COMMITTEE of PUBLIC ACCOUNTS debate -
Thursday, 22 Apr 1999

Vol. 1 No. 2

National Roads Authority:

Annual Financial Statement 1996 (Resumed)

Mr. M. Tobin (Chief Executive, National Roads Authority), called and examined.

Mr. Meade

Last October, when the National Roads Authority was before the committee, the Comptroller and Auditor General outlined the circumstances surrounding the payment of grants totalling £2.47 million by the NRA to Cork County Council in respect of works which had not been undertaken at the time the claims were submitted and paid. The grants were paid by the NRA on the basis of claims received from the council. On that occasion, he also referred to an NRA investigation which was being finalised into breaches in procedures of a similar nature in another council, Tipperary (North Riding) County Council. That investigation found that amounts totalling £346,000 were claimed in November 1997 in respect of works which were not completed or which had not started at the time the claim was made. Works to the value of £246,000 were completed in 1998 and the council, in due course, paid this amount to the contractor. The council then refunded the balance of £100,000 to the NRA.

Further investigations into the accounting record of the council found that a number of cheques, totalling £380,500, drawn before or during 1998 in respect of property acquisitions for road purposes, had not been cashed. The checking process resulted in a refund of £154,000 being made to the NRA. The balance of £226,500 was retained by the council as it referred to contracts of sales which were expected to be completed within a short period.

As a consequence of its findings in relation to Tipperary (North Riding) County Council, the National Roads Authority issued a circular letter to all local authorities requesting that they review their national road grant claims and to confirm in writing that all was in order. In response, a number of local authorities highlighted breaches or possible breaches which are currently under review by the NRA. Following from this review, Donegal County Council has refunded £87,000 to the NRA.

These matters have been reported in a supplement to the Comptroller and Auditor General's report, dated February 1999, on the 1997 financial statements of the NRA.

I have very recently been informed that another local authority, Tipperary (South Riding) County Council refunded £480,000 to the NRA following this review while an EU Commission check indicated that Sligo County Council had included £651,000 for EU schemes which were not proper for EU funding. Accordingly, a refund of part of this amount may be due to be made by Sligo County Council. This is a matter on which the NRA may be able to shed further light. In summary, £821,000 has been refunded to date by local authorities while a refund may also be due from Sligo.

The NRA has, during 1998, upgraded its staffing resources and review procedures as part of the process of significantly strengthening its monitoring of local authority practices in relation to road grant claims.

Mr. Tobin

Before I respond to the points made by Mr. Meade I will comment on the development of financial controls within the National Roads Authority. The NRA carries out its financial checks as part of a broader system of control on local authorities which include local government auditors, the EU Commission and Court of Auditors, the proposed Department of the Environment and Local Government audit unit and the internal audit functions of individual local authorities. The authority recognises its responsibility in this area and is continually strengthening its operation.

A new management structure is being put in place in line with the recommendations made by consultants appointed to review procedures and relationships with local authority and regulatory agencies generally. As part of this process, the authority has appointed a new senior member of staff to the position of head of internal support and control with responsibility to develop the annual review procedure for road grant payments to local authorities and, generally, to strengthen the authority's involvement in this area. The procedure will involve reviewing each local authority at appropriate intervals and focusing particular attention on the higher risk projects. The authority is currently recruiting two audit technicians to assist in this work.

The actions taken by the authority since 1997 include the completion of 26 control reviews in local authorities of national road grant claims and recoupment of funds, where deemed necessary. There were seven reviews in 1997, 16 last year and three to date this year with 20 planned for this year pending the appointment of the audit technicians.

As mentioned by Mr. Meade, last year the authority issued a circular letter to all county managers requesting them to review their national road grant claims and to provide confirmation that procedures and conditions had been complied with. Resulting from this, a number of local authorities have highlighted breaches or possible breaches that are the subject of review by the authority.

The authority is determined that its system of monitoring and control will ensure statutory, regulatory and value for money requirements continue to be achieved on behalf of the State and the European Union. In recent days I have received from the Department an agreement which I am required to sign whereby we will buy into the financial control and regulation of the operations of local authorities in so far as they relate to EU co-financed works.

