the HEA or elsewhere, it should be straightened out. It is not acceptable to the committee or taxpayers who fund all of this, and they also fund the Department of Education and Skills and the HEA.
I am alarmed at what is unfolding in a piecemeal fashion in respect of this sector. It strikes me that in terms of governance and good practice that the higher education sector is in a mess. Alongside this committee, the Department and the HEA are responsible for overseeing and insisting that this mess is straightened out. It strikes me that some of these institutes are personal fiefdoms. They seem to be run almost like the wild west and that is not good enough. I want to be helpful by making some requests and suggestions. First, in respect of the governance of these institutions I do not believe that we have had a comprehensive or fully frank account of what has happened or what has been revealed by whistleblowers in terms of how their disclosures have been processed and managed, or how those individuals have been treated.
I recall that, back in 2014, Mr. Ó Foghlú from the Department of Education and Skills, who, unfortunately, is not with us today, informed us that he had given an instruction that the whistleblower matters were to be resolved or sorted out with an eye to the new legislation. I do not believe that happened, however. It is as simple as that. I am not convinced and I need to be convinced that it happened. Therefore I would like to get a comprehensive written account from the Department and the HEA in respect of protected disclosures made in each of these institutions. The witnesses do not have to give us identities - that is not necessary - but I want a full account of how those matters were processed and how people were held to account at every level, up to and including the boards and paid executives of these institutions. I would like the Department and the HEA to furnish us with a full bird's eye view of exactly what happened without delay. We would then have to consider that information and see how we can move forward.
I am citing whistleblowers but I could also cite human resources departments and their processes, or many other facets. As our starting point, however, we should focus on the whistleblowers because let us remember that is the genesis of much of the information on malpractice that has been uncovered and which we now have.
My second point concerns the Office of the Comptroller and Auditor General. Deputy Connolly raised earlier the inability of the Comptroller and Auditor General to audit foundations. I share her concerns in that regard.
I want to pinpoint a related but more specific issue, intellectual property, the commercialisation of intellectual property and the spin-off companies that arise from it. It is about the money that is generated by the commercialisation of intellectual property, what goes where and who gains from it. I am very concerned that the taxpayer, the Committee of Public Accounts and the witnesses do not have proper oversight of exactly what is happening in that dynamic across the higher education sector. I am absolutely determined that we get to the bottom of it, that we get concrete assurances on governance arrangements and conflicts of interests. From the point of view of the taxpayer, we should get an absolute assurance that when as taxpayers we invest in learning and innovation, we are getting a return on it and are fostering an environment in which innovation is encouraged and prolonged. I am worried that this process is allowing opportunities for private gain by individuals or corporates and is leaving the taxpayer behind.
I wish to put a proposition to the Comptroller and Auditor General that a special investigation be conducted into the commercialisation of intellectual property and that the protocols and processes be examined institute by institute.
All members know that this sector is absolutely essential for the growth and development of society for the benefit of our children and ourselves and for the knowledge economy. This is the pulse and is where it happens or not. I am concerned about the messing and the sloppiness. I think the Department of Education and Skills and the Higher Education Authority have been asleep at the wheel. I cannot arrive at any other conclusion when one sees the absolute mess that surrounds these institutes. I hope that from today, not just the individual colleges but the system will understand that this is not good enough. That needs to stop.
I am making two firm propositions to the HEA and the Department on whistleblowers and governance. I am requesting the Comptroller and Auditor General to get under the bonnet of the commercialisation of intellectual property and the very considerable resources and money that are generated through that.
I concur with everything my colleague, Deputy McDonald has said in the first instance and also the opening comments of the Chairman on the out-of-date and archaic accounts which were presented to us. This prevents the members of the Committee of Public Accounts from doing our job. Our job is to ensure that we do a look-back exercise over how taxpayers' money is spent. We need information from State bodies, institutes of technology and universities to allow us to do our job fairly. We always put questions without fear or favour. Our only role is to protect taxpayers and the interests of institutes, be they institutes of technology or universities.
Dr. Graham Love appeared before the committee a number of weeks ago. It was probably his first appearance before the Committee of Public Accounts and in his opening statement he stated the Higher Education Authority, HEA, had done a review of governanceacross different sectors. What strikes me, and Deputy McDonald referred to it, is that no review was conducted on intellectual property spin-outs. My understanding is that the spin-outs are in part the responsibility of an arm of Enterprise Ireland. I think that is completely unacceptable because Enterprise Ireland has a vested interest. In my view it must be anchored in the HEA and the Department of Education and Skills.There are question marks around who is minding the shop and who within institutes is protecting the interests of those institutes. It appears to me that the institutes are at arm's length from the Department and the HEA. The institutes are given far too much latitude and far too much independence. The relationship between the HEA and the Department of Education and Skills and the institutes is not what it should be in terms of governance and oversight. I agree with my colleague that it is not good enough for the members of this committee. The members of the Committee of Public Accounts do their best. We invite people to appear before the committee and put them through their paces, in that we ask them questions and listen to their responses and then that is the end of it. The following year we do the same and the same problems come up. That is not good enough. I agree with the comments made by Teachta McDonald that it is a bit like the wild west in terms of how some of this has been managed. This is not acceptable. I concur that the Office of the Comptroller and Auditor General, notwithstanding its heavy workload and resource issues, should do a special report on the spin-outs from intellectual property. In my view this area is completely unregulated. It is absolutely light-touch regulation. We will see examples of this when one of the institutes comes before us. I concur with the recommendation that the Comptroller and Auditor General would do a special report but also that both the HEA and the Department of Education and Skills would furnish us with reports on governance and oversight on accounts, managing conflicts of interest and the whistleblowers issue that Deputy McDonald raised.
I am absolutely surprised at the time we will have to expend on this sector. It is only a sample of the sector. That means that oversight on other sectors will be postponed or will be limited.
The Department of Education and Skills and the Higher Education Authority will have seen the audited accounts that have qualified certificates. In any organisation that would raise a red flag. In that context, the delay in providing up-to-date audited accounts is all the more alarming. What are the consequences and what controls are in place that will deal with that? What have the Department of Education and Skills and the HEA done to deal with the last set of qualified certificates? The Department and HEA should pay attention to the points that have been made about spin-offs.
It has just occurred to me that the witnesses from Waterford Institute of Technology are standing in the hall and not hearing what has been said. I propose that they be invited to sit in the Visitors Gallery so that they will hear the contributions because they are not hearing anything. We will continue but we will ask the witnesses from Waterford to take seats in the Gallery so that they will be able to hear the proceedings. In due course, they will appear before us.
What has happened as a consequence of the hearings is that people are coming forward with information that actually adds to our understanding. How that has not been understood in the areas that it should have been understood and acted on is extremely concerning. I concur with the point that this sector has a degree of freedom and autonomy that will potentially undermine its status and from the ultimate aim of being at the core of developing knowledge in our society and driving society and the economy. That raises a very serious red flag for the sector. Exactly what are the consequences for not providing the accounts on time and how does the Department and the HEA deal with an audit, which at best is a qualified audit?
