Mr. Seamus McCarthy:

As members are aware, central government Departments and offices deliver or oversee a wide range of public services. Expenditure required in relation to those services is provided for each year under a number of voted Estimates approved by Dáil Éireann. If circumstances require, additional funding can be provided through Supplementary Estimates. Ultimately, the voted provisions are given legal effect in an annual Appropriation Act.

The Accounting Officer for each voted service is required to prepare an annual appropriation account within three months of the end of the calendar year. This must conform to the reporting requirements set out in the relevant appropriation account circular issued each year by the Department of Public Expenditure and Reform. The accounts are prepared on a cash basis, which means they report the actual cash transactions of the Votes in the year. Some additional accrual-based information is also provided, in notes 1 and 2 to the accounts. The accrual basis is the standard method for accounting. Broadly, it aims to report the true costs of an economic activity in the period of account, and the value of any related assets and liabilities at the end of the period.

The Department determines the framework and basis of accounting for annual financial reporting by all public bodies. In addition to the accounts circular and other guidance set out in Public Financial Procedures, the Department has issued the Code of Practice for the Governance of State Bodies, and the Public Spending Code. Collectively, these represent the specific public sector standards and expectations against which my office carries out the audits of the accounts and financial statements of the bodies within my remit.

Chapter 3 deals with Vote accounting and budget management in the aggregate. The chapter aggregates and summarises the results of all 45 appropriation accounts for 2021. My office compiles this report each year because there is no other published source of aggregated appropriation account information.

The Appropriation Act 2021 provided for spending on voted services totalling €76 billion. This was to be funded by the issuing of up to €73.1 billion from the Central Fund of the Exchequer and the use of certain expected Vote receipts, referred to as appropriations-in-aid, of up to €2.9 billion. In addition, unused capital funding totalling €710 million was carried over from 2020 for spending in 2021, bringing the total available Vote funding to €76.7 billion.

A Department or office may not spend more than is legally provided for a Vote. In 2021, total gross expenditure for all 45 Votes amounted to €74.5 billion. The aggregate surplus for the year was almost €2.5 billion. Some €819 million of the surplus was approved for carryover to 2022 and the remaining €1.7 billion was liable for surrender back to the Exchequer.

Within each Vote Estimate, the funding approved by Dáil Éireann is allocated to various programmes and subheads and the appropriation accounts must report on spending at that level. For practical reasons, as set out in public financial procedures, there are arrangements to vary the allocations between subheads within an individual Vote.

When underspending on an individual subhead is anticipated, the key principle is that the Exchequer has the first claim on the saving. However, there are two formal mechanisms in place to allow for voted funding to be reallocated between subheads during the year. These are the passing of a technical Supplementary Estimate by Dáil Éireann or a process called virement, which is usually used for lower-value transfers and requires the prior approval of the Department of Public Expenditure and Reform.

In the course of audit of the appropriation accounts for 2021, a number of cases were identified where there was reallocation of voted funding between Vote subheads but where the prescribed transfer procedures did not appear to have been complied with. Chapter 4 outlines the circumstances of four such cases.

The total amount transferred through the virement process by the four Votes referred to in the chapter was more than €1 billion. The prior approval of the Department had not been obtained in all cases where required, resulting in the need for so-called retrospective sanction. Additionally, there is an evident requirement for better documentation of virement decisions.

Some of the amounts reallocated using virement were substantial by reference to the original subhead provisions, which in effect represent the level of spending envisaged by Dáil Éireann. The principles in public financial procedure indicate that a Supplementary Estimate should be used for such large transfers. This would allow the relevant sectoral committee of Dáil Éireann, in a timely way, to examine the reasons for both the emerging savings and the planned additional expenditure and to make recommendations in that regard.