Turning to the specific counties mentioned by Mr. Meade, the Comptroller and Auditor General made reference to the issues relating to Cork County Council in the authority's 1996 financial statement, which is the subject of this meeting. I am aware that the committee requested a report on the matter from the Secretary General of the Department of the Environment and Local Government which I understand it received in February. As the committee has reviewed the issues relating to Cork County Council in some detail, I will not spend too much time on them at this stage at least.

The procedures for submission of national road grant claims are set out in the authority's memorandum for road grants which was issued to all local authorities to ensure adherence to appropriate conditions and practices. The memorandum sets out conditions relating to the eligibility of expenditure for grant recoupment. In summary, grant claims may only be made in respect of expenditure incurred on foot of a valid invoice. Breaches of procedures outlined by Mr. Meade are mainly related to the non-observance of these conditions.

During 1993 and 1994 Cork County Council made excess claims for national road grants for three projects to the value of £2.47 million - the N20 project at Velvetstown and the Youghal relief road and Mulcon Valley projects. The claims were based on constructed invoices and were certified for work that had not been completed. The works relating to the invoices were subsequently completed and the liability matured.

The authority completed three reviews of these breaches in June 1997, March 1998 and August 1998 and concluded that, while they could not be condoned, there had been no loss to public funds. The subsequent reviews also confirmed that accounting procedures and controls had improved considerably and are now in order. The county manager has assured the authority that conditions relating to road grants will be fully observed in future.

The authority completed three reviews in Tipperary (North Riding) County Council - two in October 1998 and one in November. It found that an amount of £157,500 relating to the Thurles streets project had been claimed in November 1997 based on a constructed invoice from a contracted firm which certified that the work had been completed when this was not the case. Subsequently the work was completed to the value of £64,000 and a refund of £93,000 odd was made to the authority.

It was also found that two further similar items were claimed in November 1997 for just short of £89,000 in the case of the Roscrea bypass and just under £100,000 for strengthening work on the N52. Work was subsequently completed in 1998 for the full value of the amounts concerned with the exception of a sum of £7,400 odd relating to the N52 which has been refunded to the authority.

The authority also reviewed the outstanding cheque listing and found that £380,500 relating to land acquisition for national road schemes had not been debited to the bank, mainly relating to 1997 and 1998 for the Nenagh bypass. The council immediately closed sales for £226,500 and refunded the balance of £154,000. The authority immediately requested that the local authority change its procedures for land acquisition to ensure proper procedures are followed in future.

The authority completed a review of Donegal County Council on 27 November 1998. It found that two bridge projects had grant claims in excess of expenditure. In the case of Gweebarra bridge the amount of the overclaim and overpayment at the end of 1996 was £130,316. By the time of the review and as a result of work done after the end of 1996 the excess payment was £77,808. This has been refunded to the authority. The review also revealed an excess claim and overpayment at the end of 1997 of £9,500 relating to the Finn bridge. This has also been refunded to the authority.

Following a request from our regional manager for a report on the N8 pavement improvement programmes for the years 1996 and 1997 Tipperary (South Riding) County Council indicated that a credit of roughly £97,500 had occurred. The authority carried out a review on 18 January 1999 to confirm the credit amount on the pavement programmes for these years and to ensure no other procedural breaches had occurred. The review revealed that a sum of £46,000 had been overclaimed and recouped on one project - the Cashel streets project - at the end of 1997.

An examination of the November 1998 returns revealed an overclaim and overpayment of £115,500, in round terms, involving amounts ranging from an underclaim of £3,950 to an overclaim of £51,716 on a range of projects. In addition, an amount of £113,000 claimed in 1997 for land acquisitions on the Clonmel inner relief road had not been debited to the bank account at the time of the review. The authority sought and received a refund in April this year representing the total of all excess claims and payments identified.

As Mr. Meade said, an issue has arisen in Sligo from an audit carried out by DG XX of the European Commission. We are in the process of putting together and finalising an irregularity report on the matter. With the agreement of the committee, we could mention it again at a subsequent meeting. We are yet not in a position to provide the detail. What is not in doubt is that certain sums of money were claimed which were not appropriate for recoupment in road grants and that other amounts were claimed in invalid claims in respect of specific road projects being co-financed from the Cohesion Fund but which were acceptable as a charge against road grants. This is a slight complication.