I reiterate all the comments on the delay in the annual accounts. I have no idea why accounts would be delayed. NUI Galway has distinguished itself by being one of two universities that is particularly late with its accounts. I would have thought the Department and the HEA would be straight on to it to ask what was going on.
I am reeling from all I have read on intellectual property rights in the past number of weeks. The witnesses can see all the paper we have. We are struggling. We are not accountants and we are struggling here looking at 3%, 5% and 8% of intellectual property rights being sold off to private companies. When I asked Dr. Love about that, he told me that Enterprise Ireland had a policy on it. Like my colleagues who are here today, it shocked me that Enterprise Ireland would set the policy for education. It truly shocked me. I am not sure what the HEA is doing. I do not wish to be personal but the HEA seems to be reacting rather than being proactive about intellectual property rights, which belong to the people.
What is happening to the whistleblowers is very unfair. We are talking about a small place. Whistleblowers are being identified here, albeit not by name. They are writing letters to members of this committee which are being referred onto the Chairman. We are now in a position where we are arguing about who said what, which is not our role. This is not a court of law but a place to bring accountability. Clearly, if whistleblowers are coming forward in such numbers, there is something seriously wrong with accountability. We then find ourselves acting as judge, which we do not want to be at all. Whistleblowers are asking to appear before this committee which is something we are going to have to consider.
Foundations are being set up and the universities seem to have washed their hands of them. The foundation accounts are not being consolidated. Clearly, the Comptroller and Auditor General has said that it is a matter of control and the universities do not have control. He is limited in that way. There is nothing wrong with the universities submitting the foundation accounts in an open and accountable manner to the Comptroller and Auditor General. NUI Galway, for example, only introduced a mechanism last year but is clapping itself on the back for setting up a formal procedure for processing payments. As someone with very varied experience, I am absolutely reeling.
I wish to turn to the professor from Waterford with regard to his opening statement, which captures it. We had the Quigley report and the comments from the HEA on that report dating back to 2013. I would have thought that the first sentence of his opening statement would have been that there were more than 40 recommendations and all of them have been implemented.
The issues of intellectual property rights and whistleblowers will have to be addressed. We are utterly dependent on whistleblowers with regard to every issue which is extraordinary, given that we have a third level oversight body.
I will ask Dr. Love to comment first and then I will ask Mr. Mannion to give the Department's view on the issue of intellectual property rights. One of the issues to be considered is the fact that physical resources, equipment and staff costs are all paid for by the taxpayer in these institutions. However, when the taxpayer gets 1% of the spin-out company, we have no idea whether that even covers the costs incurred by the taxpayer. What accounting mechanisms are in place to keep track of the costs being incurred by the taxpayer in relation to this intellectual property which is ultimately privatised, with the State only getting 1% or 2%? We need to have a system in place to track that.
The issues here, which Dr. Love and Mr. Mannion must address, are accountability, transparency, protecting the institutes, good governance, good practice and the management of conflicts of interest. These are the issues at play here, not whether spin outs or commercialisation of intellectual property is good or bad. It is accepted that it is good. I make that point in anticipation of what the witnesses will say.
The committee has no negative view on that issue. I invite Dr. Love to comment. I am asking him to respond and to demonstrate that he has listened to what has been said. Indeed, the authority and the Department have a lot more listening to do and actions to take in the context of the funding and their hands-off approach.
Dr. Graham Love:
I thank the Chairman. We accept the point about the paper that was requested by Deputy McDonald and will get to work on that straight away. I will comment on the issue of intellectual property without going into the policy issues. The policy in general is set by the Department of Jobs, Enterprise and Innovation, which partners the Department of Education and Skills and the HEA in the delivery of that within the system. I will not go into all the reasons for that. However, I want to provide assurance that there is a policy and protocol in place, as well as local policies in all the institutions, that is rigorous and which stands up to international standards. We accepted at last week's meeting of this committee, and will recommit to it today, the need to provide assurances that the policy is being implemented and checked on a periodic and acceptable basis. That is something the HEA will perform as part of a rolling review, a governance review. We said that last week and I want to commit to that again today. That will be done in partnership with Knowledge Transfer Ireland, KTI, the expert body. The HEA has governance and accountability relationships with the higher education system. As I said last week and repeat now, we are listening carefully on that front.
I would like to stress something which relates to a point made earlier about Enterprise Ireland and the role of the Department of Jobs, Enterprise and Innovation. The intention is that the benefits will accrue to Ireland. I think I picked up a concern that there might be a conflict of interest in that, in and of itself. The aim here is to create and retain jobs. I am not going into detail on that but I want to be really clear on that point. I am recommitting to what I said last week, namely, that we will be performing one of our rolling governance reviews on the topic of intellectual property policy implementation in the institutions. We accept the importance of that.
Mr. Andrew Brownlee:
I want to emphasise that the timeliness and governance issues are completely and utterly unacceptable to the HEA. We could not be clearer about that. There are issues around timeliness which the Comptroller and Auditor General acknowledged are particular to higher education accounts relating to recognition of research income, the dual audit requirement in universities, the recognition of particular assets and so forth. Those aside, however, there is no excuse for the fact this committee is looking at the 2013 and 2014 accounts in 2017. To some extent we are dealing with legacy issues. I understand from talking to the Comptroller and Auditor General that his office is satisfied with where the institutions are at in terms of their responsiveness to updating the accounts. I also want to stress that we have put in place a governance framework for higher education over the last two years which has involved a number of steps to provide further reassurance. It involves things like regular liaison and reporting with the Comptroller and Auditor General and an early warning system. We now have financial contracts in place with the higher education institutions that insist on those institutions having their draft accounts ready within six months of the year end. We have established rolling reviews to look at particular governance issues. The first one was on procurement because we recognise that procurement across the higher education sector is not good enough. We have revised our annual governance reporting templates to take account of all the issues around governance that are becoming apparent. We take it absolutely seriously. We have new reporting arrangements in place with the Department of Education and Skills around a risk register, financial accountability framework and a system performance framework. We take this issue very seriously and have been working on it. Undoubtedly there are legacy issues to deal with but we are completely committed to doing that.
Mr. Christy Mannion:
I can understand the frustration being expressed by members of the committee this morning. Indeed, we share some of that frustration. The Department has discussed the issues just outlined by Mr. Brownlee with the HEA with a view to bringing all the various governance pieces together into an accountability framework, a financial framework and an updating of the code of governance. We have been working on that to drive better accountability and better governance. When one takes out some of the issues and examines them in the manner in which this committee has done, it is quite disconcerting. We have been working with the people to whom committee members referred, namely, the whistleblowers. I have been meeting them individually, talking to them and trying to get to a situation where we can address their issues. We do not want them to be in limbo, looking in all directions in an effort to have their concerns addressed. As recently as two weeks ago I spent three hours with some of them. We are moving to address particular issues and have been discussing them with the University of Limerick and the HEA to try to find a mechanism to move forward.
