Mr. Seamus McCarthy:

Third level institutions are obliged to comply with employee remuneration schemes approved by the Minister for Education and Skills and the Minister for Public Expenditure and Reform. Special Report No. 103 looks at a number of matters relating to the remuneration of certain senior staff members in University of Limerick, UL, and the Institute of Technology Sligo, where non-compliant remuneration arrangements were entered into. Some public sector pension schemes provide for the discretionary awarding of professional added years for pension purposes. These provisions are intended to compensate for the inability of certain professional or technical staff who, because qualifications or experience conditions applied at their recruitment, would be unable to qualify for a full pension before the mandatory retirement age. Since 2009, awards of professional added years in the five older universities have been approved on a case-by-case basis by the Minister for Education and Skills and the Minister for Public Expenditure and Reform. Until the end of April 2018, the newer universities, that is, Dublin City University and the University of Limerick, operated separate, independent frameworks for the award of professional added years.

We analysed the awards of professional added years in the two universities between 2012 and 2016 and found that the University of Limerick had awarded added years to more employees and with a higher average added value than was the case in Dublin City University. Awards in Dublin City University were made only to academic staff while in the University of Limerick, 18% of awards were to non-academic staff.

Following circulation of a draft of the special report, the Higher Education Authority directed both universities that all applications for professional added years awards from the end of April 2018 would be subject to approval by the pensions unit of the Department of Education and Skills.

In general, subsidiary companies are used by third level education institutions as a means of managing non-core functions in a manner that separates their business affairs from those of the institution. This allows the non-core functions to be run on commercial lines, and for subsidiary employees to be remunerated on competitive market terms. Subsidiary companies usually provide pension benefits for employees on a defined-contribution basis, and such employees are not counted as public sector workers.

In late 2012, the University of Limerick arranged for two senior executives employed by a subsidiary company of the university to be admitted to a university defined benefit pension scheme that was about to close for new entrants. This resulted in the two executives being granted significant additional pension benefits, including professional added years. Those additional benefits have been valued actuarially at over €1.2 million. Claims were advanced that the two executives had been promised pension benefits equivalent to those of employees recruited to the university at the same time, but these claims were not supported by appropriate contract documentation.

In November and December 2011, the University of Limerick agreed with two senior managers that their employment would cease on 29 February 2012 on a severance basis, and severance payments were made on that date. However, prior to their severance, arrangements were put in place with each of the senior managers to continue to make their services available to the university on a consultancy basis. Separate contracts for service were put in place between the university and limited liability companies owned by each senior manager. Evidence of work done in return for one of the consultancy contracts is limited. In that case in particular, it is difficult to see that the value obtained from the contract is commensurate with the payments made.

The combined severance and consultancy arrangements resulted in additional estimated costs of €310,000 in net present value terms, as compared to what the two managers would have received had they continued in employment to the standard minimum retirement age.

The process followed in implementing these two severance deals in the University of Limerick was reported on by me in a previous special report. In the course of the earlier examination, the university misrepresented the circumstances around the severance deals. In particular, it was represented that the severance payments were made because of unspecified performance issues, and the existence of the consultancy arrangements was not disclosed. This misrepresentation of the facts undermines the audit relationship, and is a serious governance failure.

A severance arrangement entered into by Institute of Technology Sligo with a senior manager in 2016 cost the institute over €202,000, when the sanction received from the Department of Education and Skills allowed for payments totalling just over €37,500. The actual expenditure included a sum of almost €108,000 incorrectly classified as payment related to sabbatical leave. The facts of the case did not conform to the circumstances in which sabbatical leave may be granted under the institute’s policy, and the related payment was not submitted, as required, to the institute’s governing body for approval.

It was noted that the institute’s policy on sabbaticals is based on a two-year pilot scheme for the award of sabbatical leave to academic staff issued by the Department of Education and Skills in 2004-2005.