Chairman

Let us summarise the situation. How many local authorities have had to make refunds to the National Roads Authority?

Mr. Tobin

No refund arose in the case of Cork County Council. By the time the issue was resolved the money that had been paid in advance had been——

Chairman

How many local authorities, including Cork County Council, have been involved in making false claims to the National Roads Authority?

Mr. Tobin

Five.

Chairman

Does that include Sligo County Council?

Mr. Tobin

Yes.

Chairman

What are the total sums at issue?

Mr. Tobin

In the case of Sligo County Council the amount that would be regarded as having been claimed inappropriately is of the order of £100,000. In the case of Tipperary (South Riding) County Council, in round terms, the total is £480,000. In the case of Donegal County Council, the total involved is of the order of £140,000. The amount for Tipperary (North Riding) County Council was £250,000. The total amount involved for Cork between the years 1993 and 1994 was £2.47 million.

Deputy Ardagh

The Director of Audit mentioned a figure of £651,000 for Sligo, taking the EU into consideration.

Mr. Tobin

I ask that we do not delve unduly into this. Obviously it is an issue that will be come to the notice of——

Deputy Ardagh

Can you reconcile the two figures?

Chairman

Mr. Meade mentioned £651,000 for Sligo.

Mr. Tobin

That is the sum of money subject to final verification. We have not, as yet, completed this because there is a requirement to deliver to the EU an irregularity report. That is the totality of the money that is either totally ineligible for road grant recoupment, plus moneys which are not eligible for recoupment in respect of that particular project, in so far it is receiving co-financing from the Cohesion Fund.

Deputy Ardagh

What was the gross amount given?

Mr. Tobin

The sum of £111,000 as we now stand.

Deputy Ardagh

Is that included in the £651,000?

Mr. Tobin

Yes.

Chairman

In the case of the five local authorities, this involves each local authority vouching that work had been done to that extent. This certification turned out to be false. Is that correct?

Mr. Tobin

That is correct.

Chairman

So false certificates were issued in the case of five local authorities?

Mr. Tobin

That is correct.

Chairman

That is a grave matter. We had Cork County Council and the National Roads Authority before this committee on these same issues and now we discover that there are three other local authorities involved. The committee takes a very serious view of this. We talked earlier about managers going to councils for retrospective sanction and the danger of that. That assumes managers can be relied upon to have absolutely proper reports, certification and controls in place. It is manifest that this is not the case, at least in a number of authorities.

The National Roads Authority has been paying out these sums without checking. It had inadequate controls. How has it been possible for local authorities to pull the wool over your eyes with such ease?

Mr. Tobin

I would make two points in relation to that. The first repeats a point made by the Secretary General of the Department on the last occasion when this matter was touched upon which is that the authority has to perceive itself in this area as being part of a broader mechanism of control or system of control over the operations of local authorities, which includes the local government audit system; in the case of European co-financed projects, the EU Commission and Court of Auditors; a proposed audit unit which is being set up in the Department of the Environment and Local Government and the internal audit functions of local authorities.

Clearly, there are limitations on the extent to which we, with our resources can check every individual return coming to us. We have felt entitled to accept at face value the certification of senior officials within local authorities.

Chairman

You trusted them and your trust has been betrayed in a number of cases.

Mr. Tobin

One could make that point. We were entitled to accept the returns subject to a certain limited amount of checks which we have within the resources available.

Chairman

Mr. Farrelly, do you accept that this a serious situation?

Mr. Farrelly

As I said previously, the Department has made it clear since this first arose, that breaches of the grant conditions are matters of the utmost seriousness. Reflecting that, I wrote to city and county managers stating that the practices involved were totally unacceptable and I reinforced that in subsequent discussions with managers.

Chairman

I know.

Mr. Farrelly

We have been in regular contact with the NRA. I do not wish to repeat everything.

Chairman

If there is wrongdoing involved, has anybody been disciplined, sacked or demoted?

Mr. Farrelly

Nobody has been sacked or demoted.

Chairman

It is the old story.

Mr. Farrelly

In the final analysis, there has been no loss of public funds. The certificates have not complied with the requirements of our national road grant procedures.