I accept the Chairman's frustration but from our perspective, we are dealing with these issues. As Mr. Brownlee said, some of these issues go back to 2013-2014. We have been working on it. Over the past year, there has been much more liaison and discussion with the Comptroller and Auditor General than before so the situation has improved greatly. There have been a number of meetings between the Comptroller and Auditor General and the Secretary General, the Comptroller and Auditor General and the HEA, the Comptroller and Auditor General, ourselves and the Department of Public Expenditure and Reform. We have been doing all this to address the issues that are there. These things are unacceptable and need to be addressed but I assure the committee we have been addressing them. We are working on them and we are trying to put better systems in place to ensure the committee is not in this position and will not be addressing these issues in the time to come.
I thank the witnesses for those responses. I would like an indication from Dr. Love of when the report I have requested on whistleblowers and governors will be available. I imagine the Department will have some role in this. I have reason to believe - I hope I am wrong - that we may have been misled by certain witnesses who appeared before this committee on behalf of different institutions.
No, I am not referring specifically to witnesses from University of Limerick who appeared before us last week. I have a concern we have not got the truth, the whole truth and nothing but the truth as regards disclosures and how they were managed. I want to make it clear that when we ask for a report, we do not want something that has to be revised and revisited; we want something comprehensive. To that end, to be helpful, it might be useful if we could submit ideas and specific things through the clerk so we are all on the same page and then we can send it on to the HEA. Is that reasonable and fair?
On the issue of intellectual property, I specifically ask that the Comptroller and Auditor General looks under the bonnet of the commercialisation of IP because the governance frameworks and protocols are essential. The witnesses have said they have them and I accept that but we have to check they are being implemented and adhered to. I want to know where the money went. I want to see it in euro and cents. I want to know how much was generated and how the taxpayer and various institutes benefitted or not. In addition to the governance piece that Dr. Love has referred to, we want to see the money trail. I would like the Comptroller and Auditor General to comment on that.
We will put Mr. McCarthy on notice of that so he can respond at next week's meeting. The Committee of Public Accounts cannot direct the Comptroller and Auditor General to carry out a specific investigation but we can request it and we will want a response to that request next week. That was a quick comment by the Deputy in the meantime.
Ms Colette Drinan:
That is what I was going to say. I will convey the committee's comments to the Comptroller and Auditor General. We identify potential topics we think are worth examining and one of those topics is the area of intellectual property and research. We have identified it. As Deputy Cullinane mentioned earlier, we have a very heavy work programme on the reporting side so we prioritise our work. In that context I will convey the comments of the committee to the Comptroller and Auditor General.
He can talk to us next Thursday when he appears in person. At this stage, we have concluded this particular aspect so we will suspend for a moment while the witnesses from Waterford Institute of Technology take their seats.
Before I call Deputy Cullinane, who is the lead speaker this morning, I will say something to Professor Donnelly, as president of the institute, to which I am not looking for a response. The witness has heard everything that has been said. We are saying to Professor Donnelly that the financial accounts for the period 2014-2015 and the financial accounts for 2015-2016 up to the end of August 2016 are to be completed by 30 June 2017. We are giving a few months. It is not for discussion. They are to be completed. We want to hear from the Comptroller and Auditor General's office on 1 July that the accounts have been submitted to the Comptroller and Auditor General's office for audit by 1 July. Whatever Professor Donnelly has to do, as president of his organisation, this is to happen. I ask the Comptroller and Auditor General's office to give us an assurance at that stage that the accounts will be certified, audited and completed by the time we come back here in September. There is no discussion and no debate on that. There will serious consequence if that does not happen.
I welcome the witnesses from an institute in my constituency, Waterford IT. I will start with a number of questions in respect of Professor Donnelly's involvement with the institute. When did Professor Donnelly first start to work for the institute?
Professor Willie Donnelly:
I was an academic lecturer in 1998. I continued to be an academic lecturer until 2004. In 2004 I became the VP of research. However, in addition to my academic lecturing role, I established and was director and principal investigator of the TSSG and of a number of large scale, national projects for the HEA and SFI.
Professor Willie Donnelly:
When I was here I was asked a question about FeedHenry. I was asked if I was a director of FeedHenry and I said "no" because that was my belief at the time. I subsequently discovered that I was a director for a period of time. I contacted the Deputy to ask for guidance on what to do and he said to send a letter to the Committee of Public Accounts and that it was a normal thing to do. I sent a letter and confirmed that I actually was for a period a director of FeedHenry.
I want pretty much "yes" or "no" answers to the following questions. I want to, in a fluent way, establish the facts. I assume that when questions are put, Professor Donnelly will answer them fairly and accurately and that this committee will get the full information. Will he confirm that will be the case?
I will get to the context of the question in a few minutes because that is important for me too. Professor Donnelly and I are on friendly terms and we have had several meetings. He is well aware that I am very supportive of the institute's work and of it becoming a university. I refer to a cold call I received from Professor Donnelly, which would not be unusual given, as I said, we have met several times and have a cordial, friendly relationship. The call was in relation to Professor Donnelly's previous appearance before the Committee of Public Accounts and a response he gave to a question he was asked, which was inaccurate, in respect of which he was seeking advice. The advice I gave was that he should write to the committee secretariat with a view to having the record of the proceedings corrected. Is that correct?
The question Professor Donnelly was asked was a very straightforward question, one I would assume would be easily answered. Professor Donnelly was asked if he was a director in a company called FeedHenry. What was his answer to that question?
Professor Donnelly has been vice president of an institute for many years and he is currently president of Waterford institute. How did he not know that he was a director of a company? How could that have been something that he would not have known?
With respect, that is not an adequate answer. It is an appalling answer. I was a director in a number of companies. If I was asked if I was a director of a company I would know the answer, as I would hope most people in this room would. Did Professor Donnelly have to attend any board meetings of FeedHenry as a director?
I would know if a I was a director of a company. I will get to the context of the question now. Professor Donnelly was asked whether he was a director of a company that was eventually spun-out and sold for a significant amount of money. Is that correct?
I am saying that because in correcting the record I believe it would have been also appropriate for him at that point to have declared that he was also a shareholder in the said company. He should have given the complete picture.
Let us not assume that everybody knows anything. I ask Professor Donnelly to answer the questions put to him. In any event, he subsequently wrote to the committee again. The context here is important because FeedHenry was a spin-out company that was sold on for a significant amount of money. I have a number of questions for Professor Donnelly in relation to that but I would welcome if Professor Donnelly would first explain what FeedHenry was.
Some of these people worked for the institute and some of them had roles within the institute. My questions are perfectly reasonable. All I am looking for is information. We want and we need information. I am concerned that Professor Donnelly's response has been that he cannot answer this and that. For that reason, I propose to put a number of things on the record.
Professor Willie Donnelly:
It is very important that members of this committee respect me as a citizen and that they respect that I have to operate within constraints as a citizen. I would like that to be noted. I am not trying to avoid questions. I will answer every question but there are certain things I am unable to do.
