Mr. Seamus McCarthy:

I will start by discussing the section 2 report. The Central Fund of the Exchequer receives most of the State’s revenues and is the source of most State spending. The account of the Central Fund is held at the Central Bank of Ireland. Money can only be released from the Central Fund as provided for by law. As Comptroller and Auditor General, I am required to issue grants of credit before any withdrawals of funds from the Exchequer by the Minister for Finance, or his or her agent. These grants of credit are notified to the Central Bank, and are limits controlling the Minister’s right to access funds.

The special report before the committee outlines a failure of the controls over the withdrawal of money from the Central Fund on 28 October 2022. On the Friday before the October bank holiday weekend, the Central Bank issued to the Minister €738 million more than the amount of credit that remained available to him. The Department of Finance did not identify that the amount of the withdrawal requests it submitted on the day exceeded the value of the remaining credit. The Central Bank also did not identify that the credit limit would be breached and issued the requested funds. The Department could have applied earlier for an additional grant of credit, but this had not happened. Notwithstanding this, it is a matter of serious concern that a significant sum of money was released from the Central Fund without the necessary credit authorisation. Both the Secretary General of the Department of Finance and the Governor of the Central Bank have advised that a number of changes of control have been, or will be, made to prevent any recurrence. I welcome their assurances in this regard.

The insurance compensation fund was established under the Insurance Act 1964 to facilitate payments to insurance policyholders in Ireland when a non-life insurance company goes into liquidation. The Act allows the Minister for Finance to lend money from the Exchequer to the compensation fund, when required, and to recover such loans from the proceeds of a levy on insurance premiums. The premiums are collected by insurers and paid over to the Revenue Commissioners, which subsequently remit the receipts to the fund account. Payments out of the insurance compensation fund are made at the direction of the High Court. Up to August 2018, the insurance compensation fund was maintained and administered by the accountant of the High Court. Administration of the fund then statutorily transferred to the Central Bank of Ireland and was brought within my audit remit.

When Quinn Insurance Limited went into liquidation in 2011, the fund was unable to provide the amount that was forecast to be required to meet the insurance claims on the company. As a result, between 2011 and 2015, the Minister for Finance advanced Exchequer loans to the fund of just over €1 billion to allow it to meet those claims. Between 2013 and 2016, there were three further company failures resulting in claims on the fund.

The current levy rate is 2% of the value of non-life insurance premiums. This is additional to the standard 3% Government stamp duty payable on such premiums, which is also remitted to Revenue. In 2021, Revenue paid just under €93 million of levy receipts into the fund. This was down from the level of receipts in 2020, which was just under €101 million. The value of payments from the fund for the benefit of policyholders, in accordance with High Court orders, amounted to just over €11 million in 2021. The excess of receipts over payments allowed for the continued repayment of Exchequer lending. At 31 December 2021, the balance owed to the Exchequer, including accrued interest, was just under €554 million. The fund had cash reserves of €53 million, resulting in an overall deficit on the fund of €501 million.

Appendices to the financial statements indicate the balances owed by the various insurers whose policyholders were compensated through the fund. This indicates a total liability in respect of Quinn Insurance Limited of €1.13 billion. No estimate is provided of the amount that may yet be recovered from the company. The notes to the financial statements disclose that a substantial claim by the administrators of Quinn Insurance Limited against its former auditors was settled in 2022. The value of that settlement is not disclosed in the financial statements.

As outlined in chapter 14 of my 2020 report, the collection of the levy income by Revenue is a lengthy manual process that has led to delays in identifying and paying receipts over to the fund. The examination also found that controls over the assessment of levy income were not sufficiently robust to detect levy proceeds paid by insurers but not transferred to the fund. In 2019, a misclassification error was identified that resulted in €33 million of levy receipts being paid over late to the fund. At the end of 2020, €2.2 million of accumulated receipts relating to the period 2017 to 2020 was unallocated, with an undetermined portion relating to the fund. The examination also concluded that the fund’s accounts, which are prepared on a cash basis, did not provide the type of information required to properly manage and account for the fund. A review of the format of the account was recommended.