Chairman

We hear cases of falsified certificates. We have had collusion with notional contractors to produce invoices for work that had not been done. Apart from the fact that false certificates were issued in the case of Cork County Council, they actually colluded with prospective contractors to produce invoices before any work was done which put them at an advantage compared to those contractors for subsequent work - those contractors then had a certain leverage of the county council officials with whom they conspired. Do you not see the gravity of that situation?

Mr. Farrelly

I see the seriousness of the matter. With the support of the committee, I am reasonably satisfied that I have been able to get a very effective message through the system which has been taken on board. I appreciate the support of everybody in this regard. As far as I am concerned the practice is totally unacceptable. Looking back, we can see certain procedures, checks and additional work which should have been put in place. In my view, this sort of practice has stopped.

Chairman

There is fraudulent practice involved, for which nobody has been penalised. The committee has a duty to go further. We cannot allow the practice, whereby if people are caught out, all they have to do is apologise. It is more than a case of inadequate procedures. This is a constant feature facing this committee. Wrongdoing in the public service seldom ends up with personal consequences for those wrongdoers. In any other field there would be severe penalties. It is totally unsatisfactory. I believe the committee has a duty to do something more in this case. Are there any other views on this?

Deputy Ardagh

I am astonished at the extent of this. We considered the Cork case, which the former county manager and the committee went through in detail. This type of procedure appears nearly endemic throughout the whole local authority system. When one considers the number of persons that must have been involved it is staggering. Obviously there were engineers, administrators and contractors in all of those areas who knew that they were not doing the right thing - in fact doing wrong. Recently grave disquiet has arisen over the administration of the Judiciary and the administration of law. Now we are looking at the administration of the local authority system being brought into total disrespect by the actions of a huge number of people.

The facts must be brought out fully. While I do not want to blame anybody, it is necessary to have the full facts in order to know what exactly happened. This should be done publicly to show the public that the administration is now working well and that the thousands of employees in the local authority system know that they are doing a good, honourable job and administering their work in a proper manner. I agree with you, Chairman, that a format must be devised through which the facts of this matter can be made public. I am absolutely astounded about this.

I am concerned about the local government auditors and the internal local authority auditors in terms of how this was so prevalent in many local authorities and the fact that it was not picked up or, if it was, it was not recognised as serious or a blind eye was turned to it. Questions must be answered and facts garnered. It is a hugely serious matter and the committee must consider what action it will take on it.

Mr. Meade

The local government auditor in Cork County Council, in his report on the 1993 accounts, commented on the practice of the council drawing down money when the work had not been completed. There was also one other local body where the auditor felt that practice was there but, on investigation, found that it was not as serious. The local government auditor in Cork County Council had alerted us to this problem and after that the NRA carried out a more detailed investigation. I suppose it is fair to say that with any audit - anybody in the auditing business will know this - you cannot get out every little bit which goes wrong, but in the overall system, if it is worked properly, the people whom you expect to be responsible for certifying payments should do their job.

Where the NRA and the Department of the Environment and Local Government have relied on that, it has served them well, otherwise they would have to vet and monitor every payment that is made. When the system works well it is extremely good and efficient but when it does not, in a few instances, it shows what can go wrong. To be fair to the Department and the NRA, where it went wrong they took fairly strict action. The procedures they have put in place together with extra resources and an extra bit of bureaucracy, which was necessary, should add to the overall controls. On the local government audit side, they had referred to this in two authorities. Some of these, particularly in Tipperary (North Riding) County Council and Tipperary (South Riding) County Council, arose in 1998 when the accounts would not have been audited, when the NRA started its own investigation after asking each body to look at their accounts.

Deputy Ardagh

That means that it was not discovered or reported by a number of local authorities. It also questions the entire method of the independence of the internal audit function. These questions must be answered.

Mr. Meade

I re-emphasise that both the local government auditors and ourselves have over the years drawn attention to the inadequate level of internal audit both in the wider public service and, in particular, in the local authorities. That is being addressed slowly under the new financial management procedures which are being put in, but in many local authorities there was not an adequate internal audit service. Again, that is another deficiency which has been highlighted over the past few years.