I ask Professor Donnelly to allow me to put my questions and I remind him that he is the president of an institute and that is why he is here. He is here to answer questions as the president of an institute and as a former vice president of research and innovation in the institute. I may have to just put issues on the record without getting answers to questions. As I said, Mr. Barry Downes was one of the originators, in terms of a shareholder, as was Mr. Micheál Foghlú. Once FeedHenry was established as a private company, what happened then?
Why can Professor Donnelly not name the financial controller at the time? He worked for the institute. Am I correct that the financial controller at the time was Mr. Anthony McFeely? I cannot understand why we cannot name people who worked for an institute.
Professor Willie Donnelly:
Mr. McFeely is a retired member of staff, who is not aware of this meeting. With all due respect, I find this quite difficult. I want to answer the questions but I am not in a position to name people. It is the function of the person concerned that is relevant. The financial controller engaged in negotiations.
His name or his personality have nothing to do with it.
Those people are paid from the public purse as well. All of that is a distraction. Did Professor Donnelly then enter into negotiations with the financial controller? What happened? Could Professor Donnelly talk me through the process?
Professor Willie Donnelly:
What happens is one indicate one's interest to exploit IP. One enters into negotiations and the institute, according to its policy, will set certain conditions. Normally, as the committee has already heard, the ownership of IP is retained by the institute. The institute can agree to license IP to a company. If the company fails, the institute can recoup the IP. The institute continues to own the IP licence. Normally, there are certain conditions set to ensure the request is meaningful. What is important in terms of the first request, at least for our institute, is the requirement that one raises funding from the marketplace. The requirement on FeedHenry was to raise €500,000 in investment. Once that happens the IP is assigned to the company. The institute still retains the right to recoup the IP if the company fails. What happened was the person who entered into negotiation on behalf of FeedHenry agreed that there would be assignment of the IP to the company if it raised €500,000 and in return for that the institute would get a percentage.
Professor Willie Donnelly:
It was done as part of the negotiation between the company and the financial controller. The conditions are clearly laid down in the IP policy that the institute seeks to receive 12% but it is a point of negotiation. It is a value judgment. One decides, taking all things into account, what is the best possibility of the institute getting a return on its investment. We have two objectives as an institute. The first one is the development of the institute and the second one is the economic development of our region. When one enters into negotiations one considers both of those. One could quite easily, for instance-----
I understand all that. I am trying to understand two things, namely, when the negotiation was going on with WIT regarding its shareholding, who was negotiating on behalf of the company and who was negotiating on behalf of the institute?
Professor Willie Donnelly:
Yes. That was declared in the first engagement with the institute. The institute knew who the shareholders were. We were attempting to create a campus company. The institute knew the majority of the shareholders were members of the institute. The funding originated from Enterprise Ireland, which had to sign off on the transfer, and it also knew who the sponsors were. It knew they were members of the institute. All of that information was openly declared to both Enterprise Ireland, which had funded the research, and to the institute which was negotiating with the company.
Professor Willie Donnelly:
The process of bringing software to the market requires the development of the market and development of the product, which requires investment. Investment was sought. The initial investment was €500,000 and at that stage the IP was assigned to the company, which was an independent private company. It sought then to get funding to allow for the development of the software. The company needed to employ people and to continue to develop the software and to develop markets.
Professor Willie Donnelly:
I want to answer because it is important for the public. Deputy Cullinane is jumping to the assumption that Red Hat paid €63.9 million for a piece of technology that was developed in WIT. If the Deputy looks at the accounts of the company, it will show that the auditors valued the IP that was transferred from WIT at €240,000. Why would a company pay €63.9 million for a piece of software that was worth €240,000? It did not, what it paid for was a product that was the leading product in the marketplace globally at the time it was acquired, which was developed through investment in FeedHenry. It also paid for a global customer base that was not there when the company was set up in the institute of technology. That investment was investment for a company that had the same name as the company that was started by ourselves but it was a completely different company.
None of that is contested. My point is that the company was sold for almost €64 million and the institute got €1.5 million but the institute would have put in a lot of resources in terms of supporting the company, notwithstanding the fact that it was a private company. Professor Donnelly was also a shareholder so when the company was sold did he benefit financially?
Professor Willie Donnelly:
Chairman, this is very important. All of the shareholders signed a confidentiality agreement with Red Hat for five years. Now I am in a difficult position. I am not trying to avoid answering. The information is in the public space but I cannot tell the committee how much any shareholder benefitted.
I am not interested in Professor Donnelly's financial circumstances as an individual but I am interested in the head of research and innovation in an institute being a shareholder in a company in which the institute is also a shareholder. I will get the information in a moment as to who had ownership of policy. My understanding, based on the figures, is that Professor Donnelly benefitted to the tune of between €900,000 and €1 million.
That is the calculation I would have made from the figures.
Professor Willie Donnelly:
The Deputy has been disingenuous in a way. Not only was I vice president of research, I was also the leading academic researcher in the institute. I had developed a research group of 120 people. I have generated €80 million in investment through research for the region. If one takes that €80 million and the commonly held view that it generates 4.25 in an impact, one notes that is about €0.25 billion into the local economy. I set up a private company based on my own research that I carried out. If I, as a vice president of research, were asked by the Deputy whether I was taking advantage of my position, I would say to him – I can see the line he is taking – that if I, as a vice president of research, had gone into Mr. McLoughlin's group, PMBRC, took some of his intellectual property and commercialised it, that would have been wrong. I commercialised my own intellectual property. The conflict of interest was recognised by the institute, which is the reason Tony McFeely was in the negotiation and the reason the people in the research office, including the external services officer and the tech transfer office, had no communication with me at any stage on that. I was the lead academic in the institute. According to the policy, I, as an academic, am entitled to commercialise my intellectual property.
I am going to address some of those points because I want to concentrate on policy, which is very important. My point is that Professor Donnelly benefitted financially very significantly from the sale of the company. That is just a matter of record and he has given the reasons.
Could I just ask the witness to refrain from referring to me as disingenuous? I would say to the Chairman and witness that I have a job to do. My job is to make sure the interests of any institute are protected. I have a job of work to do to follow the money trail in terms of where there is a relationship between institutes of technology and private companies and where those institutes are shareholders. That is what I am doing here. If that leads us to a situation where some people are unhappy with the questions that are being put, that is fair enough. I have a responsibility to put the questions.
I want to get to policy because policy is important. Could I ask Professor Donnelly, through the Chairman, about the current intellectual property policy in Waterford Institute of Technology?
I have both here. The first is Intellectual Property Policy, version No. 1, signed off by the governing body and also the office of the head of research and innovation. The commencement date is 23 February 2010. Does Professor Donnelly have a copy of that?
The function of the commercialisation office, or the tech transfer office, and the commercialisation committee is to protect the institute, manage conflicts of interest and carry out the negotiations with companies in terms of spin-outs. Is that not correct?
