I thank the Chairman and members of the committee for the invitation to attend the committee to discuss these issues from Iarnród Éireann's procurement and control investigations. In the opening statement I wish to set out an overview of CIE and Iarnród Éireann capital and infrastructure activities; a summary of the issues that led to the commissioning of the investigation into Iarnród Éireann procurement; and a summary of the course of action taken by Iarnród Éireann.
Regarding the overview, CIE is not a company as is the common perception. Everybody thinks there is a CIE, but, as I will explain in a few minutes, it is a holding company for a number of operating companies. It takes its policy from its sole shareholder, the Minister for Transport. As members will appreciate, in any commercial business, control of pricing policy and costs are essential. However, in public transport, control of pricing rests with the Minister. Regarding costs, 75% of all our costs consist of oil and wages. As will be appreciated, we cannot control oil prices, which of course we hedge. Regarding wages, we are subject to national wage agreements. Given all these factors, in recent years we have been concentrating on productivity.
I will explain the structure of the CIE group of companies. It consists of a holding company, CIE, and three operating companies, Iarnród Éireann, Dublin Bus and Bus Éireann. They were set up in 1987 by statute. The total number of employees is 11,300. The holding company is concerned primarily with pensions, legal, property and computer services. It is not concerned with the normal functional aspects one would get in a company but it does monitor capital expenditure, cash flow and the strategies of the subsidiaries. It has a finance and audit committee.
There are normally 12 board members, four of whom are worker directors, as per the legislation. Board members are nominated by the Minister. There is also a sub-committee to assist the board with property developments such as that at Spencer Dock. Each of the operating companies, Iarnród Éireann, Dublin Bus and Bus Éireann, is concerned with devising its own strategy, which must be approved by the holding company, and implementing its marketing, finance, operating and human resource plans. Each has its own board, safety committee and audit advisory committee. Iarnród Éireann also has a rail maintenance committee. There has been some decentralisation of the maintenance function, to Drogheda and Portlaoise, with further such decentralisation proposed. The holding company also has a signalling committee and an operations and new works committee.
In other words, every aspect of Iarnród Éireann's operations is subject to serious scrutiny. It presided over a capital spend of €2.86 billion in the period 2000 to 2008, involving an unprecedented expansion of trains, tracks and stations and increased services and productivity. This expansion involved considerable board and management effort. One cannot move from a capital spend of €16 million, which was the figure for the period from 1987 to 1999, to €2.86 billion without instituting new management, structures, staff and technology.
Iarnród Éireann is not the company that has been portrayed as rife with backhanders and graft. There will invariably be personnel problems in any company of this size but the reality is that despite intensive investigation by Iarnród Éireann, Baker Tilly Ryan Glennon and the Garda, only three people were found to be involved. Three out of 11,300 hardly warrants headlines referring to graft and extensive backhanders. To claim that the company is rife with backhanders, collusion and fraud is clearly inaccurate, grossly insulting and a serious misrepresentation of a workforce that has proved itself to be honest, dedicated and hardworking.
We acknowledge that the report points to problems unrelated to fraud arising from weaknesses in procurement. However, the accusations of widespread fraud are such that it is important for me to place them in context to defend the good name of Iarnród Éireann employees. In this context, I draw members' attention to a report from the European Commission dated May 2009 which found that procedures within Iarnród Éireann for preparing, checking and submitting grant claims to the Department were excellent and monitoring procedures good, and which noted with approval the numerous reports prepared on a regular basis to "compare actual expenditure against that planned".
Each of the operating companies has its own non-executive board and worker directors. Our model of a holding company with operating subsidiaries is not unique. It resembles some commercial companies, particularly older ones such as the Hanson Trust, with a very small head office staff complement monitoring mainly capital and cash flow, and with responsibility for planning, organising, controlling, motivating and implementing left to the operating companies. This model has been extremely successful in the past ten years, with massive capital expenditure coming in on time and on budget. In terms of service delivery to customers, particularly in the case of rail services, a comparison with the United Kingdom suggests we do not have much to worry about.
We have used the concept of small advisory committees with outside expertise to ensure the shareholder obtains the maximum return. None of the companies is involved in any expenses except in respect to the business. There is only one credit card in CIE and two in Iarnród Éireann. Advertising agencies are tendered in each company with an outside panel recommending the agency. In Iarnród Éireann 1.3% of revenue is spent on advertising, which is not unusual. It varies from between 1% and 5%. Board attendance is very high, with one exception, and that has been rectified. I hope that gives a flavour of the way CIE and Iarnród Éireann operate.
It is important to emphasise that the issues which were the subject of the investigation were identified internally and investigated by Iarnród Éireann. We addressed specifically the dealing of the three individuals found to have engaged in fraudulent behaviour. We advised the Garda. Iarnród Éireann carried out further investigations following the commissioning of the Baker Tilly Ryan Glennon, BTRG, report. They were addressed by a series of action plans. We continue to address implementation of the action plans. The man responsible for that, Mr. Ronan Gill, is here. He would be delighted to explain to the committee the actions we are taking. I will hand over to Mr. Fearn to take the next section.