Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context

It does not give me any pleasure to raise this issue, which can only be described as a humiliating schoolboy error committed by the Department of Finance in the calculation of Ireland's official debt figure, the general Government debt. Ordinary people can justifiably ask how the State authorities can make a mistake of the magnitude involved when calculating a figure of such importance as the official debt position of the country at the end of 2010. One question which immediately springs to mind is why a reconciliation was not done between the balance of the general government debt at the end of 2009 and 2010, respectively, as one would expect from the point of view of basic financial control. Why was an exercise not done showing the opening position, followed by all the movements over the period and arriving at the closing position? It is clear that such an exercise was not done in this case.

A more detailed examination of the figures highlights how grave the mistake was. The opening position as at the end of 2009 was a general Government debt of €105 billion. At the end of 2010 the equivalent and incorrect figure reported was €148 billion. This indicates a movement of €43 billion over the course of the year, of which €31 billion was accounted for by the promissory notes. The net movement, therefore, when one omits the value of the promissory notes, was an increase in general Government debt of only €12 billion. Given that the figure was overstated by €3.6 billion, the miscalculation accounted for approximately 40% of the net movement, which is an astounding error. It is especially astonishing when one considers that this is the standard measure of a country's indebtedness, the figure used across the European Union by investors when they are examining a country's total debt position as part of their investment decisions.

It is fortunate that the error in this case was favourable. While it is embarrassing, it would be much more difficult for the Government or anyone else to explain a scenario in which the total debt position had been understated by €3.6 billion at the end of 2010. Mistakes such as this undermine the credibility and integrity of information being provided by Government bodies on issues as sensitive as the debt position.

The explanation for the error has not been adequate and I hope the Minister will be able to shed further light on the matter. The National Treasury Management Agency stated it brought the matter to the attention of the Department of Finance on a number of occasions from the autumn of 2010 onwards. How many times did it raise the issue with the Department? Did it bring it to the attention of one official who then failed to act in an appropriate manner? It is important that the Minister sets out the chain of events, including the correspondence between the NTMA and Department on when the potential of double-counting the sum of €3.6 billion was first raised.

It is noteworthy that the NTMA included the incorrect figure in its own annual report and annual accounts published on 21 July 2011. If it had concerns about the figure, why did it include it in its official report and annual accounts which were signed off by the chief executive? The error also slipped passed the Comptroller and Auditor General. As the Minister indicated in his interview on "Morning Ireland" today, the accounts in question were signed off on 19 September last and included the incorrect figure. We need to know the precise chain of events, including the date on which the matter was first raised with the Department by the NTMA, the number of times the agency raised it, the reason the information was not acted on and when the Minister first found out the mistake was in the accounts.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

I thank Deputy McGrath for raising this serious and important issue. I will give the Deputy the information I have to hand, but if it needs to be supplemented later, I will provide additional information.

My Department has informed me that the general Government debt figure reported to EUROSTAT at the end of September last for the period up to the end of 2010 overstated the actual debt figure as a result of a double count. The reported figure for the end of 2010 was €148 billion, which overstated the amount by €3.6 billion. From the immediate review of the records to hand, it is the case that the matter was signalled at a technical level to the Department by the NTMA last year. At this stage it is too early to be definite as to what action was taken, but it would seem that the significance of the matter was not appreciated at that time. I understand that "last year" refers to August 2010.

In the context of the current work under way for the publication of the forecasts later this week, the information was again raised by the NTMA at an official level with my Department. Following examination of the issue by my officials, together with the Central Statistics Office and the NTMA, and after establishing that a double count had occurred, I was informed of the issue yesterday and briefed in detail on it. The CSO has already informed EUROSTAT about the double count and the information has also been communicated to the European Union and the IMF. The record shows the NTMA contacted the Department twice, one contact last August which was not acted on and one while we were preparing the figures for the coming Friday's publication, which has been acted on. The NTMA may also have made verbal contact, but I do not know that. The record shows the number of contacts to be two.

The double count in our debt figures arose because in 2010 the Housing Finance Agency, HFA, borrowed directly from the NTMA instead of from the open market. General Government debt is compiled by adding the central Government debt borrowed by the NTMA to debt sourced on the open market by other Government bodies. However, when the HFA borrowed from the NTMA, the €3.6 billion in question was already in the central Government debt figure. As the liabilities of the HFA were then added to arrive at the general Government debt figure, the €3.6 billion was counted twice.