What I am putting to the professor is that it manages the interests of the institute and conflicts of interest. It delegates responsibility to people to negotiate on behalf of the institute. Is that correct?
Professor Willie Donnelly:
It is important to say that all academic researchers were entitled to exploit their intellectual property. In areas where there was a conflict of interest, as in this case, the institute had structures to manage it. The conflicts of interest were managed. I was not part of any negotiations between the institute and these companies.
I put a number of questions, as the Chairman will know, to presidents of three institutes. When I put to them the idea of their head of research and innovation taking up shareholdings in spin-out companies or private companies co-located in their institutes, they expressed concern. Those were Professor Donnelley's peers.
Let me come to the issue of policy. I want to put a question because I am focusing on-----
Professor Willie Donnelly:
I need to respond to that statement. I would express concern as well and that is why I said there has to be a conflict of interest policy. That is what it is there for. Ours are large, complex organisations. In all cases, there are conflicts of interest and we need to manage them. For instance, we have heads of research who are married to lecturers who report in to them. In the terms of appointments, there are conflicts of interest. One needs to manage them. One cannot say one cannot appoint someone as head of school because, at some stage in the near future, one may find that one's wife or husband is applying for a job and one is conflicted. One steps aside. In the case about which the Deputy is talking, where there were interests in respect of which I was involved in campus companies, as was my right legally, I stepped aside.
The owner of the policy, according to the institute's own policy, is the office of the head of research and innovation. The commercialisation office, the tech transfer office, at this point reported back to the head of research and innovation. The head of research and innovation sat on the commercialisation committee, which is important in terms of the policy-----
A paragraph in the institute's policy states that members of the commercialisation committee who are or could reasonably be perceived to be in a conflict of interest situation with respect to any matter before the committee should excuse themselves from all involvement with the committee in such matters. It also states that any individual who is related to, reports to or is a business partner of someone who would be considered to have a conflict of interest with respect to a specific matter may themselves have a conflict of interest.
Professor Donnelly had a business relationship with two individuals I named earlier, one of whom is Barry Downes. Professor Donnelly was a shareholder in multiple companies with this individual. This individual also has a shareholding in other companies that are co-located in the institute. How was Professor Donnelly effectively able to do his job as head of research and innovation on the one hand and as a member of the commercialisation committee given his involvement in multiple companies as a shareholder and also his business partners' shareholdings in multiple companies? Was there not a matrix of conflicts of interest that was almost impossible to manage?
Professor Willie Donnelly:
It was managed and it was managed highly effectively. Our policy has been reviewed on three occasions by international experts, who have consistently said the policies are the best practice internationally. We have managed conflict of interest. There is no single record that states WIT did not manage conflict of interest. In all cases we managed conflict of interest.
Of course, it is difficult, but if one has the right structures in place, if one is in a mature and open organisation, and if one is an organisation where people in that organisation are entitled and encouraged to ask questions and where people are entitled to have access to information, there is a very open environment. I will give an example. If one looks at FeedHenry, when the external services officer who reports to me felt conflicted, I was removed from the process so that she could do her job.
When the technology officer had a position that differed from me - I can give an example because I think it is important - as VP of research and also as the PI and the director of TSSG, I made a proposal for a particular type of consultancy that my research group should be involved in. This is recorded in the minutes of the commercialisation committee. I made it to commercialisation committee. The tech transfer officer disagreed with me; it is in the minutes. I absented myself from the meeting. I came back in. The commercialisation committee and the tech transfer officer told me that they were not agreeable to my proposal. The proposal was withdrawn.
I am saying this to you, a Chathaoirligh. The president has told us he was a shareholder in a number of companies - three companies or possibly four. These were spin-out companies or private companies co-located in the institute. Some, if not all, of these companies received various forms of grants from the State or the European Union. One of those companies was sold for very significant money and the president would have financially benefited from that. I am not alleging that was wrong; I am just saying, as a matter of fact, that is what happened.
He was also the policy owner. He was sitting on the commercialisation committee. The commercialisation committee always reported back to the president. The policy states that all conflicts of interest have to be declared; we can assume that they were.
I am putting my questions and I am talking to the Cathaoirleach. It is very specific; it also refers to people with whom one had a business relationship, business partners.
Professor Donnelly had shareholdings in multiple companies. Some of those people with whom he was in a shareholding also had shareholdings in other companies co-located in the institute. It would take me all day to list out all those companies. How is it possible for Professor Donnelly to sit on the commercialisation committee, to have the office reporting back to him, given what I suggest would have been a matrix of conflicts of interest?
I then received this document, the updated policy, which has a commencement date of November 2016. The policy owner is no longer the head of the office of research and innovation. It is actually the technology transfer office. When one goes to the technology transfer office, where in the past the commercialisation office reported back to the head of research and innovation, it now refers back to the industry services manager.
There are a number of questions. Why was that policy change made in the first instance? We were advised by the HEA and the Department that there is an internal review into all of this in Waterford. Why did it take 14 months for Professor Donnelly to correct the record of the Committee of Public Accounts about him being a director? Why is there now an internal review in Waterford IT? The person carrying out the internal review is the financial controller. The financial controller is a subordinate of the president. The financial controller sits on the commercialisation committee. In answer to a parliamentary question, I was informed that the president had to delegate responsibility regarding this internal review because of potential conflicts of interest, which also causes me concern because even as president there are conflicts of interest that now have to be managed. I am alarmed and concerned that people may be wearing multiple hats and are not in a position to do the job they are well paid to do.
I am really interested in this and the committee should also be interested in it. Why is there an internal review in Waterford now? What triggered that internal review? What brought it about? Why is it happening now? I say this to the representatives of the HEA and the Department. An internal review that is carried out by a subordinate of the president, carried out by somebody who is in the chain of command in terms of decision making - or at least the office was, although the person concerned may not have been - where that person would have sat and does sit on the commercialisation committee, is absolutely and completely unacceptable. We need an external review. It has to be external given the dynamics here. I am looking for a commitment from the HEA that we will get that here today because it is necessary.
I could say much more because I have been given a huge amount of information. I said at the start that I have a friendly relationship with Professor Donnelly. I have been given a lot of protected disclosures by people within the institute and I have no doubt we will come back to this issue. I have not even put any of the allegations that were made by people in those protected disclosures to Professor Donnelly. There are many of them and they are of concern to me. I am not satisfied with the internal review.
Let me be clear on the questions I am putting. Why did it take 14 months for Professor Donnelly to correct the record of the Committee of Public Accounts? What was the trigger for this internal review? What brought it about? Who made the decision to carry out the internal review? How can an internal review take place which is actually being carried out by a subordinate of the president's and someone who sat on the commercialisation committee?
Professor Willie Donnelly:
The chairman of the governing body of Waterford Institute of Technology. Somebody had informed him that I was a director at some time. He had asked me; I said, "Absolutely not", the same response I gave here. When I went home, I thought I had better check it. I checked it and found I was a director for a period of time. I rang the chairman.