Deputy Ardagh

Mr. Tobin suggested that there was no loss to public funds but in the recent case there was no personal gain, yet three people resigned over the matter. There is a need not to look for resignations but to fully investigate this matter and put the facts in the public domain.

Chairman

Resignations are called for in this case at a high level in local authorities.

Deputy Durkan

Having watched local government evolve over recent years since I was first involved in it I wonder has any audit been carried out of the efficiency of the system to ensure that good value for money was achieved? For example, a number of amendments have been made to various Acts affecting local government in recent years and there here have been changes in respect of the tenure of various officials at certain levels on local authorities, for instance, county managers and secretaries, etc., and contracts have emerged. What does the Department and the NRA think about this?

I have always felt that the movement towards contracts in this case was a backward step because there is no commitment; it is part of a career. There is no commitment to the relevant local authority, nor can there be, because it is not fair to expect the individual to commit himself or herself to seven years and no more given that there is no guarantee that their contracts would be renewed. Therefore, they would be foolish to commit themselves. To what extent has there been an examination of the efficiency of local government since the introduction of that legislation? I recognise that efficiency should be determined by the ability of the local authority to be transparent, accountable and responsive to the community and not the Department.

Mr. Farrelly

As I have given details to the committee previously, we have had a number of value for money audits carried out on different aspects and we have developed that system. Value for money audits will continue to be carried out in the future and to be a feature. The other issue touched on was the audit function generally. There is little positive which one can gain from this but the one positive aspect I conclude from it is that in general, notwithstanding that some of what happened may have been difficult to detect, they were detected on audit by the local government audit system. We see the same in the case of south Tipperary, it is clearly reported in the local government auditor's report in the year in question. There is not much joy in it but it is after the event. The audit system is working, but that is not to say it will always pick up everything that is wrong; it cannot.

As regards the internal audit function within local authorities, that is something I have spoken about. We continue to draw the attention of local authorities to the need to have a proper internal audit system. All counties and county boroughs should have properly developed and resourced internal audit functions and most local authorities now have these. The latest information is that there are four or five authorities at most which do not have fully developed internal audit functions.

On the question of efficiency, it slots into the broader context of the entire reform package for local government, starting with the financial aspect that has been developed but going on to all other activities which are ongoing. In other words, a process has started and that involves looking at the management structures of local authorities. I do not want to get involved in that here in terms of the package we had on that. There are industrial relations problems with it and they have not been resolved. As the committee is aware, we were getting down to policy committees within local authorities, with managers responsible for different areas reporting to the manager and a different, more professional approach with more clearly outlined responsibilities. The process of change is there; it will take time but it is happening.

Deputy Durkan

Very slowly. Have there been any instances in the past few years of unspent funds being returned by local authorities in respect of particular headings, for example, housing?

Mr. Farrelly

There will always be cases where allocations will not be spent by local authorities.

Deputy Durkan

In housing?

Mr. Farrelly

Yes, in housing.

Deputy Durkan

In the past few years?

Mr. Farrelly

Allocations would be made to local authorities which are not drawn down within the year.

Chairman

They are not drawn down, but the Deputy is talking about cases of money being paid to local authorities which they had to return. Are there any precedents in that regard?

Mr. Farrelly

No.

Deputy Durkan

The point I am trying to make is that in the past few years there has been much emphasis on housing. That is what the Minister tells us every time we ask him. I realise Mr. Farrelly is not responsible for the Minister, and vice versa, but I want clarification on one matter. It would be ironic, given the housing crisis, if funds are not currently drawn down. Surely that is not the case.

Mr. Farrelly

In managing allocations, we carry out a review operation at certain stages in the course of the year. If we find a local authority will have difficulty spending its money, we will re-allocate it. That way the money is spent. While the total funds available, for housing or whatever, will be spent, it does not necessarily mean it will be spent in accordance with the original allocation on 1 January, the end of February or whenever.

Mr. Durkan

That solves Mr. Farrelly's problem, but the nub of the problem is housing. Mr. Farrelly says they decide a particular council cannot spend its allocation but why is it unable to spend it? Does Mr. Farrelly contact the council to find out why the money was not spent? Does he make inquiries as to what type of pre-planning was carried out? Does he have regard to its ability to spend money in that year? What is the follow-up if the council does not do that given the enormous emphasis, according to the Department, placed on housing?