Before turning to how this could have happened, I want to address the issue of what the revision means in terms of the Irish economy and public finances. First of all, our debt to GDP ratio for the end of 2010 is now 92.6% of GDP, not the 94.9% previously published. The reduction to the base at the end of 2010 due to this correction has been improved by 2.3% of GDP. This means that our projected peak level of general Government debt will be lower than previously forecast. The details will be made clear in the medium-term fiscal statement that will be published this Friday. However, this revision did not change the net debt position for 2010 - the general Government debt less liquid assets and cash - and does not have any effect on the general Government deficit for 2010 or for this year. In overall terms, Ireland is no better or worse off and the target deficit consolidation for 2012 and future years, to which we are fully committed, has not changed. Suppose, for example, a person got an incorrect statement from his bank which understated his current account by €500. The correction of the error in the statement would not make the person any better off. He would still have the €500 in his account - no more and no less. That is the situation. The total debt is being reduced, but this has no effect on the budgetary position whatsoever.

The questions to be addressed now are whether the mistake could have been prevented and what should be done to ensure that such errors do not happen in the future. This is a serious issue and I am determined that the necessary lessons are learned and immediately acted upon. It is clear there has been a systems failure. The Secretary General of the Department of Finance has already asked for a full report on the matter and will arrange for an external review of the systems in the Department, the NTMA and the CSO to be carried out in order that I have the necessary information to be satisfied that any systems errors have been addressed. Once I have the full facts of the matter, we will be better placed to establish the processes and systems we need to implement to ensure the data supplied by the State are robust and beyond doubt.

That is my information to date. If further information comes to me, I will communicate it to the Deputy and the House.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context

I thank the Ceann Comhairle for selecting this important issue. The statement made by the NTMA yesterday gave the impression that the issue had been raised repeatedly. It suggested it had raised the matter on a number of occasions, from as far back as autumn 2010. The Minister's information is that it was raised once in August 2010 and quite recently in the context of the preparation of the medium-term fiscal plan. Clearly there has been a breakdown at a number of levels. We had a breakdown of procedures in the Department of Finance in that it made the incorrect calculation. The NTMA says the Department is responsible for that calculation. Then, when the mistake was brought to the attention of the Department at a so-called technical level in August last year, it was not acted on. We need to know why and need more detail on that. There is also a question for the NTMA as to why, having signalled this error in August 2010, it included the incorrect figure, about which it had suspicions, in its annual report and accounts published in July 2011. There are, therefore, outstanding questions that need to be answered.

I welcome the fact the Minister has commissioned a report. If I understand correctly, that report is to be prepared by the Secretary General of the Department of Finance, to be followed by an external review of the systems. The review into the matter should be conducted by an external person given that officials in the Department are involved at the heart of the issue. The Minister should ensure an independent external person is appointed to carry out the investigation and that the report is returned to him and published. It is wholly unsatisfactory that Ireland's official debt position was overstated by more than 2% of GDP and that foreign investors looking at Ireland over recent months would have been basing their investment decision on incorrect information. This is deeply unsatisfactory. I hope the Minister will ensure there is an external review of what has happened in this case. There are also questions for the NTMA and the Minister should take those up with the agency and report back to the House on the outcome.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

The Deputy may well be right in what he says, but the documentary evidence available is that the NTMA e-mailed a particular person in the Department of Finance questioning the manner in which this was treated. That was in August 2010. There is no indication and I do not believe for minute that my predecessor, Brian Lenihan, was informed of this. Therefore, I am not trying to spread the blame at all. It came to light at the start of the preparation of the figures for the budget - the budgetary process - and it came to light again this year in preparation for the statement to be issued by me on Friday on the fiscal position into the future. Obviously, the level of our debt is one of the crucial numbers included. An e-mail came again on that, but to a different official. It was acted upon this time, but not the first time. I do not know whether the NTMA rang officials or whether it had private conversations or what kind of interpersonal exchange took place between it and Department of Finance officials who are in contact with it at several levels every day. The record shows a couple of e-mails.

With regard to the inquiry and where we go from here, it is important to find out what happened and what caused the mistake to occur. So far, it looks like human error on the part of a particular official. That is not the big issue. Chasing an official in the Department of Finance who made a mistake is not the big issue. The issue is whether the systems are in place to ensure the figures are correct. We all know the word "systemic" from previous exchanges in House. The issue is whether there is a systemic problem in that section of the Department of Finance. Human errors occur, but whether this is a company or a section of a Department, we expect that where a human error occurs, the checks and balances within the system will ensure that somebody elsewhere in the process will discover the error. That is how we trap, correct and contain mistakes. I am quite happy to let the Secretary General inquire to establish in further detail the facts of the situation in respect of the error. However, an examination of the situation to see if we need to change systems will have to be conducted by an outside agency, as the Deputy rightly says. That cannot be internal and it has to examine the section in the Department of Finance, the relevant section in the CSO and the NTMA, because it occurred in the relationships between the three.

The system failed again when it was not picked up and when the Comptroller and Auditor General examined the 2010 accounts and reported to the House in September 2011. In fairness to the Comptroller and Auditor General and his staff, his primary scrutiny when looking at Departments is to track money in and out. While this would be within his remit, the overall figure for the debt would not be his primary concern when he is examining the account of a Department. I am not making a criticism of the Comptroller and Auditor General.