The chairman then discussed it internally. Obviously, because I was hugely embarrassed by it and knew that members of the governing body were not members during that period, I asked that we would carry out an internal inquiry to provide information so that the governing body members would not feel there was anything untoward here. That was simply me forgetting something. I delegated the authority to the financial controller - normally this type of inquiry would be carried out by the president - to enable her to carry out the inquiry. The results of the inquiry were delivered to the governing body. The implication that, somehow or other, the financial controller was restricted because she reports to or is one of the executives of the institute is amazing. The institute has a culture of questioning each other and professionalism. The people who wrote that report did it in a very professional way. If they had come to a conclusion that was distasteful or somehow reflected on the president, they would have published it. That is the type of people they are. Due to the disquiet that is out there because of the line of questioning that is coming-----
I do not wish to disturb Professor Donnelly's train of thought but, just so I have this straight, he is telling us now that not alone did he give misinformation to the committee, he also misled the board of governors.
Professor Willie Donnelly:
It was in confidence. As I believed I was not a director, I said "No". When I checked the records, I found I was a director. I immediately informed the chairman. Due to the fact that I felt concerned about not remembering and because we had a new governing body, I felt it was important that the institute carried out a review of all of the procedures relating to FeedHenry to satisfy itself that there was nothing untoward there and to report to the governing body. I asked the financial controller to carry out that internal review. The report was compiled and delivered to the governing body. I will state categorically that I am absolutely confident that, within our culture, what the group that reviewed it put into that report are the correct activities that were carried out in respect of FeedHenry.
Professor Willie Donnelly:
The chairman of the governing body asked me. I said that I was not a director. On that evening, I had to check it because I was worried. I checked it and saw that I was a director. I rang the chairman of the governing body to say that I was very sorry and a bit distressed about it. I then contacted Deputy Cullinane to ask how to do it. I then asked the financial controller to carry out a complete review of everything around the negotiations relating to FeedHenry - such as the sale - in order to provide a report to the governing body so that it could satisfy itself that everything was carried out correctly by the institute.
On a number of occasions, the president referenced a line of questioning. If he checks the transcripts of previous meetings, he will see that nobody in this committee is alleging wrongdoing but we do have concerns. I have concerns about process. It is reasonable for me to put questions relating to somebody who has an executive function - a management and oversight role - relating to research and development. This is somebody who is vice president and head of research and also involved in multiple companies that are co-located at the institute. The question of whether there are clear enough lines of demarcation relating to best practice is a perfectly legitimate question for this committee to put.
I actually do not know where to go. Yesterday, the HEA received a report asking it to source an independent person to look at the results of the internal review in Waterford Institute of Technology. There was no contact prior to that and the HEA did not do anything about Waterford Institute of Technology prior to that.
Dr. Graham Love:
A letter from the president said that given the concerns that have been raised around it this matter, it would be appropriate in the context for the HEA to request the services of an international expert to review the report to assess its validity. My belief is that in the context of what is occurring, that is appropriate.
Dr. Graham Love:
I would like to come back partly about what I have heard here, but comment more in terms of systems because that is our main responsibility. I am concerned that there might be a perception on the part of some that there is something wrong with individual researchers benefiting. It is written into the national policy and international policies that researchers should be incentivised to gain from intellectual property they develop. The second thing I would like to say and, again, I stress that I am talking at the entire higher education system level, is that it is not unusual for the stake of an institution one of whose researchers develops intellectual property in which the institution takes a stake to be significantly diluted down during the process of maturing the product or service that is ultimately sold. I said this last week. I will give an international example to help the committee. University College London, UCL, a serious institution of high repute that is very good at research and spinning out and commercialising research, spun out a company called Biovex a number of years ago. This involved immunotherapies for cancer - initially melanoma. There were several rounds of investment. UCL initially had a 20% stake so it was even higher than some of the things we discussed here today but, again, this is not unusual. This stake got diluted through the various rounds of investment. Eventually, that company was bought by Amgen, an international biotechnology company, for €1 billion in 2014. I do not know UCL's actual percentage stake by that stage but it was 0.00 something. The institution and the researcher got thousands of dollars out of the figure of €1 billion. I am using this example to make the case that it is not unusual for that to happen. What is really important is that UCL's reputation as a place of great science and technology that attracts industries, capital and big companies looking to hire people was significantly enhanced. UCL uses it as a case study.
I do not know. I have used a lot of case studies in my life but there seems to be a symbiotic relationship installed at both HEA level and at university level that industry and education are one and the same.
That is okay, Dr. Love does not have to accept it. I am entitled to make the comment. He has made his comment and he has used the example of the London school and he has used that as justification for what Professor Donnelly has said, which is that it there is nothing unusual about this and it is perfectly acceptable for a researcher to benefit and then for the company to take off, make a fortune, with fewer and fewer returns for the institution. Dr. Love should let me finish. This symbiotic relationship between industry and third level might be for another day. We have forgotten completely on what education is about.
Dr. Graham Love:
We are relying on those companies to hire people and create employment. This is really critical, it is national research and development policy and if we fail to do that we will not be able to create proper employment for our people. I have to say this; it is critical. We have Intel employing 5,000 people in Leixlip. We are investing in nanotechnology.
I see Professor Donnelly nodding. Professor Donnelly talked about a questioning environment. I have been through this a lot in my life, where every time we try to ask questions we are told we are against industry or against progress. I am not. I take exception to that and that type of innuendo. This is a third level institution that is in trouble. It is a going concern. It received a qualified audit opinion. How many qualified audit opinions has the Comptroller and Auditor General issued? Is it unusual?
Ms Colette Drinan:
It is fairly unusual. The Comptroller and Auditor General prepared a note for the committee on the financial statements that were noted at the meetings of the Committee of Public Accounts for the period from 21 January 2016 to 2 February 2017. During that time, just five sets of financial statements presented received a qualified audit opinion.
Out of 292. So Professor Donnelly and the Higher Education Authority will appreciate that being one of five out of 292 to receive a qualified audit is serious. At the same time, we have just heard evidence that Waterford Institute of Technology has got €1.5 million out of a €63.9 million sale and Professor Donnelly is nodding that this is perfectly acceptable. By way of further example, is the London School of Economics the example being chosen?
Dr. Graham Love:
Yes, I want to make it clear that this is normal practice in the spin-out of companies. There will be a range of activity but that is why I use the University College London example. It would not be unusual. The real value to the institution is rarely in the financial return from a sale. The value lies in the employment of people locally, the reputation of the institution, the attraction of further enterprises to collaborating with that institution and the attraction of further academic staff and students who want to go there. Most presidents of the institutes will say that is the real value piece, as opposed to the direct financial return.