Mr. Farrelly

In making allocations we certainly put local authorities through their paces to justify the need for money, that it is allocated on a priority basis and that they have the ability to spend it. With the best will in the world, situations arise, possibly for planning or land acquisition reasons, and things do not happen as they were intended during the course of the year.

Mr. Durkan

That is supposed to be known at the beginning of the year.

Chairman

We have to distinguish between that sort of administrative matter and false certification and prima facie fraud.

Mr. Durkan

This can also lead to the inefficient operation of a local authority and potential loss of revenue.

Chairman

I accept that.

Mr. Durkan

I am not getting an answer to the question. The Secretary General says it would depend on planning permission and other matters, but these issues should be available to the Department on the day the allocation is made. If the local authority in question subsequently does not draw down the money, questions need to be asked. Are we dealing with the problem?

Mr. Farrelly

It is fine to say these matters should be available to the Department, but in making allocations we make a reasonable projection on the extent to which a local authority will acquire land for the purpose of carrying out a particular scheme. If we were to operate otherwise we would, in effect, bar certain works from being carried out in the current year on the basis that everything was not agreed. We take a view on that but our view might not always work out.

Mr. Durkan

At future meetings, Chairman, can we have reports from the Department outlining the number of housing authorities which fail to draw down their allocations at a particular time. Perhaps we could also be given the number of people on their waiting lists and information on whether they owned or had access to a land bank at the time. Perhaps we could have that in a written submission.

Chairman

We will write to the Secretary General on that issue so that we are clear about what we are requesting. We will ask for a response within a number of weeks. I want to focus on this issue because we have officials from another Department present.

The National Roads Authority has been remiss in its controls in this case. I am glad to hear of the improvements in controls that have been introduced and I hope they were effective. On the other hand, I understand the National Roads Authority would have reason to trust the certification sent to it by senior local authority officials. It is a matter of great regret to this committee that such trust has been breached on so many occasions.

Because of the gravity of this situation and the fact that penalties have not been imposed on any individual wrongdoers, I propose to bring before the committee next week a written report which will include a proposal for consideration by the committee that we refer the papers in this case to the Garda Commissioner for investigation. I have already discussed this matter with the Garda Commissioner because I do not believe we can let instances of falsification and possible fraud go unchecked without penalty. The committee will have that report initially in writing because of the gravity of this matter and the fact that creates a precedent for this committee. We have to proceed carefully but at the same time we cannot allow the situation to go unchecked.

In relation to the Department of the Environment and Local Government, I propose that we note the accounts. I thank the Secretary General for his responses to us. In respect of the National Roads Authority, we will note the accounts but consider them further in respect of the report I have already mentioned. Clearly, we will need to keep a close watch on the whole question of false certification by local authorities and we may return to it early in October.

I am given to understand that the 1997 accounts of the National Roads Authority have not yet been tabled, although the Comptroller and Auditor General certified them, as far as I know, in February. Does anyone know where the 1997 accounts of the National Roads Authority are?

Mr. Tobin

I cannot recall the exact date off the top of my head but you are right, Chairman, that the Comptroller and Auditor General has certified the 1997 accounts. In practical terms we are in the process of arranging for the printing of our annual report incorporating those accounts but I have to defer to the Secretary General in terms of the logistics of them coming to your committee.

Chairman

Mr. Meade, do you know the position?

Mr. Meade

They were certified by the Comptroller and Auditor General on 22 February 1999.

Chairman

That was two months ago, and there is normally a three months timespan to savour them. That is 14 months after the end of the financial year. Why should it take that long? This will be tabled in the next few weeks so that we can examine that report.

Mr. Tobin

From our position, we will be required to pass the relevant documentation to the Department and beyond that I have to admit I am not entirely sure of the logistics.

Chairman

Has the Department received the report yet?

Mr. Farrelly

It is not printed. We have not received it and I can assure you once we receive them, they will be passed on forthwith.

Chairman

Is that agreed by the committee? It is agreed that a written report will be brought forward next week which will include a proposal to refer the papers to the Garda Commissioner for further investigation to see if any prosecutions would be justified in his opinion. l discharge the witnesses and thank them.

The witnesses withdrew.