I wish to make a point if Deputy Connolly will allow it. There is a bit of talking around the issue because with respect to Dr. Love, no one is disagreeing with the merits of commercialising intellectual property. Nobody is disagreeing with the fact that it creates jobs and we all need jobs. We had this conversation earlier. Dr. Love has spoken about what is usual and what is normal. I put it to Dr. Love, rather than anyone in WIT, I do not know of any other institute in the State in which the person who is the policy owner, the head of research and innovation and a vice president had a shareholding in multiple companies. I do not know of any institution in the State where the president of the institute is still a shareholder in companies co-located in the institute. When someone is head of research and innovation, they hold a well-paid job and a demanding role. They should have to make a choice between the management, executive and oversight role and innovation. If they want to go into the innovation space, by all means they should go into the innovation space. While Dr. Love is talking about what is usual and unusual, it seems to me that it is unusual for a person who has a role in respect of governance, oversight and management of intellectual property also to be a shareholder.
I think bigger issues are being exposed here in terms of how universities are being used and our entitlement as people who give huge public funds to third level institutions, albeit not enough, we would get money back for that.
Dr. Graham Love:
Could I continue because this is important? What we are trying to do with the knowledge economy is to increase the amount of this kind of research, increase the use and development of those types of technologies to spin out, to be licensed and to be attractive to foreign direct investment companies to place their investments here to employ people. That is a major part of national research and development policy. In some cases there is direct financial return, more often it is as I mentioned.
Dr. Graham Love:
When IDA Ireland or Enterprise Ireland are out trying to generate jobs, they will have cost per job and will make particular investments on behalf of the state. This is very important. That is the return that we are seeking. It is the object of the IP policy of the country to return economic and societal benefit principally in the form of jobs.
Does it not strike Dr. Love as ironic - the word is inappropriate - that here is a third level institution in trouble with a note on whether it is a going concern but yet there are lots of companies making profits by using intellectual property and knowledge that has been gained as a result of people being public servants in the third level college? Does Dr. Love think that is a bit ironic? Does he not feel there is something to look at in this regard, in that the college is struggling for finance while all this money is there?
I did not ask Dr. Love to make an individual comment; I deliberately stayed general. I referred to one example where one was sold for €63.9 million as a going concern where the institution was struggling. Does Dr. Love not see a particular difficulty there? There are huge possibilities to channel money back into third level from this rather than to companies.
Dr. Graham Love:
The really important thing here is for colleges to generate the attractiveness to external investment that will bring in more and more investment from multinationals and from venture capitalists and others that will create the jobs. The association that Deputy Connolly refers to is unfortunate but I want to stress it is a core objective of the higher education system and research and development policy in this country, as it is in a lot of advanced countries, to drive this-----
Dr. Derek O'Byrne:
They come from a variety of areas. As we have strong links with further education, we have a strong pipeline of students coming from further education colleges throughout the south-east region and beyond. We have a number of links agreements signed with the further education sector at both education and training board and individual college levels. We also have a large number of mature students, who comprise approximately 18% of our intake.
There are 10% of students who are registered with the disability office. That seems to be a good percentage but how does that figure register or conform to the targets set by the Waterford Institute of Technology?
Ms Elaine Sheridan:
They were companies that were operating within the institute but at arm's length from it. A number of staff members were seconded to run these companies, but they were not deemed to be subsidiaries of the companies at the time of the report of the Comptroller and Auditor General.
The Higher Education Authority, in its wisdom, made comments around the 40 recommendations in its 2013 report, and four years later all the recommendations have not been implemented, although there has been progress, and three of four remain outstanding. It has taken another report to comment on the implementation. The HEA's comment, in the background, is that the Quigley report findings concluded that the relationship between WIT and its campus companies was unique to the sector and was not an appropriate one and that it had adverse effects on the governance of the institute and the management of its financial affairs. The report called for greater transparency, accountability and so on and had 42 recommendations. Do the witness believe this to be an indictment of the Waterford Institute of Technology?
Professor Willie Donnelly:
-----we appeared before the Committee of Public Accounts previously and we dealt with this issue in great detail at the time. I was the director and we were here to talk about this. We should not confuse this with the spin-out companies as it is a different thing. It is true that the institute-----
No. I am bringing it up because we have the report and we have the HEA's comments from this year. I am not going back into the history. I am looking at January of this year and I am asking Professor Donnelly to acknowledge, first, that it was an indictment. Maybe that is too strong a word but it certainly was not good practice or good governance. WIT was forced into change because of the Quigley report. We also have the comments by the HEA, in its wisdom, which came out with another monetary report. Am I wrong?
Ms Elaine Sheridan:
The institute welcomed the Quigley report and we co-operated with that. We undertook to implement the 42 recommendations within it. There was quite a lot of legal work included in that, which took some time. This included making the companies' legal structures such that they could be subsidiaries of the institute and then reducing that legal structure. At the same time we were in the process of negotiation with the Department of Education and Skills for funding to finish the Carriganore WIT arena, so quite a lot of things were included within the report. One of the recommendations of the report was that the Department and the HEA would monitor the progress of the institute in implementing the recommendations, which they did all along. We reported back in December 2015. The most recent report was the final report of the HEA in its review that we had substantially completed the body of work that was done.
Ms Elaine Sheridan:
These are issues such as the finalising of service level agreements between the institute and the subsidiaries as they are now. We have changed the way we operate with the subsidiaries. A new CEO was put in to the subsidiaries in March last year and they are undergoing new business plans, reviewing each and every operation. They have reduced the number of companies to two. Once that process is complete we will then negotiate service level agreements between the institute and the subsidiaries.
Professor Willie Donnelly:
The consolidation created a number, much of which is to do with the different ways that one would have accounted for a private company and a public company. The deficit presents a serious challenge for Waterford Institute of Technology to address. We have the largest number of first years - about 2,000 each year - entering any institute of technology. We have 8,000 full-time students. Our cost base is far too high with some 82% to 85% of our cost base being for staff. This is a major challenge for the institute given the cuts that are there. We have implemented a business plan and we have worked closely with the HEA. If the business plan does not work then we must revisit our cost base. We will have to look at retraining and redeployment of those staff.
I will finish up. My last question is on conflict of interest. The Quigley report from 2013 identified very serious issues that were not just financial problems, some of which I can pick at random. This might not be fair but tell me if I am being unfair. Financial reporting by WIT management to the governing body was inadequate. Two people were employed by a company, they were still being paid by Waterford Institute of Technology and the money was not recouped from the company. There is a whole list and this is why the report was, of its nature, such a big report.
It was not precisely. Professor Donnelly did not come in and say this was serious and that these were practices that should not have happened. I did not hear Professor Donnelly saying that. If somebody is employed by a company, paid by the Waterford Institute of Technology and the money not recouped, then this is serious.
I have read the report. I am not going back for the sake of going back. This report and the recommendations around the problems with the companies has been given as a reason or an explanation to the Comptroller and Auditor General for the delay in accounts. That is the difficulty.
Professor Willie Donnelly:
That is, however, a reasonable explanation. The Deputy has said that these were very serious issues. The task of integrating a set of private, commercial companies into a public space is a huge task, which we have addressed. The governing body of the Waterford Institute of Technology has put huge resources into addressing this. We embraced the recommendations and we worked towards them.
The Waterford Institute of Technology was forced to. A report had to be done in order for the Waterford Institute of Technology to embrace it. In 2017 it is still being implemented. These companies-----
Professor Willie Donnelly:
I know Deputy Connolly has a deep interest, as do I, in taxpayer moneys and the impact of investing in these spin-outs. What is the impact on and return for the State? We have to look at the broader return. All of these are payments to the State. We have the €1.5 million. The other thing is that we have paid capital gains tax of €68 million. The company itself employs 63 people and will employ 120 people in an employment black spot. Those people pay tax to the State. Enterprise Ireland got a return on its investment. If we were to work out a return on investment taking in all of the ways in which the State receives return on investment from these companies, we would find that it is huge.
We need to be very careful because creating our own indigenous industries is crucial to the protection of this country. Yesterday, the President of the USA said that he is looking at multinational activity abroad and how to pull the multinationals back. The platform that Red Hat is using globally is called FeedHenry. The intellect which is building that platform is in Waterford. This protects Irish jobs from being moved back to the United States because they do not have real value. These jobs are creating real value and are creating income for the State in many different ways. The return on investment in this case, and in lots of others, is much greater than the investment put in by the State in the two research projects that generated the intellectual property, IP, that created the company.
On that point, as Professor Donnelly has mentioned the return on investment, can he send us a report on the actual investment from which, he is saying, we got this return? That would include costs incurred by Waterford IT, such as staffing and facilities, which are borne by the taxpayer. Professor Donnelly mentioned earlier that there was investment from Enterprise Ireland and probably from European funds. We have got no concept, as we speak, of how much the taxpayer invested in the process. When we know what the taxpayer put in, we can then begin to form an opinion of how well the taxpayer did. We have not completed the first step yet.
The fact that serious capital gains tax was paid proves to me that there was a substantial profit made by somebody. What we want is each step along the way. If Waterford IT started at a 12% shareholding, how many steps of dilution were there down to the small percentage and what external investment from the private sector resulted in each step of the reduction of the shareholding? Our guests must have that information somewhere. Is that feasible?
I have a difficulty now. I was very patient and listened to the long answer from Professor Donnelly justifying the position and telling us that it created jobs. Now, when we ask for certain commercial-----
I refer to all the categories - Enterprise Ireland, the European taxpayer, etc. - in that regard. Only when we know that can we begin to talk about return on investment. We do not know the level of investment at present.
On day one, €500 million went in from the private sector and the private sector got 88% because Waterford IT got 12%. We want to match the investment on the part of the taxpayer over the period against the investment from the private sector and compare that to the dilution of the shareholding. Professor Donnelly gets where I am coming from.
I want to remind the committee that Professor Donnelly was a shareholder in a number of companies. I want to be clear about that for the record of the Committee of Public Accounts. One was Aceno Mobile Services, which then became ZolkC. Is that correct?
With respect, these are companies in which institute is a shareholder and which are co-located at the institute. I ask Professor Donnelly to answer the questions I am putting to him, regardless of his shareholding or-----
Dr. Love talked a great deal about what is usual or not. We had numerous discussions prior to Professor Donnelly coming in and I pointed out that I have no difficulty in researchers commercialising their intellectual property but I want to understand the process in respect of how conflict of interest is managed and whether it would even be allowed to emerge. That is guided by policy. The policy owner in the case of WIT is the office of head of research and innovation. Under the policy, there is what was termed "a commercialisation office". It is the technical transfer office, accountable to the head of research and innovation. He or she sits on the commercialisation committee. Dr. Love will understand all that.
The policy then states: "Any individual who is related to, reports to, or is a business partner of someone who would be considered to a have a conflict of interest may also have a conflict of interest". If the head of research and innovation or the president or both have multiple shareholdings in companies that are co-located in the institute in which those people have a governance role and their business partners also have interests in several companies also co-located on the campus - one of whom was the chief executive officer of TSSG at one point and would have worn a different hat again in respect of the governance of TSSG - given what the policy says, there was a matrix of conflicts of interest. I am trying to figure out how someone would have been able to disentangle themselves from so many different companies in which he and his business partners would have had a relationship. Is it not reasonable to have an arm's length relationship between people who have management and governance roles such as presidents, vice-presidents or heads of research in institutes and their business partners or shareholders in multiple companies? Does he not recognise the difficulty in that and the reasonableness of the question I have put?
My final question relates to the external review. Ms Sheridan carried out the internal review. Is it correct that she is a subordinate of Professor Donnelly's?
Dr. Graham Love:
I will take the first question. Provided that the people involved can demonstrate that appropriate management procedures were in place to avoid or manage the conflicts of interest, that is warranted and correct. That is the practice all over the world and I have said that several times. The Deputy asked for my view on this. Provided that it can be demonstrated that policies are in place and that they were followed, including stepping out a decision, being at arm's length from particular decisions that relate to the particular commercial terms, etc., that is, indeed, acceptable because we want researchers and, indeed, people in senior positions in academic institutions to be engaged in this type of activity. If they were totally separate, it would not work properly.
Dr. Graham Love:
I can come back with more information on that but, as a point of principle, I believe this to be the case. What is critical is that there is a process in place that says, "Okay, you have an interest here. You are in a policy-governing type role. You need to step aside" and there is an appropriate other person or set of processes in place.
The second question relates to the external review. Will that just review whether the internal review was carried out appropriately or will it examine the wider issues and questions the committee has raised? How was the institute protected in respect of its shareholding? What investment did it make? What investment did the others make? There are many different companies in which one individual and his business partners had many different interests. Surely that would have to be looked at that in respect of whether it was possible to manage those conflicts of interest.
Professor Willie Donnelly:
I would like to make an important final comment, which I will put in this context. I go back to what Enterprise Ireland said about creating an industry that should not have been in Waterford. I could have solved the problem with the conflict of interest and saved myself a journey up here because as the PI of one of the world leading telecommunications research groups, I created IP. I could have licensed the IP to FDIs, my financial partners, including Cisco, Intel, IBM. That IP would have gone out of the south east and it would not have created jobs in the region. I took a decision to focus on creating employment in the south east. Of course, that created conflict but the institute was mature enough, had these structures and was aware enough of those conflicts. What I am proud of today as the first vice-president of research in WIT and as its president is that at least 600 families are raising children and working in Waterford who ordinarily would not have been. They are contributing to the social and cultural life of Waterford. This is a blackspot. We take our responsibility as an institute seriously regarding the economic, social and cultural development of Waterford. I have no doubt and I am clear when I look in the mirror that Willie Donnelly did everything as he was supposed to do and my commitment was not for financial gain. It happened as a side effect and my commitment was to the social and economic development of a region that I care passionately for. I am a Kildare man; I am not even a south east man. I do not know anything about hurling.
We will conclude. I thank the witnesses from WIT. We want the issues we raised about the financial accounts and the other issues addressed. It will put a serious strain on the organisation to bring up two years but it has to be done. If they could give the same commitment to the financial side of it as it has done to the other side of it, this has to be done. Would Ms Sheridan like to make a comment?